DOMINO’S PIZZA ENTERPRISES LIMITED - ACN 010 489 326 - ANNUAL FINANCIAL REPORT FOR THE FINANCIAL YEAR ENDED 29 JUNE 2014
GROUP HIGHLIGHTS
2012
UNDERLYING
$ MIL
2013
UNDERLYING
$ MIL
2014
STATUTORY
$ MIL
SIGNIFICANT
CHARGES(1)
$ MIL
2014
UNDERLYING
$ MIL
+/(-) 2013
UNDERLYING
47.2%
99.6%
70.0%
69.7%
70.1%
506.9%
66.0%
80.2%
60.2%
50.4%
31.6%
18.8%
NETWORK SALES
Revenue
EBITDA
Depreciation & amortisation
EBIT
Interest
NPBT
Tax
NPAT BEFORE MINORITY INTEREST
Minority Interest
NPAT
EARNINGS PER SHARE (BASIC)(2)
DIVIDENDS PER SHARE
KEY OPERATING DATA
NETWORK SALES GROWTH %
REVENUE GROWTH %
EBITDA GROWTH %
EBITDA MARGIN %
EBIT MARGIN %
Franchised stores
Corporate stores
TOTAL NETWORK STORES
Corporate store %
805.3
264.9
48.1
(10.0)
38.1
(0.5)
37.6
(10.7)
26.9
0.0
26.9
37.2
27.1
7.9%
7.4%
23.1%
18.2%
14.4%
796
112
908
848.6
294.9
55.9
(12.8)
43.1
(0.4)
42.7
(12.3)
30.4
0.0
30.4
41.5
30.9
5.4%
11.3%
16.2%
19.0%
14.6%
831
139
970
12.3%
14.3%
1,249.3
1,249.3
4.3
4.3
4.3
(0.9)
3.5
588.7
90.7
(21.7)
69.0
(2.5)
66.6
(21.3)
45.3
(3.0)
42.3
50.5
36.7
588.7
95.1
(21.7)
73.4
(2.5)
70.9
(22.2)
48.7
(3.0)
45.8
54.6
36.7
47.2%
99.6%
70.1%
16.2%
12.5%
974
359
1,333
26.9%
The above table has not been audited. We note that the above 2012 figures have not been adjusted for any significant charges and therefore equal the statutory result.
(1) Underlying profit is the Statutory profit contained in the Appendix 4E of the Domino’s FY14 Annual Report adjusted for significant items specific to the 2014 Financial Year. The Statutory profit in both 2013 and
2014 years have been adjusted for Significant items. Significant charges for FY14 included transaction, acquisition and additional legal charges relating to acquisition activity, Japan market research costs post
acquisition and costs associated with Europe management restructure.
(2) The EPS has been adjusted and restated to reflect the capital raising in FY14
SIGNIFICANT CHARGES
NPAT IMPACT $’000
2,271
399
781
3,451
Domino’s Japan Acquisition
Japan Market Research Costs
Europe Restructuring Costs
TOTAL NPAT IMPACT
2
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED
CORPORATE GOVERNANCE STATEMENT
OVERVIEW
Corporate Governance is an important matter to Domino’s Pizza Enterprises Limited (“DPE Limited” or the “Company”) and the Board of Directors (the
“Board”). The Board endorses the 2nd edition of the Australian Securities Exchange (“ASX”) Corporate Governance Council’s Corporate Governance
Principles and Recommendations with 2010 Amendments (“ASX Principles”) originally issued by the ASX Corporate Governance Council in August 2007.
Set out below is a table describing the various ASX Principles and statements as to the Company’s compliance or otherwise with them. Terms used in the
table have the meanings given to them in the ASX Principles unless otherwise defined.
Principle No. Best practice recommendation
Principle 1 – Lay solid foundations for management and oversight
Compliance
Reason for
non-compliance
1.1
1.2
1.3
Establish the functions reserved to the Board and those delegated to senior executives
and disclose these functions.
Refer to page 5
Not applicable
Disclose the process for evaluating the performance of senior executives.
Refer to page 9 and 14
Not applicable
Provide the information in the Guide to reporting on Principle 1.
Refer to page 5, 9 & 14
Not applicable
Principle 2 – Structure the Board to add value
2.1
2.2
2.3
2.4
2.5
2.6
A majority of the Board should be independent directors.
The Chair should be an independent director.
The roles of the Chair and Chief Executive Officer should not be exercised by the same
individual.
The Board should establish a nomination committee.
Disclose the process for evaluating the performance of the Board, its committees and
individual directors.
Refer to page 5
Refer to page 5
Refer to page 5
Refer to page 6
Refer to page 9
Not applicable
Refer to page 5
Not applicable
Not applicable
Not applicable
Provide the information in the Guide to reporting on Principle 2.
Refer to page 5, 6 & 9
Not applicable
Principle 3 – Promote ethical and responsible decision-making
3.1
Establish a code of conduct and disclose the code or summary of the code as to:
Refer to page 7
Not applicable
• the practices necessary to maintain confidence in the Company’s integrity
• the practices necessary to take into account their legal obligations and the reasonable
expectations of their stakeholders
• the responsibility and accountability of individuals for reporting and investigating
reports of unethical practices.
3.2
3.3
3.4
3.5
Establish a policy concerning diversity and disclose the policy or a summary of that
policy.
Refer to page 7
Not applicable
Disclose in each Annual Report the measurable objectives for achieving gender diversity
set by the Board in accordance with the Diversity Policy and progress towards achieving
them.
Refer to page 7
Not applicable
Disclose in each Annual Report the proportion of women employees in the whole
organisation, women in senior executive positions and women on the Board.
Refer to page 7
Not applicable
Provide the information in the Guide to reporting on Principle 3.
Refer to page 7 & 8
Not applicable
Principle 4 – Safeguard integrity in financial reporting
4.1
4.2
4.3
4.4
The Board should establish an audit committee.
The audit committee should be structured so that it:
• consists only of non-executive directors
• consists of a majority of independent directors
• is chaired by an independent Chair, who is not Chair of the Board
• has at least three members.
The audit committee should have a formal Charter.
Provide the information in the Guide to reporting on Principle 4.
Refer to page 6
Refer to page 6
Not applicable
Not applicable
Refer to page 6
Refer to page 6
Not applicable
Not applicable
3
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED Compliance
Reason for
non-compliance
Refer to page 8
Not applicable
Principle No. Best practice recommendation
Principle 5 – Make timely and balanced disclosure
Establish written procedures designed to ensure compliance with ASX Listing Rule
disclosure requirements and to ensure accountability at a senior executive level for that
compliance and disclose those policies or a summary of those policies.
5.1
5.2
Provide the information in the Guide to reporting on Principle 5.
Refer to page 8
Not applicable
Principle 6 – Respect the rights of shareholders
6.1
Design a communication policy for promoting effective communication with shareholders
and encouraging their participation at general meetings and disclose their policy or a
summary of that policy.
Refer to page 8
Not applicable
6.2
Provide the information in the Guide to reporting on Principle 6.
Refer to page 8
Not applicable
Principle 7 – Recognise and manage risk
7.1
7.2
7.3
Establish policies for the oversight and management of material business risks and
disclose a summary of those policies.
Refer to page 9
Not applicable
The Board should require management to design and implement the risk management
and internal control system to manage the Company’s material business risks and
report to it on whether those risks are being managed effectively. The Board should
disclose that management has reported to it as to the effectiveness of the Company’s
management of its material business risks.
The Board should disclose whether it has received assurance from the Chief Executive
Officer (or equivalent) and the Chief Financial Officer (or equivalent) that the declaration
provided in accordance with section 295A of the Corporations Act is founded on a
sound system of risk management and internal control and that the system is operating
effectively in all material respects in relation to financial reporting risks.
Refer to page 9
Not applicable
The Board has received
the declaration
Not applicable
7.4
Provide the information in the Guide to reporting on Principle 7.
Refer to page 9
Not applicable
Principle 8 – Remunerate fairly and responsibly
The Board should establish a remuneration committee.
The remuneration committee should be structured so that it:
- consists of a majority of independent directors
- is chaired by an independent Chair
- has at least three members.
Refer to page 6
Not applicable
Refer to page 6, 14 & 15
Not applicable
Clearly distinguish the structure of non-executive directors’ remuneration from that of
executive directors and senior executives.
Refer to page 14 & 15
Not applicable
Provide the information in the Guide to reporting on Principle 8.
Refer to page 6, 14 & 15
Not applicable
8.1
8.2
8.3
8.4
4
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDCORPORATE GOVERNANCE STATEMENT CONTINUED The Board has adopted a Corporate Governance
Charter, a Code of Conduct for Directors and
Officers, a comprehensive set of Board policies
regarding: Independence and Conflicts of
Interest, Risk Management, Board Performance
Evaluation, Chief Executive Officer Performance
Evaluation, Continuous Disclosure, Diversity,
External Communications and Securities Trading
and an Audit Committee Charter to assist in
the discharge of its Corporate Governance
responsibilities. Copies are available from
the Company’s registered office or may be
downloaded from the Company’s website under
the investor section.
The Board has in place Corporate Governance
practices that it considers to be the most
appropriate for DPE Limited. The Board also
recognises that Corporate Governance is not a
static matter, and needs reviewing regularly as
DPE Limited evolves. This statement describes
the main Corporate Governance practices in
place during the year.
ROLE OF THE BOARD
The Board is responsible for guiding and
monitoring DPE Limited on behalf of
shareholders. While at all times the Board
retains full responsibility, in discharging its
stewardship it makes use of committees.
Specialist committees are able to focus on a
particular responsibility and provide informed
feedback to the Board. The Board seeks to
identify the expectations of shareholders, as
well as other regulatory obligations. In addition,
the Board is also responsible for identifying
areas of significant business risk and ensuring
arrangements are in place to adequately manage
those risks.
The Board is responsible, and primarily
accountable to the shareholders, for the effective
Corporate Governance of the Company. The
Board is responsible for directing management
to optimise the Company’s performance and
increase shareholder wealth by:
• providing strategic direction and approving the
annual operating budget;
• appointing and appraising the Managing
Director/Chief Executive Officer, ensuring that
there are adequate plans and procedures for
succession planning;
• ensuring a clear relationship between
performance and executive directors’ and
executives’ compensation;
• ensuring that the performance of senior
executives (including executive directors) is
monitored and evaluated;
• approving and monitoring major capital
expenditure programs;
• monitoring the operating and financial
performance of the Company;
• overseeing the Company and developing key
Company policies, including its control and
accountability systems;
• ensuring compliance with laws, regulations,
appropriate accounting standards and
corporate policies (including the Code of
Conduct);
• ensuring that the market and shareholders are
fully informed of material developments; and
• recognising the legitimate interests of
stakeholders.
Those matters not specifically reserved for the
Board are the responsibility of management,
but are subject to oversight by the Board. The
Corporate Governance of the Company is carried
out through delegation of appropriate authority
to the Chief Executive Officer and, through the
Chief Executive Officer, to management of the
Company.
Letters of appointment
Directors receive formal letters of appointment
setting out the key terms, conditions and
expectations of their appointment. The Managing
Director/Chief Executive Officer’s responsibilities
and terms of employment, including termination
entitlements, are also set out in an executive
service agreement. Executive service agreements
are also prepared for the key management
personnel, covering duties, time commitments,
induction and the Corporate Governance
Framework.
Board Meetings
The Board held 17 formal meetings during
the year. Attendance at the 2014 Board and
Committee meetings is detailed on page 13 of the
Annual Report.
CRITERIA FOR BOARD MEMBERSHIP
For directors appointed by the Board, the Board
will consider the range of skills and experience
required in light of:
• the strategic direction and progress of the
Company;
• the current composition of the Board; and
• the need for independence.
A director appointed by the Board must stand
for election at the next Annual General Meeting
(“AGM”). Apart from the Managing Director, all
directors are subject to re-election by rotation at
least once every three years.
STRUCTURE OF THE BOARD
At the date of this report the Board comprises six
directors and includes:
• four independent non-executive directors,
• one non-executive director (Chairman), and
• one executive director.
Chairman of the Board is Mr Jack Cowin and
DPE Limited’s Managing Director/Chief Executive
Officer is Mr Don Meij. Board members’
respective qualifications, skills, experience
and dates of appointment are detailed on the
Corporate Directory page of the Annual Report.
The compensation paid to DPE Limited’s
directors for the year ended 29 June 2014
is set out in the Remuneration Report on
pages 14 to 21.
Independence of Directors
The Board comprises a majority of independent
non-executive directors who, together
with the executive director, have extensive
commercial experience and bring independence,
accountability and judgement to the Board’s
deliberations to ensure maximum benefit to
shareholders and employees.
At each Board meeting the Board requires
each independent director to disclose any new
information which could, or could reasonably be
perceived to, impair the director’s independence.
In devising its policy on independence, the
Board’s emphasis is to encourage independent
judgement amongst all directors, at all times,
irrespective of their background. Nonetheless,
the Board in its nominations capacity will assess
annually the ‘independence’ of each director in
light of the ASX Principles.
Mr Cowin does not satisfy one of the criteria
under the ASX Principles to be considered
independent because of his relationship with
the major shareholder, Somad Holdings Pty
Ltd, which is the trustee of a trust for the
benefit of Mr Cowin’s adult children. Mr Cowin
does not control the trust, however, the family
relationship with the ultimate trust beneficiaries
may be perceived as impacting on Mr Cowin’s
independence.
The Board (excluding Mr Cowin due to his
personal interest) unanimously considers that
the benefits of Mr Cowin’s involvement as a
director and Chairman, significantly outweighs
non-compliance with this aspect of the ASX
Principles. Mr Cowin has extensive food
retailing and corporate governance experience
and makes an invaluable contribution to the
Company.
Independent Advice
To enable DPE Limited’s Board and its
committees to fulfil their roles, it is considered
appropriate that independent experts’ advice
may be obtained at DPE Limited’s expense, after
first indicating to the Chairman the nature of the
advice to be sought and the party from whom
the advice is to be sought. The Chairman will
ensure that the party from whom the advice is
to be sought has no conflict with DPE Limited in
providing that advice.
5
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED • reviewing the Company’s full year ASX
Appendix 4E, Annual Report and half-year
Appendix 4D, prior to submission to the Board.
ROTATION OF THE EXTERNAL AUDIT
ENGAGEMENT PARTNERS
The Corporations Act 2001 has introduced a
five year rotation requirement for audit partners.
DPE Limited’s external auditor, Deloitte Touche
Tohmatsu has an internal policy which is
consistent with this requirement.
Independence of the external auditors
The Committee will consider annually any
non-audit services provided by the external
auditors to determine whether the provision of
those non-audit services is compatible with the
independence of the external auditors. Policies
are in place to restrict the type of non-audit
services which can be provided by the external
auditors.
Internal audit
Ernst & Young has been engaged to undertake,
on a periodic basis, an independent and
objective internal audit review function charged
with evaluating, testing and reporting on the
adequacy and effectiveness of management’s
control of operational risk. The internal auditors
provide reports to the Audit Committee.
Chief Executive Officer and Chief Financial
Officer sign-off to the Board in respect of DPE
Limited’s financial statements
The sign-off required from the Chief Executive
Officer (“CEO”) and Chief Financial Officer
(“CFO”) that DPE Limited’s financial statements
present a true and fair view, in all material
respects, of DPE Limited’s financial condition
and operational results in accordance with the
relevant Accounting Standards, is contained
within the representations required as part of
Recommendation 7.2 of the ASX Principles.
The experience and qualifications of
members of the Audit Committee are set out
in Corporate Directory section of the Annual
Report. Membership of and attendance at
2014 Committee meetings are detailed in the
Directors’ Report on page 13.
Re-election of Directors
In accordance with DPE Limited’s Constitution,
at each AGM of DPE Limited, one third of the
directors (excluding the Managing Director) must
stand for re-election. If their number is not three
or a multiple of three, then the number nearest
but not exceeding one third must stand for re-
election. The directors to retire in every year are
those who have been longest in office since their
last election and, as between directors appointed
on the same day, must (unless otherwise agreed
between themselves) be determined by lot. In
addition, no director other than the Managing
Director may hold office for more than three years
without standing for re-election, and any director
appointed by the Board since the last AGM must
stand for re-election at the next AGM. All retiring
directors are eligible for re-election.
Board Committees
The Board has established a number of
committees to assist in the execution of its
responsibilities. The following committees were in
place at the date of this report:
• Nomination and Remuneration Committee, and
• Audit Committee.
Details of these committees are discussed below.
NOMINATION AND
REMUNERATION COMMITTEE
The Board has established the Nomination and
Remuneration Committee, which comprises the
entire Board. From 1 July 2014, the CEO is no
longer a member of this committee.
The principal responsibilities of the Committee
are:
• advising the Board on directorship
appointments, with particular attention to the
mix of skills, experience and independence;
• ensuring fulfilment of the Board’s policies on
Board composition;
• developing Board succession plans;
• reviewing and making recommendations on the
appropriate compensation of directors;
• ensuring that equity-based executive
compensation is paid in accordance
with thresholds set in plans approved by
shareholders; and
• ensuring disclosure of the information required
in each Annual Report of the Company.
The Company’s compensation policy links the
nature and amount of executive directors’ and
key management personnel’s emoluments
to the Company’s financial and operational
performance.
Further details of the Nomination and
Remuneration Committee are included in the
Remuneration Report on pages 14 to 21.
Membership of and attendance at the 2014
Committee meetings are detailed in the Directors’
Report on page 13.
6
AUDIT COMMITTEE
DPE Limited has a Board convened Audit
Committee which:
• is comprised entirely of non-executive
independent directors of DPE Limited; and
• has a Chairman, who is not Chairman
of the Board of DPE Limited.
Committee Charter
The Committee has a Charter to govern its
operations. The Charter is reviewed every two
years, and, if appropriate, updated by the Board
on recommendation from the Audit Committee.
Membership of the Committee
Committee members are appointed by the Board.
Under the Committee’s Charter, members will
have a range of diverse and yet complementary
skills and will be financially literate.
Purpose of the Committee
The role of the Audit Committee is to assist the
Board in discharging its obligations with respect
to ensuring:
• accurate and reliable financial information
prepared for use by the Board; and
• the integrity of the Company’s internal controls
affecting the preparation and provision of that
financial information in determining policies
or for inclusion in the financial statements.
In carrying out these functions, the Committee
maintains unobstructed lines of communication
between the Committee, the internal auditors,
the external auditors, and DPE Limited’s
management.
Duties and Responsibilities of the Committee
The Committee advises the Board on all aspects
of internal and external audit, the adequacy of
accounting and risk management procedures,
systems, control and financial reporting. Specific
responsibilities include:
• recommending to the Board the appointment,
re-appointment and removal of external
auditors;
• monitoring the independence of the external
auditors;
• recommending and supervising the
engagement of the external auditors and
monitoring auditor performance;
• reviewing the effectiveness of management
information and other systems of internal
control;
• reviewing all areas of significant financial risk
and arrangements in place to contain those to
acceptable levels;
• reviewing significant transactions that are not
a normal part of the Company’s business;
• monitoring the internal controls and
accounting compliance with the Corporations
Act 2001, ASX Listing Rules, reviewing
external audit reports and ensuring prompt
remedial action; and
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDCORPORATE GOVERNANCE STATEMENT CONTINUED CODE OF CONDUCT FOR DPE LIMITED DIRECTORS
The Board has a formal Directors’ Code of Conduct which sets the standards to which each director, the Company Secretary and all executives will adhere
whilst conducting their duties. The Code requires a director, amongst other things, to:
• act honestly, in good faith and in the best interests of the Company as a whole;
• perform the functions of office and exercise the powers attached to that office with a degree of care and diligence that a reasonable person would
exercise if they were a director in the same circumstances; and
• consider matters before the Board having regard to any possible personal interests, the amount of information appropriate to properly consider the
subject matter and what is in the best interests of the Company.
All directors and officers of the Company must, as far as possible, act with the utmost integrity and objectivity, striving at all times to enhance the
reputation and performance of the Company, and where possible, to act in accordance with the interests of the shareholders, staff, clients and all other
stakeholders in the Company.
DIVERSITY POLICY
Diversity is an important aspect of the Company’s success. DPE Limited has adopted a Diversity Policy which aims to ensure that:
• employment decisions are transparent, equitable and fair;
• a safe and supportive workplace is provided in which differences are valued and respected;
• recruitment decisions take account of the diversity of the community; and
• employees have the ability to contribute and access opportunities based on merit.
In accordance with its Diversity Policy, the Board has adopted measurable objectives for achieving gender diversity in Australia. Those measurable
objectives, and the performance against those objectives for the 2014 financial year, are outlined in the following table:
OBJECTIVE
Maintain a fair and balanced level of
participation by women in Corporate
Services (ii).
INITIATIVES TO FACILITATE
ACHIEVEMENT OF THE OBJECTIVE
A diversity support program has been initiated by
DPE Limited.
Maintain a balanced level of participation by
women as in-store staff.
As part of the program equal employment
treatment is to be given without regard to gender.
STATUS OF THE OBJECTIVE(i)
Ongoing – as at 29 June 2014,
46% of the Corporate Services staff were
women.
Ongoing – as at 29 June 2014,
48% of the in-store staff were women and
12% of delivery drivers were women.
Increase the level of participation by women in
management at regional and store level.
Under the diversity support program, equal
treatment is to be given in training and promotion.
Ongoing – as at 29 June 2014, the following
proportions of women are in management:
• State Managers – 33%;
• Regional Managers – 29%; and
• Store Managers – 27%
Achieve a high parental leave return rate.
The Company has implemented a parental leave
policy for full and part-time employees in Corporate
Services.
Ongoing – For the year ending
29 June 2014, the Company achieved a 100%
parental leave return rate.
(i)
(ii)
The statistics are in respect of Australia only.
Corporate Services means staff working at the Company’s Australian head office.
The following table shows the proportional representation of men and women at various levels within the Company’s Australian workforce in 2014:
ROLE
Non-executive directors
Senior executives
Other
Total in the whole organisation
WOMEN (%)
Nil
10%
26%
26%
7
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED WORKPLACE GENDER EQUALITY
The Workplace Gender Equality Act 2012 (the
WGE Act) puts a focus on promoting and
improving gender equality and outcomes for
both women and men in the workplace. All
non-public sector employers with 100 or more
employees are required to report annually under
the WGE Act.
The Company has submitted its 2014 report
to the Workplace Gender Equality Agency.
A copy of this report can be found in the
Investors section of the Company’s website
www.dominos.com.au/corporate/investors/
workplace-gender-equality).
SECURITIES TRADING POLICY
The Company has adopted a policy that imposes
certain restrictions on officers, employees
and franchisees trading in the securities of the
Company. The restrictions have been imposed to
prevent inadvertent contraventions of the insider
trading provisions of the Corporations Act 2001.
The key aspects of the policy are:
• trading whilst in the possession of material
price-sensitive information is prohibited;
• trading is permitted without approval in the
three week period after the release to the ASX
of the half-yearly and annual results, the end
of the AGM or at any time the Company has
a prospectus open, but only if they have no
inside information and the trading is not for
short-term or speculative gain; and
• trading in other circumstances is only
permitted if the person is personally
satisfied that they are not in possession of
inside information and they have obtained
approval. Permission will be given for
such trading only if the approving person
is satisfied that the transaction would not
be contrary to law, for speculative gain or
to take advantage of inside information.
DPE Limited’s price-sensitive information is
information which a reasonable person would
expect to have a material effect on the price or
value of DPE Limited’s securities.
8
CONTINUOUS DISCLOSURE POLICY
The Company has adopted a Continuous
Disclosure policy so as to comply with its
continuous disclosure obligations. The policy
aims to:
• assess new information and co-ordinate any
disclosure or releases to the ASX, or any
advice required in relation to that information,
in a timely manner;
• provide an audit trail of the decisions
regarding disclosure to substantiate
compliance with the Company’s continuous
disclosure obligations; and
• ensure that employees, consultants,
associated entities and advisers of the
Company understand the obligations
to bring material information to the
attention of the Company Secretary.
Accountabilities and responsibilities
For administrative convenience, DPE Limited
has nominated the Company Secretary as the
person responsible for communications with the
ASX. In addition, the Company Secretary has
responsibility for overseeing and co-ordinating
disclosure of information to the ASX and
communicating with the CEO and CFO in relation
to continuous disclosure matters. The Company
Secretary and CFO are also responsible for
overseeing and co-ordinating disclosure of
information to the media and to analysts,
brokers and shareholders and communicating
with the Board in relation to continuous
disclosure matters.
Disclosure principle
In order to ensure DPE Limited meets its
obligations of timely disclosure of such
information, DPE Limited adheres to the
following practice:
• immediate notification to the ASX of
information concerning DPE Limited that
a reasonable person would expect to have
a material effect on the price or value of
DPE Limited’s securities as prescribed
under Listing Rule 3.1, except where
such information is not required to be
disclosed in accordance with the exception
provisions of the ASX Listing Rules.
External communications
Under this Policy, only those DPE Limited
employees who have been authorised by the
Chairman or CEO can speak on behalf of the
Company to the media, analysts or investors.
DPE Limited will not disclose price-sensitive
information to any investor or analyst before
formally disclosing the information to the
market.
Release of briefing materials/media releases
All draft DPE Limited media releases and
external presentations are reviewed by senior
management to determine if they are subject
to the continuous disclosure requirements. The
purpose of that review is to ensure:
• the factual accuracy of any information;
• there is no material omission of information;
and
• that the information will be
disclosed in a timely manner.
As a result of that review, any written material
containing price-sensitive information to be
used in briefing media, institutional investors or
analysts, must be lodged with the ASX prior to the
brief commencing. As soon as practicable after
confirmation of receipt by the ASX, the briefing
material is posted to DPE Limited’s corporate
website.
COMMUNICATIONS POLICY
The Board aims to ensure that DPE Limited’s
shareholders are informed of all major
developments affecting the Company’s state
of affairs. Information is communicated to
shareholders through:
• The full Annual Report. All shareholders have
to elect to receive a copy of the full Annual
Report, unless they have elected not to receive
one, and a copy is available, on request.
Current Corporations’ legislation allows for
the default option of receiving annual reports
via the internet. Shareholders must be given
notification of this change and be given the
opportunity to elect to receive a hard copy of
the Annual Report;
• Disclosures made to the ASX. DPE Limited
endeavours to post announcements on its
corporate website the same day they are
released to the ASX;
• Notices and Explanatory Memoranda of each
AGM or other meeting of shareholders; and
• The AGM. DPE Limited encourages
shareholders to attend DPE Limited’s AGM
to canvass relevant issues of interest. If
shareholders are unable to attend the AGM
personally, they are encouraged to participate
through the appointment of a proxy or proxies.
The corporate website is located at
http://www.dominos.com.au and contains:
• the full financial statements of DPE Limited;
• all media releases made to the ASX by DPE
Limited. Each media release posted to the
website clearly shows the date it was released
to the market;
• a Company profile;
• contact details for DPE Limited’s head office;
and
• copies of corporate governance policies.
This website has a dedicated investor information
section which is intended to facilitate quick and
easy access for shareholders.
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDCORPORATE GOVERNANCE STATEMENT CONTINUED Board Agendas and Minutes
Agendas for Board meetings include all matters
operational, financial, strategic and compliance
which are important to DPE Limited. Whilst
most agenda items have a degree of detail
and background information included in the
pre-meeting papers, a few items may be listed
on the agenda as discussion points. Papers
are distributed to Board members in a timely
manner prior to each meeting of the Board.
The minutes of each meeting of the Board
record the place, date, time of commencement
and conclusion, along with the names of all
attendees and any apologies. The Company
Secretary prepares the minutes of each meeting
of the Board and is expected to use language
which is non-emotive and impartial. All draft
minutes will be set down for review and approval
at the next meeting of the Board. The Company
Secretary maintains a file copy of all papers
circulated to the Board prior to Board meetings,
along with any documents tabled at meetings
and a signed copy of all minutes. These records
are held in a secure manner so as to prevent any
unauthorised amendments or alterations.
ASX Corporate Governance Recommendations
At the date of this report the Company
considers that the above Corporate Governance
practices comply with the ASX Principles. The
information required to be disclosed by those
recommendations is found both in this Corporate
Governance Statement and in the Directors’
Report on pages 10 to 21.
The Board has received assurance from the
CEO and CFO that the declaration provided
in accordance with section 295A of the
Corporations Act is founded on a sound system
of risk management and internal control and that
the system is operating effectively in all material
aspects in relation to the financial reporting
risks.
BOARD AND BOARD COMMITTEE
AND SENIOR EXECUTIVE
PERFORMANCE EVALUATION
A formal review of Board and Committee
performance is undertaken annually by the
Chairman. All reviews include open discussions
by the Board of the results of the evaluations.
The performance of senior executives (except
the CEO) is periodically evaluated and monitored
by CEO and measured against agreed key
performance indicators. The performance of the
CEO is periodically reviewed and monitored by
the Chairman and measured against agreed key
performance indicators.
Performance evaluations for the Board
Committees and senior executives (including
the CEO) have occurred in the reporting period
in accordance with the procedures described
above.
Role of the Company Secretary and the
Board’s access to information
All directors have unrestricted access to the
Company Secretary. The Company Secretary
is responsible for advising the Board on all
Corporate Governance matters, for co-ordinating
the completion and despatch of the agenda and
Board papers for each meeting, and ensuring
the Board receives sufficient information and
in a form and timeframe to enable the Board to
discharge its duties effectively. Directors may
meet independently with management at any
time to discuss areas of interest or concern.
Attendance of the external auditor at the DPE
Limited AGM
It is both DPE Limited’s policy and the policy
of the auditor for the lead engagement
partner to be present at the AGM to answer
questions about the conduct of the audit and
the preparation and content of the Auditors’
Report. These policies are consistent with the
Corporations Act 2001. Shareholders attending
the AGM are made aware they can ask questions
of the auditor concerning the conduct of the
audit.
RISK MANAGEMENT POLICY
The Board adopts an active approach to
risk management which recognises that the
Company is engaged in activities, which
necessarily demand that the Company take
certain usual business, entrepreneurial and
operational risks. Accordingly, and in the
interests of the enhanced performance of the
Company, the Board embraces a responsible
approach to risk management, as a risk-aware
Company, but not necessarily a risk-averse one.
Specifically in managing risk, the Company and
the Board adhere to the following principles:
• When considering new strategies or projects,
management analyse the major risks of
those opportunities being secured or being
lost and considers appropriate strategies
for minimising those risks where they are
identified;
• The Company will, when thought prudent
by the CEO or the Board, take appropriate
external advice to determine the best way to
manage a particular risk;
• Financial risk will be managed by the whole
of the Board working closely with the CEO
and the CFO to ensure that the financial
statements and other financial reporting are
rigorously tested prior to submission to audit;
• To complement risk management by the
Company, appropriate insurances are put in
place and advice taken from the Company’s
brokers or insurers where necessary to cover
the usual extraordinary risks which arise in
the circumstances of the Company; and
• The Company’s approach to risk
management, and the effectiveness
of its implementation, is reported by
exception to the Board at least annually.
Through the use of its internal review function,
the management of the Company has reported
to the Board that the risk management policies
adopted by the Company are the best to manage
the material business risks of each part of the
Company’s business operations.
9
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED DIRECTORS’ REPORT
The directors of Domino’s Pizza Enterprises Limited (“DPE Limited” or the “Company”) submit herewith the annual financial report of the Company for the
financial year ended 29 June 2014. In order to comply with the provisions of the Corporations Act 2001, the Directors Report as follows:
Information about the directors and senior management
The names and particulars of the directors of the Company during or since the end of the financial year are:
NAME
Jack Cowin
Ross Adler
Barry Alty
Grant Bourke
Paul Cave
Don Meij
POSITION
Non-Executive Chairman
Non-Executive Deputy Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Managing Director/Chief Executive Officer
Appointed 20 March 2014
Appointed 23 March 2005
Appointed 23 March 2005
Appointed 24 August 2001
Appointed 23 March 2005
Appointed 24 August 2001
On 20 March 2014 Jack Cowin was appointed as Chairman and the previous Chairman, Ross Adler was appointed as Deputy Chairman.
Particulars of directors’ qualifications, experience and any special responsibilities are detailed in the Corporate Directory section of the Annual Report.
Directorships of other listed companies
Mr Jack Cowin is currently a director of Ten Network Holdings, Fairfax Media Limited, and Chandler Macleod Group Ltd. There were no other directorships
of other listed companies held by directors in the 3 years immediately before the end of the financial year.
Directors’ shareholdings
The following table sets out each director’s relevant interest in shares, debentures, and rights or options in shares or debentures of the Company as at the
date of this report.
DIRECTORS
Jack Cowin
Ross Adler
Barry Alty
Grant Bourke
Paul Cave
Don Meij
DOMINO'S PIZZA ENTERPRISES LIMITED
FULLY PAID
ORDINARY
SHARES
NUMBER
-
232,704
83,148
1,798,344
369,166
1,573,260
SHARE
OPTIONS
NUMBER
-
-
-
-
-
1,500,000
CONVERTIBLE
NOTES
NUMBER
-
-
-
-
-
-
Remuneration of directors and senior management
Information about the remuneration of directors and senior management is set out in the Remuneration Report of this Directors’ Report on pages 14 to 21.
Share options granted to directors and senior management
During and since the end of the financial year, an aggregate 954,167 share options were granted to the following directors and senior management of the
Company as part of their remuneration.
