Dermapharm
Annual Report 2015

Plain-text annual report

DOMINO’S PIZZA ENTERPRISES LIMITED - ACN 010 489 326 - ANNUAL FINANCIAL REPORT FOR THE FINANCIAL YEAR ENDED 28 JUNE 2015 GROUP HIGHLIGHTS 2012 $ MIL 2013 UNDERLYING $ MIL 2014 UNDERLYING $ MIL 2015 $ MIL +/(-) 2014 UNDERLYING 18.5% 19.3% 34.4% 26.6% 36.7% (0.3%) 38.0% 32.8% 40.4% 40.0% 36.0% 41.1% NETWORK SALES Revenue EBITDA Depreciation & amortisation EBIT Interest NPBT Tax NPAT BEFORE MINORITY INTEREST Minority Interest NPAT EARNINGS PER SHARE (BASIC) 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 1,249.3 1,479.8 588.7 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 1333 702.4 127.8 (27.5) 100.3 (2.5) 97.8 (29.4) 68.4 (4.4) 64.0 74.2 51.8 18.5% 19.3% 34.4% 18.2% 14.3% 1117 389 1506 12.3% 14.3% 26.9% 25.8% The above table has not been audited. Underlying profit is the Statutory profit contained in the Appendix 4E of the Domino’s FY14 and FY13 Annual Report adjusted for significant items specific to the Financial Years. We note that the above 2012 and 2015 figures have not been adjusted for any significant charges and therefore equals the statutory result. 2 2015 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”, “Consolidated entity” or the “Company”) and the Board of Directors (the “Board”). The Board endorses the 3rd edition of the Australian Securities Exchange (“ASX”) Corporate Governance Council’s Corporate Governance Principles and Recommendations with 2014 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 1.1 A listed entity should disclose: • the respective roles and responsibilities of its board and management; and • those matters expressly reserved to the board and those delegated to management. Compliance Yes. Refer to page 7 Reason for non-compliance Not applicable 1.2 1.3 1.4 1.5 1.6 1.7 A listed entity should: • undertake appropriate checks before appointing a person, or putting forward to Yes. Refer to page 8-9 Not applicable Not applicable Not applicable Not applicable security holders a candidate for election, as a director; and • provide security holders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director. A listed entity should have a written agreement with each director and senior executive setting out the terms of their appointment. Yes. Refer to page 8 The company secretary of a listed entity should be accountable directly to the board, through the chair, on all matters to do with the proper functioning of the board. Yes. Refer to page 7-8 Yes. Refer to page 11-12 A listed entity should: • have a diversity policy which includes requirements for the board or a relevant committee of the board to set measurable objectives for achieving gender diversity and to assess annually both the objectives and the entity’s progress in achieving them; • disclose that policy or a summary of it; and • disclose as at the end of each reporting period the measurable objectives for achieving gender diversity set by the board or a relevant committee of the board in accordance with the entity’s diversity policy and its progress towards achieving them, and either: – the respective proportions of men and women on the board, in senior executive positions and across the whole organisation (including how the entity has defined “senior executive” for these purposes); or – if the entity is a “relevant employer” under the Workplace Gender Equality Act, the entity’s most recent “Gender Equality Indicators”, as defined in and published under that Act. A listed entity should: • have and disclose a process for periodically evaluating the performance of the Yes. Refer to page 11 Not applicable board, its committees and individual directors; and • disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process. A listed entity should: • have and disclose a process for periodically evaluating the performance of its Yes. Refer to page 11 Not applicable senior executives; and • disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process. 3 2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDPrinciple No. Best practice recommendation Principle 2 – Structure the Board to add value 2.1 The board of a listed entity should: • have a nomination committee which: – has at least three members, a majority of whom are independent directors; and – is chaired by an independent director, • and disclose: – the charter of the committee; – the members of the committee; and – as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or • if it does not have a nomination committee, disclose that fact and the processes it employs to address board succession issues and to ensure that the board has the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties and responsibilities effectively. Reason for non-compliance The benefits of Mr Cowin’s extensive food retailing and corporate governance experience outweighed the disadvantages of any lack of independence – see page 8 Compliance The Company is currently in compliance with this recommendation. From 1 July 2014 – 23 June 2015 the Company was not in compliance when Mr Cowin, a non- independent director, chaired the committee. Compliance was achieved on 23 June 2015 when independent director, Grant Bourke was appointed committee chairman. See pages 9-10 and 19 A listed entity should have and disclose a board skills matrix setting out the mix of skills and diversity that the board currently has or is looking to achieve