NUMBER
OF OPTIONS
GRANTED
57,500
166,667
25,000
600,000
25,000
80,000
ISSUING
ENTITY
DPE Limited
DPE Limited
DPE Limited
DPE Limited
DPE Limited
DPE Limited
NUMBER OF
ORDINARY
SHARES
UNDER
OPTION
57,500
166,667
25,000
600,000
25,000
80,000
Craig is a solicitor of the Supreme Court of Queensland, Australian Capital Territory and New South Wales and a Solicitor
of the High Court of Australia with over 17 years’ experience. Craig joined the Company as General Counsel on 8 August
2006 and was appointed to the position of Company Secretary on 18 September 2006. Craig holds a Bachelor of Arts and a
Bachelor of Laws from the University of Queensland and a Master of Laws from the University of New South Wales. Craig is
also a Chartered Secretary with Governance Institute Australia.
DIRECTORS AND SENIOR MANAGEMENT
Allan Collins
Andrew Rennie
Craig Ryan
Don Meij
John Harney
Richard Coney
Company Secretary
Craig Ryan
General Counsel
10
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED Principal activities
The Consolidated entity’s principal activities in the course of the financial year were the operation of retail food outlets and the operation of franchise
services. During the financial year there were no significant changes in the nature of those activities.
Review of operations
The result for the financial year ended 29 June 2014 was as follows:
Profit before related income tax expense
Income tax expense
Profit after related income tax expense
The following are the key operational highlights
for the year.
Australia and New Zealand
• ANZ EBITDA increased by 21.8% for the year,
Consolidated entity
• Profit before tax growth of 63.3% was driven
by the acquisition of Domino’s Pizza Japan
Inc. (DPJ), as well as strong sales and new
store rollouts in ANZ.
• The Effective tax rate (Tax expense divided
by profit before tax) for FY14 was 31.95%
compared with 29.7% in FY13. The increase
was primarily driven by the higher statutory
tax rate arising on the Japan operations.
• Cash flows from operating activities have
increased by $57.5m from FY13, supported by
a $21.9m improvement in working capital in
Japan, due to a timing difference of $17m on
trade payables.
• There is an increase in Plant & Equipment and
Goodwill as at 29 June 2014 compared with
30 June 2013, predominantly resulting from
the DPJ acquisition and expenditure on new
and refurbished stores. Other non-current
assets have increased mainly due to identified
intangibles recognised on the DPJ acquisition.
• Strong trading results in ANZ and the
acquisition of the Japan business has seen
EBITDA grow by 68.1%.
• Revenue for FY14 was $588.7m. Same
store sales of 6.3% in ANZ, 2.7% in Europe
and 10.7% in Japan (during DPE ownership
period), have been achieved for the year. This
is mainly attributed to new store rollouts in
ANZ, and increased television advertising and
store relocations to higher profile locations in
Japan.
• There is an underlying NPAT growth of 50.4%
compared with FY13, inclusive of acquisition
funding costs, higher marginal tax rate (37.5%
in Japan) and the 25% minority interest
distribution in Japan. This is driven by the
Japan acquisition, as well as strong sales
growth and new store rollouts in ANZ.
• The Consolidated entity set a new record
of 125 organic new store openings in
the period. At year end, there were 612
network stores in ANZ, 401 in Europe,
and 320 in Japan, to total 1333.
compared with FY13.
• Promotional activity such as the Peri
Peri range, Super Delivery weekends,
targeted value drivers with the Offers App
and continued digital strategies have all
contributed to a Same Store Sales (SSS)
result of 6.3% for the year.
• Revenue for FY14 in ANZ was $203.3m. Same
Store Sales were stronger in H2 14 (2nd half
of FY14) than the first half, despite rolling a
higher comparative period.
• We have added 44 new stores to the network
this year, the best result since FY06,
which included opening the 600th store in
November 2013. Digital development and
technology continues to be a key focus for
the business. Key developments during the
year included the release of the Offers App
and the integration of PayPal as a payment
method into the online ordering website. The
Pizza Chef tool has now been added as a
standard feature on all the HTML5 platforms.
Europe
• Europe EBITDA increased by 34.5%,
compared with FY13. Excluding the significant
items of additional legal costs relating to
litigation with Speed Rabbit Pizza in France
and European management restructuring
costs, underlying EBITDA increased by 41.1%,
compared with FY13. A number of initiatives
have been implemented in France across the
business, including management, operational
and marketing changes, that have started to
show results during H2 14. The Consolidated
entity has also been partially assisted by a
stronger Euro.
• Revenue for FY14 in Europe was $144.4m.
Despite a softer first half year, SSS of 4.6% in
H2 14 have been significantly better which has
contributed to the overall result. New store
growth of 27 new stores has been slightly
behind expectations as the Consolidated
entity focussed its efforts on those initiatives
mentioned above.
2014
$’000
66,560
(21,264)
45,296
2013
$’000
40,765
(12,108)
28,657
• Included in the new store portfolio is a “pizza
by the slice” concept store in the Netherlands
which has proved popular.
• The implementation of the global POS
(“Pulse”) and online ordering systems in The
Netherlands has been successful, leading to
positive sales momentum. The rollout of these
systems in France and Belgium is underway
with the majority of the rollout expected to be
completed by the end of FY15.
• There has been a decision in the
proceedings brought by Speed Rabbit
Pizza in 2012, with all claims against
Domino’s Pizza France being dismissed.
SRP is expected to appeal the decision.
Japan
• The addition of the Domino’s Japan business
to the Consolidated entity has been another
significant milestone.
• DMP Japan has made a solid EBITDA
contribution of $24.2m during the 10 month
ownership period (3rd Sep 2013 to 29th Jun
2014). Excluding the significant items of
acquisition related costs and post-acquisition
research costs, EBITDA was $27.4m.
• Domino’s Japan has added 54 stores to the
network since acquisition, a record for that
business. In the full 12 month period, 61
stores were added, also a record.
• Revenue for FY14 in Japan was $240.9m.
Same Store Sales have increased by 10.7%
during the DPE ownership period, primarily
driven by increased television advertising
campaigns and the relocation of a number of
stores into higher profile locations.
• Domino’s Japan also introduced a new
internal franchisee financing program for
high performing corporate store managers.
Since its introduction in December 2013,
Domino’s Japan has financed 11 store
managers into their own franchise stores.
11
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED EBITDA, Underlying EBITDA and Underlying
NPAT are non IFRS performance measures and
are defined in the glossary of these financial
statements. This information is disclosed
above as it represents key measures used by
management in describing and managing the
performance of the business and operations
for the year, by excluding non-recurring
expenditure. The references to FY13, FY14 and
FY06, refer to the 52 week period ending in the
2013, 2014 and 2006 financial year.
Underlying EBITDA and Underlying NPAT for
2014 excludes acquisition and integration
related costs associated with Domino’s Japan of
$3.2m (included in ‘acquisition and integration
related costs’ on the Consolidated statement of
profit or loss and other comprehensive income),
restructuring costs in Europe of $1.1m (included
in ‘Other expenses’ on the Consolidated
statement of profit or loss and other
comprehensive income), and related reduction
of tax expense of $0.9m. Underlying EBITDA and
Underlying NPAT for 2013 excludes acquisition
and integration related costs associated
with Domino’s Japan of $1.4m (included in
‘acquisition and integration related costs’ on
the Consolidated statement of profit or loss and
other comprehensive income), restructuring and
litigation costs in Europe of $0.5m (included in
‘Other expenses’ on the Consolidated statement
of profit or loss and other comprehensive
income), other significant charges in Australia
of $0.1m (included in ‘Other expenses’ on the
Consolidated statement of profit or loss and
other comprehensive income) and related
reduction of tax expense of $0.2m.
Changes in state of affairs
On 3rd September 2013, DPE acquired 75%
of the issued share capital of Domino’s Pizza
Enterprises Japan (DPEJ), obtaining control
of Domino’s Pizza Japan (DPJ). DPJ is the
Domino’s Pizza Master Franchisee for Japan and
was at the time the third largest pizza delivery
chain in Japan. It is expected that this will
provide the Consolidated entity with substantial
growth into the future. The remaining 25% of
DPEJ is owned by Bain Capital Domino’s Hong
Kong Limited and is subject to a put and call
option. Apart from this, there were no other
significant changes in the state of affairs of the
Consolidated entity that occurred during the
financial year.
Subsequent events
There has not been any matter or circumstance
occurring subsequent to the end of the
financial year that has significantly affected,
or may significantly affect, the operations of
the Consolidated entity, the results of those
operations, or the state of affairs of the
Consolidated entity in future financial years
other than the matters disclosed in note 44.
Future developments
In Australia and New Zealand, the focus
will be to continue to increase and leverage
our digital capabilities and maximise online
sales. In conjunction with this, the Company
is also targeting record new organic store
openings across metro and regional markets.
The Company has recently developed a next
generation store image, which will help keep
our stores relevant to customers. The key
area of differentiation for the upcoming year
is the development of the Pizza Mogul system.
Coupled with “Cheaper Everyday $4.95” pricing,
the expectation is that customer counts will
continue to grow.
In Europe, the Company will continue to focus
on delivering a number of new initiatives that
have been put in place to improve operational
efficiencies. The Company has completed the
rollout of its global POS and online ordering
systems in The Netherlands, with work already
underway on the rollout in Belgium and France.
Record organic new store growth is targeted for in
FY15 in the region. The Company has its biggest
pipeline of new stores for the region. In addition, a
site for the new Commissary in the north of Paris
has been located and designs are underway.
In Japan, the key areas of focus in FY15 will be
the continuation of new store rollouts, including
the expansion of our recently created “Can
Do! Partners” franchisee financing program
and increasing our presence across a range of
immature markets. Stores will also continue to be
relocated to higher profile sites in a bid to increase
the growth in carry out sales. A new HTML5
website will be launched in November 2014, and
the migration to the global POS system is expected
to be completed before the end of June 2015.
Environmental regulations
The Consolidated entity is not subject to any
significant environmental regulation or mandatory
emissions reporting.
Dividends
In respect of the financial year ended 30 June
2013, as detailed in the Directors’ Report for the
financial year, a final dividend of 15.4 cents per
share franked to 100% at 30% corporate income
tax rate was paid to the holders of fully paid
ordinary shares on 13 September 2013.
In respect of the financial year ended 29 June
2014, an interim dividend of 17.7 cents per share
franked to 100% at 30% corporate income tax
rate was paid to the holders of fully paid ordinary
shares on 11 March 2014. In respect of the
financial year ended 29 June 2014, the Company
will be paying a final dividend of 19.0 cents per
share franked to 100% at 30% corporate income
tax rate to the holders of fully paid ordinary shares
on 12 September 2014.
Shares under option or issued on exercise of options
Details of unissued shares or interests under option as at the date of this report are:
NUMBER OF
SHARES
UNDER
OPTION
30,000
400,000
500,000
600,000
386,667
416,667
456,667
CLASS OF
SHARES
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
EXERCISE
PRICE
OF OPTION
$2.83
$5.83
$8.97
$14.90
$5.83
$9.13
$13.74
EXPIRY DATE OF
OPTIONS
31 August 2014
2 November 2017
2 November 2017
2 November 2017
10 August 2015 (i)
10 August 2016 (ii)
10 August 2017 (iii)
ISSUING ENTITY
DPE Limited
DPE Limited
DPE Limited
DPE Limited
DPE Limited
DPE Limited
DPE Limited
Expiry date 12 months after vesting date (on or about 10 August 2014)
(i)
(ii)
Expiry date 12 months after vesting date (on or about 10 August 2015)
(iii) Expiry date 12 months after vesting date (on or about 10 August 2016)
12
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDDIRECTORS’ REPORT CONTINUED The holders of these options do not have the right, by virtue of the option, to participate in any share issue or interest issue of the Company or of any other
body corporate or registered scheme. Details of shares or interests issued during or since the end of the financial year as a result of exercise of an option are:
ISSUING ENTITY
DPE Limited
DPE Limited
DPE Limited
NUMBER OF
SHARES
ISSUED
126,000
240,000
30,000
CLASS OF
SHARES
AMOUNT PAID
FOR SHARES
AMOUNT OF
UNPAID SHARES
Ordinary
Ordinary
Ordinary
$3.45
$3.07
$3.45
$nil
$nil
$nil
Indemnification of officers and auditors
The Company has entered into deeds of indemnity, insurance and access with each director. To the extent permitted by law and subject to the restrictions
in s.199A of the Corporations Act 2001, the Company must continuously indemnify each director against liability (including liability for costs and expenses)
for an act or omission in the capacity of director. However, this does not apply in respect of any of the following:
• a liability to the Company or a related body corporate;
• a liability to some other person that arises from conduct involving a lack of good faith;
• a liability for costs and expenses incurred by the director in defending civil or criminal proceedings in which judgment is given against the officer or in
which the officer is not acquitted; or
• a liability for costs and expenses incurred by the director in connection with an unsuccessful application for relief under the Corporations Act 2001 in
connection with the proceedings referred to above.
The Company has also agreed to provide the directors with access to Board documents circulated during the directors’ term in office.
During the financial year, the Company paid a premium in respect of a contract insuring the directors of the Company, the Company Secretary and all senior
management of the Company and of any related body corporate against a liability incurred as such a director, secretary or senior management to the extent
permitted by the Corporations Act 2001.
The Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the Company or of any
related body corporate against a liability incurred as such an officer or auditor. The directors have not included details of the nature of the liabilities covered
or the amount of the premium paid in respect of the directors’ and officers’ liability and legal expenses insurance contract as such disclosure is prohibited
under the terms of the contract.
Directors’ meetings
The following table sets out the number of directors’ meetings (including meetings of committees of directors) held during the financial year and the
number of meetings attended by each director (while they were a director or committee member). During the financial year, 17 board meetings, four
nomination and remuneration committee meetings and six audit committee meetings were held.
DIRECTORS
Jack Cowin (i)
Ross Adler
Barry Alty
Grant Bourke
Paul Cave
Don Meij
BOARD OF DIRECTORS
HELD
4
17
17
17
17
17
ATTENDED
4
15
17
17
17
17
NOMINATION &
REMUNERATION COMMITTEE
ATTENDED
2
2
4
4
4
4
HELD
2
4
4
4
4
4
AUDIT COMMITTEE
HELD
-
6
6
-
6
-
ATTENDED
-
5
6
-
6
-
(i)
Jack Cowin was appointed on the 20 March 2014 and attended all meetings after this date.
Non-audit services
Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in note 43 to the financial
statements. The directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on the auditor’s
behalf) is compatible with the general standard of independence of auditors imposed by the Corporations Act 2001.
The directors are of the opinion that the services as disclosed in note 43 to the financial statements do not compromise the external auditor’s
independence, based on the advice received from the Audit Committee, for the following reasons:
• all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor, and
• none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code of Ethics for
Professional Accountants issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting
in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards.
Auditor’s independence declaration
The auditor’s independence declaration is included on page 22 of the Annual Report.
Rounding off of amounts
The Company is a Company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order amounts in
the Directors’ Report and the Financial Report are rounded off to the nearest thousand dollars, unless otherwise indicated.
13
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED REMUNERATION REPORT
This Remuneration Report (Audited), which
forms part of the Directors’ Report, sets out
information about the remuneration of Domino’s
Pizza Enterprises Limited’s directors and its senior
management for the financial year ended 29 June
2014.
The prescribed details for each person covered by
this report are detailed below under the following
headings:
• director and senior management details
• remuneration policy
• relationship between the remuneration policy
and Company performance
• remuneration of directors and senior
management
• key terms of employment contracts
Director and senior management details
The following persons acted as directors of the
Company during or since the end of the financial
year:
NAME
Jack Cowin
Ross Adler
Barry Alty
Grant Bourke
Paul Cave
Don Meij
POSITION
Non-Executive Chairman
(Appointed 20 March 2014)
Non-Executive Deputy
Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Managing Director/Chief
Executive Officer
On 20 March 2014 Jack Cowin was appointed as
Chairman and the previous Chairman, Ross Adler
was appointed as Deputy Chairman.
The term ‘senior management’ is used in this
Remuneration Report to refer to the following
persons. Except as noted, the named persons held
their current position for the whole of the financial
year and since the end of the financial year:
Richard Coney
Group Chief Financial Officer
John Harney
Group Chief Procurement Officer
Craig Ryan
General Counsel and Company Secretary
Allan Collins
Chief Marketing Officer ANZ and Group Marketing
Director
Andrew Megson
Chief Operating Officer ANZ (i)
Andrew Rennie
Chief Executive Officer Europe and CEO France (i)
Patrick McMichael
Australia / New Zealand Franchise Development
Manager
Scott Oelkers
President and Chief Executive Officer of Japan (ii)
14
(i)
(ii)
On 2 January 2014, Andrew Rennie ceased to be the Chief
Operating Officer ANZ, and became the Chief Executive
Officer Europe and Chief Executive Officer France. On
2 January 2014, Andrew Megson ceased to be Chief
Executive Officer Europe, and on 12 May 2014, he was
appointed the Chief Operating Officer ANZ, the role
previously held by Andrew Rennie.
On 3 September 2013, Domino’s Pizza Enterprises Limited
obtained control of Domino’s Pizza Japan and therefore
Scott Oelkers became a Key Management Personnel (KMP).
Refer to note 46 of the financial statements for details of
this acquisition.
REMUNERATION POLICY
The Board has a Nomination and Remuneration
Committee. The Committee assists the Board by
reviewing and approving remuneration policies
and practices.
The Remuneration Committee, as delegated by
the Board:
• reviews and approves the executive
remuneration policy;
• reviews and makes recommendations to
the Board on corporate goals and objectives
relevant to the CEO, and the performance of
the CEO in light of those objectives;
• makes recommendations to the Board on the
remuneration of non-executive directors; and
• reviews and makes recommendations
to the Board on equity-based plans.
An independent remuneration consultant is
engaged by the Remuneration Committee to
ensure that the reward practices and levels for
senior management are consistent with market
practice.
The Board, in conjunction with its Nomination
and Remuneration Committee, is responsible
for approving the performance objectives and
measures for the CEO and providing input into
the evaluation of performance against them.
The Nomination and Remuneration Committee
is responsible for making recommendations
to the Board on compensation policies and
packages applicable to the Board members
and the CEO. The Managing Director/CEO is
responsible for making recommendations on
compensation packages applicable to the other
key management personnel of the Company.
Egan & Associates, an independent
remuneration consultant is engaged by the
Remuneration Committee to ensure that
the reward practices and levels for senior
management are consistent with market
practice. A statement of recommendation
from the remuneration consultant has been
received by the board for the 2014 financial
year. Payment of $33,600 (2013: $25,410)
has been made to the remuneration consultant
for the services provided on the remuneration
recommendation. No other advice has been
provided by the remuneration consultant for the
financial year.
In order to ensure that the remuneration
recommendation would be free from undue
influence by members of the key management
personnel to whom the recommendation relates
to, the board has ensured that the remuneration
consultant is not a related party to any member
of the key management personnel. As such,
the board is satisfied that the remuneration
recommendation was made free from undue
influence by the member or members of the
key management personnel to whom the
recommendation relates.
The performance of the Company depends upon
the quality of its directors, and its secretaries
and other key management personnel. To
prosper, the Company must attract, motivate
and retain highly skilled directors and other key
management personnel. The compensation
structure is designed to strike an appropriate
balance between fixed and variable remuneration,
rewarding capability and experience and providing
recognition for contribution to the Company’s
overall goals and objectives.
The Board Remuneration Policy is to ensure
the compensation package properly reflects
the person’s duties and responsibilities and
level of performance; and that compensation
is competitive in attracting, retaining and
motivating people of the highest quality.
Directors and other key management personnel
may receive bonuses on the achievement of
specific goals related to the performance of the
Company (including operational results).
Relationship between the Remuneration
Policy and Company performance
The compensation structures explained below are
designed to attract suitably qualified candidates,
reward the achievement of strategic objectives,
and achieve the broader outcome of creation
of value for shareholders. The compensation
structures take into account:
• the capability and experience of the key
management personnel;
• the key management personnel’s ability to
control the relevant segments’ performance;
• the Consolidated entity’s performance
including:
– the Consolidated entity’s earnings;
– the growth in earnings per share and return
on shareholder wealth, and
• the amount of incentives within each key
management personnel’s compensation.
Compensation packages include a mix of fixed
and variable compensation and short-term and
long-term performance-based incentives. The
mix of these components is based on the role the
individual performs. In addition to their salaries,
the Consolidated entity also provides non-cash
benefits to its key management personnel, and
contributes to a post-employment superannuation
plan on their behalf.
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDDIRECTORS’ REPORT CONTINUED Fixed compensation
Fixed compensation consists of base
compensation (which is calculated on a total
cost basis and includes any fringe benefits tax
(“FBT”) charges related to employee benefits
including motor vehicles), as well as employer
contributions to superannuation funds.
Compensation levels are reviewed annually
by the Nomination and Remuneration
Committee and Managing Director/Chief
Executive Officer through a process that
considers individual, segment and overall
performance of the Consolidated entity. In
addition, external consultants provide analysis
and advice to ensure the directors and
executives’ compensation is competitive in the
marketplace. An executive’s compensation is
also reviewed on promotion.
Performance-linked compensation
Performance-linked compensation includes
both short-term and long-term incentives and is
designed to reward key management personnel
for meeting or exceeding their financial and
personal objectives. The short-term incentive
(“STI”) is an ‘at risk’ bonus provided in the form
of cash, while the long-term incentive (“LTI”)
is provided as options over ordinary shares of
the Company under the rules of the ESOP (as
defined on page 20).
Short-term incentive bonus
Each year the Nomination and Remuneration
Committee sets the key performance indicators
(“KPI’s”) for the Managing Director/CEO and
the Managing Director/CEO sets the KPI’s for
the other key management personnel. The
KPI’s generally include measures relating to the
Consolidated entity, the relevant segment, and the
individual, and include financial, people, customer,
strategy and risk measures. The measures are
chosen as they directly align the individual’s
reward to the KPI’s of the Consolidated entity and
to its strategy and performance. The Company
undertakes a rigorous and detailed annual
forecasting and budget process. The Board
believes achievement of the annual forecast and
budget is therefore the most relevant short-term
performance condition.
The financial performance objectives include
but are not limited to “Earnings before Interest,
Tax, Depreciation and Amortisation” (“EBITDA”),
“Net Profit”, “Corporate store EBITDA”,
“Franchise operations EBITDA” and Net Profit
After Tax (“NPAT”), compared to budget and
last year. The non-financial objectives vary
with position and responsibility and include
measures such as achieving strategic outcomes,
percentage savings, customer satisfaction,
hygiene and training and staff development.
At the end of the financial year the Nomination
and Remuneration Committee and Managing
Director/CEO assess the actual performance of
the Consolidated entity, the relevant segment
and individual against the KPI’s set at the
beginning of the financial year. No bonus is
awarded where performance objectives are not
achieved.
The Managing Director/CEO recommends to
the Nomination and Remuneration Committee
the performance bonus amounts of individuals
for approval by the Board. The method of
assessment was chosen as it provides the
Committee with an objective assessment of the
individual’s performance.
Long-term incentive
Options are issued under the ESOP (made
in accordance with thresholds set in plans
approved by the Board on 11 April 2005), and
it provides for key management personnel to
receive a number of options, as determined by
the Board, over ordinary shares. Options issued
under the ESOP will be subject to performance
conditions that are detailed on page 17.
The Nomination and Remuneration Committee
considers this equity performance-linked
compensation structure to be appropriate as key
management personnel only receive a benefit
where there is a corresponding direct benefit to
shareholders.
The tables below set out summary information about the Consolidated entity’s earnings and movements in shareholder wealth for the five years to 29 June 2014:
Revenue
Net profit before tax
Net profit after tax
Share price at start of year
Share price at end of year
Interim dividend per share (i)
Final dividend per share (i)
Basic earnings per share
Diluted earnings per share
29 JUNE 2014
$’000
30 JUNE 2013
$’000
1 JULY 2012
$’000
3 JULY 2011
$’000
4 JULY 2010
$’000
588,673
66,560
45,296
294,890
40,765
28,657
264,887
37,644
26,936
246,659
29,668
21,435
236,074
23,722
17,814
29 JUNE 2014
30 JUNE 2013
1 JULY 2012
3 JULY 2011
4 JULY 2010
11.17
21.82
17.7 cents
19.0 cents
50.5 cents
49.8 cents
10.05
11.17
15.5 cents
15.4 cents
39.1 cents
38.7 cents
6.22
10.05
13.0 cents
14.1 cents
37.2 cents
36.7 cents
5.45
6.22
10.4 cents
11.5 cents
30.0 cents
29.5 cents
3.20
5.45
6.0 cents
11.8 cents
25.0 cents
24.8 cents
(i)
Franked to 100% at 30% corporate income tax rate.
The denominators for the purpose of calculating both the basic and diluted earnings per share have been adjusted to reflect the bonus element in the
capital raising in 2014 (Note 12).
15
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED
OTHER
LONG-
TERM
EMPLOYEE
BENEFITS(ii)
$
TERMI-
NATION
BENEFITS
$
SHARE-
BASED
PAYMENT
OPTIONS &
RIGHTS
$
REMUNERATION OF DIRECTORS AND SENIOR MANAGEMENT
SHORT TERM EMPLOYEE BENEFITS
POST-
EMPLOY-
MENT
BENEFITS
2014(i)
Non-executive directors
Jack Cowin (iv)
Ross Adler
Barry Alty
Grant Bourke
Paul Cave
Executive director
Don Meij
SALARY &
FEES
$
BONUS
$
NON-
MONETARY
$
SUPER-
ANNUATION
$
44,308
160,000
92,000
80,000
80,000
-
-
-
-
-
3,635
3,635
3,635
3,635
3,635
4,106
15,093
8,678
7,546
7,546
-
-
-
-
-
761,790
560,000
3,635
18,076
57,516
Executive officers
Richard Coney
Andrew Rennie (iii)
Andrew Megson (iii)
Scott Oelkers (v)
Craig Ryan
Allan Collins
John Harney
Patrick McMichael
329,630
441,943
316,157
383,233
253,721
349,252
249,450
211,402
3,752,886
140,250
255,000
-
204,227
80,000
100,000
95,000
250,500
1,684,977
45,120
114,481
29,276
73,049
3,635
3,635
3,635
3,635
298,276
17,814
9,930
4,978
-
17,838
17,809
17,847
17,849
165,110
6,915
5,883
4,000
-
33,933
41,270
-
-
149,517
(i)
(ii)
(iii)
(iv)
(v)
The short-term bonus and long-term bonus and the options are dependent on satisfaction of performance conditions.
Relates to long term employee entitlements expense.
On 2 January 2014, Andrew Rennie ceased to be the Chief Operating Officer ANZ, and became the Chief Executive Officer Europe and Chief Executive Officer France. On 2 January 2014, Andrew Megson
ceased to be Chief Executive Officer Europe, and on 12 May 2014, he was appointed the Chief Operating Officer ANZ, the role previously held by Andrew Rennie.
On 20 March 2014, Jack Cowin was appointed Chairman and Ross Adler was appointed Deputy Chairman of the Board.
On 3 September 2013, Domino’s Pizza Enterprises Limited obtained control of Domino’s Pizza Japan and therefore Scott Oelkers became a KMP. Refer to note 46 of the financial statements for details of this acquisition.
SHORT TERM EMPLOYEE BENEFITS
POST-
EMPLOY-
MENT
BENEFITS
SALARY &
FEES
$
BONUS
$
NON-
MONETARY
$
SUPER-
ANNUATION
$
OTHER
LONG-
TERM
EMPLOYEE
BENEFITS(ii)
$
TERMI-
NATION
BENEFITS
$
SHARE-
BASED
PAYMENT
OPTIONS &
RIGHTS
$
PERCENT-
AGE OF
COMPEN-
SATION FOR
THE YEAR
CONSISTING
OF OPTIONS
%
-
-
-
-
-
TOTAL
$
52,049
178,728
104,313
91,181
91,181
-
-
-
-
-
841,540
2,242,557
37.53%
105,858
251,750
-
-
37,762
86,853
37,762
-
1,361,525
645,587
1,078,987
354,411
660,509
426,889
598,819
403,694
483,386
7,412,291
16.40%
23.33%
-
-
8.85%
14.50%
9.35%
-
18.37%
PERCENT-
AGE OF
COMPEN-
SATION FOR
THE YEAR
CONSISTING
OF OPTIONS
%
-
-
-
-
TOTAL
$
177,473
103,349
90,031
90,269
-
-
-
-
329,245
1,022,619
32.20%
46,435
-
127,952
-
-
19,193
44,143
19,193
-
586,161
440,577
321,513
539,715
254,211
190,939
295,306
415,081
317,911
468,211
4,727,205
10.54%
-
23.71%
-
-
6.50%
10.63%
6.04%
-
12.40%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2013(i)
Non-executive directors
Ross Adler
Barry Alty
Grant Bourke
Paul Cave
Executive director
Don Meij
Executive officers
Richard Coney
Andrew Megson (iii) (iv)
Andrew Rennie
Andre ten Wolde (iii)
Melanie Gigon
Craig Ryan
Allan Collins
John Harney
Patrick McMichael
160,000
92,000
80,000
80,000
-
-
-
-
3,065
3,065
3,065
3,065
14,408
8,284
6,966
7,204
-
-
-
-
623,881
32,500
3,065
16,543
17,385
293,695
258,468
360,857
182,381
183,246
231,988
342,053
222,103
183,299
3,293,971
33,333
-
22,750
15,096
-
24,500
9,315
57,000
265,250
459,744
41,555
2,759
3,065
26,932
7,693
3,065
3,065
3,065
3,065
109,589
16,596
15,510
16,521
29,802
-
16,560
16,505
16,550
16,597
198,046
8,963
44,776
8,570
-
-
-
-
-
-
79,694
The short-term bonus and long-term bonus and the options are dependent on satisfaction of performance conditions.
Relates to long term employee entitlements expense.
(i)
(ii)
(iii) On 30 July 2012, Andrew Megson returned to Australia and took the role of National Franchise Operations Manager. At the same time, Andre ten Wolde became the President – The Netherlands.
(iv) On 1 June 2013 Andrew Megson took the newly created role of CEO Europe.
No director or senior management person appointed during the period received a payment as part of his or her consideration for agreeing to hold the position.
16
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDDIRECTORS’ REPORT CONTINUED BONUSES AND SHARE-BASED PAYMENTS GRANTED AS COMPENSATION FOR THE FINANCIAL YEAR
Bonuses
Don Meij, Richard Coney, Andrew Rennie, Craig Ryan, Allan Collins, Andrew Megson, Scott Oelkers, Patrick McMichael and John Harney were granted on
11 August 2014 a cash bonus for their performance during the year ended 29 June 2014. The bonus conditions were agreed by the Board during the year.
Patrick McMichael also received a bonus during the year on achieving his performance criteria. The amounts were determined and approved by the Board
based on a recommendation by the Nomination and Remuneration Committee.
No other bonuses were granted during 2014.
Short-term incentive bonus
NAME
Directors
Don Meij
Key management personnel
Richard Coney
Andrew Megson
Andrew Rennie
Scott Oelkers
Craig Ryan
Allan Collins
John Harney
Patrick McMichael
INCLUDED IN
COMPENSATION
$ (i)
PERCENTAGE
VESTED IN
YEAR
%
PERCENTAGE
FORFEITED IN
YEAR
% (ii)
560,000
140,250
-
255,000
204,227
80,000
100,000
95,000
250,500
80
85
-
85
90
100
100
100
100
20
15
100
15
10
-
-
-
-
(i)
(ii)
Amounts included in compensation for the financial year represent the amount that vested in the financial year based on achievement of personal goals and satisfaction of specified performance criteria.
No amounts vest in future financial years in respect of the bonus schemes for the current financial year.
The amounts forfeited are due to the performance or service criteria not being met in relation to the current financial year.
Long term bonuses
There were no long term cash bonuses granted for the financial year ended 29 June 2014.
Executive share and option plan (ESOP)
The Company established the ESOP to assist in the recruitment, reward, retention and motivation of directors and executives of the Company (“the participants”).
In accordance with the provisions of the scheme, executives within the Company, to be determined by the Board, are granted options for no consideration
to purchase parcels of shares at various exercise prices. Each option confers an entitlement to subscribe for and be issued one share, credited as fully paid,
at the exercise price.
Options issued under the ESOP may not be transferred unless the Board determines otherwise. The Company has no obligation to apply for quotation of the
options on the ASX. However, the Company must apply to the ASX for official quotation of shares issued on the exercise of the options.
Effective 30 April 2009, the Company must not issue any shares or grant any option under this plan if, immediately after the issue or grant, the sum of the
total number of unissued shares over which options, rights or other options (which remain outstanding) have been granted under this plan and any other Group
employee incentive scheme would exceed 7.5% of the total number of shares on issue on a Fully Diluted Basis at the time of the proposed issue or grant.
Fully Diluted Basis means the number of shares which would be on issue if all those securities of the Company which are capable of being converted into
shares, were converted into shares. If the number of shares into which the securities are capable of being converted cannot be calculated at the relevant
time, those shares will be disregarded.
17
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED During the prior and current financial year, the following share-based payment arrangements were in existence:
OPTIONS SERIES
(11) Issued 30 April 2009
(12) Issued 2 November 2011
(13) Issued 2 November 2011
(14) Issued 7 November 2012
(15) Issued 7 November 2012
(16) Issued 1 November 2013
(17) Issued 29 October 2013
GRANT DATE
EXPIRY DATE
30 April 2009
2 November 2011
2 November 2011
7 November 2012
7 November 2012
1 November 2013
29 October 2013
31 August 2014
2 November 2017
31 August 2015
2 November 2017
31 August 2016
2 November 2017
31 August 2017
GRANT DATE FAIR
VALUE
EXERCISE
PRICE (i)
$0.44
$1.39
$1.43
$1.17
$1.16
$3.14
$3.23
$2.83
$5.83
$5.83
$8.97
$9.13
$14.90
$13.74
VESTING DATE
31 August 2011
2 November 2014
10 August 2014
7 November 2015
10 August 2015
7 November 2016
10 August 2016
(i)
The exercise price reduced due to the acquisition of Domino’s Pizza Enterprises Japan on 3 September 2013, and due to the capital reduction in 2013.
OPTIONS SERIES
(11) Issued 30 April 2009
(12) Issued 2 November 2011
(13) Issued 2 November 2011
(14) Issued 7 November 2012
(15) Issued 7 November 2012
(16) Issued 1 November 2013
(17) Issued 29 October 2013
PERFORMANCE CONDITIONS
Proportion of options based on EPS growth performance
Proportion of options based on EPS growth performance
Proportion of options based on EPS growth performance
Proportion of options based on EPS growth performance
Proportion of options based on EPS growth performance
Proportion of options based on EPS growth performance
Proportion of options based on EPS growth performance
Options and shares issued on the exercise of series (12), (14) and (16) will be subject to an escrow period commencing on the date of issue and ending on
2 November 2016. There are no further service or performance criteria that need to be met in relation to options granted before the beneficial interest vests
for the recipient.
During the year, the following directors and senior management exercised options that were granted to them as part of their compensation. Each option
converts into one ordinary share of DPE Limited.
NAME
Andrew Rennie
Allan Collins
NO. OF
ORDINARY
SHARES OF
DPE LIMITED
ISSUED
AMOUNT PAID
306,000
60,000
$1,055,700
$169,800
NO. OF
OPTIONS
EXERCISED
306,000
60,000
AMOUNT
UNPAID
$nil
$nil
The following table summarises the value of options granted, exercised or lapsed during the financial year to directors and senior management:
NAME
Don Meij
Richard Coney
Andrew Rennie
Allan Collins
John Harney
Craig Ryan
VALUE OF
OPTIONS
GRANTED
AT THE
GRANT DATE (i)
$
VALUE OF
OPTIONS
EXERCISED
AT THE
EXERCISE DATE
$
VALUE OF
OPTIONS
LAPSED
AT THE DATE
OF LAPSE (ii)
$
1,885,800
258,640
538,834
185,898
80,825
80,825
-
-
3,941,280
930,000
-
-
-
-
-
-
-
-
(i)
(ii)
The value of options granted during the period is recognised in compensation over the vesting period of the grant, in accordance with Australian accounting standards.
The value of options lapsing during the period due to the failure to satisfy a vesting condition is determined assuming the vesting condition had been satisfied.
18
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDDIRECTORS’ REPORT CONTINUED Fully paid ordinary shares of Domino’s Pizza Enterprises Limited
2014
Ross Adler (i) (v)
Barry Alty (i) (vi)
Grant Bourke (i) (vii)
Paul Cave (i) (viii)
Don Meij (i) (ii) (ix)
Richard Coney (i)
Allan Collins (iv)
Andrew Megson (i)
Andrew Rennie (i) (iii)
2013
Ross Adler (i) (x)
Barry Alty (i)
Grant Bourke (i)
Paul Cave (i)
Don Meij (i) (ii)
Richard Coney (i) (xi)
Andrew Megson (i) (xii)
Andrew Rennie (i) (xiii)
Andre ten Wold (xiv)
Craig Ryan (xv)
Patrick McMichael (xvi)
BALANCE AT
BEGINNING
OF FINANCIAL
YEAR
NO.
GRANTED AS
COMPEN-
SATION
NO.
RECEIVED ON
EXERCISE OF
OPTIONS
NO.
NET OTHER
CHANGE
NO.
BALANCE AT
THE END OF
FINANCIAL
YEAR
NO.
BALANCE HELD
NOMINALLY
NO.
202,221
104,443
1,547,032
382,000
2,787,556
719
-
93,079
317,713
302,221
104,443
1,547,032
382,000
2,787,556
719
113,079
342,713
-
-
13,635
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
60,000
-
306,000
-
-
-
-
-
65,000
-
-
100,000
40,000
-
30,483
(21,295)
251,312
(12,834)
(1,214,296)
-
-
-
115,592
(100,000)
-
-
-
-
(65,000)
(20,000)
(25,000)
(100,000)
(40,000)
(13,635)
232,704
83,148
1,798,344
369,166
1,573,260
719
60,000
93,079
739,305
202,221
104,443
1,547,032
382,000
2,787,556
719
93,079
317,713
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Includes shares held by their related parties.
(i)
(ii) Don Meij’s opening balance now reflects the closing balance of Kerri Hayman, who resigned 31 July 2010 and is no longer a member of key management personnel but is a related party to Mr Meij.
(iii)
On 16 August 2013, 306,000 options were exercised. On 18 September 2013, 67,707 shares were acquired through equity raising. On 19 September 2013, 67,885 shares were acquired through equity
raising. On 2 March 2014, 20,000 shares were sold.
(iv) On 5 November 2013, Allan Collins exercised 60,000 options.
(v) On 28 August 2013, 43,962 shares were acquired through equity raising. On 24 February 2014 13,479 shares were disposed.
(vi) On 28 August 2013, 22,705 shares were acquired through equity raising. On 4 November 2013, 30,000 shares were disposed and on 12 November 2013, 14,000 shares were disposed.
(vii) On 18 September 2013, 336,312 shares were acquired through equity raising. On 30 October 2013, 85,000 shares were disposed.
(viii) On 28 August 2013, 83,044 shares were acquired through equity raising. On 30 October 2013, 8,566 shares were disposed, and on 1 November 2013, 87,312 shares were disposed.
(ix)
On 28 August 2013, 180,000 shares were acquired, on 19 August 2013, 325 shares were acquired through the equity raising, and on 18 September 2013, 609 shares were acquired through the equity
raising. On 16 August 2013, 400,000 shares were disposed, on 5 September 2013, 914,280 shares were disposed, on 5 November 2013, 20,000 shares were disposed, and on 17 February 2014, 50,000
shares were disposed. On 2 July 2013, 650 shares were disposed, 15 October 2013, 150 shares were disposed, 10 December 2013, 100 shares were disposed, 11 June 2014, 50 shares were disposed,
and during the year, 10,000 shares were removed due to the holdings no longer being a related party.
(x) During the year, Ross Adler sold 100,000 shares.
(xi) On 16 August 2012, Richard Coney exercised 65,000 options and on the same day sold 65,000 shares.
(xii) During the year, Andrew Megson sold 20,000 shares.
(xiii) During 2013 he sold 25,000 shares.
(xiv) On 14 November 2012, Andre ten Wolde exercised 100,000 options and on the same day sold 100,000 shares.
(xv) On 16 August 2012, Craig Ryan exercised 40,000 options and on the same day sold 40,000 shares.
(xvi)
In FY13, Patrick McMichael sold 13,635 shares.
19
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED Executive share options of Domino’s Pizza Enterprises Limited
BALANCE
AT
BEGINNING
OF FINAN-
CIAL YEAR
NO.
GRANTED
AS
COMPEN-
SATION
NO.
EXERCISED
NO.
NET OTHER
CHANGE
NO.
BALANCE
AT THE
END OF
FINANCIAL
YEAR
NO.
BALANCE
VESTED AT
THE END OF
FINANCIAL
YEAR
NO.
VESTED
BUT NOT
EXERCISE-
ABLE
NO.
VESTED
AND
EXERCISE-
ABLE
NO.
OPTIONS
VESTED
DURING
YEAR
NO.
900,000
130,000
639,334
175,000
50,000
50,000
400,000
115,000
472,667
15,000
117,500
25,000
65,000
-
100,000
600,000
80,000
166,667
57,500
25,000
25,000
500,000
80,000
166,667
-
57,500
25,000
25,000
-
-
-
-
(306,000)
(60,000)
-
-
-
(65,000)
-
-
-
-
(40,000)
-
(100,000)
- 1,500,000
210,000
-
500,001
-
172,500
-
75,000
-
75,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
900,000
130,000
639,334
15,000
175,000
50,000
50,000
-
-
-
-
306,000
15,000
60,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
306,000
15,000
60,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2014(i)
Don Meij
Richard Coney
Andrew Rennie
Allan Collins
John Harney
Craig Ryan
2013 (ii)
Don Meij
Richard Coney
Andrew Rennie
Melanie Gigon
Allan Collins
John Harney
Craig Ryan
Patrick McMichael
Andre ten Wolde
(i)
(ii)
During the financial year, Don Meij and other executives were granted share options under the ESOP on 1 November 2013 and 29 October 2013. In addition, 366,000 options (2013: 205,000 options) were
exercised by key management personnel for 366,000 ordinary shares in the Company (2013: 205,000 ordinary shares). No amounts remain unpaid on the options exercised during the financial year at
year end.
During the financial year, Don Meij and other executives were granted share options under the ESOP on 7 November 2012. In addition, 205,000 options (2012: 1,135,000 options) were exercised by key
management personnel for 205,000 ordinary shares in the Company (2012: 1,135,000 ordinary shares). No amounts remain unpaid on the options exercised during the financial year at year end.
CONTRACTS FOR SERVICES OF KEY MANAGEMENT PERSONNEL
Executive service contracts
NAME
Richard Coney
Craig Ryan
Allan Collins
Andrew Megson
Don Meij
Andrew Rennie
John Harney
Patrick McMichael
Scott Oelkers
TERM OF
CONTRACT
CONTRACT
COMMENCEMENT
NOTICE
TERMINATION –
BY COMPANY
NOTICE
TERMINATION –
BY EXECUTIVE
Ongoing
Ongoing
Ongoing
Ongoing
5 yrs
5 yrs
Ongoing
Ongoing
5 yrs
16 May 2005
8 August 2012
8 January 2013
12 May 2014
2 November 2011
2 January 2014
2 July 2010
23 December 2011
3 September 2013
6 months
3 months
3 months
3 months
12 months
6 months
3 months
3 months
3 months
6 months
3 months
3 months
3 months
12 months
6 months
3 months
3 months
3 months
TERMINATION PAYMENT
Amount equal to 6 months compensation
Amount equal to 3 months compensation
Amount equal to 3 months compensation
Amount equal to 3 months compensation
Amount equal to 12 months compensation
Amount equal to 6 months compensation
Amount equal to 3 months compensation
Amount equal to 3 months compensation
Amount equal to 3 months compensation
20
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDDIRECTORS’ REPORT CONTINUED Signed in accordance with a resolution of the
directors made pursuant to s.298(2) of the
Corporations Act 2001.
On behalf of the Directors
Jack Cowin
Chairman
Sydney, 11 August 2014
Don Meij
Managing Director/Chief Executive Officer
Sydney, 11 August 2014
A change in control occurs when any shareholder
(either alone or together with its associates)
having a relevant interest in less than 50% of the
issued shares in the Company acquires a relevant
interest in 50% or more of the shares on issue
at any time in the capital of the Company or the
composition of a majority of the Board changes
for a reason other than retirement in the normal
course of business or death.
Non-executive directors
The Constitution of the Company provides that
non-executive directors are entitled to receive
compensation for their services as determined
by the Company in a general meeting. The
Company has resolved that the maximum
aggregate amount of directors’ fees (which
does not include compensation of executive
directors and other non-director services
provided by directors) is $800,000 per annum.
The non-executive directors may divide that
compensation among themselves as they
decide. Non–executive directors are entitled to
be reimbursed for their reasonable expenses
incurred in connection with the affairs of the
Company. A non-executive director may also be
compensated as determined by the directors
if that director performs additional or special
duties for the Company. A former director
may also receive a retirement benefit of an
amount determined by the Board of Directors in
recognition of past services, subject to the ASX
Listing Rules and the Corporations Act 2001.
Non-executive directors do not receive
performance-based compensation. Directors’
fees cover all main Board activities.
Fees for the current financial year for the non-
executive directors were $80,000 per director per
annum (2013: $80,000), $92,000 per annum
for the Chairman of the Audit Committee (2013:
$92,000), $160,000 per annum for the Deputy
Chairman, and for the Chairman of the Board was
$160,000 per annum (2013: $160,000).
The directors believe that the compensation
for each of the key management personnel is
appropriate for the duties allocated to them,
the size of the Company’s business and the
industry in which the Company operates. The
service contracts outline the components of
compensation paid to the executive directors
and key management personnel but do not
prescribe how compensation levels are modified
year to year. Compensation levels are reviewed
each year to take into account cost-of-living
changes, any change in the scope of the role
performed by the key management personnel
and any changes required to meet the principles
of the Remuneration Policy.
Each of the key management personnel has
agreed that during their employment and for a
period of up to six months afterwards, they will
not compete with the Company, canvass, solicit,
induce or encourage any person who is or was
an employee of the Company at any time during
the employment period to leave the Company
or interfere in any way with the relationship
between the Company and its clients, customers,
employees, consultants or suppliers.
Don Meij, Managing Director/CEO, has a contract
of employment with Domino’s Pizza Enterprises
Limited dated 2 November 2011. The contract
specifies the duties and obligations to be fulfilled
by the Managing Director/CEO and provides
that the Board and Managing Director/CEO will,
early in each financial year, consult and agree
objectives for achievement during that year.
Don Meij’s contract provides that he may
terminate the agreement by giving twelve month’s
written notice. He may also resign on one month’s
notice if there is a change in control of the
Company, and he forms the reasonable opinion
that there has been material changes to the
policies, strategies or future plans of the Board
and, as a result, he will not be able to implement
his strategy or plans for the development of the
Company or its projects. If Don Meij resigns for
this reason, then in recognition of his past service
to the Company, on the date of termination, in
addition to any payment made to him during the
notice period or by the Company in lieu of notice,
the Company must pay him an amount equal to
the salary component and superannuation that
would have been paid to him in the 12 months
after the date of termination.
21
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED
AUDITOR’S INDEPENDENCE DECLARATION
DOMINO’S PIZZA ENTERPRISES LIMITED
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Riverside Centre
Level 25
123 Eagle Street
Brisbane QLD 4000
GPO Box 1463
Brisbane QLD 4001 Australia
DX 115
Tel: +61 (0) 7 3308 7000
Fax: +61 (0) 7 3308 7001
www.deloitte.com.au
11 August 2014
The Directors
Domino’s Pizza Enterprises Limited
Level 5, KSD1
485 Kingsford Smith Drive
HAMILTON QLD 4007
Dear Directors,
Domino’s Pizza Enterprises Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of
Domino’s Pizza Enterprises Limited.
As lead audit partner for the audit of the financial statements of Domino’s Pizza Enterprises Limited for the period ended 29 June 2014, I declare that to the
best of my knowledge and belief, there have been no contraventions of:
(i)
the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
Stephen Tarling
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation
Member of Deloitte Touche Tohmatsu Limited
22
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF DOMINO’S PIZZA ENTERPRISES LIMITED
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Riverside Centre
Level 25
123 Eagle Street
Brisbane QLD 4000
GPO Box 1463
Brisbane QLD 4001 Australia
DX 115
Tel: +61 (0) 7 3308 7000
Fax: +61 (0) 7 3308 7001
www.deloitte.com.au
REPORT ON THE FINANCIAL REPORT
We have audited the accompanying financial report of Domino’s Pizza Enterprises Limited, which comprises the statement of financial position as at 29
June 2014, the statement of profit or loss and other comprehensive income, the statement of cash flows and the statement of changes in equity for the
period ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration
of the consolidated entity, comprising the company and the entities it controlled at the period end or from time to time during the financial year as set out
on pages 25 to 91.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian
Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 3, the directors also state, in
accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the consolidated financial statements comply with International
Financial Reporting Standards.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing
Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected
depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control, relevant to the company’s preparation of the financial report that gives a true
and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Liability limited is a scheme approved under Professional Standards Legislation
Member of Deloitte Touche Tohmatsu Limited
23
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF DOMINO’S PIZZA ENTERPRISES LIMITED
AUDITOR’S INDEPENDENCE DECLARATION
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence
declaration required by the Corporations Act 2001, which has been given to the directors of Domino’s Pizza Enterprises Limited, would be in the same
terms if given to the directors as at the time of this auditor’s report.
Opinion
In our opinion:
(a) the financial report of Domino’s Pizza Enterprises Limited is in accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of the consolidated entity’s financial position as at 29 June 2014 and of its performance for the period ended on that
date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001;
(b) the consolidated financial statements also comply with International Financial Reporting Standards as disclosed in Note 3.
REPORT ON THE REMUNERATION REPORT
We have audited the Remuneration Report included in pages 14 to 21 of the directors’ report for the period ended 29 June 2014. The directors of the
company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001.
Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.
Opinion
In our opinion the Remuneration Report of Domino’s Pizza Enterprises Limited for the period ended 29 June 2014, complies with section 300A of the
Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
Stephen Tarling
Partner
Chartered Accountants
Brisbane, 11 August 2014
24
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED
DIRECTORS’ DECLARATION
The directors declare that:
(a) in the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
payable;
(b) in the directors’ opinion, the attached financial statements are in compliance with International Financial Reporting Standards, as stated in note 3.1 to
the financial statements;
(c) in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance
with accounting standards and giving a true and fair view of the financial position and performance of the Consolidated entity; and
(d) the directors have been given the declarations required by s.295A of the Corporations Act 2001.
Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001.
On behalf of the Directors
Don Meij
Managing Director/Chief Executive Officer
Sydney, 11 August 2014
25
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 26
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDCORPORATE GOVERNANCE STATEMENT CONTINUED INDEX TO THE FINANCIAL REPORT
CONTENTS
Consolidated statement of profit or loss
and other comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
28
29
30
31
NOTES TO THE FINANCIAL STATEMENTS
CONTENTS
1. General information
2.
Application of new and revised
accounting standards
3. Significant accounting policies
4.
Critical accounting judgements and key
sources of estimation uncertainty
5. Revenue
6. Segment information
7. Other revenue
8. Other gains and losses
9. Finance costs
10. Income taxes
11. Profit for the year from continuing operations
12. Earnings per share
13. Trade and other receivables
14. Other financial assets
15. Inventories
16. Non-current assets classified as held for sale
17. Subsidiaries
18. Property, plant and equipment
19. Goodwill
20. Other intangible assets
21. Other assets
22. Trade and other payables
23. Borrowings
24. Other financial liabilities
25. Provisions
32
32
35
44
45
45
48
48
49
49
53
54
55
56
57
57
58
59
60
62
63
63
63
64
64
26. Retirement benefit plans
27. Other liabilities
28. Obligations under finance leases
29. Issued capital
30. Reserves
31. Retained earnings
32. Non-controlling interest
33. Dividends
34. Financial instruments
35. Share-based payments
36. Key management personnel compensation
37. Related party transactions
38. Acquisition of businesses
39. Cash and cash equivalents
40. Operating lease arrangements
41. Commitments for expenditure
42. Contingent liabilities and contingent assets
43. Remuneration of auditors
44. Events after the reporting period
45. Parent entity information
46. Acquisition of subsidiary
47. Approval of financial statements
Additional securities exchange information
as at 1 August 2014
Glossary
Corporate directory
65
66
66
67
69
69
70
70
70
78
80
80
84
86
87
87
88
88
89
89
90
91
92
94
95
27
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 29 JUNE 2014
Revenue
Other revenue
Other gains and losses
Food and paper expenses
Employee benefits expense
Plant and equipment costs
Depreciation and amortisation expense
Occupancy expenses
Finance costs
Marketing expenses
Store related expenses
Communication expenses
Acquisition and integration related costs
Other expenses
Profit before tax
Income tax expense
Profit for the year from continuing operations
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange differences arising on translation of foreign operations
Loss on cash flow hedges taken to equity
Gain/(loss) on net investment hedge taken to equity
Remeasurement of defined benefit obligation
Income tax relating to components of other comprehensive income
Other comprehensive income for the period (net of tax)
NOTE
5
7
8
11
11
9
10
11
2014
$’000
452,811
135,862
3,710
(175,579)
(153,759)
(15,931)
(21,712)
(22,658)
(2,458)
(38,053)
(14,761)
(8,553)
(3,230)
(69,129)
66,560
(21,264)
2013
$’000
188,631
106,259
3,564
(85,150)
(76,260)
(9,331)
(12,792)
(9,103)
(405)
(11,430)
(7,182)
(6,351)
(1,354)
(38,331)
40,765
(12,108)
45,296
28,657
(14,817)
(1,325)
3,838
(255)
(659)
(13,218)
5,990
-
(1,351)
-
1,389
6,028
Total comprehensive income for the year
32,078
34,685
Profit attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
Earnings per share:
From continuing operations
Basic (cents per share)
Diluted (cents per share)
Notes to the financial statements are included on pages 32 to 91.
28
42,303
2,993
45,296
32,781
(703)
32,078
28,657
-
28,657
34,685
-
34,685
12
12
50.5 cents
49.8 cents
39.1 cents
38.7 cents
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 29 JUNE 2014
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
Current tax assets
Other
Assets classified as held for sale
Total current assets
Non-current assets
Other financial assets
Property, plant & equipment
Deferred tax assets
Goodwill
Other intangible assets
Other
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
Other financial liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Other financial liabilities
Provisions
Deferred tax liabilities
Other
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Capital and reserves
Issued capital
Reserves
Retained earnings
Non-controlling interest
Total equity
Notes to the financial statements are included on pages 32 to 91.
NOTE
2014
$’000
2013
$’000
39
13
14
15
10
21
16
14
18
10
19
20
21
22
23
24
10
25
23
24
25
10
27
29
30
31
32
42,283
36,567
2,807
11,707
117
9,663
103,144
-
103,144
20,331
93,263
188
278,113
63,891
78
455,864
559,008
100,373
1,281
2,327
4,277
4,339
112,597
118,629
51,640
7,952
8,801
-
187,022
299,619
259,389
194,193
(14,752)
79,948
-
259,389
18,691
26,412
1,286
6,685
191
6,315
59,580
803
60,383
4,415
49,693
40
57,113
17,427
680
129,368
189,751
38,055
7,082
508
2,550
3,109
51,304
32,589
303
441
2,395
137
35,865
87,169
102,582
40,855
(1,985)
63,712
-
102,582
29
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 29 JUNE 2014
ISSUED
CAPITAL
$’000
HEDGING
RESERVE
$’000
FOREIGN
CURRENCY
TRANS-
LATION
RESERVE
$’000
OTHER
RESERVE
$’000
RETAINED
EARNINGS
$’000
MINORITY
INTEREST
$’000
Balance at 1 July 2012
69,872
2,296
(12,842)
1,898
55,817
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Shares issued
Capital return
Recognition of share based payments
Payment of dividends
Balance at 30 June 2013
-
-
-
1,025
(30,042)
-
-
40,855
-
38
38
-
-
-
-
2,334
-
5,990
5,990
-
-
-
-
(6,852)
-
-
-
-
-
635
-
2,533
28,657
-
28,657
-
-
-
(20,762)
63,712
Balance at 30 June 2013
40,855
2,334
(6,852)
2,533
63,712
-
-
-
-
-
-
-
-
-
-
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Shares issued related to Japan acquisition
Other shares issued
Capital costs related to Japan acquisition
Recognition of share based payments
Non-controlling interest
Non-controlling interest put option adjustment
Payment of dividends
Balance at 29 June 2014
-
-
-
156,336
1,624
(4,622)
-
-
-
-
194,193
Notes to the financial statements are included on pages 32 to 91.
-
1,760
1,760
-
-
-
-
-
-
-
4,094
-
(11,163)
(11,163)
-
-
-
-
-
-
-
(18,015)
-
(119)
(119)
-
-
-
1,461
-
(4,706)
-
(831)
42,303
-
42,303
-
-
-
-
-
-
(26,067)
79,948
2,993
(3,696)
(703)
-
-
-
-
45,267
(44,564)
-
-
TOTAL
$’000
117,041
28,657
6,028
34,685
1,025
(30,042)
635
(20,762)
102,582
102,582
45,296
(13,218)
32,078
156,336
1,624
(4,622)
1,461
45,267
(49,270)
(26,067)
259,389
30
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 29 JUNE 2014
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest and other costs of finance paid
Income taxes paid
Net cash generated by operating activities
Cash flows from investing activities
Payments for investments and business operations, net of cash and inventory acquired
Loans (to)/from third parties and franchisees
Payment for property, plant & equipment
Proceeds from sale of businesses and other non-current assets
Payments for intangible assets
Payment for investment in Domino's Pizza Japan
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Return of share capital
Dividends paid
Capital costs associated with equity raising
Capital costs associated with debt raising
Proceeds from issue of equity securities
Net cash generated from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on the balance of cash held in foreign currencies
NOTE
2014
$’000
2013
$’000
39
38
46
644,120
(533,064)
642
(2,458)
(18,572)
90,668
(12,140)
(2,275)
(37,633)
23,742
(14,068)
(232,596)
(274,970)
123,360
(42,951)
-
(26,067)
(4,622)
(1,025)
157,960
206,655
22,353
18,691
1,239
327,142
(282,864)
1,103
(405)
(11,796)
33,180
(19,077)
2,516
(25,037)
21,069
(9,866)
-
(30,395)
43,721
(20,506)
(30,042)
(20,762)
-
-
1,025
(26,564)
(23,779)
40,340
2,130
Cash and cash equivalents at the end of the year
39
42,283
18,691
Notes to the financial statements are included on pages 32 to 91.
31
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Domino’s Pizza Enterprises Limited is a
public company listed on the Australian Stock
Exchange (trading under the symbol ‘DMP’),
incorporated and operating in Australia,
New Zealand, France, Belgium, The Netherlands
and Japan. The ultimate parent company is
Domino’s Pizza Enterprises Limited.
Domino’s Pizza Enterprises Limited’s registered office and its principal place of business are as follows:
Registered office
KSD1, L5
485 Kingsford Smith Drive
Hamilton
Brisbane
Queensland 4007
Tel: +61 (0)7 3633 3333
Principal place of business
KSD1, L5
485 Kingsford Smith Drive
Hamilton
Brisbane
Queensland 4007
Tel: +61 (0)7 3633 3333
The entity’s principal activities are the operation of retail food outlets and operation of franchise services.
2. APPLICATION OF NEW AND REVISED ACCOUNTING STANDARDS
2.1 New and revised AASBs affecting amounts reported and/or disclosures in the financial statements
The following new and revised Standards and Interpretations have been adopted in the current period and the effects if any, have been adjusted in these
financial statements.
Standards affecting presentation and disclosure
AASB 2011-4 ‘Amendments to Australian
Accounting Standards to Remove Individual Key
Management Personnel Disclosure Requirements’
This standard removes the individual key management personnel disclosure requirements in
AASB 124 ‘Related Party Disclosures’. As a result the Consolidated entity only discloses the key
management personnel compensation in total and for each of the categories required in AASB 124.
AASB 2012-2 ‘Amendments to Australian
Accounting Standards – Disclosures – Offsetting
Financial Assets and Financial Liabilities’
AASB 2012-5 ‘Amendments to Australian
Accounting Standards arising from Annual
Improvements 2009- 2011 Cycle’
In the current year the individual key management personnel disclosure previously required by AASB
124 is now disclosed in the remuneration report due to an amendment to Corporations Regulations
2001 issued in June 2013.
The Consolidated entity has applied the amendments to AASB 7 ‘Disclosures – Offsetting Financial
Assets and Financial Liabilities’ for the first time in the current year. The amendments to AASB 7
require entities to disclose information about rights of offset and related arrangements (such as
collateral posting requirements) for financial instruments under an enforceable master netting
agreement or similar arrangement.
The amendments have been applied retrospectively. As the Consolidated entity does not have any
offsetting arrangements in place, the application of the amendments does not have any material
impact on the consolidated financial statements.
The Annual Improvements to AASBs 2009 - 2011 have made a number of amendments to AASBs.
The amendments that are relevant to the Consolidated entity are the amendments to AASB 101
regarding when a statement of financial position as at the beginning of the preceding period (third
statement of financial position) and the related notes are required to be presented. The amendments
specify that a third statement of financial position is required when a) an entity applies an accounting
policy retrospectively, or makes a retrospective restatement or reclassification of items in its financial
statements, and b) the retrospective application, restatement or reclassification has a material effect
on the information in the third statement of financial position. The amendments specify that related
notes are not required to accompany the third statement of financial position.
32
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED New and revised Standards on consolidation, joint arrangements, associates and disclosures
In August 2011, a package of five standards on consolidation, joint arrangements, associates and disclosures was issued comprising AASB 10
‘Consolidated Financial Statements’, AASB 11 ‘Joint Arrangements’, AASB 12 ‘Disclosure of Interests in Other Entities.
In the current year, the Consolidated entity has applied for the first time AASB 10, AASB 11, AASB 12 and AASB 128 (as revised in 2011) together with the
amendments to AASB 10, AASB 11 and AASB 12 regarding the transitional guidance. AASB 127 (as revised in 2011) is applicable in that it applies to the
Parent Entity. The impact of the application of these standards is set out below.
AASB 10 ‘Consolidated Financial Statements’
and AASB 2011-7 ‘Amendments to Australian
Accounting Standards arising from the
consolidation and Joint Arrangements standards’
AASB 13 ‘Fair Value Measurement’ and
AASB 2011-8 ‘Amendments to Australian
Accounting Standards arising from AASB 13’
AASB 119 ‘Employee Benefits’ (2011)
and AASB 2011-10 ‘Amendments to
Australian Accounting Standards
arising from AASB 119 (2011)’
AASB 10 replaces the parts of AASB 127 ‘Consolidated and Separate Financial Statements’ that
deal with consolidated financial statements and Interpretation 112 ‘Consolidation – Special Purpose
Entities’. AASB 10 changes the definition of control such that an investor controls an investee
when a) it has power over an investee, b) it is exposed, or has rights, to variable returns from its
involvement with the investee, and c) has the ability to use its power to affect its returns. All three
of these criteria must be met for an investor to have control over an investee. Previously, control
was defined as the power to govern the financial and operating policies of an entity so as to obtain
benefits from its activities. Additional guidance has been included in AASB 10 to explain when an
investor has control over an investee.
In accordance with these transitional provisions, the Consolidated entity has not made any new
disclosures required by AASB 10 for the 2012 comparative period, the application of AASB 10 has not
had any material impact on the amounts recognised in the consolidated financial statements.
The Consolidated entity has applied AASB 13 for the first time in the current year. AASB 13
establishes a single source of guidance for fair value measurements and disclosures about fair
value measurements. The scope of AASB 13 is broad; the fair value measurement requirements of
AASB 13 apply to both financial instrument items and non-financial instrument items for which other
AASBs require or permit fair value measurements and disclosures about fair value measurements,
except for sharebased payment transactions that are within the scope of AASB 2 ‘Share-based
Payment’, leasing transactions that are within the scope of AASB 117 ‘Leases’, and measurements
that have some similarities to fair value but are not fair value (e.g. net realisable value for the
purposes of measuring inventories or value in use for impairment assessment purposes).
AASB 13 defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction in the principal (or most advantageous) market at the measurement
date under current market conditions. Fair value under AASB 13 is an exit price regardless of
whether that price is directly observable or estimated using another valuation technique. Also, AASB
13 includes extensive disclosure requirements.
AASB 13 requires prospective application from 1 July 2013. In addition, specific transitional
provisions were given to entities such that they need not apply the disclosure requirements set out
in the Standard in comparative information provided for periods before the initial application of the
Standard. In accordance with these transitional provisions, the Consolidated entity has not made
any new disclosures required by AASB 13 for the 2013 comparative period. Other than the additional
disclosures, the application of AASB 13 does not have any material measurement impact on the
amounts recognised in the consolidated financial statements.
In the current year, the Consolidated entity has applied AASB 119 (as revised in 2011) ‘Employee
Benefits’ and the related consequential amendments for the first time. AASB 119 (as revised in 2011)
changes the accounting for defined benefit plans and termination benefits. The most significant
change relates to the accounting for changes in defined benefit obligations and plan assets. The
amendments require the recognition of changes in defined benefit obligations and in the fair value
of plan assets when they occur, and hence eliminate the ‘corridor approach’ permitted under the
previous version of AASB 119 and accelerate the recognition of past service costs. All actuarial gains
and losses are recognised immediately through other comprehensive income in order for the net
pension asset or liability recognised in the consolidated statement of financial position to reflect the
full value of the plan deficit or surplus. Furthermore, the interest cost and expected return on plan
assets used in the previous version of AASB 119 are replaced with a ‘net interest’ amount under
AASB 119 (as revised in 2011), which is calculated by applying the discount rate to the net defined
benefit liability or asset. We have applied these standards on defined benefit plans in the current
year.
33
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 2.2 Standards and Interpretations in issue not yet adopted
At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not yet effective. We have
undertaken an assessment of the standards that we currently believe could affect us, and at this stage do not expect these to significantly affect the
reporting results or financial position for the consolidated entity in the future.
STANDARD/INTERPRETATION
AASB 9
‘Financial Instruments’, and the relevant amending standards
AASB 1031
‘Materiality’ (2013)
AASB 2012-3
‘Amendments to Australian Accounting Standards – Offsetting Financial
Assets and Financial Liabilities’
AASB 2013-3
‘Amendments to AASB 135 – Recoverable Amount Disclosures for Non-
Financial Assets’
AASB 2013-4
‘Amendments to Australian Accounting Standards – Novation of
Derivatives and Continuation of Hedge Accounting’
Narrow-scope amendments to IAS 19
Employee Benefits entitled Defined Benefit Plans: Employee
Contributions (Amendments to IAS 19)
AASB 2013-9
‘Amendments to Australian Accounting Standards – Conceptual
Framework, materiality and Financial Instruments’
IFRS 15
‘Revenue from Contracts with Customers’
EFFECTIVE FOR ANNUAL
REPORTING PERIODS
BEGINNING ON OR AFTER
EXPECTED TO BE
INITIALLY APPLIED IN THE
FINANCIAL YEAR ENDING
1 January 2017
1 January 2014
30 June 2018
30 June 2015
1 January 2014
30 June 2015
1 January 2014
30 June 2015
1 January 2014
30 June 2015
1 July 2014
30 June 2015
1 January 2014
1 January 2017
30 June 2015
30 June 2018
34
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 3.