in its membership. Yes. Refer to page 8 Not applicable Yes. Refer to page 8, 9 and 14 Not applicable A listed entity should disclose: • the names of the directors considered by the board to be independent directors; • if a director has an interest, position, association or relationship of the type described in Box 2.3 of the ASX Principles, but the board is of the opinion that it does not compromise the independence of the director, the nature of the interest, position, association or relationship in question and an explanation of why the board is of that opinion; and • the length of service of each director. A majority of the board of a listed entity should be independent directors. The chair of the board of a listed entity should be an independent director and, in particular, should not be the same person as the CEO of the entity. Yes. Refer to page 8 Mr Cowin, a non- independent director chairs the board. Refer to page 8 Not applicable The benefits of Mr Cowin’s extensive food retailing and corporate governance experience outweighed the disadvantages of any lack of independence – Refer to page 8 Not applicable 2.2 2.3 2.4 2.5 2.6 A listed entity should have a program for inducting new directors and provide appropriate professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform their role as directors effectively. Yes. Refer to page 8 Principle 3 – Promote ethical and responsible decision-making 3.1 A listed entity should: • have a code of conduct for its directors, senior executives and employees; and • disclose that code or a summary of it. Yes. Refer to page 10 Not applicable 4 CORPORATE GOVERNANCE STATEMENT CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDPrinciple No. Best practice recommendation Principle 4 – Safeguard integrity in financial reporting 4.1 The board of a listed entity should: • have an audit committee which: Compliance Yes. Refer to page 10 Reason for non-compliance Not applicable – has at least three members, all of whom are non-executive directors and a majority of whom are independent directors; and – is chaired by an independent director, who is not the chair of the board, • and disclose: – the charter of the committee; – the relevant qualifications and experience of the members of the committee; and – in relation to each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or • if it does not have an audit committee, disclose that fact and the processes it employs that independently verify and safeguard the integrity of its corporate reporting, including the processes for the appointment and removal of the external auditor and the rotation of the audit engagement partner. The board of a listed entity should, before it approves the entity’s financial statements for a financial period, receive from its CEO and CFO a declaration that, in their opinion, the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. Yes. The Board has received the declaration Not applicable A listed entity that has an AGM should ensure that its external auditor attends its AGM and is available to answer questions from security holders relevant to the audit. Yes. Refer to page 13 Not applicable 4.2 4.3 Principle 5 – Make timely and balanced disclosure 5.1 A listed entity should: • have a written policy for complying with its continuous disclosure obligations Yes. Refer to page 12 Not applicable under the Listing Rules; and • disclose that policy or a summary of it. Principle 6 – Respect the rights of shareholders 6.1 6.2 6.3 6.4 A listed entity should provide information about itself and its governance to investors via its website. Yes. Refer to page 12 & 13 A listed entity should design and implement an investor relations program to facilitate effective two-way communication with investors. Yes. Refer to page 12 A listed entity should disclose the policies and processes it has in place to facilitate and encourage participation at meetings of security holders. Yes. Refer to page 12 A listed entity should give security holders the option to receive communications from, and send communications to, the entity and its security registry electronically. Yes. Refer to page 12 Not applicable Not applicable Not applicable Not applicable 5 CORPORATE GOVERNANCE STATEMENTCONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDCompliance Reason for non-compliance The audit committee performs this function, and refer to page 10 and 13 Not applicable Principle No. Best practice recommendation Principle 7 – Recognise and manage risk 7.1 The board of a listed entity should: • have a committee or committees to oversee risk, each of which: – has at least three members, a majority of whom are independent directors; and – is chaired by an independent director, • and disclose: – the charter of the committee; – the members of the committee; and – as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or • if it does not have a risk committee or committees that satisfy above, disclose that fact and the processes it employs for overseeing the entity’s risk management framework. 