SIGNIFICANT ACCOUNTING
POLICIES
3.1 Statement of compliance
These financial statements are general purpose
financial statements which have been prepared
in accordance with the Corporations Act 2001,
Accounting Standards and Interpretations, and
comply with other requirements of the law. The
financial statements comprise the consolidated
financial statements of the Consolidated entity for
the 52-week period ended 29 June 2014. For the
purposes of preparing the consolidated financial
statements, the Company is a for-profit entity.
Accounting Standards include Australian
Accounting Standards. Compliance with Australian
Accounting Standards ensures that the financial
statements and notes of the Company and the
Consolidated entity comply with International
Financial Reporting Standards (‘IFRS’).
The financial statements were authorised for
issue by the directors on 11 August 2014.
3.2 Basis of preparation
The consolidated financial statements have been
prepared on the basis of historical cost, except
for certain properties and financial instruments
that are measured at revalued amounts or fair
values at the end of each reporting period, as
explained in the accounting policies below.
Historical cost is generally based on the fair
values of the consideration given in exchange for
goods and services. All amounts are presented
in Australian dollars, unless otherwise noted.
Fair value is the price that would be received to
sell an asset or paid to transfer a liability in an
orderly transaction between market participants
at the measurement date, regardless of whether
that price is directly observable or estimated
using another valuation technique. In estimating
the fair value of an asset or a liability, the
Consolidated entity takes into account the
characteristics of the asset or liability if market
participants would take those characteristics
into account when pricing the asset or liability at
the measurement date.
Fair value for measurement and/or disclosure
purposes in these consolidated financial
statements is determined on such a basis,
except for share-based payment transactions
that are within the scope of AASB 2, leasing
transactions that are within the scope of
AASB 117, and measurements that have some
similarities to fair value but are not fair value,
such as net realisable value in AASB 102 or
value in use in AASB 136.
In addition, for financial reporting purposes,
fair value measurements are categorised into
Level 1, 2 or 3 based on the degree to which
the inputs to the fair value measurements are
observable and the significance of the inputs to
the fair value measurement in its entirety, which
are described as follows:
• Level 1 inputs are quoted prices (unadjusted)
in active markets for identical assets or
liabilities that the entity can access at the
measurement date;
• Level 2 inputs are inputs, other than quoted
prices included within Level 1, that are
observable for the asset or liability, either
directly or indirectly; and
• Level 3 inputs are unobservable
inputs for the asset or liability.
The Company is a company of the kind referred
to in ASIC Class Order 98/0100, dated 10 July
1998, and in accordance with that Class Order
amounts in the financial report are rounded
off to the nearest thousand dollars, unless
otherwise indicated.
The principal accounting policies are set out below.
3.3 Basis of consolidation
The consolidated financial statements
incorporate the financial statements of the
Company and entities controlled by the
Company (its subsidiaries) (referred to as
‘the Consolidated entity’ in these financial
statements). Control is achieved when the
Company
• has power over the investee;
• is exposed, or has rights, to variable returns
from its involvement with the investee; and,
• has the ability to use its power
to affect its returns.
The Company reassesses whether or not it
controls an investee if facts and circumstances
indicate that there are changes to one or more of
the three elements of control listed above.
Consolidation of a subsidiary begins when the
Company obtains control over the subsidiary and
ceases when the Company loses control of the
subsidiary. Specifically, income and expenses of
a subsidiary acquired or disposed of during the
year are included in the consolidated statement
of profit or loss and other comprehensive income
from the date the Company gains control until
the date when the Company ceases to control
the subsidiary.
Profit or loss and each component of other
comprehensive income are attributed to the
owners of the Company and to the non-
controlling interests. Total comprehensive
income of subsidiaries is attributed to the
owners of the Company and to the non-
controlling interests even if this results in
the non-controlling interests having a deficit
balance. When necessary, adjustments are
made to the financial statements of subsidiaries
to bring their accounting policies into line with
the Consolidated entity’s accounting policies. All
intragroup assets and liabilities, equity, income,
expenses and cash flows relating to transactions
between members of the Consolidated entity are
eliminated in full on consolidation.
3.4 Business combinations
Acquisitions of subsidiaries and businesses are
accounted for using the acquisition method. The
consideration for each acquisition is measured
at the aggregate of the fair values (at the date
of exchange) of assets given, liabilities incurred
or assumed, and equity instruments issued by
the Consolidated entity in exchange for control
of the acquiree. Acquisition-related costs are
recognised in profit or loss as incurred.
Goodwill is measured as the excess of the sum
of the consideration transferred, the amount of
any non-controlling interests in the acquiree,
and the fair value of the acquirer’s previously
held equity interest in the acquiree (if any) over
the net of the acquisition-date amounts of the
identifiable assets acquired and the liabilities
assumed. If, after reassessment, the net of the
acquisition-date amounts of the identifiable
assets acquired and liabilities assumed exceeds
the sum of the consideration transferred, the
amount of any non-controlling interests in the
acquiree and the fair value of the acquirer’s
previously held interest in the acquiree (if any),
the excess is recognised immediately in profit or
loss as a bargain purchase gain.
Non-controlling interests that are present
ownership interests and entitle their holders to a
proportionate share of the entity’s net assets in
the event of liquidation may be initially measured
either at fair value or at the non-controlling
interests’ proportionate share of the recognised
amounts of the acquiree’s identifiable net
assets. The choice of measurement basis is
made on a transaction-by-transaction basis.
Other types of non-controlling interests are
measured at fair value or, when applicable, on
the basis specified in another Standard.
35
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED If the initial accounting for a business
combination is incomplete by the end of the
reporting period in which the combination
occurs, the Consolidated entity reports
provisional amounts for the items for
which the accounting is incomplete. Those
provisional amounts are adjusted during the
measurement period (see above), or additional
assets or liabilities are recognised, to reflect
new information obtained about facts and
circumstances that existed as of the acquisition
date that, if known, would have affected the
amounts recognised as of that date.
The measurement period is the period from the
date of acquisition to the date the Consolidated
entity obtains complete information about
facts and circumstances that existed as of the
acquisition date – and is subject to a maximum
of one year.
Investments in associates
3.5
An associate is an entity over which the
Consolidated entity has significant influence and
that is neither a subsidiary nor an interest in a
joint venture. Significant influence is the power
to participate in the financial and operating
policy decisions of the investee but has no
control or joint control over those policies.
The results and assets and liabilities of
associates are incorporated in these financial
statements using the equity method of
accounting, except when the investment is
classified as held for sale, in which case it
is accounted for in accordance with AASB
5 ‘Non-current Assets Held for Sale and
Discontinued Operations’. Under the equity
method, investments in associates are carried
in the consolidated balance sheet at cost as
adjusted for post-acquisition changes in the
Consolidated entity’s share of the net assets
of the associate, less any impairment in the
value of individual investments. Losses of an
associate in excess of the Consolidated entity’s
interest in that associate (which includes any
long-term interests that, in substance, form part
of the Consolidated entity’s net investment in
the associate) are recognised only to the extent
that the Consolidated entity has incurred legal or
constructive obligations or made payments on
behalf of the associate.
Any excess of the cost of acquisition over
the Consolidated entity’s share of the net fair
value of the identifiable assets, liabilities and
contingent liabilities of the associate recognised
at the date of the acquisition is recognised
as goodwill. The goodwill is included within
the carrying amount of the investment and
is assessed for impairment as part of that
investment. Any excess of the Consolidated
entity’s share of the net fair value of the
identifiable assets, liabilities and contingent
liabilities over the cost of the acquisition, after
reassessment, is recognised immediately in
profit or loss.
Where a group entity transacts with an associate
of the Consolidated entity, profits and losses
are eliminated to the extent of the Consolidated
entity’s interest in the relevant associate.
3.6 Foreign currencies
The individual financial statements of each
group entity are presented in its functional
currency being the currency of the primary
economic environment in which the entity
operates (its functional currency). For
the purpose of the consolidated financial
statements, the results and financial position
of each entity are expressed in Australian
dollars (‘$’), which is the functional currency
of Domino’s Pizza Enterprises Limited and the
presentation currency for the consolidated
financial statements.
In preparing the financial statements of the
individual entities, transactions in currencies
other than the entity’s functional currency
(foreign currencies) are recognised at the
rates of exchange prevailing on the dates of
the transactions. At the end of each reporting
period, monetary items denominated in
foreign currencies are retranslated at the rates
prevailing at that date. Non-monetary items
carried at fair value that are denominated in
foreign currencies are retranslated at the rates
prevailing on the date when the fair value was
determined. Non-monetary items that are
measured in terms of historical cost in a foreign
currency are not retranslated.
Where the consideration transferred by the
Consolidated entity in a business combination
includes assets or liabilities resulting from a
contingent consideration arrangement, the
contingent consideration is measured at its
acquisition-date fair value. Changes in the
fair value of the contingent consideration that
qualify as measurement period adjustments are
adjusted retrospectively, with corresponding
adjustments against goodwill. Measurement
period adjustments are adjustments that arise
from additional information obtained during the
‘measurement period’ (which cannot exceed one
year from the acquisition date) about facts and
circumstances that existed at the acquisition
date.
The subsequent accounting for changes in the
fair value of contingent consideration that do
not qualify as measurement period adjustments
depends on how the contingent consideration
is classified. Contingent consideration that
is classified as equity is not remeasured at
subsequent reporting dates and its subsequent
settlement is accounted for within equity.
Contingent consideration that is classified as an
asset or liability is remeasured at subsequent
reporting dates in accordance with AASB 139,
or AASB 137 ‘Provisions, Contingent Liabilities
and Contingent Assets’, as appropriate, with the
corresponding gain or loss being recognised in
profit or loss.
Where a business combination is achieved in
stages, the Consolidated entity’s previously held
equity interest in the acquiree is remeasured to
its acquisition date fair value and the resulting
gain or loss, if any, is recognised in profit or loss.
Amounts arising from interests in the acquiree
prior to the acquisition date that have previously
been recognised in other comprehensive income
are reclassified to profit or loss where such
treatment would be appropriate if that interest
were disposed of.
At the acquisition date, the identifiable assets
acquired and the liabilities assumed are
recognised at their fair value, except that:
• deferred tax assets or liabilities and liabilities
or assets related to employee benefit
arrangements are recognised and measured
in accordance with AASB 112 Income Taxes
and AASB 119 Employee Benefits respectively;
• liabilities or equity instruments related to the
replacement by the Consolidated entity of an
acquiree’s share-based payment awards are
measured in accordance with AASB 2 Share-
based Payment; and
• assets (or disposal Consolidated entitys) that
are classified as held for sale in accordance
with AASB 5 Non-current Assets Held
for Sale and Discontinued Operations are
measured in accordance with that Standard.
36
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED Exchange differences are recognised in profit or
loss in the period in which they arise except for:
• exchange differences on foreign currency
borrowings relating to assets under
construction for future productive use, which
are included in the cost of those assets when
they are regarded as an adjustment to interest
costs on those foreign currency borrowings;
• exchange differences on transactions entered
into in order to hedge certain foreign currency
risks (see 3.24 below for hedge accounting
policies); and
• exchange differences on monetary items
receivable from or payable to a foreign
operation for which settlement is neither
planned or likely to occur, (therefore forming
part of the net investment in a foreign
operation), which are recognised initially in
other comprehensive income and reclassified
from equity to profit and loss on disposal
or partial disposal of the net investment.
For the purpose of presenting the consolidated
financial statements, the assets and liabilities
of the Consolidated entity’s foreign operations
are expressed in Australian dollars using
exchange rates prevailing at the end of the
reporting period. Income and expense items
are translated at the average exchange rates
for the period, unless exchange rates fluctuated
significantly during the period, in which case the
exchange rates at the date of the transactions
are used. Exchange differences arising, if any,
are recognised in other comprehensive income
and accumulated in equity (attributed to non-
controlling interests as appropriate).
On disposal of a foreign operation (i.e. a disposal
of the Consolidated entity’s entire interest in
a foreign operation, or a disposal involving
loss of control over a subsidiary that includes
a foreign operation, loss of joint control over a
jointly controlled entity that includes a foreign
operation, or loss of significant influence over
an associate that includes a foreign operation),
all of the accumulated exchange differences
in respect of that operation attributable to the
Consolidated entity are reclassified to profit
or loss. Any exchange differences that have
previously been attributed to non-controlling
interests are derecognised, but they are not
reclassified to profit or loss.
In the case of a partial disposal (i.e. no loss
of control) of a subsidiary that includes a
foreign operation, the proportionate share of
accumulated exchange differences are re-
attributed to non-controlling interests and are
not recognised in profit or loss. For all other
partial disposals (i.e. of associates or jointly
controlled entities not involving a change of
accounting basis), the proportionate share
of the accumulated exchange differences is
reclassified to profit or loss.
Goodwill and fair value adjustments arising on
the acquisition of a foreign operation are treated
as assets and liabilities of the foreign operation
and translated at the closing rate. Exchange
differences arising are recognised in other
comprehensive income.
3.7 Goods and services tax
Revenues, expenses and assets are recognised
net of the amount of goods and services tax
(“GST”), except:
(i) where the amount of GST incurred is not
recoverable from the taxation authority, it is
recognised as part of the cost of acquisition
of an asset or as part of an item of expense;
or
(ii) for receivables and payables which are
recognised inclusive of GST.
The net amount of GST recoverable from, or
payable to, the taxation authority is included as
part of receivables or payables.
Cash flows are included in the cash flow
statement on a gross basis. The GST component
of cash flows arising from investing and
financing activities which is recoverable from,
or payable to, the taxation authority is classified
within operating cash flows.
3.8 Revenue recognition
Revenue is measured at the fair value of the
consideration received or receivable.
3.8.1 Sale of goods
Revenue from the sale of goods is recognised
when the Consolidated entity has transferred to
the buyer the significant risks and rewards of
ownership of the goods.
3.8.2 Franchise income
Franchise income is recognised on an accrual
basis in accordance with the substance of the
relevant agreement.
3.8.3 Rendering of services
Service revenue relates primarily to store
building services and is recognised by reference
to the stage of completion of the contract.
3.8.4 Royalties
Royalty revenue is recognised on an accrual
basis in accordance with the substance of the
relevant agreement (provided that it is probable
that the economic benefits will flow to the
Consolidated entity and the amount of revenue
can be measured reliably). Royalties determined
on a time basis are recognised on a straight-line
basis over the period of the agreement. Royalty
arrangements that are based on sales and other
measures are recognised by reference to the
underlying arrangement.
3.8.5 Dividend and interest revenue
Dividend revenue from investments is
recognised when the shareholder’s right to
receive payment has been established (provided
that it is probable that the economic benefits will
flow to the Consolidated entity and the amount
of revenue can be reliably measured).
Interest revenue is recognised when it is
probable that the economic benefits will flow
to the Consolidated entity and the amount of
revenue can be measured reliably. Interest
revenue is accrued on a time basis, with
reference to the principal outstanding and at the
effective interest rate applicable, which is the
rate that exactly discounts estimated future cash
receipts through the expected life of the financial
asset to that asset’s net carrying amount on
initial recognition.
3.9 Share-based payments
Equity-settled share-based payments to
employees and others providing similar
services are measured at the fair value of
the equity instrument at the grant date. The
fair value is measured by use of a binomial
model. The expected life used in the model
has been adjusted, based on management’s
best estimate, for the effects of non-
transferability, exercise restrictions, and
behavioural considerations. Details regarding the
determination of the fair value of equity-settled
share-based transactions are set out in note 35.
The fair value determined at the grant date
of the equity-settled share-based payments
is expensed on a straight-line basis over the
vesting period, based on the Consolidated
entity’s estimate of equity instruments that
will eventually vest. At each reporting period,
the Consolidated entity revises its estimate of
the number of equity instruments expected to
vest. The impact of the revision of the original
estimates, if any, is recognised in profit or
loss over the remaining vesting period, with
corresponding adjustment to the equity-settled
employee benefits reserve.
The policy described above is applied to all
equity-settled share-based payments that were
granted after 7 November 2002 that vested after
1 January 2005. No amount has been recognised
in the financial statements in respect of the other
equity-settled share-based payments.
Equity-settled share-based payment
transactions with other parties are measured at
the fair value of the goods and services received,
except where the fair value cannot be estimated
reliably, in which case they are measured at
the fair value of the equity instruments granted,
measured at the date the entity obtains the
goods or the counterparty renders the service.
37
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 3.10 Taxation
Income tax expense represents the sum of the
tax currently payable and deferred tax.
3.10.1 Current tax
The tax currently payable is based on taxable
profit for the year. Taxable profit differs from
profit as reported in the consolidated statement
of comprehensive income because of items of
income or expense that are taxable or deductible
in other years and items that are never taxable
or deductible. The Consolidated entity’s liability
for current tax is calculated using tax rates that
have been enacted or substantively enacted by
the end of this reporting period.
3.10.2 Deferred tax
Deferred tax is recognised on temporary
differences between the carrying amounts of
assets and liabilities in the financial statements
and the corresponding tax bases used in the
computation of taxable profit. Deferred tax
liabilities are generally recognised for all taxable
temporary differences. Deferred tax assets are
generally for all deductible temporary differences
to the extent that it is probable that taxable
profits will be available against which those
deductible temporary differences can be utilised.
Such deferred tax assets and liabilities are not
recognised if the temporary difference arises
from goodwill or from the initial recognition
of goodwill or other assets and liabilities in a
transaction that affects neither the taxable profit
nor the accounting profit.
Deferred tax liabilities are recognised for
taxable temporary differences associated with
investments in subsidiaries and associates and
interests in joint ventures except where the
Consolidated entity is able to control the reversal
of the temporary differences and it is probable
that the temporary differences will not reverse in
the foreseeable future. Deferred tax assets arising
from deductible temporary differences associated
with these investments and interests are only
recognised to the extent that it is probable that
there will be sufficient taxable profits against
which to utilise the benefits of the temporary
differences they are expected to reverse in the
foreseeable future.
The carrying amount of deferred tax assets is
reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to
allow all or part of the asset to be recovered.
38
Deferred tax assets and liabilities are measured
at the tax rates that are expected to apply in
the period in which the liability is settled or the
asset is realised, based on tax rates (and tax
laws) that have been enacted or substantively
enacted by the end of the reporting period.
The measurement of deferred tax liabilities
and assets reflects the tax consequences that
would follow from the manner in which the
Consolidated entity expects, at the end of the
reporting period, to recover or settle the carrying
amount of its assets and liabilities.
Deferred tax assets and liabilities are offset
when there is a legally enforceable right to
set off current tax assets against current tax
liabilities and when they related to income taxes
levied by the same taxation authority and the
Consolidated entity intends to settle its current
tax assets and liabilities on a net basis.
3.10.3 Current and deferred tax for the period
Current and deferred tax is recognised as an
expense or income in the profit or loss, except
when they relate to items that are recognised
outside the profit or loss (whether in other
comprehensive income or directly in equity), in
which case the tax is also recognised outside
the profit or loss, or where they arise from the
initial accounting for a business combination.
In the case of a business combination, the tax
effect is included in the accounting for the
business combination.
3.10.4 Tax consolidation
The Company and all its wholly-owned
Australian resident entities are part of a tax
consolidated group under Australian taxation
law. Domino’s Pizza Enterprises Limited
is the head entity in the tax-consolidated
group. Tax expense/income, deferred tax
liabilities and deferred tax assets arising from
temporary differences of the members of the
tax-consolidated group are recognised in the
separate financial statements of the members of
the tax-consolidated group using the ‘separate
taxpayer within group approach’ by reference to
the carrying amounts in the separate financial
statements of each entity and the tax values
applying under tax consolidation. Current tax
liabilities and assets and deferred tax assets
arising from unused tax losses and relevant tax
credits of the members of the tax-consolidated
group are recognised by the Company (as head
entity in the tax-consolidated group).
The entities in the tax-consolidated group have
not entered into a tax sharing agreement or
tax funding agreement. Income tax liabilities
payable to the tax authorities in respect of the
tax-consolidated group are recognised in the
financial statements of the parent entity.
3.11 Cash and cash equivalents
Cash comprises cash on hand and demand
deposits. Cash equivalents are short-term,
highly liquid investments that are readily
convertible to known amounts of cash, which
are subject to an insignificant risk of changes
in value and have a maturity of three months or
less at the date of acquisition. Bank overdrafts
are shown within borrowings in current liabilities
in the consolidated statement of financial
position.
3.12 Financial assets
All financial assets are recognised and
derecognised on trade date where the purchase
or sale of a financial asset is under a contract
whose terms require delivery of the financial
asset within the timeframe established by the
market concerned, and are initially measured
at fair value, plus transaction costs, except
for those financial assets classified as at fair
value through profit or loss, which are initially
measured at fair value.
Financial assets are classified into the following
specified categories: financial assets ‘at fair
value through profit or loss’ (FVTPL), ‘held-to-
maturity investments’, ‘available-for-sale’ (AFS)
‘financial assets’, and ‘loans and receivables’.
The classification depends on the nature
and purpose of the financial assets and is
determined at the time of initial recognition.
3.12.1 Effective interest method
The effective interest method is a method
of calculating the amortised cost of a debt
instrument and of allocating interest income
over the relevant period. The effective interest
rate is the rate that exactly discounts estimated
future cash receipts (including all fees on points
paid or received that form an integral part of
the effective interest rate, transaction costs
and other premiums or discounts) through the
expected life of the debt instrument, or (where
appropriate) a shorter period, to the net carrying
amount on initial recognition.
Income is recognised on an effective interest
rate basis for debt instruments other than those
financial assets as at FVTPL.
3.12.2 Financial assets at FVTPL
Financial assets are classified as at FVTPL when
the financial asset is either held for trading or it is
designated as at FVTPL.
A financial asset is classified as held for trading if:
• It has been acquired principally for the purpose
of selling it in the near term; or
• on initial recognition it is a part of an identified
portfolio of financial instruments that the
Consolidated entity manages together and has a
recent actual pattern of short-term profit-taking;
or
• it is a derivative that is not designated
and effective as a hedging instrument.
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED The fair value of AFS monetary assets
denominated in a foreign currency is determined
in that foreign currency and translated at the
spot rate at the end of the reporting period.
The foreign exchange gains and losses that
are recognised in profit or loss are determined
based on the amortised cost of the monetary
asset. Other foreign exchange gains and losses
are recognised in other comprehensive income.
3.12.5 Loans and receivables
Trade receivables, loans and other receivables
that have fixed or determinable payments
that are not quoted in an active market are
classified as ‘loans and receivables’. Loans
and receivables are measured at amortised
cost using the effective interest method less
impairment. Interest income is recognised by
applying the effective interest rate, except for
short-term receivables when the recognition of
interest would be immaterial.
3.12.6 Impairment of financial assets
Financial assets, other than those at FVTPL,
are assessed for indicators of impairment at the
end of each reporting period. Financial assets
are considered to be impaired where there
is objective evidence that, as a result of one
or more events that occurred after the initial
recognition of the financial asset, the estimated
future cash flows of the investment have been
affected.
For certain categories of financial asset, such
as trade receivables, assets that are assessed
not to be impaired individually are, in addition,
assessed for impairment on a collective basis.
Objective evidence of impairment for a portfolio
of receivables could include the Consolidated
entity’s past experience of collecting payments,
an increase in the number of delayed payments
in the portfolio past the average credit period
of 30 days, as well as observable changes
in national or local economic conditions that
correlate with default on receivables.
For financial assets carried at amortised cost,
the amount of the impairment recognised is the
difference between the asset’s carrying amount
and the present value of estimated future
cash flows, discounted at the original effective
interest rate. For financial assets that are
carried at cost, the amount of the impairment
loss is measured as the difference between the
asset’s carrying amount and the present value
of the estimated future cash flows discounted
at the current market rate of return for a similar
financial asset. Such impairment loss will not be
reversed in subsequent periods.
The carrying amount of financial assets is
reduced by the impairment loss directly for all
financial assets with the exception of trade
receivables, where the carrying amount is
reduced through the use of an allowance
account. When a trade receivable is considered
uncollectible, it is written off against the
allowance account. Subsequent recoveries of
amounts previously written off are credited
against the allowance account. Changes in the
carrying amount of the allowance account are
recognised in profit or loss.
When an AFS financial asset is considered to be
impaired, cumulative gains or losses previously
recognised in other comprehensive income are
reclassified to profit or loss in the period.
With the exception of AFS equity instruments,
if, in a subsequent period, the amount of the
impairment loss decreases and the decrease
can be related objectively to an event occurring
after the impairment was recognised, the
previously recognised impairment loss is
reversed through profit or loss to the extent the
carrying amount of the investment at the date
the impairment is reversed does not exceed
what the amortised cost would have been had
the impairment not been recognised.
In respect of AFS equity securities, impairment
losses previously recognised in profit or loss are
not reversed through profit or loss. Any increase
in fair value subsequent to an impairment loss is
recognised in other comprehensive income.
3.12.7 Derecognition of financial assets
The Consolidated entity derecognises a financial
asset only when the contractual rights to the
cash flows from the asset expire, or it transfers
the financial asset and substantially all the
risks and rewards of ownership of the asset to
another entity. If the Consolidated entity neither
transfers nor retains substantially all the risks
and rewards of ownership and continues to
control the transferred asset, the Consolidated
entity recognises its retained interest in the
asset and an associated liability for amounts
it may have to pay. If the Consolidated entity
retains substantially all the risks and rewards
of ownership of a transferred financial asset,
the Consolidated entity continues to recognise
the financial asset and also recognises a
collateralised borrowing for the proceeds
received.
A financial asset other than a financial asset
held for trading may be designated as at FVTPL
upon initial recognition if:
• such designation eliminates or significantly
reduces a measurement or recognition
inconsistency that would otherwise arise; or
• the financial asset forms part of a
Consolidated entity of financial assets
or financial liabilities or both, which is
managed and its performance is evaluated
on a fair value basis, in accordance with
the Consolidated entity’s documented risk
management or investment strategy, and
information about the grouping is provided
internally on that basis; or
• it forms part of a contract containing
one or more embedded derivatives,
and AASB 139 Financial Instruments:
Recognition and Measurement permits
the entire combined contract (asset or
liability) to be designated as at FVTPL.
Financial assets at FVTPL are stated at fair
value, with any gains or losses arising on
re-measurement recognised in profit or loss.
The net gain or loss recognised in profit or loss
incorporates any dividend or interest earned on
the financial asset and is included in the ‘other
gains and losses’ line item in the statement of
comprehensive income. Fair value is determined
in the manner described in note 34.
3.12.3 Held-to-maturity investments
Bills of exchange and debentures with fixed
or determinable payments and fixed maturity
dates where the Consolidated entity has the
positive intent and ability to hold to maturity
are classified as held-to-maturity investments.
Held-to-maturity investments are recorded
at amortised cost using the effective interest
method less impairment, with revenue
recognised on an effective yield basis.
3.12.4 Available-for-sale financial assets
Financial assets held by the Consolidated
entity are classified as being AFS and are
stated at fair value. Fair value is determined
in the manner described in note 34. Gains and
losses arising from changes in fair value are
recognised directly in other comprehensive
income and accumulated in the investments
revaluation reserve, with the exception of
impairment losses, interest calculated using the
effective interest method, and foreign exchange
gains and losses on monetary assets, which
are recognised in profit or loss. Where the
investment is disposed of or is determined to be
impaired, the cumulative gain or loss previously
accumulated in the investments revaluation
reserve is reclassified to profit or loss.
Dividends on AFS equity instruments are
recognised in profit and loss when the
Consolidated entity’s right to receive the
dividends is established.
39
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 3.13 Inventories
Inventories are stated at the lower of cost and net
realisable value. Costs, including an appropriate
portion of fixed and variable overhead expenses,
are assigned to inventories by the method most
appropriate to each particular class of inventory,
with the majority being valued on a first in
first out basis. Net realisable value represents
the estimated selling price for inventories less
all estimated costs of completion and costs
necessary to make the sale.
3.14 Non-current assets held for sale
Non-current assets and disposal groups are
classified as held for sale if their carrying amount
will be recovered principally through a sale
transaction rather than through continuing use.
This condition is regarded as met only when the
sale is highly probable and the asset (or disposal
group) is available for immediate sale in its present
condition. Management must be committed to
the sale, which should be expected to qualify for
recognition as a completed sale within one year
from the date of classification.
When the Consolidated entity is committed to a sale
plan involving the loss of control of a subsidiary,
all of the assets and liabilities of that subsidiary
are classified as held for sale when the criteria
described above are met, regardless of whether
the Consolidated entity will retain a non-controlling
interest in its former subsidiary after the sale.
When an asset is reclassed to Property, Plant &
Equipment, depreciation is applied for the period
from when it was first reclassified as held for sale.
Non-current assets (and disposal groups)
classified as held for sale are measured at the
lower of their previous carrying amount and fair
value less costs to sell.
3.15 Property, plant and equipment
Plant and equipment, leasehold improvements and
equipment under finance leases are stated at cost
less accumulated depreciation and impairment.
Cost includes expenditure that is directly
attributable to the acquisition of an item. In the
event that settlement of all or part of the purchase
consideration is deferred, cost is determined by
discounting the amounts payable in the future to
their present value as at the date of acquisition.
Depreciation is provided on property, plant
and equipment excluding land. Depreciation is
calculated on a straight-line basis so as to write
off the cost of each asset over its expected useful
life to its estimated residual value. Leasehold
improvements are depreciated over the period
of the lease or estimated useful life, whichever
is the shorter, using the straight-line method.
The estimated useful lives, residual values and
depreciation method are reviewed at the end of
each annual reporting period, with the effect of
any changes recognised on a prospective basis.
Assets held under finance leases are depreciated
over their expected useful lives on the same
basis as owned assets or, where shorter, the
term of the relevant lease.
The gain or loss arising on disposal or retirement
of an item of property, plant and equipment is
determined as the difference between the sales
proceeds and the carrying amount of the asset
and is recognised in profit or loss.
The following useful lives are used in the
calculation of depreciation:
• Plant and equipment
1 – 10 years
• Equipment under finance leases 3 – 10 years
3.16 Borrowing costs
Borrowing costs directly attributable to the
acquisition, construction or production of
qualifying assets, which are assets that
necessarily take a substantial period of time
to get ready for their intended use or sale, are
added to the cost of those assets, until such time
as the assets are substantially ready for their
intended use or sale.
Investment income earned on the temporary
investment of specific borrowings pending
their expenditure on qualifying assets is
deducted from the borrowing costs eligible for
capitalisation.
All other borrowing costs are recognised in profit
or loss in the period in which they are incurred.
3.17 Leasing
Leases are classified as finance leases whenever
the terms of the lease transfer substantially all
the risks and rewards incidental to ownership of
the leased asset to the lessee. All other leases
are classified as operating leases.
3.17.1 Consolidated entity as lessee
Assets held under finance leases are initially
recognised as assets of the Consolidated entity at
their fair value at the inception date of the lease or,
if lower, at the present value of the minimum lease
payments. The corresponding liability to the lessor
is included in the statement of financial position as
a finance lease obligation.
Lease payments are apportioned between finance
expenses and reduction of the lease obligation
so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance expenses
are recognised immediately in profit or loss, unless
they are directly attributable to qualifying assets,
in which case they are capitalised in accordance
with the Consolidated entity’s general policy on
borrowing costs (see 3.16 above). Contingent
rentals are recognised as an expense in the periods
in which they are incurred.
Finance leased assets are amortised on a
straight-line basis over the estimated useful life
of the asset.
Operating lease payments are recognised as an
expense on a straight-line basis over the lease
term, except where another systematic basis
is more representative of the time pattern in
which economic benefits from the leased asset
are consumed. Contingent rentals arising under
operating leases are recognised as an expense in
the period in which they are incurred.
In the event that lease incentives are received
to enter into operating leases, such incentives
are recognised as a liability. The aggregate
benefits of incentives are recognised as a
reduction of rental expense on a straight-line
basis, except where another systematic basis is
more representative of the time pattern in which
economic benefits from the leased asset are
consumed.
3.18 Goodwill
At cost less accumulated impairment
losses, if any:
Goodwill arising in a business combination
is recognised as an asset at the date that
the control is acquired (the acquisition date).
Goodwill is measured as the excess of the sum of
the consolidation transferred, the amount of any
non-controlling interests in the acquiree, and the
fair value of the acquirer’s previously held equity
interest in the acquiree (if any) over the net of
the acquisition-date amounts of the identifiable
assets acquired and the liabilities incurred.
If, after reassessment, the Consolidated entity’s
interest in the fair value of the acquiree’s
identifiable net assets exceeds the sum of the
consideration transferred, the amount of any
non-controlling interests in the acquiree and
the fair value of the acquirer’s previously held
equity interest in the acquiree (if any), the
excess is recognised immediately in profit or
loss as a bargain purchase gain. On disposal of a
subsidiary, the attributable amount of goodwill is
included in the determination of the profit or loss
on disposal.
Review of potential impairment:
Goodwill is not amortised but is reviewed for
impairment at least annually. For the purpose of
impairment testing, goodwill is allocated to each
of the Consolidated entity’s cash-generating
units expected to benefit from the synergies
of the combination. Cash-generating units to
which goodwill has been allocated are tested
for impairment annually or more frequently
when there is an indication that the unit may
be impaired. If the recoverable amount of the
cash-generating unit is less than the carrying
amount, the impairment loss is allocated first
to reduce the carrying amount of any goodwill
allocated to the unit and then to the other assets
of the unit pro-rata on the basis of the carrying
amount of each asset in the unit. An impairment
loss recognised for goodwill is not reversed in a
subsequent period.
40
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 3.19 Intangible assets
3.19.1 Intangible assets acquired separately
Intangible assets acquired separately are carried
at cost less accumulated amortisation and
accumulated impairment losses. Amortisation
is recognised on a straight-line basis over their
estimated useful lives. The estimated useful life
and amortisation method are reviewed at the end
of each annual reporting period, with the effect of
any changes in estimates being accounted for on a
prospective basis.
3.19.2 Internally-generated intangible assets
research and development expenditure
Expenditure on research activities is recognised as
an expense in the period in which it is incurred.
An internally-generated intangible asset arising
from development (or from the development phase
of an internal project) is recognised if, and only if,
all of the following have been demonstrated:
• the technical feasibility of completing the
intangible asset so that it will be available for
use or sale;
• the intention to complete the intangible asset
and use or sell it;
• the ability to use or sell the intangible asset;
• how the intangible asset will generate probable
future economic benefits;
• the availability of adequate technical,
financial and other resources to complete the
development and to use or sell the intangible
asset; and
• the ability to measure reliably the
expenditure attributable to the intangible
asset during its development.
The amount initially recognised for internally-
generated intangible assets is the sum of the
expenditure incurred from the date when the
intangible asset first meets the recognition criteria
listed above. Where no internally-generated
intangible asset can be recognised, development
expenditure is recognised in profit or loss in the
period in which it is incurred.
Subsequent to initial recognition, internally-
generated intangible assets are reported at cost
less accumulated amortisation and accumulated
impairment losses, on the same basis as
intangible assets acquired separately.
The following useful lives are used in the
calculation of amortisation:
• Capitalised development
intangibles
• Licenses
2 – 10 years
2 – 10 years
3.19.3 Intangible assets acquired in a
business combination
Intangible assets acquired in a business
combination are identified and recognised
separately from goodwill and are initially
recognised at their fair value at the acquisition
date (which is regarded as their cost).
Subsequent to initial recognition, intangible
assets acquired in a business combination are
reported at cost less accumulated amortisation
and accumulated impairment losses, on the same
basis as intangible assets acquired separately.
3.20 Impairment of tangible and intangible
assets excluding goodwill
At the end of each reporting period, the
Consolidated entity reviews the carrying amounts
of its tangible and intangible assets to determine
whether there is any indication that those assets
have suffered an impairment loss. If any such
indication exists, the recoverable amount of the
asset is estimated in order to determine the extent
of the impairment loss (if any). Where it is not
possible to estimate the recoverable amount of an
individual asset, the Consolidated entity estimates
the recoverable amount of the cash-generating
unit to which the asset belongs. Where a
reasonable and consistent basis of allocation can
be identified, corporate assets are also allocated
to individual cash-generating units, or otherwise
they are allocated to the smallest group of cash-
generating units for which a reasonable and
consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and
intangible assets not yet available for use are tested
for impairment annually and whenever there is an
indication that the asset may be impaired.
Recoverable amount is the higher of fair value
less costs to sell and value in use. In assessing
the value in use, the estimated future cash flows
are discounted to their present value using a
pre-tax discount rate that reflects current market
assessments of the time value of money and the
risks specific to the asset for which the estimates
of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-
generating unit) is estimated to be less than
its carrying amount, the carrying amount of
the asset (cash-generating unit) is reduced to
its recoverable amount. An impairment loss is
recognised immediately in profit or loss, unless the
relevant asset is carried at the revalued amount,
in which case the impairment loss is treated as a
revaluation decrease.
Where an impairment loss subsequently
reverses, the carrying amount of the asset
(cash-generating unit) is increased to the
revised estimate of its recoverable amount, but
so that the increased carrying amount does not
exceed the carrying amount that would have
been determined had no impairment loss been
recognised for the asset (cash-generating unit)
in prior years. A reversal of an impairment loss is
recognised immediately in profit or loss, unless
the relevant asset is carried at fair value, in
which case the reversal of the impairment loss is
treated as a revaluation increase.
3.21 Employee benefits
A liability is recognised for benefits accruing to
employees in respect of wages and salaries,
annual leave, long service leave, and sick leave
when it is probable that settlement will be
required and they are capable of being measured
reliably.
Liabilities recognised in respect of short-term
employee benefits, are measured at their nominal
values using the remuneration rate expected to
apply at the time of settlement.
Liabilities recognised in respect of long term
employee benefits are measured as the present
value of the estimated future cash outflows to
be made by the Consolidated entity in respect of
services provided by employees up to reporting
date.
3.21.1 Retirement benefit costs
Payments to defined contribution retirement
benefit plans are recognised as an expense when
employees have rendered service entitling them
to the contributions.
For defined benefit retirement benefit plans,
the cost of providing benefits is determined
using the projected unit credit method,
with actuarial valuations being carried out
at the end of each annual reporting period.
Remeasurement, comprising actuarial gains
and losses, the effect of the changes to the
asset ceiling (if applicable) and the return on
plan assets (excluding interest), is reflected
immediately in the statement of financial
position with a charge or credit recognised in
other comprehensive income in the period in
which they occur. Remeasurement recognised
in other comprehensive income is reflected
immediately in retained earnings and will not be
reclassified to profit or loss. Past service cost
is recognised in profit or loss in the period of a
plan amendment. Net interest is calculated by
applying the discount rate at the beginning of the
period to the net defined benefit liability or asset.
Defined benefit costs are categorised as follows:
• Service cost (including current service cost,
past service cost, as well as gains and losses
on curtailments and settlements);
• Net interest expense or income; and
• Re-measurement
The Consolidated entity presents the first two
components of defined benefit costs in profit or
loss in the line item employee benefits expense.
Curtailment gains and losses are accounted for
as past service costs.
The retirement benefit obligation recognised in
the consolidated statement of financial position
represents the actual deficit or surplus in the
Consolidated entity’s defined benefit plans.
Any surplus resulting from this calculation is
limited to the present value of any economic
benefits available.
41
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 3.23.2 Equity instruments
An equity instrument is any contract that
evidences a residual interest in the assets of an
entity after deducting all of its liabilities. Equity
instruments issued by the Consolidated entity
are recorded at the proceeds received, net of
direct issue costs.
3.23.3 Financial guarantee contract liabilities
A financial guarantee contract is a contract
that requires the issuer to make specified
payments to reimburse the holder for a loss it
incurs because a specified debtor fails to make
payments when due in accordance with the
terms of a debt instrument.
Financial guarantee contract liabilities are
measured initially at their fair values and, if not
designated as at FVTPL, are subsequently at the
higher of:
• the amount of the obligation under the
contract, as determined in accordance with
AASB 137 ‘Provisions, Contingent Liabilities
and Contingent Assets’; and
• the amount initially recognised less, where
appropriate, cumulative amortisation in
accordance with the revenue recognition
policies set out in 3.8 above.
3.23.4 Financial liabilities
Financial liabilities are classified as either
financial liabilities ‘at FVTPL’ or ‘other financial
liabilities’.
3.23.5 Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL
when the financial liability is either held for
trading or it is designated as at FVTPL.
A financial liability is classified as held for
trading if:
• it has been acquired principally for the
purpose of repurchasing in the near term; or
• on initial recognition it is a part of an identified
portfolio of financial instruments that the
Consolidated entity manages together and has
a recent actual pattern of short-term profit-
taking; or
• it is a derivative that is not designated
and effective as a hedging instrument.
A financial liability other than a financial liability
held for trading is designated as at FVTPL upon
initial recognition if:
• such designation eliminates or significantly
reduces a measurement or recognition
inconsistency that would otherwise arise; or
• the financial liability forms part of a group
of financial assets or financial liabilities or
both, which is managed and its performance
evaluated on a fair value basis, in accordance
with the Consolidated entity’s documented
risk management or investment strategy, and
information about the grouping is provided
internally on that basis; or
• it forms part of a contract containing
one or more embedded derivatives,
and AASB 139 ‘Financial Instruments:
Recognition and Measurement’ permits
the entire combined contract (asset or
liability) to be designated as at FVTPL.
Financial liabilities at FVTPL are stated at
fair value, with any gains or losses arising
on re-measurement recognised in profit or
loss. The net gain or loss recognised in profit
or loss incorporates any interest paid on the
financial liability and is included in the ‘other
gains and losses’ line item in the statement of
comprehensive income. Fair value is determined
in the manner described in note 34.
3.23.6 Other financial liabilities
Other financial liabilities, including borrowings,
are initially measured at fair value, net of
transaction costs.
Other financial liabilities are subsequently
measured at amortised cost using the effective
interest method, with interest expense
recognised on an effective yield basis.
The effective interest method is a method of
calculating the amortised cost of a financial
liability and of allocating interest expense over
the relevant period. The effective interest rate
is the rate that exactly discounts estimated
future cash payments through the expected life
of the financial liability, or, where appropriate, a
shorter period.
3.23.7 Derecognition of financial liabilities
The Consolidated entity derecognises financial
liabilities when, and only when, the Consolidated
entity’s obligations are discharged, cancelled or
they expire. The difference between the carrying
amount of the financial liability derecognised
and the consideration paid and payable is
recognised in profit or loss.
3.22 Provisions
Provisions are recognised when the
Consolidated entity has a present obligation
(legal or constructive) as a result of a past event,
it is probable that the Consolidated entity will be
required to settle the obligation, and a reliable
estimate can be made of the amount of the
obligation.
The amount recognised as a provision is the
best estimate of the consideration required to
settle the present obligation at reporting date,
taking into account the risks and uncertainties
surrounding the obligation. Where a provision
is measured using the cash flows estimated to
settle the present obligation, its carrying amount
is the present value of those cash flows.
When some or all of the economic benefits
required to settle a provision are expected to be
recovered from a third party, the receivable is
recognised as an asset if it is virtually certain
that reimbursement will be received and the
amount of the receivable can be measured
reliably.
3.22.1 Onerous contracts
Present obligations arising under onerous
contracts are recognised and measured as a
provision. An onerous contract is considered
to exist where the Consolidated entity has a
contract under which the unavoidable costs
of meeting the obligations under the contract
exceed the economic benefits expected to be
received under it.
3.22.2 Make good obligations
A provision is recognised for the make good
obligations in respect of restoring sites to
their original condition when the premises
are vacated. Management has estimated the
provision based on historical data in relation
to store closure numbers and costs, as well as
future trends that could differ from historical
amounts.
3.22.3 Contingent liabilities acquired in a
business combination
Contingent liabilities acquired in a business
combination are initially measured at fair
value at the date of acquisition. At subsequent
reporting periods, such contingent liabilities are
measured at the higher of the amount that would
be recognised in accordance with AASB 137
‘Provisions, Contingent Liabilities and Contingent
Assets’ and the amount initially recognised
less cumulative amortisation recognised in
accordance with AASB 118 ‘Revenue’.
3.23 Financial liability and Equity Instruments
3.23.1 Classification as debt and equity
Debt and equity instruments are classified as
either liabilities or as equity in accordance with
the substance of the contractual arrangement.
42
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 3.24 Derivative financial instruments
The Consolidated entity enters into a variety of
derivative financial instruments to manage its
exposure to interest rate and foreign exchange
rate risk, including foreign exchange forward
contracts and interest rate swaps. Further
details of derivative financial instruments are
disclosed in note 34.
Derivatives are initially recognised at fair value
at the date a derivative contract is entered into
and are subsequently remeasured to their fair
value at each reporting period. The resulting
gain or loss is recognised in profit or loss
immediately unless the derivative is designated
and effective as a hedging instrument, in which
event, the timing of the recognition in profit
or loss depends on the nature of the hedge
relationship. The Consolidated entity designates
certain derivatives as either hedges of the fair
value of recognised assets or liabilities or firm
commitments (fair value hedges), hedges of
highly probable forecast transactions or hedges
of foreign currency risk of firm commitments
(cash flow hedges), or hedges of net
investments in foreign operations.
A derivative with a positive fair value is
recognised as a financial asset; a derivative
with a negative fair value is recognised as a
financial liability. A derivative is presented as
a non-current asset or a non-current liability
if the remaining maturity of the instrument is
more than 12 months and it is not expected to
be realised or settled within 12 months. Other
derivatives are presented as current assets or
current liabilities.
3.24.1 Hedge accounting
The Consolidated entity designates certain
hedging instruments, which include derivatives,
embedded derivatives and non-derivatives, in
respect of foreign currency risk, as either fair
value hedges, cash flow hedges, or hedges of
net investments in foreign operations. Hedges of
foreign exchange risk on firm commitments are
accounted for as cash flow hedges.
At the inception of the hedge relationship, the
entity documents the relationship between the
hedging instrument and hedged item, along with
its risk management objectives and its strategy
for undertaking various hedge transactions.
Furthermore, at the inception of the hedge and
on an ongoing basis, the Consolidated entity
documents whether the hedging instrument
that is used in a hedging relationship is highly
effective in offsetting changes in fair values or
cash flows of the hedged item.
Note 34 sets out details of the fair values of
the derivative instruments used for hedging
purposes.
3.24.2 Fair value hedge
Changes in the fair value of derivatives that are
designated and qualify as fair value hedges are
recognised in profit or loss immediately, together
with any changes in the fair value of the hedged
item that is attributable to the hedged risk. The
change in the fair value of the hedging instrument
and the change in the hedged item attributable to
the hedged risk are recognised in the line of the
statement of comprehensive income relating to the
hedged item.
Hedge accounting is discontinued when the
Consolidated entity revokes the hedging
relationship, when the hedging instrument expires
or is sold, terminated, or exercised, or when it
no longer qualifies for hedge accounting. The
fair value adjustment to the carrying amount of
the hedged item arising from the hedged risk is
amortised to profit or loss from that date.
3.24.3 Cash flow hedge
The effective portion of changes in the fair value
of derivatives that are designated and qualify
as cash flow hedges are recognised in other
comprehensive income. The gain or loss relating to
the ineffective portion is recognised immediately
in profit or loss, and is included in the ‘other gains
and losses’ line item.
Amounts previously recognised in other
comprehensive income and accumulated in
equity are reclassified to profit or loss in the
periods when the hedged item is recognised in
profit or loss in the same line of the statement of
comprehensive income as the recognised hedged
item. However, when the forecast transaction
that is hedged results in the recognition of a
non-financial asset or a non-financial liability, the
gains and losses previously deferred in equity are
transferred from equity and included in the initial
measurement of the cost of the asset or liability.
Hedge accounting is discontinued when the
Consolidated entity revokes the hedging
relationship, when the hedging instrument expires
or is sold, terminated, or exercised, or no longer
qualifies for hedge accounting. Any gains or
losses accumulated in equity at that time remains
in equity and is recognised when the forecast
transaction is ultimately recognised in profit or
loss. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that
was deferred in equity is recognised immediately
in profit or loss.
3.24.4 Hedges in net investments in
foreign operations
Hedges of net investments in foreign operations
are accounted for similarly to cash flow hedges.
Any gain or loss on the hedging instrument relating
to the effective portion of the hedge is recognised
in other comprehensive income and accumulated
in the foreign currency translation reserve. The
gain or loss relating to the ineffective portion
is recognised immediately in profit or loss and
included in the ’other gains and losses’ line item.
Gains and losses on hedging instrument
relating to the effective portion of the hedge
accumulated in the foreign currency translation
reserve are reclassified to profit or loss in the
same way as exchange differences relating to
the foreign operation as described at 3.6 above.
3.25 Non-Controlling Interest
Income and expenses of subsidiaries acquired
or disposed of during the year are included in
the consolidated statement of profit or loss
and other comprehensive income from the
effective date of acquisition and up to the
effective date of disposal, as appropriate.
Total comprehensive income of subsidiaries
is attributed to the owners of the Company
and to the non-controlling interests even if
this results in the non-controlling interests
having a deficit balance. The carrying amounts
of the Consolidated entity’s interests and the
non-controlling interests are adjusted to reflect
the changes in their relative interests in the
subsidiaries. Any difference between the amount
by which the non-controlling interests are
adjusted and the fair value of the consideration
paid or received is recognised directly in equity
and attributed to owners of the Company.
We have applied the partial recognition of the
non-controlling interest (equity method) method
when accounting for the put option liability
and non-controlling interest. This approach is
appropriate given the company has no present
ownership of the minority interest shares.
While the non-controlling interest remains
unexercised, the accounting is as follows:
• The non-controlling interest receives an
allocation of the profit or loss for the period;
• A put option liability is recognised at fair value
in accordance with IAS 39;
• The non-controlling interest is de-recognised
at that date; and
• The difference between the recognising of
the put option liability and de-recognising
the non-controlling interest is recorded
through equity in the parent company.
The put options held by non-controlling interests
are classified as a financial liability and are
measured at fair value. The non-controlling
interests continue to have access to voting rights
and dividends in the subsidiaries and continue
to be attributed a share of profits. Subsequent
changes in the financial liability are recorded
directly in equity.
43
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 4.1.7 Put Option Liability
This liability is valued by management by taking
into account adjusted unlevered price/earnings
multiple rates and estimate of the timing of the
put. This is based on management’s experience
and knowledge of market conditions of the
Japan Pizza Industry and dealings with the seller
of Domino’s Japan.
4.1.8 Discount rate used to determine the
carrying amount of the Consolidated
entity’s defined benefit obligation
The Consolidated entity’s defined benefit
obligation is discounted at a rate set by
reference to market yields at the end of the
reporting period on high quality corporate bonds.
Significant judgement is required when setting
the criteria for bonds to be included in the
population from which the yield curve is derived.
The most significant criteria considered for the
selection of bonds include the issue size of the
corporate bonds, qualify of the bonds and the
identification of outliers which are excluded.
4.1.3 Employee benefits
Management judgement is applied in
determining the following key assumptions
used in the calculation of long service leave and
annual leave at balance date:
• future increases in wages and salaries;
• future on-cost rates; and
• experience of employee departures
and period of service.
4.1.4 Useful lives of other intangibles
As described in note 3.19.2, management
uses their judgement to assess the useful lives
of capitalised development intangibles and
licenses. This is based on the estimated life of
the asset and future economic benefits of the
asset. The majority of these assets have a life of
between 2 – 10 years.
4.1.5 Impairment of loans and receivables
As described in note 3.12.5, management
assesses impairment based on objective
evidence including the Consolidated entity’s
past experience of collecting payments, an
increase in the number of delayed payments in
the portfolio past the average credit period of 30
days, as well as observable changes in national
or local economic conditions that correlate with
default on loans and receivables.
4.1.6 Fair value of other intangible assets
from Master Franchisee Agreement from
Japan Acquisition
The Master Franchise Agreement (MFA) was
valued under management’s guidance using a
modified Multi-Period Excess Earnings Method
income approach taking into account the
following inputs:
• Revenues generated;
• Expected EBITDA margin;
• Expected income tax rate; and
• Weighted average cost of capital (WACC) rate.
Management have determined that the master
franchise agreement and associated franchise
agreements relating to the acquisition of
Domino’s Pizza Japan (DPJ) are to be treated
as indefinite life intangibles based on the
sufficiency of available evidence supporting the
ability of the Consolidated entity to renew these
agreements beyond their initial terms without
incurring significant cost.
4.
CRITICAL ACCOUNTING
JUDGEMENTS AND KEY SOURCES
OF ESTIMATION UNCERTAINTY
In the application of the Consolidated entity’s
accounting policies, which are described in
note 3, the directors are required to make
judgements, estimates and assumptions about
the carrying amounts of assets and liabilities
that are not readily apparent from other sources.
The estimates and associated assumptions are
based on historical experience and other factors
that are considered to be relevant. Actual results
may differ from these estimates.
The estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in the
period in which the estimates are revised if the
revision affects only that period, or in the period
of the revision and future periods if the revision
affects both current and future periods.
4.1
Key sources of estimation uncertainty
and critical judgements in applying the
entity’s accounting policies
The following are the key assumptions and
critical judgements concerning the future, and
other key sources of estimation of uncertainty
at the end of the reporting period, that have a
significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities
within the next financial year:
4.1.1 Impairment of goodwill
Determining whether goodwill is impaired
requires an estimation of the value in use of the
cash-generating units to which goodwill has
been allocated. The value in use and fair value
less costs to sell calculations require the entity
to estimate the future cash flows expected
to arise from the cash-generating unit and
a suitable discount rate in order to calculate
present value.
The carrying amount of goodwill at the end of
the reporting period was $278,113 thousand
(2013: $57,113 thousand) as per note 19.
4.1.2 Fair value of derivatives and other
financial instruments
As described in note 34, management uses
their judgement in selecting an appropriate
valuation technique for financial instruments not
quoted in an active market. Valuation techniques
commonly used by market practitioners are
applied. For derivative financial instruments,
assumptions are made based on quoted market
rates adjusted for specific features of the
instrument. Other financial instruments are
valued using a discounted cash flow analysis
based on assumptions supported, where
possible, by observable market prices or rates.
Details of assumptions are provided in note 34.
44
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 5. REVENUE
The following is an analysis of the Consolidated entity’s revenue for the year, from continuing operations (excluding other revenue – see note 7).
Revenue from the sale of goods
Revenue from rendering of services
2014
$’000
443,506
9,305
452,811
2013
$’000
182,000
6,631
188,631
6. SEGMENT INFORMATION
6.1 Products and services from which reportable segments derive their revenues
The Consolidated entity has identified its operating segments on the basis of internal reports about components of the Consolidated entity that are regularly
reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance.
Information reported to the Consolidated entity’s Chief Executive Officer for the purpose of resource allocation and assessment of performance is
specifically focused on the geographical location the Consolidated entity operates in. The Consolidated entity’s reportable segments under AASB 8 are
therefore as follows:
• Australia / New Zealand
• Europe
• Japan (includes non-controlling interest, refer to note 32)
6.2 Segment revenues and results
The following is an analysis of the Consolidated entity’s revenue and results from continuing operations by reportable segment.
YEAR ENDED 29 JUNE 2014
YEAR ENDED 30 JUNE 2013
AUSTRALIA /
NEW ZEALAND
$’000
EUROPE
$’000
JAPAN
$’000
CONSOLIDATED
$’000
AUSTRALIA /
NEW ZEALAND
$’000
EUROPE
$’000
CONSOLIDATED
$’000
Continuing operations
Revenue
203,322
144,361
240,990
588,673
174,235
120,655
294,890
EBITDA
58,137
8,395
24,198
90,730
47,722
6,240
53,962
Depreciation
and amortisation
EBIT
Interest
Net profit before tax
(9,544)
(6,964)
(5,204)
(21,712)
(7,942)
(4,850)
(12,792)
48,593
1,431
18,994
69,018
39,780
1,390
41,170
(2,458)
66,560
(405)
40,765
Included in the Japan segment are costs related to the Japan acquisition and integration of $3.2m.
Revenue reported above represents revenue generated from external customers and franchisees. There were no inter-segment sales during the period
(2013: Nil).
The accounting policies of the reportable segments are the same as the Consolidated entity’s policies described in note 3. Segment net profit before tax
represents the profit earned by each segment using the measure reported to the chief operating decision maker for the purpose of resource allocation and
assessment of segment performance.
45
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 6.3 Segment assets and liabilities
Segment assets
Australia / New Zealand
Europe
Japan
Total segment assets
Unallocated assets
Consolidated assets
Segment liabilities
Australia / New Zealand
Europe
Japan
Total segment liabilities
Unallocated liabilities
Consolidated liabilities
2014
$’000
2013
$’000
123,193
79,562
356,253
111,170
78,581
-
559,008
189,751
-
-
559,008
189,751
2014
$’000
2013
$’000
(98,233)
(30,357)
(171,029)
(53,525)
(33,644)
-
(299,619)
(87,169)
-
-
(299,619)
(87,169)
For the purposes of monitoring segment performance and allocating resources between segments:
• all assets are allocated to reportable segments. Goodwill is allocated to reportable segments as described in note 19.1. Assets used jointly by reportable
segments are allocated on the basis of the revenue earned by individual reportable segments; and
• all liabilities are allocated to reportable segments. Liabilities for which reportable segments are jointly liable are allocated in proportion to segment assets.
46
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 6.4 Other segment information
Australia / New Zealand
Europe
Japan
DEPRECIATION AND
AMORTISATION
2014
$’000
9,544
6,964
5,204
2013
$’000
7,942
4,850
-
ADDITIONS TO
NON-CURRENT ASSETS
2014
$’000
2013
$’000
36,246
7,692
19,965
35,933
17,421
-
21,712
12,792
63,903
53,354
6.5 Geographical information
The Consolidated entity operates in three principal geographical areas – Australia (country of domicile)/New Zealand, Europe and Japan.
The Consolidated entity’s revenue from continuing operations from external customers and franchisees can be found in note 6.2. The non-current assets by
geographical location are detailed below.
Australia / New Zealand
Europe
Japan
Goodwill by geographical location can be found in note 19.
Information about major customers
6.6
There are no major customers that contribute an amount that is 10% or greater of total revenue.
NON-CURRENT ASSETS
2014
$’000
90,206
47,863
317,795
2013
$’000
81,259
48,109
-
455,864
129,368
47
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 7. OTHER REVENUE
Interest revenue:
Bank deposits
Other loans and receivables
Rental revenue:
Store asset rental revenue
Royalties
Franchise services
Other revenue
The following is an analysis of other revenue earned on assets by category of asset:
Loans and receivables (including cash and bank balances)
Other income earned on non-financial assets
8. OTHER GAINS AND LOSSES
Net gain on disposal of property, plant & equipment, goodwill and other non-current assets
Net foreign exchange gains
2014
$’000
190
450
640
2013
$’000
495
607
1,102
3,289
2,172
57,591
46,886
28,280
20,803
46,062
135,862
35,296
106,259
2014
$’000
640
135,222
135,862
2013
$’000
1,102
105,157
106,259
2014
$’000
3,647
63
3,710
2013
$’000
2,979
585
3,564
No other gains or losses have been recognised in respect of loans and receivables other than as disclosed in note 7 and impairment losses recognised/
reversed in respect of trade and other receivables (see note 11 and 13).
48
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 9. FINANCE COSTS
Interest on commercial bill and loans
Interest on obligations under finance leases
The weighted average interest rate on funds borrowed generally is 1.94% per annum (2013: 2.6%).
10. INCOME TAXES
10.1 Income tax recognised in profit or loss
Tax expense/(income) comprises:
Current tax expense in respect of the current year
Adjustments recognised in the current year in relation to the current tax of prior years
Deferred tax expense/(income) relating to the origination and reversal of temporary differences
Total tax expense relating to continuing operations
The expense for the year can be reconciled to the accounting profit as follows:
Profit before tax from continuing operations
Income tax expense calculated at 30%
Effect of expenses that are not deductible in determining taxable profit
Other assessable/(deductible) amounts
Effect of different tax rates of subsidiaries operating in other jurisdictions
Effect of tax concessions (research and development and other allowances)
Adjustments recognised in the current year in relation to the current tax of prior years
Income tax expense recognised in profit or loss
2014
$’000
2,440
18
2,458
2013
$’000
399
6
405
2014
$’000
2013
$’000
21,990
(65)
21,925
11,268
(179)
11,089
(661)
21,264
1,019
12,108
2014
$’000
2013
$’000
66,560
40,765
19,968
12,230
897
(48)
1,414
(902)
21,329
(65)
21,264
653
(204)
(54)
(338)
12,287
(179)
12,108
The tax rate used for the 2014 and 2013 reconciliation above is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits
under Australian tax law.
49
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 10.2 Income tax recognised in equity
Arising on income and expenses in other comprehensive income:
Loss on cashflow hedge taken to equity
Loss on net investment hedge taken to equity
10.3 Current tax assets and liabilities
Current tax assets
Income tax refund receivable
Current tax liabilities
Income tax payable
2014
$’000
2013
$’000
397
434
831
2014
$’000
117
117
-
(1,389)
(1,389)
2013
$’000
191
191
(4,277)
(4,277)
(2,550)
(2,550)
50
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 10.4 Deferred tax balances
2014
Temporary differences
Property, plant & equipment
Intangible assets
Other non-current assets
Provision for employee entitlements
Other provisions
Doubtful debts
Other financial liabilities
Unearned income
Other
Unused tax losses and credits
Tax losses
2013
Temporary differences
Carry forward surplus foreign revenue losses
Property, plant & equipment
Intangible assets
Other non-current assets
Provision for employee entitlements
Other provisions
Doubtful debts
Other financial liabilities
Other
Unused tax losses and credits
Tax losses
OPENING
BALANCE
$’000
ACQUIRED
WITH DPJ
$’000
CHARGED TO
INCOME
$’000
CHARGED TO
EQUITY
$’000
EXCHANGE
DIFFERENCE
$’000
CLOSING
BALANCE
$’000
(920)
(2,922)
(3)
985
49
172
404
-
(494)
(2,729)
374
(2,355)
3,011
(14,632)
-
3,090
-
-
(66)
-
393
(8,204)
-
(8,204)
(697)
1,445
3
151
84
20
26
-
65
1,097
458
1,555
-
-
-
-
-
-
831
-
-
831
-
831
163
(777)
-
159
-
(4)
-
26
-
(433)
(7)
(440)
1,557
(16,886)
-
4,385
133
188
1,195
26
(36)
(9,438)
825
(8,613)
OPENING
BALANCE
$’000
ACQUIRED
WITH DPJ
$’000
CHARGED TO
INCOME
$’000
CHARGED TO
EQUITY
$’000
EXCHANGE
DIFFERENCE
$’000
CLOSING
BALANCE
$’000
98
(557)
(2,217)
(7)
818
60
261
(1,249)
(305)
(3,098)
829
(2,269)
-
-
-
-
-
-
-
-
-
-
-
-
(98)
(365)
(698)
4
169
(11)
(88)
264
(172)
(995)
(571)
(1,565)
-
-
-
-
-
-
-
1,389
-
1,389
-
1,389
Deferred tax balances are presented in the statement of financial position as follows:
Deferred tax assets
Deferred tax liabilities
-
2
(7)
-
(2)
-
(1)
-
(17)
(25)
116
91
2014
$’000
188
(8,801)
(8,613)
-
(920)
(2,922)
(3)
985
49
172
404
(494)
(2,729)
374
(2,355)
2013
$’000
40
(2,395)
(2,355)
51
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 10.5 Unrecognised deferred tax assets
The taxation benefits of tax losses and timing differences not brought to account will only be obtained if:
• assessable income is derived of a nature and of an amount sufficient to enable the benefit from the deductions to be realised;
• conditions for deductibility imposed by the law are complied with; and
• no changes in tax legislation adversely affect the realisation of the benefit from the deductions.
10.6 Unrecognised taxable temporary differences associated with investments and interests
At the end of the financial year, an aggregate deferred tax liability of $49,315,998 (2013: $8,576,004) was not recognised in relation to investments in
subsidiaries as the parent Company is able to control the timing of the reversal of the temporary differences and it is not probable that the temporary
difference will reverse in the foreseeable future.
10.7 Tax consolidation
Relevance of tax consolidation to the Consolidated entity
The Company and its wholly-owned Australian resident entities formed a tax-consolidated group with effect from 1 July 2003 and are therefore taxed as a
single entity from that date. The head entity within the tax-consolidated group is Domino’s Pizza Enterprises Limited. The members of the tax-consolidated
group are identified at note 17.
Nature of tax funding arrangements and tax sharing arrangements
The entities in the tax-consolidated group have not entered into a tax sharing agreement or tax funding agreement. Income tax liabilities payable to the
taxation authorities in respect of the tax-consolidated group are recognised in the financial statements of the parent entity.
52
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 11. PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS
Profit for the year from continuing operations is attributable to:
Profit from continuing operations
Profit for the year from continuing operations has arrived at after charging (crediting):
11.1 Impairment losses on financial assets
2014
$’000
2013
$’000
45,296
28,657
Impairment of trade receivables
(185)
(314)
11.2 Depreciation and amortisation expenses
Depreciation of property, plant and equipment
Amortisation of intangible and other assets
11.3 Employee benefits expense
Employee benefit expense:
Post employment benefits:
Defined contribution plans
Share-based payments (see note 35):
Equity settled share-based payments
Other employee benefits
Total employee benefits expense
(14,171)
(7,541)
(21,712)
(7,868)
(4,924)
(12,792)
(4,002)
(3,937)
(1,373)
(635)
(148,384)
(153,759)
(71,688)
(76,260)
53
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 12. EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
2014
CENTS PER
SHARE
2013
CENTS PER
SHARE
50.5
49.8
39.1
38.7
12.1 Basic earnings per share
The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:
Profit for the year attributable to owners of the Company
Earnings used in the calculation of basic EPS from continuing operations
Weighted average number of ordinary shares for the purposes of
basic earnings per share (all measures)
12.2 Diluted earnings per share
The earnings used in the calculation of diluted earnings per share are as follows:
Profit for the year attributable to owners of the Company
Earnings used in the calculation of diluted EPS from continuing operations
2014
$’000
42,303
42,303
2014
$’000
2013
$’000
28,657
28,657
2013
$’000
83,835
73,377
2014
$’000
42,303
42,303
2013
$’000
28,657
28,657
The weighted average number of ordinary shares for the purposes of diluted earnings per share reconciles to the weighted average number of ordinary
shares used in the calculation of basic earnings per share as follows:
Weighted average number of ordinary shares used in the calculation of basic EPS
Shares deemed to be issued for no consideration in respect of:
Options on issue
Weighted average number of ordinary shares used in the calculation of diluted EPS (all measures)
2014
NO. ’000
2013
NO. ’000
83,835
73,377
1,044
84,879
742
74,086
The weighted average number of ordinary shares for the purpose of calculating both the basic and diluted earnings per share have been adjusted for
the current year and the prior year comparative to reflect the bonus element included in the rights issue conducted for the capital raising in August and
September 2013. The diluted earnings per share calculation takes into account all options issued under the ESOP, as in accordance with AASB 133
Earnings per Share, the average market price of ordinary shares during the period exceeds the exercise price of the options or warrants.