7.2 7.3 7.4 The board or a committee of the board should: • review the entity’s risk management framework at least annually to satisfy itself Yes. Refer to page 10 and 13 Not applicable that it continues to be sound; and • disclose, in relation to each reporting period, whether such a review has taken place. A listed entity should disclose: • if it has an internal audit function, how the function is structured and what role it Yes. Refer to page 10 Not applicable performs; or • if it does not have an internal audit function, that fact and the processes it employs for evaluating and continually improving the effectiveness of its risk management and internal control processes. A listed entity should disclose whether it has any material exposure to economic, environmental and social sustainability risks and, if it does, how it manages or intends to manage those risks. Yes. Refer to page 16 Not applicable Principle 8 – Remunerate fairly and responsibly 8.1 The board of a listed entity should: • have a remuneration committee which: – has at least three members, a majority of whom are independent directors; and – is chaired by an independent director, • and disclose: – the charter of the committee; – the members of the committee; and – as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or • if it does not have a remuneration committee, disclose that fact and the processes it employs for setting the level and composition of remuneration for directors and senior executives and ensuring that such remuneration is appropriate and not excessive. From 1 July 2014 – 23 June 2015 the Company was not in compliance when Mr Cowin, a non- independent director, chaired the committee. Compliance was achieved on 23 June 2015 when independent director, Grant Bourke was appointed committee chairman. See pages 9 and 18-19. The benefits of Mr Cowin’s extensive food retailing and corporate governance experience outweighed the disadvantages of any lack of independence – see page 9 A listed entity should separately disclose its policies and practices regarding the remuneration of non-executive directors and the remuneration of executive directors and other senior executives. Yes. Refer to page 18-19 A listed entity which has an equity-based remuneration scheme should: • have a policy on whether participants are permitted to enter into transactions Yes. Refer to page 19 Not applicable Not applicable (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme; and • disclose that policy or a summary of it. 8.2 8.3 6 CORPORATE GOVERNANCE STATEMENT CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDThe Board has adopted a Corporate Governance Charter, a Code of Conduct for all staff, 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, Investor Relations, a Nomination and Remuneration Charter 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. ROLES OF THE BOARD, MANAGEMENT AND COMPANY SECRETARY 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 leadership and strategic direction; • overseeing management’s implementation of the Company’s strategic objectives; • approving the annual operating budget; • appointing the chair a deputy chair (or a senior independent director); • appointing and appraising, and where necessary, replacing the Managing Director/ Chief Executive Officer and other senior executives; • ensuring that there are adequate plans and procedures for succession planning; • ensuring a clear relationship between performance and executive directors’ and executives’ compensation; 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. Management Management is specifically responsible for: • implementing the strategic objectives and operating within the risk appetite set by the Board and for all other aspects of the day to day running of the Company; and • Providing the Board with accurate, timely and clear information to enable the Board to perform its responsibilities. Company Secretary The Company Secretary is responsible for: • advising the Board and its committee members on governance matters; • ensuring that the performance of senior • monitoring that board and committee policies and procedures are followed; • co-ordinating the timely completion and despatch of board and committee papers; • ensuring that the business at board and committee meetings is accurately captured in the minutes; and • helping to organise and facilitate the induction and professional development of directors. The Company Secretary is accountable directly to the Board, through the Chair. Each director is able to communicate directly with the Company Secretary and vice versa. 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 integrity of the Company’s accounting and corporate reporting systems, including the external audit; • 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 Company has in place an appropriate risk management framework and setting the risk appetite within which the Board expects management to operate; • ensuring that the market and shareholders are fully informed of all material developments concerning the Company that a reasonable person would expect to have a material effect on the price or value of the Company’s securities; and • recognising the legitimate interests of stakeholders. 