54
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 13. TRADE AND OTHER RECEIVABLES
Trade receivables
Allowance for doubtful debts
Other receivables
2014
$’000
37,032
(2,863)
34,169
2,398
36,567
2013
$’000
27,010
(3,413)
23,597
2,815
26,412
13.1 Trade receivables
Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost.
The average credit period on sales of goods and rendering of services is 30 days. No interest is charged on the outstanding balance. An allowance has
been made for estimated irrecoverable amounts from the past sale of goods and rendering of services, determined by reference to past default experience.
Trade receivables 60 days and over are provided for based on the estimated irrecoverable amounts from the sale of goods and rendering of services,
determined by reference to past default experience.
Before accepting any new franchisees and business partners, the Consolidated entity uses a system to assess the potential franchisee’s and business
partner’s credit quality and defines credit limits. Limits attributed to franchisees and business partners are reviewed twice a year.
Included in the Consolidated entity’s trade receivables balance are debtors with a carrying amount of $2,008 thousand (2013: $2,882 thousand), which
are past due at the reporting date for which the Consolidated entity has not provided for, as there has not been a significant change in credit quality and the
amounts are still considered recoverable. The Consolidated entity does not hold any collateral over these balances.
Ageing of receivables that are past due but not impaired
30 - 60 days
60 - 90 days
90 days and over
Total
Movement in the allowance for doubtful debts
Balance at the beginning of the year
Impairment losses recognised on receivables
Amounts written off as uncollectible
Amounts recovered during the year
Effect of foreign currency
Balance at the end of the year
2014
$’000
560
208
1,240
2,008
2014
$’000
3,413
1,331
(1,354)
(625)
98
2,863
2013
$’000
583
109
2,190
2,882
2013
$’000
3,275
425
(459)
(236)
408
3,413
In determining the recoverability of a trade receivable, the Consolidated entity considers any change in the credit quality of the trade receivable from the
date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated.
Accordingly, the directors believe that there is no further allowance required in excess of the allowance for doubtful debts.
Included in the allowance for doubtful debts are individually impaired trade receivables with a balance of $2,863 thousand (2013: $3,413 thousand) for the
Consolidated entity. The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of
the expected recoverable proceeds. The Consolidated entity does not hold any collateral over these balances.
Ageing of impaired trade receivables
0 - 30 days
30 - 60 days
60 - 90 days
90 days and over
Total
2014
$’000
136
49
37
2,641
2,863
2013
$’000
42
1
16
3,354
3,413
55
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 14. OTHER FINANCIAL ASSETS
Investments carried at fair value
Non-current
Other
Loans carried at amortised cost
Current
Loans to franchisees (i)
Non-current
Loans to franchisees (i)
Allowance for doubtful loans
Financial guarantee contracts
Non-current
Financial guarantee receivable
Derivatives
Current
Cross currency swap
Non-current
Cross currency swap
Other long term deposits
Non-current
Long term store rental security deposits
Current
Non-current
2014
$’000
2013
$’000
14
14
988
988
7,687
(854)
6,833
76
76
1,819
1,819
2,301
2,301
11,107
11,107
8
8
1,286
1,286
5,014
(910)
4,104
303
303
-
-
-
-
-
-
23,138
5,701
2,807
20,331
23,138
1,286
4,415
5,701
(i) Before providing any new loans to franchisees, the Consolidated entity reviews the potential franchisee’s credit quality, which is determined by reviewing a business plan and the projected future cash flows
for that store, to ensure the franchisee is able to meet its interest repayments on the loan. On average the interest charged is based on the Westpac Indicator Lending Rate (‘WILR’) plus 3% (2013: 3%)
margin in Australia and New Zealand. The average interest charged in France is 4.8% (2013: 5.7%) and in The Netherlands is 8.6% (2013: 7.6%), and the average interest charged in Japan is 5.0%. Included
in the Consolidated entity’s balance are loans to franchisees with a carrying amount of $854 thousand (2013: $910 thousand), which are past due at reporting date of which the Consolidated entity has
provided for these amounts. The Consolidated entity holds the store assets as collateral over these balances.
Franchisee Loans
Allowance for doubtful loans
2014
$’000
8,675
(854)
7,821
2013
$’000
6,300
(910)
5,390
In determining the recoverability of the loans to franchisees, the Consolidated entity considers any amount that has been outstanding at reporting date.
Accordingly, management believe that there is no further allowance required in excess of the allowances for doubtful loans.
Included in the allowance for the loans are individually impaired loans to franchisees with a balance of $854 thousand (2013: $910 thousand) for the
Consolidated entity. The impairment recognised represents the difference between the carrying amount of these loan balances and the present value of the
expected recoverable proceeds. The Consolidated entity holds collateral of the stores assets over these balances.
56
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED Ageing of loans to franchisees
Amounts not yet due
Movement in allowance for doubtful loans
Balance at the beginning of the year
Impairment losses recognised on loans
Impairment losses reversed
Effect of foreign currency
Balance at the end of the year
15. INVENTORIES
Raw materials
Finished goods
Provision for slow moving stock
2014
$’000
7,821
7,821
2014
$’000
910
-
(67)
11
854
2014
$’000
3,286
8,441
(20)
11,707
2013
$’000
5,390
5,390
2013
$’000
969
30
(136)
47
910
2013
$’000
520
6,165
-
6,685
There are no inventories (2013: $nil) expected to be recovered after more than 12 months. Expenses relating to inventories are recorded under Food &
paper expenses.
16. NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE
Asset held for sale
Commissary Property – The Netherlands
2014
$’000
-
-
2013
$’000
803
803
This asset is no longer held for sale, and has been reclassified back to property, plant and equipment (Note 18). The value of this asset at year end was
$841 thousand, after accounting for depreciation of $185 thousand.
57
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED
17. SUBSIDIARIES
Details of the Company’s subsidiaries at 29 June 2014 are as follows:
NAME OF ENTITY
Ashbourke Pty Ltd (i)
Domino’s Development Fund Pty Ltd (i)
Hot Cell Pty Ltd (i)
MFT – DPA JV Nominee Pty Ltd
Reel (NT) Pty Ltd (i)
Shear Pizza Pty Ltd (i)
Silvio’s Dial-a-Pizza Pty Ltd (i)
Twenty/Twenty Pizza Pty Ltd (i)
Twenty/Twenty Pizza Pty Ltd & Domino’s Pizza Australia Pty Ltd Partnership (i)
Nisco Trading Pty Ltd (i)
Domino’s Pizza New Zealand Limited
DPH NZ Holdings Limited
DPEU Holdings S.A.S.
Domino’s Pizza France S.A.S. (ii)
DPFC S.A.R.L. (ii)
HVM Pizza S.A.R.L.
Domino’s Pizza Europe B.V.
Domino’s Pizza Netherlands B.V.
DOPI Vastgoed B.V.
Domino’s Pizza Corporate Stores and Distributie B.V.
Domino’s Pizza Belgium S.P.R.L.
Catering Service & Supply Pty Ltd
Eximus S.A.R.L. (ii)
Bacalan S.A.R.L. (ii)
DPE Japan Co., Ltd. (iii)
Domino's Pizza Japan, Inc. (iii)
K.K. DPJ Holdings 1 (iii)
Global Mogul PTC Limited (iv)
Mogul (B.V.I.) Unit Trust (iv)
PLACE OF
INCORPORATION
AND OPERATION
PORTION OF
OWNERSHIP INTEREST
AND VOTING POWER HELD
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
France
France
France
France
The Netherlands
The Netherlands
The Netherlands
The Netherlands
Belgium
Australia
France
France
Japan
Japan
Japan
British Virgin Islands
British Virgin Islands
2014
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
100%
100%
100%
100%
100%
100%
100%
-
-
75%
75%
75%
100%
100%
2013
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
-
-
-
-
This entity is a member of the tax-consolidated group where Domino’s Pizza Enterprises Limited is the head entity within the tax-consolidated group.
Two French companies were wound up during the year and DPFC S.A.R.L. merged into Domino’s Pizza France S.A.S.
(i)
(ii)
(iii) As per note 46, the Japanese companies were created or acquired during the year.
(iv) During the year, two new entities were created and are domiciled in the British Virgin Islands.
58
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 18. PROPERTY, PLANT AND EQUIPMENT
Cost
Accumulated depreciation and impairment
Plant and equipment
Equipment under finance lease
Cost
Balance at 1 July 2012
Additions
Disposals
Acquisitions through business combinations (note 38)
Reclassification
Net foreign currency exchange differences
Balance at 30 June 2013
Additions
Disposals
Acquisitions through business combinations (note 38)
Reclassification (including asset held for sale)
Acquired through DPJ acquisition (note 46)
Net foreign currency exchange differences
Balance at 29 June 2014
Accumulated depreciation and impairment
Balance at 1 July 2012
Disposals
Depreciation expense
Reclassification
Net foreign currency exchange differences
Balance at 30 June 2013
Disposals
Depreciation expense
Reclassification (including asset held for sale)
Net foreign currency exchange differences
Balance at 29 June 2014
2014
$’000
126,463
(33,200)
93,263
88,951
4,312
93,263
PLANT &
EQUIPMENT
AT COST
$’000
EQUIPMENT
UNDER
FINANCE LEASE
AT COST
$’000
59,763
25,037
(21,596)
5,224
(30)
3,912
72,310
35,379
(16,427)
4,298
1,183
25,736
(1,496)
120,983
(24,836)
11,034
(7,844)
32
(1,083)
(22,697)
4,431
(13,013)
(656)
(97)
(32,032)
142
-
-
-
-
-
142
2,254
(34)
-
-
3,434
(316)
5,480
(38)
-
(24)
-
-
(62)
25
(1,158)
-
27
(1,168)
2013
$’000
72,452
(22,759)
49,693
49,613
80
49,693
TOTAL
$’000
59,905
25,037
(21,596)
5,224
(30)
3,912
72,452
37,633
(16,461)
4,298
1,183
29,170
(1,812)
126,463
(24,874)
11,034
(7,868)
32
(1,083)
(22,759)
4,456
(14,171)
(656)
(70)
(33,200)
There was no depreciation during the period that was capitalised as part of the cost of other assets.
18.1 Assets pledged as security
In accordance with the security arrangements of liabilities, as disclosed in note 23 to the financial statements, all non-current assets of the Consolidated
entity, except goodwill and deferred tax assets, have been pledged as security. The holder of the security does not have the right to sell or re-pledge the
assets other than in an event of default. The Consolidated entity does not hold title to the equipment under finance lease pledged as security.
59
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 2014
$’000
278,113
-
278,113
2014
$’000
57,113
7,841
237,766
(7,263)
(17,407)
-
63
278,113
-
-
-
2013
$’000
57,113
-
57,113
2013
$’000
46,927
13,853
-
(6,275)
2,183
-
425
57,113
-
-
-
19. GOODWILL
Cost
Accumulated impairment losses
Cost
Balance at beginning of financial year
Additional amounts recognised from business combinations occurring during the period (note 38)
Acquired through DPJ acquisition (note 46)
Amounts disposed of during the period
Effects of foreign currency exchange differences
Reclassification
Other
Balance at end of financial year
Accumulated impairment losses
Balance at beginning of financial year
Impairment losses for the year
Balance at end of financial year
19.1 Allocation of goodwill to cash-generating units
Goodwill has been allocated for impairment testing purposes to the following cash generating units:
Australia and New Zealand markets
• Australian Capital Territory (ACT)
• New South Wales (NSW)
• Queensland & Northern Territory (QLD & NT )
• South Australia, Western Australia and Tasmania (SA, WA & TAS)
• Victoria (VIC)
• New Zealand (NZ)
European market
• The Netherlands & Belgium stores located in the region of Antwerp (NL)
• France & the rest of Belgium (FR)
Japanese market
• Japan
The carrying amount of goodwill (other than goodwill classified as held for sale) was allocated to the following cash-generating units:
Australia & New Zealand
QLD & NT
NSW
SA, WA & TAS
VIC
ACT
NZ
Europe
FR
NL
Japan
60
2014
$’000
13,380
9,614
5,616
8,147
2,714
3,153
7,815
8,295
219,379
278,113
2013
$’000
14,068
7,662
5,192
8,323
2,715
2,315
8,111
8,727
-
57,113
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED Japanese Market
The goodwill amount allocated to the cash-
generating units in this market relates to
the acquisition of the Domino’s Pizza master
franchise of Japan on 3 September 2013.
The recoverable amount of the market is
determined based on a fair value less costs to
sell model which includes future cash flows
over an 8 year period based on management’s
expectations on the market growth rates and
further investment in store rollout. A post-tax
discount rate of 10.50% has been applied
and a growth rate of 1.5% has been used in
determining the terminal value. Based on this
analysis, no impairment losses have been
identified since the acquisition of the market.
Management has reviewed sensitivity on the key
assumptions on which the recoverable amounts
are based and believes that any reasonably
possible change on these would not cause
the market’s carrying amount to exceed its
recoverable amount.
Key assumptions
The key assumptions used in the value in use
and fair value less costs to sell calculations for
the various significant cash-generating units are
budgeted store cash flows which are assumed
to continue to increase, driven by higher sales
and increased market share. These assumptions
reflect prior experience and management’s
plan to focus on store level efficiencies and
to leverage market share for higher overall
profitability. Management has reviewed
sensitivity on the key assumptions on which the
recoverable amounts are based and believes
that any reasonable change on these would not
cause the market’s carrying amount to exceed
its recoverable amount.
NSW, QLD & NT, SA, WA & TAS, VIC and ACT
markets
The operations in the NSW, QLD & NT, SA, WA
& TAS, VIC and ACT markets are similar, and
their recoverable amounts are based on similar
assumptions. The recoverable amounts of the
five markets are based primarily on a value in
use calculation which uses cash flow projections
based on the financial budget approved by the
Board for the 2014 financial year as the year one
cash flow.
The cash flows for years one to five are based
on the expected average sales percentage
growth across corporate and franchise markets,
which has been estimated at 4.0% per annum
nationally (2013: 4.0% per annum nationally).
These figures are based on management’s
estimate of forecast cash flow by store after
considering the 2013 and 2014 financial years
with the 2015 budget year. Management
believes that these growth percentages are
reasonable considering forecast sales growth
and economies of scale. A pre-tax discount rate
of 14.14% has been applied to years one to five.
An indefinite terminal cash flow calculation has
been applied for cash flows beyond year five,
using the year five cash flow as a base. A growth
rate of 3.0% has been used in determining the
terminal value.
NZ market
The goodwill amount allocated to this market
relates to the acquisition of the Pizza Haven
New Zealand operations in 2005 and corporate
stores. The recoverable amount of the goodwill
is based primarily on a value in use calculation
which uses cash flow projections based on the
financial budget approved by the Board for the
2014 financial year as the year one cash flow for
the NZ franchise stores.
The cash flows for years one to five are based
on the expected sales revenues to be received
from net franchise royalties of the NZ franchise
stores, after applying a growth rate which has
been estimated at 4.0% per annum (2013: 4.0%
per annum). This figure is based on the growth
in forecast average franchise weekly sales from
the 2013 and 2014 financial years to the 2015
budget year. Management believes that this
growth percentage is reasonable considering
the sales growth that has been seen in this
market during the 2014 financial year. A pre-tax
discount rate of 14.14% has been applied to
years one to five. An indefinite terminal cash
flow calculation has been applied for cash flows
beyond year five, using the year five cash flow
as a base. A growth rate of 3.0% has been used
in determining the terminal value.
European market
The goodwill amount allocated to the cash-
generating units in this market relates to
the acquisition of the Domino’s Pizza master
franchise of France, Belgium, The Netherlands
and the Principality of Monaco on 3 July 2006.
The recoverable amount of the market is
determined based on a fair value model which
uses a five-year financial plan that has been
prepared, including the growth of the store
network. The cash flows for years one to five
are based on the expected sales growth rates,
which represent a compound annual growth
rate of 19.9% for The Netherlands and 12.1%
for France/Belgium. A pre-tax discount rate of
14.1% has been used for The Netherlands and
14.77% for France/Belgium has been applied to
the years one to five. A growth rate of 3.0% has
been used in determining the terminal value.
61
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 20. OTHER INTANGIBLE ASSETS
Cost
Accumulated amortisation and impairment losses
Gross carrying amount
Balance at 1 July 2012
Additions
Additions from internal developments
Disposals
Reclassification
Net foreign currency exchange differences
Balance at 30 June 2013
Additions
Acquired through DPJ acquisition (note 46)
Additions from internal developments
Disposals
Reclassification
Net foreign currency exchange differences
Balance at 29 June 2014
Accumulated amortisation and impairment
Balance at 1 July 2012
Amortisation expense (i)
Disposals
Reclassification
Net foreign currency exchange differences
Balance at 30 June 2013
Amortisation expense (i)
Disposals
Net foreign currency exchange differences
Balance at 29 June 2014
2014
$’000
83,683
(19,792)
63,891
CAPITALISED
DEVELOPMENT
$’000
LICENCES
$’000
OTHER
ACQUIRED
INTANGIBLES
14,287
1,362
6,463
(68)
(70)
583
22,557
1,399
-
11,994
(430)
600
65
36,185
(4,737)
(4,368)
9
24
(324)
(9,396)
(5,635)
177
(38)
(14,892)
5,877
988
-
(16)
-
778
7,627
675
2,975
-
(4)
-
(85)
11,188
(2,618)
(556)
4
-
(191)
(3,361)
(1,532)
2
(9)
(4,900)
-
-
-
-
-
-
-
-
39,300
-
-
-
(2,990)
36,310
-
-
-
-
-
-
-
-
-
-
2013
$’000
30,184
(12,757)
17,427
TOTAL
$’000
20,164
2,350
6,463
(84)
(70)
1,361
30,184
2,074
42,275
11,994
(434)
600
(3,010)
83,683
(7,355)
(4,924)
13
24
(515)
(12,757)
(7,167)
179
(47)
(19,792)
(i)
Amortisation expense is included in the line item ‘depreciation and amortisation expense’ in the statement of comprehensive income.
Refer to note 3.19 and 3.20 to the financial statements for descriptions on intangible assets, their useful life and impairment.
62
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 21. OTHER ASSETS
Current
Prepayments
Work in progress – store builds
Other
Non-current
Other
22. TRADE AND OTHER PAYABLES
Trade payables (i)
Goods and services tax (GST)/Value added tax (VAT) payable
Other creditors and accruals
2014
$’000
6,338
1,225
2,100
9,663
78
78
2014
$’000
69,518
4,519
26,336
100,373
2013
$’000
4,136
545
1,634
6,315
680
680
2013
$’000
17,999
1,763
18,293
38,055
(i)
The average credit period on purchases of goods is 30 days. The Consolidated entity has financial risk management policies in place to ensure that all payables are paid within the credit timeframe.
Included within Other creditors and accruals is a liability of $2.0 million (2013: $0.2 million), which relates to the surplus held in relation to the National
Advertising Fund (“AdFund”). In addition to franchise fees, franchisees pay contributions which are collected by the Consolidated entity for specific use
within the AdFund. The Consolidated entity operates the funds on behalf of the franchisees with the objective of driving revenues for their stores. The fund
is specifically used to pay for marketing and advertising. As all AdFund contributions are designated for specific purposes and do not result in a profit or
loss for the Consolidated entity, the revenue and expenditure are presented net within the Consolidated Statement of Profit or Loss. Total contributions
made to the fund during the 52 weeks ended 29 June 2014 were $49.2 million (2013: $43.2 million).
23. BORROWINGS
Secured
Finance lease liabilities (i) (note 28)
Euro loan (ii) (iii)
Japan acquisition - Australian Dollar loan (v)
Japan acquisition - Japanese Yen loan (v)
Other Bank Loans (iv)
Current
Non-current
2014
$’000
2013
$’000
4,172
18,489
50,329
46,920
-
119,910
1,281
118,629
119,910
83
18,041
-
-
21,547
39,671
7,082
32,589
39,671
The unused facilities available on the Consolidated entity’s bank overdraft are $4,790 thousand (2013: $2,000 thousand).
23.1 Summary of borrowing arrangements:
Secured by the assets leased, the current market value of each exceeds the value of the finance lease liability.
Euro loan is unsecured.
(i)
(ii)
(iii) Variable rate loan with Westpac Banking Corporation with maturity periods exceeding 1 year (2013: within 1 year).
(iv)
(v)
Fixed rate loan with ABN-AMRO with maturity periods not exceeding 1 year after 1 July 2012. This loan has a corporate guarantee provided by Domino’s Pizza enterprises Ltd.
Variable rate loans with CBA and Westpac maturing in 5 years, secured over the shares held in Domino’s Japan.
63
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 24. OTHER FINANCIAL LIABILITIES
2014
$’000
2013
$’000
Non-current
Financial guarantee contracts
Rent incentive liability
Interest rate swaps
Put option liability
Current
Interest rate swaps
Rent incentive liability
Security deposits
Other
Current
Non-current
25. PROVISIONS
Employee benefits (i)
Japanese defined benefit plan (note 26) (i)
Other
Current
Non-current
Other provisions
Balance at 30 June 2013
Additional provisions recognised
Reductions resulting from remeasurement
Balance at 29 June 2014
76
1,543
751
49,270
51,640
580
121
1,489
137
2,327
2,327
51,640
53,967
2014
$’000
4,735
5,993
1,563
12,291
4,339
7,952
12,291
MAKE GOOD (II)
$’000
STRAIGHT LINE
LEASING (III)
$’000
25
1,402
-
1,427
142
-
(6)
136
303
-
-
-
303
-
200
-
308
508
508
303
811
2013
$’000
3,383
-
167
3,550
3,109
441
3,550
TOTAL
$’000
167
1,402
(6)
1,563
(i)
(ii)
The provision includes $10,633 thousand of annual leave and vested long service leave entitlements accrued (2013: $2,715 thousand for the Consolidated entity), a defined benefit plan for qualifying
employees in Europe of $95 thousand and in Japan which is based on the most recent actuarial valuation. Details of the Japanese defined benefit plan can be found in note 26.
The provision for the make good is in respect of restoring sites to their original condition when the premises are vacated. Management has estimated the provision based on historical data in relation to
the store closure numbers and costs, as well as future trends that could differ from historical amounts.
(iii) The provision for straight line leasing arises as fixed percentage increases in operating leases are recognised as an expense on a straight line basis, over the period of the lease.
64
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 26. RETIREMENT BENEFIT PLANS
26.1 Defined benefit plans
Domino’s Pizza Japan, Inc.
The Consolidated entity operates an unfunded retirement benefit plan where a lump-sum amount is paid out to eligible full-time employees of Domino’s
Pizza Japan with more than three years of service as of retirement.
The lump-sum amount is calculated as monthly salary as of retirement multiplied by a multiple. The multiple is based on years of service up to a maximum
of 41 years and whether retirement is voluntary or involuntary.
The plan typically exposes the Consolidated entity to actuarial risks such as: interest rate risk, retention risk and salary risk.
Interest rate risk
A decrease in the bond interest rate in Japan will increase the plan liability by reducing the discount rate. The rate used at last valuation was 0.7%.
Retention risk
The present value of the defined benefit plan liability is calculated by reference to the expected length of service of full-time staff. As such, an increase in
the length of service above the expected length will increase the plan’s liability.
Salary risk
The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. As such, an increase in the salary
of the plan participants will increase the plan’s liability.
The most recent actuarial valuation of the plan assets and the present value of the defined benefit obligation were carried out at 30 June 2014 by Mr. K
Taniguchi, Fellow of the Institute of Actuaries of Japan.
The principal assumptions used for the purposes of the actuarial valuations were as follows:
Discount rate
Expected rate of salary increase
Number of employees
Average service years
Expected service years
Amounts recognised in comprehensive income in respect of these defined benefit plans are as follows:
Service cost:
Current service cost
Net interest expense
Components of defined benefit costs recognised in profit or loss
Remeasurement on the net defined benefit liability:
Actuarial gains and losses arising from changes in financial assumptions
Components of defined benefit costs recognised in other comprehensive income
Total
Of the expense for the year, an amount of $632 thousand has been included in profit or loss as administration expenses.
The remeasurement of the net defined benefit liability is included in other comprehensive income.
VALUATION AT
2014
2013
0.70%
3.02%
374
6.5 yrs
7.6 yrs
-
-
-
-
-
2014
$’000
2013
$’000
598
34
632
255
255
887
-
-
-
-
-
-
65
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED The amount included in the Consolidated statement of financial position arising from the entity’s obligation in respect of its defined benefit plans is as follows.
Present value of funded defined benefit obligation
Fair value of plan assets
Unfunded status
Net liability arising from defined benefit obligation
Movements in the present value of the defined benefit obligation in the current year were as follows:
Opening defined benefit obligation
Liabilities assumed in business combinations
Current service cost
Net interest expense
Remeasurement losses / (gains):
Actuarial gains and losses arising from changes in financial assumptions
Benefits paid
Exchange differences on foreign plans
Closing defined benefit obligation
There are no plan assets of the defined benefit obligation.
2014
$’000
5,993
-
5,993
5,993
2014
$’000
-
6,142
598
34
255
(561)
(475)
5,993
2013
$’000
-
-
-
-
2013
$’000
-
-
-
-
-
-
-
-
The Consolidated entity expects to make a contribution of $753 thousand to the defined benefit plans during the next financial year.
27. OTHER LIABILITIES
Domino's Pizza International Inc.
Other
Current
Non-current
2014
$’000
2013
$’000
-
-
-
-
-
-
136
1
137
-
137
137
28. OBLIGATIONS UNDER FINANCE LEASES
28.1 Leasing arrangements
Finance leases relate to plant & equipment with lease terms between three and ten years, and motor vehicles with lease terms between three and five
years. The Consolidated entity has options to purchase the leased assets for a nominal amount at the completion of the lease arrangements.
66
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 28.2 Finance lease liabilities
No later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
Minimum lease payments (i)
Less future finance charges
Present value of minimum lease payments
Included in the financial statements as: (note 23)
Current borrowings
Non-current borrowings
MINIMUM FUTURE LEASE
PAYMENTS
PRESENT VALUE OF MINIMUM
FUTURE LEASE PAYMENTS
2014
$’000
1,281
2,891
-
4,172
-
4,172
2013
$’000
39
49
-
88
(5)
83
2014
$’000
1,281
2,891
-
4,172
-
4,172
1,281
2,891
4,172
2013
$’000
25
58
-
83
-
83
25
58
83
2014
$’000
2013
$’000
194,193
40,855
(i) Minimum future lease payments include the aggregate of all lease payments and any guaranteed residual value.
28.3 Fair value
The fair value of the finance lease liabilities is approximately equal to their carrying amount.
29. ISSUED CAPITAL
85,933,273 fully paid ordinary shares (2013: 70,192,674)
Changes to the Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998.
Therefore, the Company does not have a limited amount of authorised capital and issued shares do not have a par value.
29.1 Fully paid ordinary shares
Balance at beginning of financial year
Shares issued:
Issue of shares under executive share option plan
Issue of shares related to Japan equity raising
Dividend reinvestment plan
Capital Return
Capital costs associated with equity raising
Other
Balance at end of financial year
2014
2013
NUMBER OF
SHARES
$’000
SHARE
CAPITAL
$’000
NUMBER OF
SHARES
$’000
SHARE
CAPITAL
$’000
NOTE
(a)
(b)
(c)
70,193
40,855
69,900
69,872
396
15,327
-
-
-
17
85,933
1,261
156,336
-
-
(4,622)
363
194,193
293
-
-
-
-
-
70,193
1,025
-
-
(30,042)
-
-
40,855
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
67
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED NOTE
(a)
TOTAL
NUMBER
NUMBER
QUOTED
EXERCISE
PRICE
EXPIRY DATE
30,000
400,000
386,667
500,000
416,667
600,000
456,667
-
-
-
-
-
-
-
$2.83
$5.83
$5.83
$8.97
$9.13
$14.90
$13.74
31 August 2014
2 November 2017
10 August 2015 (i)
2 November 2017
10 August 2016 (i)
2 November 2017
10 August 2017 (i)
(b) Dividend reinvestment plan
On listing, the Board adopted but did not
commence operation of a Dividend Reinvestment
Plan (“DRP”). The DRP provides shareholders
the choice of reinvesting some or all of their
dividends in shares rather than receiving those
dividends in cash.
(c) Capital Return
Following approval by shareholders on 7
November 2012, the Consolidated entity made
two returns of capital to its shareholders of
$0.214 per share each time. This amounted
to $15 million on 21 December 2012 and $15
million on 21 June 2013.
The Board of Directors resolved to activate the
DRP on 17 August 2006 with a commencement
date of 21 August 2006. Shareholders with
registered addresses in Australia or New
Zealand are eligible to participate in the DRP.
Shareholders outside Australia and New
Zealand are not able to participate due to
legal requirements applicable in their place of
residence.
Shares allocated under the DRP rank equally
with existing shares. Shares will be issued
under the DRP at a price equal to the average
of the daily volume weighted average market
price of the Company’s shares (rounded to the
nearest cent) traded on the ASX during a period
of ten trading days commencing on the second
business day following the relevant record date,
discounted by an amount determined by the
Board.
Domino’s Pizza Enterprises Limited entered into
an Underwriting Agreement with Goldman Sachs
JBWere for its first four dividend payments
commencing with the final dividend for the
year ended 2 July 2006. The Board decided
to continue the DRP Underwriting and entered
into a renewed agreement with Goldman Sachs
JBWere for the next four dividends commencing
with the final dividend for the year ended 29
June 2008.
On 18 August 2009, the Board resolved to
suspend the DRP until further notice. Therefore,
the final dividend for the year ended 29 June
2014 will be paid in cash only.
Share options on issue
CATEGORY OF SECURITY
Options
Unexercised options at 29 June 2014
Unexercised options at 29 June 2014
Unexercised options at 29 June 2014
Unexercised options at 29 June 2014
Unexercised options at 29 June 2014
Unexercised options at 29 June 2014
Unexercised options at 29 June 2014
(i)
Expiry date 12 months after vesting date.
(a) Options
The Company approved the establishment of
the ESOP to assist in the recruitment, reward
and retention of its directors and executives.
The Company will not apply for quotation of the
options on the ASX.
Subject to any adjustment in the event of a
bonus issue, rights issue or reconstruction
of capital, each option is convertible into one
ordinary share.
Terms and conditions of the ESOP
The Company must not issue any shares or grant
any option under this plan if, immediately after
the issue or grant, the sum of the total number
of unissued shares over which options, rights
or other options (which remain outstanding)
have been granted under this plan and any other
Group employee incentive scheme would exceed
7.5% of the total number of shares on issue on
a Fully Diluted Basis at the time of the proposed
issue or grant.
Fully Diluted Basis means the number of shares
which would be on issue if all those securities
of the Company which are capable of being
converted into shares, were converted into
shares. If the number of shares into which the
securities are capable of being converted cannot
be calculated at the relevant time, those shares
will be disregarded.
During the year, 396,000 options were exercised
(2013: 293,000). A total of $1,260,600 was
received as consideration for 396,000 fully paid
ordinary shares of Domino’s Pizza Enterprises
Limited on exercise of the options in the current
financial year (2013: $1,025,500).
68
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 30. RESERVES
Foreign currency translation
Share based and put option reserve
Hedging
30.1 Foreign currency translation
Balance at beginning of financial year
Translation of foreign operations
Balance at end of financial year
2014
$’000
(18,015)
(831)
4,094
(14,752)
2014
$’000
(6,852)
(11,163)
(18,015)
2013
$’000
(6,852)
2,533
2,334
(1,985)
2013
$’000
(12,842)
5,990
(6,852)
Exchange differences relating to the translation of the net assets of the Consolidated entity’s foreign operations from their functional currencies to the
Consolidated entity’s presentation currency (i.e. Australian dollars) are recognised directly in other comprehensive income and accumulated in the foreign
currency translation reserve.
30.2 Share based and put option reserve
Balance at beginning of financial year
Share-based payment
Movement in put option liability
Remeasurement of defined benefit plan
Balance at end of financial year
2014
$’000
2,533
1,461
(4,706)
(119)
(831)
2013
$’000
1,898
635
-
-
2,533
The equity settled share-based benefits reserve arises on the grant of share options to executives under the Executive Share and Option Plan (“ESOP”).
Further information about ESOP is made in note 35 to the financial statements.
30.3 Hedging reserve
Balance at beginning of financial year
Gain/(loss) recognised:
Net investment hedge
Cash flow hedge
Balance at end of financial year
The hedging reserve represents hedging gains and losses recognised on the effective portion of net investment hedges.
31. RETAINED EARNINGS
Balance at beginning of year
Net profit attributable to members of the Company
Payment of dividends (note 33)
Balance at end of year
2014
$’000
2013
$’000
2,334
2,296
2,687
(927)
4,094
38
-
2,334
2014
$’000
63,712
42,303
(26,067)
79,948
2013
$’000
55,817
28,657
(20,762)
63,712
69
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 32. NON-CONTROLLING INTEREST
Balance at beginning of year
Share of profit
Foreign currency translation
Remeasurement of defined benefit plan
Non-controlling interest arising from acquisition of DPEJ
Non-controlling interest put option adjustment
Balance at end of year
2014
$’000
-
2,993
(3,654)
(42)
45,267
(44,564)
-
2013
$’000
-
-
-
-
-
-
-
The non-controlling interest relates to a 25% interest in the Consolidated entity’s operations in Japan. Details on the acquisition of the Japanese operations
can be found in note 46. Financial information relating to the Japanese operations can be found in note 6. The Japan segment in Note 6 is entirely related
to the entity in which the minority holds an interest. Net cash provided by operating activities is $37,739 thousand, net cash used in investing activities is
$296,464 thousand, and net cash provided by financing activities is $276,932 thousand for the Japan segment.
33. DIVIDENDS
Recognised amounts
Fully paid ordinary shares
Interim dividend
Final dividend
Unrecognised Amounts
Fully paid ordinary shares
Final dividend
2014
2013
CENTS
PER SHARE
TOTAL
$’000
CENTS
PER SHARE
TOTAL
$’000
17.7
15.4
33.1
15,207
10,860
26,067
15.5
14.1
29.6
10,880
9,882
20,762
19.0
16,327
15.4
10,860
On 11 August 2014, the directors declared a fully franked final dividend of 19.0 cents per share to the holders of fully paid ordinary shares in respect of
the financial year ended 29 June 2014, to be paid to shareholders on 12 September 2014. The dividend will be paid to all shareholders on the Register of
Members on 26 August 2014. The total estimated dividend to be paid is $16,327 thousand.
Adjusted franking account balance
2014
$’000
5,193
2013
$’000
5,426
34. FINANCIAL INSTRUMENTS
34.1 Capital risk management
The Consolidated entity manages its capital to ensure that entities in the Consolidated entity will be able to continue as a going concern while maximising the
return to stakeholders through the optimisation of the debt and equity balances. The Consolidated entity’s overall strategy remains unchanged from 2013.
The capital structure of the Consolidated entity consists of net debt, which includes the borrowings disclosed in note 23, cash and cash equivalents
and equity attributable to equity holders of the parent, comprising issued capital, reserves, retained earnings and non-controlling interest as disclosed in
notes 29, 30, 31 and 32 respectively.
The Consolidated entity is not subject to any externally imposed capital requirements.
The Consolidated entity operates globally, primarily through subsidiary companies established in the markets in which the Consolidated entity trades.
None of the Consolidated entity’s subsidiaries are subject to externally imposed capital requirements.
Operating cash flows are used to maintain and expand the Consolidated entity’s assets, as well as to make the routine outflows of tax, dividends and
repayment of maturing debt. The Consolidated entity’s policy is to borrow centrally; using a variety of capital market issues and borrowing facilities, to
meet anticipated funding requirements.
The Consolidated entity’s management and board of directors review the capital structure formally on an annual basis. As part of this review, management
and the board of directors consider the cost of capital and the risks associated with each class of capital. Based on recommendations of management and
the Board of Directors, the Consolidated entity will balance its overall capital structure through the payment of dividends, and new share issues as well as
the issue of new debt or the redemption of existing debt.
70
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 34.1.1 Gearing ratio
Debt (i)
Cash and cash equivalents
Net (cash)/debt
Equity (ii)
Net debt to equity ratio
2014
$’000
119,910
(42,283)
77,627
259,389
30%
2013
$’000
39,671
(18,691)
20,980
102,582
20%
The gearing ratio at the end of the reporting period was as follows:
(i)
(ii)
Debt is defined as long-term and short-term borrowings, as detailed in note 23.
Equity includes all capital and reserves that are managed as capital.
34.2 Significant accounting policies
Details of the significant accounting policies and methods adopted (including the criteria for recognition, the bases for recognition of income and expenses)
for each class of financial asset, financial liability and equity instrument are disclosed in note 3.
34.3 Categories of financial assets and liabilities
2014
2013
Financial assets
Trade and other receivables
Loans receivables
Other financial assets
Cash and cash equivalents
Financial guarantee contracts
Deposits
Financial liabilities
Euro loan
Other financial liabilities
Finance lease liability
Other Finance lease liabilities
Other bank loans
Financial guarantee contracts
AUD denominated loan
YEN denominated loan
* Weighted average effective interest rate
Loans and receivables
Loans and receivables
Available for sale financial asset
Cash and bank balances
Loans and receivables
Cash and bank balances
Other
Amortised cost
Other
Other
Other
Financial guarantee contracts
Other
Other
13
14
14
39
24
14
23
22
23
23
23
24
23
23
INTEREST
RATE*
%
-
7.84
-
0.52
6.25
-
1.67
-
7.86
-
3.46
6.25
1.77
1.73
$’000
36,567
7,821
14
42,283
76
11,107
18,489
95,852
48
4,124
-
76
50,329
46,920
INTEREST
RATE*
%
-
7.78
-
2.79
6.25
-
1.69
-
6.28
-
3.36
6.25
-
-
$’000
26,412
5,390
9
18,691
303
-
18,041
36,292
83
-
21,547
303
-
-
34.4 Financial risk management objectives
The Consolidated entity’s finance department co-ordinates access to domestic and international financial markets, monitors and manages the financial
risks relating to the operations of the Consolidated entity in line with the Consolidated entity’s policies. These risks include market risk (including currency
risk, interest rate risk and price risk), credit risk and liquidity risk.
The Consolidated entity seeks to minimise the effects of the above mentioned risks, by using derivative financial instruments to hedge these risk
exposures. The use of financial derivatives is governed by the Consolidated entity’s policies approved by the Board of Directors, which provide written
principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the
investment of excess liquidity. Compliance with policies and exposure limits is reviewed by the Board of Directors. The Consolidated entity does not enter
into or trade financial instruments, including derivative financial instruments, for speculative purposes.
The Consolidated entity’s management and Board of Directors’ review annually the risks and policies implemented to mitigate risk exposures.
34.5 Market risk
The Consolidated entity’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates (refer to note 34.6) and interest
rates (refer to note 34.7). The Consolidated entity enters into a variety of derivative and non-derivative financial instruments to manage its exposure to
interest rate and foreign currency risk, including:
• Interest rate swaps to mitigate risk of rising interest rates.
• Cross currency interest rate swap to mitigate rising interest rates and foreign exchange fluctuation.
• Debt to manage currency risk.
Market risk exposures are measured using sensitivity analysis.
There has been no change to the Consolidated entity’s manner in which it manages and measures the risk from previous period.
71
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED Hedging activities
The Consolidated entity holds financial
instruments to hedge risks relating to underlying
transactions. The major exposure to interest
rate risk and foreign currency risk arises from
investment in foreign operations. Details of
hedging activities are provided below.
Cashflow hedge
The Consolidated entity uses JPY denominated
interest rate swaps to hedge variability in the
cash flows arising from future changes in floating
rates on the Japan Acquisition Loan Aud and
Japan Acquisition Loan Yen debt facility. The
hedge strategy is to designate the interest rate
swap as a hedge against the variability in the
cashflow arising from future changes in interest
rates. This is a Cash Flow Hedge.
Net investment hedge
The Consolidated entity designated the Euro
loan as a hedge of a net investment in foreign
operations from the 10 December 2012. Spot rate
changes of $275 thousand in respect of the net
assets of European operations were recognised
in equity for the Consolidated entity and the
company from the 1 July 2013 to the reporting
date. For further details refer to note 3.24.
The Consolidated entity designated the
Japan Acquisition Loan Yen as a hedge of
a net investment in foreign operations. The
Consolidated entity’s presentation currency is
AUD and foreign currency risk arises from net
investments in foreign operations. The strategy
is to hedge the foreign currency translation
risk arising on the net investment in its foreign
operations. This is a net investment hedge.
The Consolidated entity uses a cross currency
interest rate swap to hedge the foreign currency
translation risk arising on the net investment in
its foreign operations. There is foreign currency
risk arising between the functional currency
of the foreign operation and the presentation
currency of the Consolidated entity. This is a net
investment hedge.
34.6 Foreign currency risk management
As DPE Limited’s Australian operations are
predominantly conducted in Australian dollars,
there is limited foreign currency exchange risk
associated with the Australian business.
DPE Limited also has operations in New
Zealand, Europe and Japan. The operations and
revenues of these businesses are predominantly
transacted in New Zealand dollars, Euros and
Yen respectively. DPE Limited intends to mitigate
its foreign currency translation risk exposure
by denominating a portion of its senior debt in
Euros and Yen. This creates a natural hedge and
mitigates the potential for currency movements
to negatively impact DPE Limited.
DPE Limited also purchases some equipment
in a range of currencies, but predominantly
USD, and has an exchange rate exposure due
to delays between entering into a contract and
final payment. DPE Limited will only enter into a
hedge position (forward contract) in respect of
equipment purchase once it has committed to
the purchase.
The Consolidated entity undertakes certain
transactions denominated in foreign currencies,
hence exposures to exchange rate fluctuations
arise. Exchange rate exposures are managed
within approved policy parameters. The
Consolidated entity has designated cash flow
and net investment hedges are noted above to
mitigate these risks.
The carrying amount of the Consolidated entity’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows:
Cash and cash equivalents
Trade and other receivables
Loan receivables
Trade and other payables
Loan payables
ASSETS
LIABILITIES
2014
$’000
32,071
23,692
3,797
-
-
2013
$’000
8,717
13,528
1,641
-
-
2014
$’000
-
-
-
77,639
65,856
2013
$’000
-
-
-
19,109
25,088
34.6.1 Foreign currency sensitivity analysis
The Consolidated entity is mainly exposed to
Euros and Japanese Yen.
The foreign currency risk exposure recognised
from assets and liabilities arises primarily
from the borrowings denominated in foreign
currencies. There is no significant impact on
the Consolidated entity’s profit from foreign
currency movements associated with these
borrowings as they are effectively designated
as a hedge of the net investment in foreign
operations. At balance date, all hedges were
considered effective.
For the Consolidated entity, the foreign currency
translation risk associated with the foreign
investment results in some volatility to the
foreign currency translation reserve. The impact
on the foreign currency translation reserve
relates to translation of the net assets of the
foreign controlled entities including the impact of
any hedging transactions.
Hedges of net investments
in foreign operations
In the consolidated financial statements the
exposure to foreign currency translation risk is
a result of the investment in offshore activities
with Europe and Japan where any exchange
gains and losses on translation of the foreign
denominated loans are taken to the net investment
hedge reserve (in the foreign currency translation
reserve) only to the extent of the gains and losses
on the value of the foreign net assets, including
any intercompany loans. Exchange differences
on the excess between the loans and net assets,
including any intercompany loans payable, if any,
are recognised in the income statement.
The effectiveness of the hedging relationship
is tested using prospective and retrospective
effectiveness tests. In a retrospective effectiveness
test, the changes in the value of the hedging
instrument and the change in the value of the
hedged net investment from spot rate changes are
calculated. If the calculation is between 80 and 125
per cent, then the hedge is considered effective.
Any gains or losses on re-measurement
of derivative or non-derivative financial
instruments designated as hedges of foreign
investments are recognised in the net
investment hedge reserve in equity only to the
extent that the hedging relationship is effective.
The accumulation of the recognised gains or
losses recorded in equity is transferred to the
income statement when the foreign operation
is sold.
Any gains or losses of the ineffective portion
of the hedge are recognised in the income
statement within other revenue or other
expenses. During the year there was no
hedge ineffectiveness attributable to the net
investment hedges.
During the year net gains/(losses) after tax
of $1,760 thousand (2013: $38 thousand) on
the hedging instruments were taken directly to
equity in the consolidated balance sheet.
72
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED The following table details the value of the instrument designated and the impact on the hedge reserve.
Euro loan
Designated hedge of net foreign investment (EUR)
Japan acquisition - Japanese Yen loan
Designated hedge of net foreign investment (JPY)
LIABILITIES
EQUITY
2014
$’000
18,489
-
50,776
-
69,265
2013
$’000
18,041
-
-
-
18,041
2014
$’000
-
1,227
-
3,794
5,021
2013
$’000
-
2,334
-
-
2,334
The following details the Consolidated entity’s sensitivity to a 10% increase and decrease in the Australian Dollar against the relevant foreign currencies.
10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment
of the possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items.
Adjustments have only been made for transactions outstanding at period end using a 10% change in foreign currency rates. A positive number indicates an
increase in profit or loss and other equity where the Australian Dollar strengthens against the respective currency.
Profit or (loss)
If there was a 10% increase in exchange
rates with all other variables held constant
If there was a 10% decrease in exchange
rates with all other variables held constant
Other equity
If there was a 10% increase in exchange
rates with all other variables held constant
If there was a 10% decrease in exchange
rates with all other variables held constant
EUROS IMPACT
JAPANESE YEN IMPACT
2014
$’000
2013
$’000
2014
$’000
2013
$’000
-
-
-
-
1,190
-
(1,454)
1,161
(1,419)
-
-
-
-
-
-
-
-
-
(i)
This is mainly as a result of changes in fair value of borrowings designated as net investment of foreign operation hedges.
34.6.2 Forward foreign exchange contracts
It is the policy of the Consolidated entity to
enter into forward foreign exchange contracts to
hedge specific foreign currency payments and
receipts. The forward foreign exchange contract
is only entered into once the Consolidated entity
has committed to the purchase transaction.
34.7 Interest rate risk management
The Consolidated entity is exposed to interest
rate risk because entities in the Consolidated
entity borrow funds at both fixed and floating
interest rates. The risk is managed by
the Consolidated entity by maintaining an
appropriate mix between fixed and floating
rate borrowings, and by the use of interest rate
swap. Hedging activities are evaluated regularly
to align with interest rate views and defined
risk appetite, ensuring the most cost-effective
hedging strategies are applied.
34.7.1 Interest rate sensitivity analysis
The sensitivity analyses below have been
determined based on the exposure to
interest rates for both derivative and non-
derivative instruments at the reporting date
and the stipulated change taking place at
the beginning of the financial year and held
constant throughout the reporting period. A
100 basis point increase or decrease is used
when reporting interest rate risk internally to
key management personnel and represents
management’s assessment of the possible
change in interest rates.
At reporting date, if interest rates had been
100 basis points higher or lower and all other
variables were held constant, the Consolidated
entity’s net profit would increase by $366
thousand and decrease by $257 thousand
(2013: increase by $52 thousand and decrease
by $237 thousand). This is mainly attributable
to the Consolidated entity’s exposure to interest
rates on its variable rate borrowings.
73
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 34.7.2 Interest rate swap contracts
Under interest rate swap contracts, the Consolidated entity agrees to exchange the difference between fixed and floating rate interest amounts calculated
on agreed notional principal amounts. Such contracts enable the Consolidated entity to mitigate the risk of changing interest rates on the fair value of
issued fixed rate debt and the cash flow exposures on the issued variable rate debt. The fair value of interest rate swaps at the end of the reporting period
is determined by discounting the future cash flows using the curves at the end of the reporting period and the credit risk inherent in the contract, and is
disclosed below. The average interest rate is based on the outstanding balances at the end of the reporting period.
The following tables detail the notional principal amounts and remaining terms of interest rate swap contracts outstanding at the end of the reporting
period.
AVERAGE CONTRACTED
FIXED INTEREST RATE
NOTIONAL PRINCIPAL VALUE
FAIR VALUE
2014
$’000
2013
$’000
2014
$’000
2013
$’000
2014
$’000
2013
$’000
Interest rate swap - less than 5 years
1.75%
-
97,808
-
(1,332)
-
The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is the local interbank rate of Australia. The Consolidated
entity will settle the difference between the fixed and floating interest rate on a net basis. Refer to note 34.9.1 for the current and non-current split.
All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow hedges in order to
reduce the Consolidated entity’s cash flow exposure resulting from variable interest rates on borrowings. The interest rate swaps and the interest payments
on the loan occur simultaneously and the amount accumulated in equity is reclassified to profit or loss over the period that the floating rate interest
payments on debt affect profit or loss.
34.7.3 Cross currency interest rate swap contract
Under a cross currency interest rate swap contract, the Consolidated entity agrees to exchange the difference between fixed and floating rate interest and
foreign currency amounts calculated on agreed notional principal amounts. Such contracts enable the Consolidated entity to mitigate the risk of changing
interest and foreign exchange rates on the fair value of issued fixed rate debt and the cash flow exposures on the issued variable rate debt. The fair value of
swap at the end of the reporting period is determined by discounting the future cash flows using the curves at the end of the reporting period and the credit
risk inherent in the contract, and is disclosed below. The average interest rate is based on the outstanding balances at the end of the reporting period.
The swap in existence has a fixed rate of 1.73% on a notional value of $50,776 thousand and has a fair value of $4,127 thousand at balance date. The
swap settles on a quarterly basis. The swaps and the interest payments on the loan occur simultaneously and the amount accumulated in equity is
reclassified to profit or loss over the period that the floating rate interest payments on debt affect profit or loss.
34.8 Credit risk management
Credit risk refers to the risk that a franchisee or business partner will default on its contractual obligations resulting in financial loss to the Consolidated
entity. The Consolidated entity has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate,
as a means of mitigating the risk of financial loss from defaults. Credit exposure is controlled by limits that are continually reviewed.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by
international credit rating agencies. Except as detailed in the following table, the carrying amount of financial assets recorded in the financial statements,
net of any allowances for losses, represents the Consolidated entity’s maximum exposure to credit risk without taking account of the value of any collateral
obtained:
34.8.1 Financial assets and other credit exposures
Consolidated
Guarantee provided under deed of guarantee
MAXIMUM CREDIT RISK
2014
$’000
2013
$’000
13,120
17,057
The Consolidated entity provides guarantees to third party financiers in order to enable internal candidates (i.e. franchisees and managers) to fund
the purchase of DPE stores. The Consolidated entity’s policy in this regard is to predominantly support internal candidates who have displayed strong
operational expertise. Further, the Consolidated entity generally provides guarantees to internal candidates in the metropolitan markets where it has
operated or is operating corporate stores. In the event that a loan defaults, the Consolidated entity’s policy is to purchase and operate the failed store as a
corporate store.
The Consolidated entity has also provided a guarantee to third party financial institutions in relation to borrowings of the European subsidiary.
74
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 34.9 Liquidity risk management
The Consolidated entity manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously
monitoring forecast and actual cash flows, and matching the maturity profiles of financial assets and liabilities. Ultimate responsibility for liquidity risk
management rests with the board of directors, which has established in an appropriate liquidity management framework for the management of the
Consolidated entity’s short medium and long term funding and liquidity management requirements. Included in note 34.9.2 is a listing of additional
undrawn facilities that the Consolidated entity has at its disposal to further reduce liquidity risk.
34.9.1 Liquidity and interest risk tables
The following tables detail the Consolidated entity’s remaining contractual maturity for its financial assets and liabilities and non-derivative financial assets
and liabilities. The tables have been drawn up based on the undiscounted cash flows of financial assets and financial liabilities based on the earliest date
on which the Consolidated entity can be required to pay. The table includes both interest and principal cash flows.
LESS THAN
1 YEAR
$’000
1 - 5
YEARS
$’000
MORE THAN
5 YEARS
$’000
29 JUNE 2014
Financial assets
Trade and other receivables
Derivative instruments in designated hedge accounting relationships
Loans receivables
Other financial assets
Cash and cash equivalents
Financial guarantee contracts
Deposits
Financial Liabilities
Trade payables
Derivative instruments in designated hedge accounting relationships
Other payables
Euro loan
Finance lease liability
Other liabilities
Japan Acquisition loan AUD
Japan Acquisition loan Yen
Financial guarantee contracts
Put option liability
Lease incentive liability
30 JUNE 2013
Financial assets
Trade and other receivables
Loans receivables
Other financial assets
Cash and cash equivalents
Financial guarantee contracts
Financial Liabilities
Trade payables
Other payables
Euro loan
Finance lease liability
Other loans
Other liabilities
Financial guarantee contracts
36,567
1,825
1,378
14
42,283
-
-
(69,518)
(580)
(16,332)
-
(38)
-
-
-
-
-
(121)
26,412
1,369
9
18,691
-
(17,999)
(11,386)
-
(25)
(7,047)
-
-
-
2,301
6,722
-
-
76
11,107
-
(751)
-
(18,489)
(10)
(1)
(50,776)
(47,367)
(76)
(49,270)
(1,543)
-
4,471
-
-
303
-
-
(18,041)
(58)
-
(137)
(303)
-
-
822
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
167
-
-
-
-
-
-
-
-
-
-
75
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED The following table details the Consolidated entity’s liquidity analysis for its derivative financial instruments. The table has been drawn up based on the
undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross inflows and
outflows on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined
by reference to the projected interest rates as illustrated by the yield curves at the end of the reporting period.
LESS THAN
1 MONTH
$’000
1 TO 3
MONTHS
$’000
3 MONTHS TO
1 YEAR
$’000
1 TO 5
YEARS
$’000
Net Settled
Interest rate swaps
Cross currency interest rate swaps
34.9.2 Financing facilities
Secured bank overdraft facility, reviewed annually and payable at call:
amount used
amount unused
Secured commercial bill facility, reviewed annually:
amount used
amount unused
-
-
-
-
467
467
(580)
1,358
778
2014
$’000
-
12,010
12,010
(751)
2,301
1,550
2013
$’000
7,047
2,000
9,047
116,632
36,295
152,927
32,541
8,601
41,142
The Consolidated entity has access to financing facilities at reporting date as indicated above and expects to meet its other obligations from operating cash
flows and proceeds of maturing financial assets. The Consolidated entity expects to maintain a current debt to equity ratio approved by the Board.
76
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 34.10 Fair value of financial instruments
This note provides information about how the Consolidated entity determines fair values of various financial assets and financial liabilities. Some of the
Consolidated entity’s financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives
information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used).
FAIR
VALUE
HIER-
ARCHY
Level 2
FINANCIAL
ASSETS/
FINANCIAL
LIABILITIES
1) Interest Rate
and Cross
Currency
Swaps
FAIR VALUE AS AT
2013
$’000
Nil
2014
$’000
Current asset
$1,825, non
current asset
$2,301, current
liability $580
and non current
liability $751 (As
recognised in
other financial
assets and
financial liabilities)
2) Put option over
non-controlling
interest
Liability - $49,270
(As recognised in
other financial non
current liabilities)
Nil
Level 3
VALUATION
TECHNIQUE(S) AND
KEY INPUT(S)
SIGNIFICANT
UNOBSERVABLE
INPUT(S)
RELATIONSHIP OF
UNOBSERVABLE
INPUTS TO FAIR
VALUE
Discounted cash
flow. Future cash
flows are estimated
based on forward
interest rates (from
observable yield
curves at the end
of the reporting
period) and contract
interest rates,
discounted at a rate
that reflects the
credit risk of various
counterparties.
Estimating future
put obligation taking
into account future
earnings.
N/A
N/A
Adjusted unlevered
price/earnings
multiple rates.
The earnings
used are based
on management’s
experience and
knowledge of market
conditions of the
Japan Pizza Industry.
The Put option is
exercisable after 3
years from the the
acquisition date.
The higher the
earnings, the higher
the fair value.
The shorter the time
period, the lower the
fair value.
Management consider that the financial instruments previously disclosed are classified as Level 2, and there have been no transfers between Level 1
and Level 2. The put option was previously recognised as Level 2 and has been transferred to Level 3. The fair values of the financial assets and financial
liabilities included in the level 2 and 3 category above has been determined in accordance with generally accepted pricing models based on a discounted
cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparties.
The only financial liabilities subsequently measured at fair value on Level 3 fair value measurement represent the fair value of the put option liability relating
to the acquisition of Domino’s Pizza Japan (see note 46). No gain or loss for the year relating to this contingent consideration has been recognised in profit
or loss. The opening balance for this put option liability was $45.3m and has a value at year end of $49.2m with the movement recorded in other reserves.
No reasonable change in the key inputs would result in a material change of this value.
77
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 35. SHARE-BASED PAYMENTS
35.1 Equity-settled share-based benefits
The Company has one share plan and one share
and option plan available for employees and
directors and executives of the Company: the
Domino’s Pizza Exempt Employee Share Plan
(“Plan”) and the Domino’s Pizza Executive
Share and Option Plan (“ESOP”). Both plans
were approved by a resolution of the Board of
Directors on 11 April 2005. Fully paid ordinary
shares issued under these plans rank equally
with all other existing fully paid ordinary shares,
in respect of voting and dividend rights and
future bonus and rights issues.
35.2 Executive Share and Option Plan
The Company established the ESOP to assist
in the recruitment, reward, retention and
motivation of directors and executives of the
Company (“the participants”).
In accordance with the provisions of the
scheme, executives within the Company, to be
determined by the Board, are granted options to
purchase parcels of shares at various exercise
prices. Each option confers an entitlement to
subscribe for and be issued one share, credited
as fully paid, at the exercise price.
Options issued under the ESOP may not be
transferred unless the Board determines
otherwise. The Company has no obligation to
apply for quotation of the options on the ASX.
However, the Company must apply to the ASX
for official quotation of shares issued on the
exercise of the options.
The Company must not issue any shares or grant
any option under this plan if, immediately after
the issue or grant, the sum of the total number
of unissued shares over which options, rights
or other options (which remain outstanding)
have been granted under this plan and any other
Group employee incentive scheme would exceed
7.5% of the total number of shares on issue on
a Fully Diluted Basis at the time of the proposed
issue or grant.
Fully Diluted Basis means the number of shares
which would be on issue if all those securities
of the Company which are capable of being
converted into shares, were converted into
shares. If the number of shares into which the
securities are capable of being converted cannot
be calculated at the relevant time, those shares
will be disregarded.
The following share-based payment arrangements were in existence during the current and comparative reporting period:
OPTIONS SERIES
(11) Issued 30 April 2009
(12) Issued 2 November 2011
(13) Issued 2 November 2011
(14) Issued 7 November 2012
(15) Issued 7 November 2012
(16) Issued 1 November 2013
(17) Issued 29 October 2013
GRANT DATE
30 April 2009
2 November 2011
2 November 2011
7 November 2012
7 November 2012
1 November 2013
29 October 2013
EXPIRY DATE
31 August 2014
2 November 2017
31 August 2015
2 November 2017
31 August 2016
2 November 2017
31 August 2017
GRANT DATE
FAIR VALUE
$0.44
$1.39
$1.43
$1.17
$1.16
$3.14
$3.23
EXERCISE
PRICE(i)
$2.83
$5.83
$5.83
$8.97
$9.13
$14.90
$13.74
VESTING DATE
31 August 2011
2 November 2014
10 August 2014
7 November 2015
10 August 2015
7 November 2016
10 August 2016
(i)
The exercise price reduced due to the acquisition of Domino’s Pizza Enterprises Japan and the Capital payment.
35.3 Fair value of share options granted in the year
The weighted average fair value of the options granted during the 2014 year is $14.40 (2013: $1.17). Options were priced using a binominal option pricing
model. Where relevant, the expected life used in the model has been adjusted based on management’s best estimate for the effects of non-transferability,
exercise restrictions and behavioural conditions. Expected volatility is based on the historical share price volatility since listing on 16 May 2005.
Inputs into the model
Grant date share price
Exercise price (ii)
Expected volatility
Option life years (i)
Dividend yield
Risk-free interest rate
OPTION SERIES
SERIES 11 SERIES 12 SERIES 13 SERIES 14 SERIES 15 SERIES 16 SERIES 17
$3.08
$2.83
34.04%
2.34
3.54%
3.07%
$6.82
$5.83
24.00%
6.01
3.08%
3.79%
$6.82
$5.83
24.00%
3.77
3.08%
3.72%
$9.10
$8.97
22.90%
3.90
2.98%
2.73%
$9.10
$9.13
22.90%
3.31
2.98%
2.73%
$15.28
$14.90
30.00%
3.42
3.23%
3.05%
$14.74
$13.74
30.00%
3.42
3.23%
2.97%
(i)
(ii)
This is based on a normal 365-day year.
The exercise price on issue has reduced due to the acquisition of Domino’s Japan and effect of capital return in 2013.
78
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 35.4 Movement in share options in the period
The following reconciles the outstanding share options granted under the ESOP at the beginning and end of the year:
Balance at beginning of the year
Granted during the financial year
Forfeited during the financial year
Exercised during the financial year
Expired during the financial year
Balance at end of the year
Exercisable at end of the year
35.5 Share options exercised during the year
The following share options granted under the ESOP were exercised during the year:
2014
OPTION SERIES
(8) Issued 22 August 2007
(9) Issued 1 September 2007
(9) Issued 1 September 2007
(11) Issued 30 April 2009
(11) Issued 30 April 2009
2013
OPTION SERIES
(11) Issued 30 April 2009
(11) Issued 30 April 2009
2014
2013
WEIGHTED
AVERAGE
EXERCISE
PRICE
$
6.85
14.40
-
3.18
-
10.10
2.83
NUMBER OF
OPTIONS
1,505,667
916,667
-
(293,000)
-
2,129,334
426,000
WEIGHTED
AVERAGE
EXERCISE
PRICE
$
5.11
9.64
-
3.50
-
6.85
3.21
NUMBER OF
OPTIONS
2,129,334
1,056,667
-
(396,000)
-
2,790,001
30,000
NUMBER
EXERCISED
126,000
15,000
15,000
180,000
60,000
EXERCISE DATE
16 August 2013
21 August 2013
29 August 2013
16 August 2013
5 November 2013
SHARE PRICE
AT EXERCISE
DATE ($)
12.62
14.09
13.71
12.62
15.36
NUMBER
EXERCISED
193,000
100,000
EXERCISE DATE
16 August 2012
14 November 2012
SHARE PRICE
AT EXERCISE
DATE ($)
9.70
9.21
79
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 35.6 Share options outstanding at end of the year
2014
The share options outstanding at the end of the year consist of:
• 30,000 options with an exercise price of $2.83, and a weighted average remaining contractual life of 0.16 years.
• 400,000 options with an exercise price of $5.83, and a weighted average remaining contractual life of 3.34 years.
• 386,667 options with an exercise price of $5.83, and a weighted average remaining contractual life of 1.11 years.
• 500,000 options with an exercise price of $8.97, and a weighted average remaining contractual life of 3.34 years.
• 416,667 options with an exercise price of $9.13, and a weighted average remaining contractual life of 2.11 years.
• 600,000 options with an exercise price of $14.90, and a weighted average remaining contractual life of 3.34 years.
• 456,667 options with an exercise price of $13.74, and a weighted average remaining contractual life of 3.11 years
2013
The share options outstanding at the end of the year consist of:
• 126,000 options with an exercise price of $3.45, and a weighted average remaining contractual life of 0.16 years.
• 30,000 options with an exercise price of $3.45, and a weighted average remaining contractual life of 0.16 years.
• 270,000 options with an exercise price of $3.07, and a weighted average remaining contractual life of 1.16 years.
• 400,000 options with an exercise price of $6.07, and a weighted average remaining contractual life of 4.34 years.
• 386,667 options with an exercise price of $6.07, and a weighted average remaining contractual life of 2.11 years.
• 500,000 options with an exercise price of $9.21, and a weighted average remaining contractual life of 4.34 years.
• 416,667 options with an exercise price of $9.21, and a weighted average remaining contractual life of 3.11 years.
36. KEY MANAGEMENT PERSONNEL COMPENSATION
The aggregate compensation made to key management personnel of the Consolidated entity, is set out below:
Short-term employee benefits
Post-employment benefits
Other long-term employee benefits
Termination benefits
Equity settled share-based payments
2014
$
5,736,139
165,110
149,517
-
1,361,525
7,412,291
2013
$
3,863,304
198,046
79,694
-
586,161
4,727,205
The remuneration of directors and key executives is determined by the remuneration committee having regard to the performance of individuals and market trends.
Egan & Associates, an independent remuneration consultant is engaged by the Remuneration Committee to ensure that the reward practices and levels
for senior management are consistent with market practice. A statement of recommendation from the remuneration consultant has been received by the
board for the 2014 financial year. Payment of $33,600 (2013: $25,410) has been made to the remuneration consultant for the services provided on the
remuneration recommendation. Additional services provided in the current year were in relation to the issuing of options under the ESOP. No other advice
has been provided by the remuneration consultant for the financial year.
In order to ensure that the remuneration recommendation would be free from undue influence by members of the key management personnel to whom
the recommendation relates to, the board has ensured that the remuneration consultant is not a related party to any member of the key management
personnel. As such, the Board is satisfied that the remuneration recommendation was made free from undue influence by the member or members of the
key management personnel to whom the recommendation relates.
37. RELATED PARTY TRANSACTIONS
37.1 Other related party transactions
37.1.1 Equity interests in related parties
Equity interest in subsidiaries
(i)
Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 17 to the financial statements.
(ii) Equity interests in other related parties
There are no equity interests in other related parties.
37.1.2 Transactions with key management personnel
Key management personnel compensation
(i)
Details of key management personnel compensation are disclosed in note 36 to the financial statements.
Loans to key management personnel
(ii)
There were no loans outstanding at any time during the financial year to key management personnel or to their related parties.