7 CORPORATE GOVERNANCE STATEMENTCONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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. The Company will undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election, as a director and provide security holders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director. The Company will provide security holders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director. The Board has a program for inducting new directors and provides appropriate professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform their role as directors effectively. STRUCTURE OF THE BOARD At the date of this report the Board comprises six directors and includes: • one non-executive director (Chairman); one executive director (Managing Director); and • four independent non-executive directors. The qualifications, skills, experience and dates of appointment of each Board member are detailed on the Corporate Directory page of the Annual Report. The compensation paid to DPE Limited’s directors for the year ended 28 June 2015 is set out in the Remuneration Report on pages 18-27. Independence of Directors The Board comprises a majority of independent non-executive directors who 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 Nominations and Remuneration Committee will assess annually the ‘independence’ of each director in light of the ASX Principles. Mr Jack 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 Jack Cowin’s adult children. Mr Jack Cowin does not control the trust, however, the family relationship with the ultimate trust beneficiaries may be perceived as impacting on Mr Jack Cowin’s independence. The Board (excluding Mr Jack Cowin due to his personal interest) unanimously considers that the benefits of Mr Jack Cowin’s involvement as a director and Chairman, significantly outweighs non-compliance with this aspect of the ASX Principles. Mr Jack Cowin has extensive food retailing and corporate governance experience and makes an invaluable contribution to the Company. The Board has appointed independent director, Mr Ross Adler, as the Deputy Chairman, who can fulfil the role of chairman whenever Mr Jack Cowin is conflicted. 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. Letters of appointment Non-executive directors receive formal letters of appointment setting out the key terms, conditions, the term of appointment, time commitment, special duties, remuneration, superannuation entitlement, the requirement to disclose the directors’ interests and matter affecting independence, requirement to comply with key corporate policies, the Company’s policy on when directors may seek independent professional advice, circumstances in which the director’s office becomes vacant, indemnity and insurance arrangements, ongoing right of access to corporate information, ongoing confidentiality obligations and expectations of their appointment. Executive directors and senior executives are engaged under written employment agreements setting out the terms as outlined above and their roles and responsibilities, the person or body to whom they report, the circumstances in which their service may be terminated and termination entitlements. The Company Secretary has also been appointed under a formal letter of appointment which sets out his role and responsibilities. Board and Committee Meetings The Board held 10 formal meetings during the year. Attendance at the 2015 Board and Committee meetings is detailed on page 17 of the Annual Report. BOARD SKILLS MATRIX Collectively, the Board has an extensive range of commercial skills and other relevant experience which are vital for the effective management of the business. Board members, including some who are also directors of other ASX-listed companies, together have a combination of experience in the following areas: • retail and food sectors • corporate and business strategy • business growth and development, both organically and by acquisition • international business • product development, sales and marketing • corporate governance and executive leadership • corporate finance The Board considers that its current members have an appropriate mix of skils that enable the Board to discharge its responsibilities and deliver the Company’s strategy and corporate objectives. 8 CORPORATE GOVERNANCE STATEMENT CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDDuties and Responsibilities of the Committee The principal responsibilities of the Committee are: In relation to nominations: • board succession planning generally • induction and continuing professional development • development and implementation of a process for evaluating the performance of the board, its committee and directors • the process of recruiting a new director • the appointment and re-election of directors • succession planning of CEO and other senior executive • set out the committee’s role and powers In relation to remuneration, to review and make recommendations to the Board in relation to: • The remuneration framework for directors, including the process by which any pool of director’s fees approved by security holders is allocated to directors • The remuneration packages to be awarded to senior executive and other employees • Equity-based remuneration plans for senior executive and other employees • Superannuation arrangements for directors, senior executives and other employees • Whether there is any gender or other inappropriate bias in remuneration for directors, senior executives or other employees. Each member of the Committee has the right to seek advice from external consultants or specialists. 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’S ACCESS TO INFORMATION All Directors have unrestricted access to the Company Secretary. Directors may meet independently with management at any time to discuss areas of interest or concern. 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. 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 a Nomination and Remuneration Committee, which comprises each of the directors except the Managing Director. The majority of the Committee are independent directors. Committee Charter The Committee has a Charter to govern its operations – see http://www.dominos.com.au/ corporate/investors. The Charter is reviewed every two years, and, if appropriate, updated by the Board on recommendation from the Committee. Membership of the Committee Committee members are appointed by the Board. The members of the Committee are Messrs Cowin, Adler, Cave, Bourke and Ms O’Grady. The chair was held by Mr Cowin (a non-independent director) from 1 July 2014 until 23 June 2015 and by Mr Bourke (an independent director) from 23 June 2015. Details of the qualifications and experience of the members and their attendance at Committee meetings during the reporting period are detailed in the Directors’ Report and Corporate Directory. Purpose of the Committee The purpose of the committee is to review, evaluate and make recommendations to the Board in relation to the selection, appointment and remuneration practices of the Company. 9 CORPORATE GOVERNANCE STATEMENTCONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDAUDIT COMMITTEE DPE Limited has a Board convened Audit Committee which is comprised of: • at least three members; • 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 – see http://www.dominos.com.au/corporate/investors. 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. The members of the Committee are Messrs Adler, Cave, and Bourke. Mr Alty held the chair from 1 July 2014 until 28 October 2014 and from 29 October 2014, Mr Adler held the chair. Particulars of their qualifications and experience are set out in the Corporate Directory section of the Annual Report. Membership of the Committee, details of their qualifications and experience and their attendance at Committee meetings during the reporting period are detailed in the Directors’ Report on page 17-18. Purpose of the Committee The purpose of the Audit Committee is to review and make recommendations to the Board in relation to: • 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. 10 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 • reviewing the Company’s full year ASX Appendix 4E, Annual Report and half-year Appendix 4D, prior to submission to the Board. 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 and has the power to seek advice from external consultants or specialists where the committee believes it is appropriate. 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 2015 Committee meetings are detailed in the Directors’ Report on page 17-18. CODE OF CONDUCT The Board has a Code of Conduct which sets the standards to which each director executive and employee will adhere whilst conducting their duties. The Code requires directors, executives and employees, amongst other things, to: • act honestly, in good faith and in the best interests of the Company as a whole; • act with high standards of personal integrity; • comply with the laws and regulations that apply to the Company and its operations; • not knowingly participate in any illegal or unethical activity; • not enter into any arrangements or participate in any activity that would conflict with the Company’s best interests or that would be likely to negatively affect the Company’s reputation; • not take advantage of the property or information of the Company or its customers for personal gain or to cause detriment to the Company or its customers; and • not take advantage of their position or the opportunities arising therefrom for personal gain. 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. CORPORATE GOVERNANCE STATEMENT CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDBOARD AND BOARD COMMITTEE AND SENIOR EXECUTIVE PERFORMANCE EVALUATION A formal review of Board, individual director and Committee performance is undertaken annually by the Chairman. The Deputy Chairman undertakes an annual performance evaluation of 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 of the Board, each director, the Board Committees and senior executives (including the CEO) have occurred in the reporting period in accordance with the procedures described above. No governance changes arose from the evaluations. 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 2015 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. STATUS OF THE OBJECTIVE (i) Ongoing – as at 28 June 2015, 46% of the Corporate Services staff were women. Maintain a balanced level of participation by women as in-store staff. Increase the level of participation by women in management at regional and store level. As part of the program equal employment treatment is to be given without regard to gender. Under the diversity support program, equal treatment is to be given in training and promotion. Ongoing – as at 28 June 2015, 57% of the in-store staff were women and 13% of delivery drivers were women and 29% of our e-bike riders were women Ongoing – as at 28 June 2015, the following proportions of women are in management: • State Managers – 50%; • Regional Managers – 24%; and • Store Managers – 21% 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 28 June 2015, 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 2015: ROLE Non-executive