80
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED (iii) Key management personnel equity holdings
Fully paid ordinary shares of Domino’s Pizza Enterprises Limited
2014
Ross Adler (i) (v)
Barry Alty (i) (vi)
Grant Bourke (i) (vii)
Paul Cave (i) (viii)
Don Meij (i) (ii) (ix)
Richard Coney (i)
Allan Collins (iv)
Andrew Megson (i)
Andrew Rennie (i) (iii)
2013
Ross Adler (i) (x)
Barry Alty (i)
Grant Bourke (i)
Paul Cave (i)
Don Meij (i) (ii)
Richard Coney (i) (xi)
Andrew Megson (i) (xii)
Andrew Rennie (i) (xiii)
Andre ten Wold (xiv)
Craig Ryan (xv)
Patrick McMichael (xvi)
BALANCE AT
BEGINNING
OF FINANCIAL
YEAR
NO.
GRANTED AS
COMPEN-
SATION
NO.
RECEIVED ON
EXERCISE OF
OPTIONS
NO.
NET OTHER
CHANGE
NO.
BALANCE AT
THE END OF
FINANCIAL
YEAR
NO.
BALANCE HELD
NOMINALLY
NO.
202,221
104,443
1,547,032
382,000
2,787,556
719
-
93,079
317,713
302,221
104,443
1,547,032
382,000
2,787,556
719
113,079
342,713
-
-
13,635
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
60,000
-
306,000
-
-
-
-
-
65,000
-
-
100,000
40,000
-
30,483
(21,295)
251,312
(12,834)
(1,214,296)
-
-
-
115,592
(100,000)
-
-
-
-
(65,000)
(20,000)
(25,000)
(100,000)
(40,000)
(13,635)
232,704
83,148
1,798,344
369,166
1,573,260
719
60,000
93,079
739,305
202,221
104,443
1,547,032
382,000
2,787,556
719
93,079
317,713
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Includes shares held by their related parties.
(i)
(ii) Don Meij’s opening balance now reflects the closing balance of Kerri Hayman, who resigned 31 July 2010 and is no longer a member of key management personnel but is a related party to Mr Meij.
(iii)
On 16 August 2013, 306,000 options were exercised. On 18 September 2013, 67,707 shares were acquired through equity raising. On 19 September 2013, 67,885 shares were acquired through equity
raising. On 2 March 2014, 20,000 shares were sold.
(iv) On 5 November 2013, Allan Collins exercised 60,000 options.
(v) On 28 August 2013, 43,962 shares were acquired through equity raising. On 24 February 2014 13,479 shares were disposed.
(vi) On 28 August 2013, 22,705 shares were acquired through equity raising. On 4 November 2013, 30,000 shares were disposed and on 12 November 2013, 14,000 shares were disposed.
(vii) On 18 September 2013, 336,312 shares were acquired through equity raising. On 30 October 2013, 85,000 shares were disposed.
(viii) On 28 August 2013, 83,044 shares were acquired through equity raising. On 30 October 2013, 8,566 shares were disposed, and on 1 November 2013, 87,312 shares were disposed.
(ix)
On 28 August 2013, 180,000 shares were acquired, on 19 August 2013, 325 shares were acquired through the equity raising, and on 18 September 2013, 609 shares were acquired through the equity
raising. On 16 August 2013, 400,000 shares were disposed, on 5 September 2013, 914,280 shares were disposed, on 5 November 2013, 20,000 shares were disposed, and on 17 February 2014, 50,000
shares were disposed. On 2 July 2013, 650 shares were disposed, 15 October 2013, 150 shares were disposed, 10 December 2013, 100 shares were disposed, 11 June 2014, 50 shares were disposed,
and during the year, 10,000 shares were removed due to the holdings no longer being a related party.
(x) During the year, Ross Adler sold 100,000 shares.
(xi) On 16 August 2012, Richard Coney exercised 65,000 options and on the same day sold 65,000 shares.
(xii) During the year, Andrew Megson sold 20,000 shares.
(xiii) During 2013 Andrew Rennie sold 25,000 shares.
(xiv) On 14 November 2012, Andre ten Wolde exercised 100,000 options and on the same day sold 100,000 shares.
(xv) On 16 August 2012, Craig Ryan exercised 40,000 options and on the same day sold 40,000 shares.
(xvi) In FY13, Patrick McMichael sold 13,635 shares.
81
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED Executive share options of Domino’s Pizza Enterprises Limited
BALANCE
AT
BEGINNING
OF FINAN-
CIAL YEAR
NO.
GRANTED
AS
COMPEN-
SATION
NO.
EXERCISED
NO.
NET OTHER
CHANGE
NO.
BALANCE
AT THE
END OF
FINANCIAL
YEAR
NO.
BALANCE
VESTED AT
THE END OF
FINANCIAL
YEAR
NO.
VESTED
BUT NOT
EXERCISE-
ABLE
NO.
VESTED
AND
EXERCISE-
ABLE
NO.
OPTIONS
VESTED
DURING
YEAR
NO.
900,000
130,000
639,334
175,000
50,000
50,000
400,000
115,000
472,667
15,000
117,500
25,000
65,000
-
100,000
600,000
80,000
166,667
57,500
25,000
25,000
-
-
(306,000)
(60,000)
-
-
500,000
80,000
166,667
-
57,500
25,000
25,000
-
-
-
(65,000)
-
-
-
-
(40,000)
-
(100,000)
- 1,500,000
210,000
-
500,001
-
172,500
-
75,000
-
75,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
900,000
130,000
639,334
15,000
175,000
50,000
50,000
-
-
-
-
306,000
15,000
60,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
306,000
15,000
60,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2014(i)
Don Meij
Richard Coney
Andrew Rennie
Allan Collins
John Harney
Craig Ryan
2013 (ii)
Don Meij
Richard Coney
Andrew Rennie
Melanie Gigon
Allan Collins
John Harney
Craig Ryan
Patrick McMichael
Andre ten Wolde
(i)
(ii)
During the financial year, Don Meij and other executives were granted share options under the ESOP on 1 November 2013 and 29 October 2013. In addition, 366,000 options (2013: 205,000 options) were
exercised by key management personnel for 366,000 ordinary shares in the Company (2013: 205,000 ordinary shares). No amounts remain unpaid on the options exercised during the financial year at
year end.
During the financial year, Don Meij and other executives were granted share options under the ESOP on 7 November 2012. In addition, 205,000 options (2012: 1,135,000 options) were exercised by key
management personnel for 205,000 ordinary shares in the Company (2012: 1,135,000 ordinary shares). No amounts remain unpaid on the options exercised during the financial year at year end.
All executive share options issued to the directors and key management personnel were made in accordance with the provisions of the ESOP. Each share option
converts on exercise to one ordinary share of Domino’s Pizza Enterprises Limited. No amounts are paid or payable by the recipient on receipt of the option.
Further details of the ESOP are contained in note 35 to the financial statements.
82
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED (iv)
Other transactions with directors of the
Consolidated entity
(vii)
Transactions within the wholly-owned
group
During the financial year, services were provided
by:
During the financial year, directors and their
related parties purchased goods, which were
domestic or trivial in nature, from the Company
on the same terms and conditions available to
employees and customers.
(v)
Transactions with key management
personnel of Domino’s Pizza Enterprises
Limited
During the financial year, key management
personnel and their related parties purchased
goods, which were domestic or trivial in
nature, from the Company on the same terms
and conditions available to employees and
customers.
Transactions with other related parties
(vi)
Other related parties include:
• associates;
• directors of related parties and their director-
related entities; and
• other related parties.
Where applicable, details of dividend and
interest revenue from other related parties are
disclosed in note 7 to the financial statements.
The wholly-owned-group includes:
• the ultimate parent entity in the wholly-owned
group;
• wholly-owned controlled entities; and
• other entities in the wholly-owned group.
The wholly-owned Australian entities within
the Consolidated entity are taxed as a single
entity effective from 1 July 2003. The entities
in the tax-consolidated group have not entered
into a tax sharing agreement or tax funding
agreement. Income tax liabilities payable
to the taxation authorities in respect of the
tax-consolidated group are recognised in the
financial statements of the parent entity. Refer to
note 17 to the financial statements for members
of the tax-consolidated group.
The Company provided accounting, marketing,
legal and administration services to entities in
the wholly-owned group during the financial
year. The Company also paid costs on behalf
of entities in the wholly-owned group and
subsequently on-charged these amounts to
them.
During the financial year, Domino’s Pizza
New Zealand Limited provided management,
franchisee and store development services to
the Company. Domino’s Pizza New Zealand
Limited also collected debtor receipts on behalf
of the Company.
• Domino’s Pizza Enterprises Limited to
Domino’s Pizza France S.A.S. and Domino’s
Pizza Netherlands B.V.;
• Domino’s Pizza Enterprises Limited to
Domino’s Pizza Japan;
• DPEU Holdings S.A.S. to Domino’s Pizza
France S.A.S.;
• Domino’s Pizza Belgium S.P.R.L. to Domino’s
Pizza France S.A.S.; and
• Domino’s Pizza Netherlands B.V. to
Domino’s Pizza France S.A.S.
in accordance with the Service Agreements and
accordingly arm’s length fees were charged.
In the current financial year, current combined
target returns were achieved by Domino’s Pizza
France S.A.S. and Domino’s Pizza Netherlands
B.V.. Accordingly, Domino’s Pizza Enterprises
Limited charged a DPI royalty.
Other transactions that occurred during the
financial year between entities in the wholly-
owned group were:
• advancement of loans;
• sale of plant & equipment;
• royalty fees;
• administration recharges;
• interest charges; and
• withholding tax payments.
(viii) Parent entities
The parent entity and the ultimate parent entity
in the Consolidated entity is Domino’s Pizza
Enterprises Limited.
83
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 38. ACQUISITION OF BUSINESSES
NAME OF BUSINESSES ACQUIRED
PRINCIPAL
ACTIVITY
DATE OF ACQUISITION
Acquisition of stores
During the year: Significant contract acquisitions for Australia and New Zealand
2014
7 Australian stores
3 Australian stores
9 New Zealand stores
Pizza stores
Pizza stores
Pizza stores
July 2013
August 2013
December 2013
2013
4 Australian stores
15 Australian Stores
Pizza stores
Pizza stores
November 2012
April 2013
PROPORTION
OF SHARE
ACQUIRED
(%)
COST OF
ACQUISITION
IN 2014
$’000
COST OF
ACQUISITION
IN 2013
$’000
100%
100%
100%
100%
100%
3,622
1,036
1,432
-
-
-
-
-
833
10,000
During the year: Significant contract acquisitions for Europe
2013
8 European stores
Pizza stores
July 2012
100%
-
2,209
During the year: Other store acquisitions
2014
12 stores in aggregate (AU)
6 Japan stores (JPY)
2 stores in aggregate (EU)
2013
10 stores in aggregate (AU)
1 New Zealand store (NZD)
11 stores in aggregate (EU)
Pizza stores
Pizza stores
Pizza stores
July - June 2014
July - June 2014
July - June 2014
Pizza stores
Pizza store
Pizza stores
July - June 2013
June-13
July - June 2013
100%
100%
100%
100%
100%
100%
5,228
808
115
-
-
-
-
-
-
2,678
504
2,883
Total store acquisitions during full year ended
12,241
19,107
The above acquisitions relate to stores purchased for the purpose of expanding the operations.
Goodwill arising on acquisitions in Europe is expected to be deductible for tax purposes. For the other jurisdictions, Goodwill arising on acquisitions is not
deductible for tax purposes.
84
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED The cost of acquisitions comprise cash for all of the acquisitions. In each acquisition, the Consolidated entity has paid a premium for the acquiree as it
believes the acquisitions will introduce additional synergies to its existing operations.
NET ASSETS ACQUIRED
Current assets
Cash and cash equivalents
Inventories
Non-current assets
Plant & equipment
Net assets
Goodwill on acquisition
FAIR VALUE ON ACQUISITION
2014
$’000
13
89
102
4,298
4,298
4,400
7,841
12,241
2013
$’000
4
26
30
5,224
5,224
5,254
13,853
19,107
Goodwill arose in the business combination as the consideration paid included a premium. In addition, the consideration paid for the stores effectively
included amounts in relation to benefits from expected synergies, revenue growth and future market development. These benefits are not recognised
separately from goodwill as the future economic benefits arising from them cannot be reliably measured.
85
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 39. CASH AND CASH EQUIVALENTS
For the purpose of the statement of cash flows, cash and cash equivalents includes cash on hand and in banks net of outstanding bank overdrafts. Cash
and cash equivalents at the end of the reporting period as shown in the Consolidated statement of cash flows can be reconciled to the related items in the
Consolidated statement of financial position as follows:
Cash and cash equivalents
39.1 Reconciliation of profit for the period to net cash flows from operating activities
Profit for the year
(Gain)/loss on sale or disposal of non-current assets
Equity settled share-based payments
Depreciation and amortisation
Other
Movement in working capital
(Increase)/decrease in assets:
Trade and other receivables
Inventories
Other current assets
Increase/(decrease) in liabilities:
Trade and other payables
Provisions
Tax liability
Deferred tax balances
Net cash generated from operating activities
39.2 Businesses acquired
2014
$’000
42,283
42,283
2014
$’000
45,296
(3,647)
1,461
21,712
(209)
64,613
(3,711)
(2,230)
(1,943)
32,019
746
2,240
(1,066)
90,668
2013
$’000
18,691
18,691
2013
$’000
28,657
(2,979)
635
12,792
(690)
38,415
(3,751)
(585)
(2,131)
1,704
606
(1,175)
97
33,180
Acquisition of stores
During the financial year, 39 businesses were acquired in Australia, New Zealand, Japan and Europe (2013: 49 businesses). The net cash outflow on
acquisition in the financial statements was $12,241 thousand (2013: $19,107 thousand).
39.3 Non-cash financing and investing activities
During the current financial year, the Consolidated entity acquired $2.3 million of equipment under finance lease (2013: Nil).
86
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 40. OPERATING LEASE ARRANGEMENTS
40.1 Leasing arrangements
Operating leases relate to both property leases with lease terms of between five and ten years, the majority of which have an option to renew for a further
five-year period, and motor vehicles with lease terms of three years. All store related operating lease contracts contain market review clauses in the event
that the Consolidated entity exercises its options to renew. The Consolidated entity does not have an option to purchase the leased asset at the expiry of
the lease period.
40.1.1 Non-cancellable operating lease commitments
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Longer than 5 years
In respect of non-cancellable operating leases the following liabilities have been recognised:
Current
Make good (note 25)
Non-current
Straight line leasing (note 25)
Make good (note 25)
41. COMMITMENTS FOR EXPENDITURE
41.1 Capital expenditure commitments
Plant & equipment
2014
$’000
35,696
77,410
28,146
141,252
2014
$’000
25
136
1,402
1,563
2014
$’000
862
2013
$’000
19,239
46,260
8,925
74,424
2013
$’000
25
141
-
166
2013
$’000
226
41.2 Lease commitments
Finance lease liabilities and non-cancellable operating lease commitments are disclosed in note 28 and 40 to the financial statements.
87
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 42. CONTINGENT LIABILITIES AND CONTINGENT ASSETS
42.1 Contingent liabilities
Guarantees - franchisee loans and leases
2014
$’000
5,901
2013
$’000
10,010
Included above are guarantees provided to third party financial institutions in relation to franchisee loans. This is a contingent liability representing
the amounts guaranteed in respect of franchisees that would not, without the guarantee, have been granted the loans. The directors believe that if the
guarantees are ever called on, the Company will be able to recover the amounts paid upon disposal of the stores.
Guarantees - parent entity guarantee over subsidiary borrowings
2014
$’000
7,219
2013
$’000
7,047
Included above are guarantees provided by the Company to third party financial institutions in relation to borrowings of the European subsidiary.
Other
Set out below are details of significant claims against the Consolidated entity. The Company believes that no provision is required as it is not probable that a
sacrifice of future economic benefit will be required or the amount is not capable of reliable measurement.
There are various separate French legal proceedings by a competitor, Speed Rabbit Pizza (SRP) against subsidiary, Domino’s Pizza France (DPF) (the
main claim) and seven SRP franchisees against DPF and the relevant DPF franchisees (the local claims). The allegations are that DPF and its franchisees
breached French laws governing payment time limitations and lending, thereby giving DPF and its franchisees an unfair competitive advantage. SRP
claimed significant damages for impediment of the development of its franchise network, lost royalty income from SRP franchisees and harm to SRP’s
image. DPF and its franchisees denied liability and vigorously defended the claims. On 7 July 2014 the Court handed down its decision in the main claim, as
well as in five of the local claims. All of the claims of SRP and the relevant SRP franchisees were dismissed. SRP has filed an appeal to these decisions but
it is not known at this time when the appeals will be heard. The two remaining local claims have yet to be heard at first instance.
43. REMUNERATION OF AUDITORS
43.1 Auditor of the parent entity
Audit or review of the consolidated financial statements
Other non audit services - due diligence
- investigating accountants
- other asssurance services
43.2 Network firm of parent entity auditor
Audit of the financial statements:
Europe
Europe Taxation services
Japan
Other non audit services - Japan - due diligence services
- other assurance services
The auditor of Domino’s Pizza Enterprises Limited is Deloitte Touche Tohmatsu.
2014
$
2013
$
264,540
103,526
50,000
9,500
427,566
171,686
38,382
179,642
89,228
2,484
481,423
217,540
169,005
57,500
-
444,045
132,344
17,612
-
413,898
-
563,854
88
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 44. EVENTS AFTER THE REPORTING PERIOD
On 11 August 2014, the directors declared a final dividend for the financial year ended 29 June 2014 as set out in note 33.
Other than the matters discussed above and in note 42 relating to SRP, there has not arisen in the interval between the end of the financial year and the date
of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the
operations of the Consolidated entity, the results of those operations, or the state of affairs of the Consolidated entity, in future financial years.
45. PARENT ENTITY INFORMATION
45.1 Financial position
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilites
Total liabilities
Equity
Issued capital
Retained earnings
Reserves
Equity-settled share-based benefits
Hedging
Total equity
45.2 Financial performance
Profit for the year
Other comprehensive income
Total comprehensive income
2014
$’000
28,862
362,026
390,888
28,247
120,053
148,300
2013
$’000
27,514
116,662
144,176
38,450
21,643
60,093
194,193
42,370
40,855
41,112
3,993
2,032
242,588
2014
$’000
27,323
1,759
29,082
2,532
(415)
84,084
2013
$’000
24,458
-
24,458
45.3 Contingent liabilities of the parent entity
Guarantees are provided to third party financial institutions in relation to franchisee loans. The amount disclosed as a contingent liability represents
the amounts guaranteed in respect of franchisees that would not, without the guarantee, have been granted the loans. The directors believe that if the
guarantees are ever called on, the Company will be able to recover the amounts paid upon disposal of the stores.
89
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 46. ACQUISITION OF SUBSIDIARY
On 3 September 2013, the Consolidated entity acquired 75% of the issued share capital of DPE Japan Co. Ltd. (DPEJ), obtaining control of Domino’s Pizza
Japan Inc. (DPJ). DPJ is the Domino’s Pizza Master Franchisee for Japan and is the third largest pizza delivery chain in Japan. This is expected to provide
the Consolidated entity with substantial growth into the future. The remaining 25% of DPEJ is owned by Bain Capital Domino’s Hong Kong Limited and is
subject to a put and call option. The acquisition was funded through both debt and capital raising.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.
BOOK VALUE
$’000
FAIR VALUE
ADJUSTMENT
$’000
FAIR VALUE
ON
ACQUISITION
$’000
18,306
6,712
15,434
29,170
6,736
2,975
(36,547)
(9,676)
-
-
-
-
(14,007)
39,300
-
-
18,306
6,712
15,434
29,170
(7,271)
42,275
(36,547)
(9,676)
33,110
25,293
58,403
250,902
45,267
(58,403)
237,766
250,902
250,902
250,902
(18,306)
232,596
Cash and cash equivalents
Trade and other receivables
Other assets
Property, plant & equipment
Deferred tax assets/liabilities
Identifiable intangible assets
Trade and other payables
Other liabilities
Total identifiable assets
Total consideration - DPE
Total consideration - Minority Interest
Less indentifiable assets
Goodwill
Total consideration:
Cash
Total consideration transferred
Net cash outflow arising on acquisition
Cash consideration
Less: cash and cash equivalent balances acquired
90
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDNOTES TO THE FINANCIAL STATEMENTS CONTINUED 47. APPROVAL OF FINANCIAL
STATEMENTS
The financial statements were approved by the
Board of directors and authorised for issue on 11
August 2014.
Impact of acquisition on the results on the
Consolidated entity
For DPJ’s contribution to the revenue and profit
of the Consolidated entity, please refer to note 6.
If the acquisition of DPJ had been completed
on the first day of the financial period,
the Consolidated entity revenues for the
period would have been $635.7 million and
Consolidated entity profit would have been
$46.8 million. The subsidiary itself would have
had revenue of $288 million and a profit of
$11.4 million (including the acquisition costs as
referred to previously).
The directors of the Consolidated entity
consider these ‘pro-forma’ numbers to
represent an approximate measure of the
performance of the combined Consolidated
entity on a full-year basis and to provide
a reference point for comparison in future
periods. Some of the assumptions used in
determining these numbers are:
• Results for the period before acquisition are
based on actual results;
• Borrowing costs are based on the funding
levels, credit ratings and debt/equity position
of the Consolidated entity after the business
combination; and
• Depreciation and amortisation costs are
based on the Consolidated entity methodology
after the business combination.
The initial accounting for the acquisition of
DPEJ has only been provisionally determined
at the end of the reporting period, with the
intangible assets to be confirmed. At the date
of finalisation of these consolidated financial
statements, the necessary market valuations
and other calculations had not been finalised
and have therefore only been provisionally
determined based on the directors’ best
estimate of the likely fair values.
Acquisition-related costs to date amount to
$2.6 million and have been included as an
expense in profit or loss in the full-year within
the acquisition and integration related costs.
In the prior year, $1.4 million was expensed in
relation to acquisition costs, to total $4.0 million.
The borrowing costs to date (including prior
year) related to the debt raising totals to $1.1
million and costs associated with equity raising
totals $4.6 million. The acquisition-related costs
for this period have been included in the Japan
segment in note 6.
The fair value of receivables is the same
as the carrying amount, and there were no
uncollectible amounts recorded.
Goodwill arising on acquisition
The residual goodwill of $237.8 million is based
on the fair value of the identifiable intangible
assets and other assets and liabilities, and
consists of the workforce, established network
and network projected growth. None of the
goodwill is expected to be deductible for
income tax purposes. The investment in DPEJ
is recorded in a foreign currency (Yen) and
translated at closing foreign exchange rates
each reporting period.
Non-Controlling Interest
The non-controlling interest (25%) in DPEJ at
the acquisition date was measured by reference
to the fair value amount of the non-controlling
interest (NCI) invested in the company (DPEJ
is a newly formed entity), which amounted to
$45.3 million. The NCI is subject to a put and
call option, in which Bain Capital Domino’s Hong
Kong Limited are able to exercise its put option
after a minimum of 3 years, and DPE is able
to exercise its call option after a minimum of 5
years. A liability of $49.2 million is recognised in
other non-current liabilities for this put option.
It has been valued by estimating the future put
obligation. Refer to note 34.10 on the put option
over non-controlling interest liability valuation
technique.
91
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED ADDITIONAL SECURITIES EXCHANGE INFORMATION
AS AT 1 AUGUST 2014
NUMBER OF HOLDERS OF EQUITY SECURITIES
Ordinary share capital
• 85,933,273 fully paid ordinary shares are held by 3,497 individual shareholders.
• All issued ordinary shares carry one vote per share, however partly paid shares do not carry the rights to dividends.
Options
• 2,790,001 options are held by 10 individual option holders.
• Options do not carry a right to vote.
Distribution of holders of equity securities
FULLY PAID
ORDINARY
SHARES
PARTLY PAID
ORDINARY
SHARES
CONVERTING
CUMULATIVE
PREFERENCE
SHARES
REDEEMABLE
PREFERENCE
SHARES
CONVERTING
NON-
PARTICIPATING
PREFERENCE
SHARES
CONVERTIBLE
NOTES
OPTIONS
100,001 and over
10,001 – 100,000
5,001 – 10,000
1,001 – 5,000
1 – 1,000
Holding less than a
marketable parcel
Substantial shareholders
25
119
130
1,034
2,189
3,497
91
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5
5
-
-
-
10
-
ORDINARY SHAREHOLDERS
NUMBER
PERCENTAGE
NUMBER
PERCENTAGE
Somad Holdings Pty Ltd
FIL Investment Management (Australia) Limited and FIL Limited
Hyperion Asset Management Limited
16,683,217
12,773,827
7,288,724
36,745,768
19.41%
14.86%
8.48%
42.75%
-
-
-
-
-
-
-
-
FULLY PAID
PARTLY PAID
92
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED TWENTY LARGEST HOLDERS OF QUOTED EQUITY SECURITIES
ORDINARY SHAREHOLDERS
Somad Holdings Pty Ltd
J P Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
National Nominees Limited
Citicorp Nominees Pty Limited
BNP Paribas Noms Pty Ltd
RBC Investor Services Australia Nominees Pty Limited
Mr Donald Jeffrey Meij
Mrs Esme Francesca Meij
Mr Grant Bryce Bourke
Mr Grant Bryce Bourke & Mrs Sandra Eileen Bourke
Citicorp Nominees Pty Limited
BNP Paribas Nominees Pty Ltd
Mr Andrew Charles Rennie
Success Pizzas Pty Ltd
Pizza People Enterprises Pty Ltd
Clyde Bank Holdings (Aust) Pty Ltd
National Nominees Limited
Mr Grant Bryce Bourke
RBC Investor Services Australia Nominees Pty Ltd
FULLY PAID
PARTLY PAID
NUMBER
PERCENTAGE
NUMBER
PERCENTAGE
23,050,966
22,752,858
10,232,240
6,460,403
4,149,927
3,022,006
1,698,496
1,074,868
914,280
848,523
718,516
560,916
411,691
373,075
360,149
330,852
308,296
256,890
231,305
191,649
77,947,906
26.82%
26.48%
11.91%
7.52%
4.83%
3.52%
1.98%
1.25%
1.06%
0.99%
0.84%
0.65%
0.48%
0.43%
0.42%
0.39%
0.36%
0.30%
0.27%
0.22%
90.71%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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93
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED Underlying NPAT or Underlying EBITDA means
NPAT or EBITDA, defined above, excluding
acquisition and integration costs associated
with Domino’s Japan, along with additional
restructuring costs in Europe.
Related Bodies Corporate has the meaning
given to it by section 50 of the Corporations Act.
Registry means Link Market Services Pty
Limited.
Same Store Sales Growth means comparable
growth in sales across those stores that were in
operation at least 12 months prior to the date of
the reported period.
Share means any fully paid ordinary share in the
capital of the Company.
GLOSSARY
ASIC means the Australian Securities &
Investments Commission.
Earnings Per Share or EPS means NPAT
divided by the total number of Shares on issue.
ASX means Australian Securities Exchange
Limited (ABN 98 008 624 691).
EBIT means earnings before interest expense
and tax.
Australian Store Network means the network
of Corporate Stores and Franchised Stores
located in Australia.
Board or Board of Directors or Directors
means the Board of Directors of the Company.
CAGR means Compound Annual Growth Rate.
Capital Reduction means the selective
reduction of capital described in Section 11.4 of
the prospectus.
Company or Consolidated entity means
Domino’s Pizza Enterprises Limited (ACN 010
489 326).
Corporate Store means a Domino’s Pizza store
owned and operated by the Company.
Corporate Store Network means the network
of Corporate Stores.
Corporations Act means the Corporations Act
2001 (Clth).
Directors means the Directors of the Company
from time to time.
Director and Executive Share and Option Plan
or ESOP means the Domino’s Pizza Director and
Executive Share and Option Plan summarised in
note 35 to the financial statements.
Domino’s means the Domino’s Pizza brand and
network, owned by Domino’s Pizza, Inc.
Domino’s Pizza means the Company and each
of its subsidiaries.
Domino’s Pizza Stores means Corporate Stores
and Franchised Stores.
DPE Limited means Domino’s Pizza Enterprises
Limited (ACN 010 489 326)
EBITDA means earnings before interest
expense, tax, depreciation and amortisation.
Existing Store Sales Growth means sales
growth of stores that have been trading for 54
weeks or more.
European Same Store Sales Growth means
comparable growth in sales across those
European stores that were in operation at least
12 months prior to the date of the reported
period.
Franchised Store means a pizza store owned
and operated by a Franchisee and Franchise
Network means the network of Franchised
Stores.
Franchisees means persons and entities who
hold a franchise from the Company to operate a
pizza store under the terms of a sub-franchise
agreement.
Listing Rules means the Listing Rules of the
ASX.
Network or Domino’s Pizza Network or
Network Stores means the network of Corporate
Stores and Franchised Stores.
Network Sales means the total sales generated
by the Network.
New Zealand Network means the network of
Corporate Stores and Franchised Stores located
in New Zealand.
NPAT means net profit after tax.
94
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED CORPORATE DIRECTORY
DIRECTORS
Jack Cowin
Non-Executive Chairman
Jack has extensive experience in the quick
restaurant service industry and is the founder
and Executive Chairman of Competitive Foods
Australia Pty Ltd. Competitive Foods was
founded in 1969 and owns and operates over
350 Hungry Jack’s fast food restaurants in
Australia, while also operating several food
manufacturing plants for the supermarket and
food service industries. Jack holds a Bachelor of
Arts from the University of Western Ontario.
Ross Adler
Non-Executive Deputy Chairman
Ross has held numerous Directorships including
Non-Executive Director of the Commonwealth
Bank of Australia from 1991 to 2004 and
Director of Telstra from 1995 to 2001. His other
appointments include Chief Executive Officer
of Santos Limited from 1984 to 2000 and
Chairman of AUSTRADE from 2001 to 2006.
Ross is currently Executive Chairman of Amtrade
International Pty Ltd and holds a Bachelor of
Commerce from Melbourne University as well as
an MBA from Columbia University.
Barry Alty
Non-Executive Director
Barry has over 48 years’ experience in the
retail industry. He has worked with a number
of leading retailers including Woolworths and
Foodland. His senior management roles include
Managing Director for Foodland in 1994 and
General Manager for Queensland Independent
Wholesalers in 1987. Barry has also held various
other industry consulting appointments in
Queensland and Papua New Guinea.
Grant Bourke
Non-Executive Director
Grant joined Domino’s Pizza in 1993 as a
franchisee and in 2001 sold his eight stores
to Domino’s Pizza. In 2001, Grant became a
Director for Domino’s Pizza and from 2001 to
2004 he managed the Company’s Corporate
Store Operations. In July 2006, Grant was
appointed Managing Director, Europe. Grant has
been a Non-Executive Director since September
2007. Grant holds a Bachelor of Science (Food
Technology) from the University of NSW and an
MBA from The University of Newcastle.
Paul Cave
Non-Executive Director
Paul is the Chairman and Founder of
BridgeClimb, which he started in 1998. Paul
and the BridgeClimb business have been
highly recognised by the tourism and business
community in Australia. Made a Member of
the Order of Australia, in the Queen’s Birthday
Honours 2010, for his services to the tourism
industry. Awarded the National Entrepreneur
of the Year (Business Award) in 2001, and the
Australian Export Heroes Award in 2002-03.
Worked in marketing and general management
roles for B&D Roll-A-Door and also founded the
Amber Group in 1974, which he sold in 1996.
Director of Chris O’Brien Lifehouse at RPA, and
founding Director of InterRisk Australia Pty Ltd.
Paul holds a Bachelor of Commerce from the
University of NSW.
Don Meij
Chief Executive Officer / Managing Director
Don started as a delivery driver in 1987 and
held various management positions with Silvio’s
Dial-a-Pizza and Domino’s Pizza until 1996.
Don then became a Domino’s Pizza franchisee,
owning and operating 17 stores before selling
them to Domino’s Pizza in 2001. At that time,
Don became Chief Operating Officer and Chief
Executive Officer / Managing Director in 2002.
Don was Ernst & Young’s Australian Young
Entrepreneur of the Year in 2004.
COMPANY SECRETARY
Mr C.A. Ryan BA LLB LLM AGIS
REGISTERED OFFICE
Domino’s Pizza Enterprises Ltd
ABN 16 010 489 326
KSD1, L5
485 Kingsford Smith Drive
Hamilton
Brisbane QLD 4007
Tel: +61 (7) 3633 3333
PRINCIPAL ADMINISTRATION OFFICE
KSD1, L5
485 Kingsford Smith Drive
Hamilton
Brisbane QLD 4007
Tel: +61 (7) 3633 3333
AUDITORS
Deloitte Touche Tohmatsu
Level 25, Riverside Centre
123 Eagle Street
Brisbane QLD 4000
SOLICITORS
Thomson Geer Lawyers
Level 16, Waterfront Place
1 Eagle Street
Brisbane QLD 4000
DLA Piper Australia
Level 28, Waterfront Place
1 Eagle Street
Brisbane QLD 4000
SHARE REGISTRY
Link Market Services Limited
Level 15, 324 Queen Street
Brisbane QLD 4000
Tel: 1300 554 474 (in Australia)
Tel: +61 (0) 2 8280 7111 (overseas)
SECURITIES EXCHANGE
Domino’s Pizza Enterprises Limited shares are
listed on the Australian Securities Exchange
ASX CODE
DMP
WEBSITE ADDRESS
dominos.com.au
95
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED DOMINO’S PIZZA ENTERPRISES LIMITED
Level 5 KSD1 485 Kingsford Smith Drive
Hamilton QLD 4007
TELEPHONE +61 (0) 7 3633 3333
DOMINOS.COM.AU
DOMINOSPIZZA.CO.NZ
DOMINOSPIZZA.BE
DOMINOS.NL
DOMINOS.FR
DOMINOS.JP
96
2014 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED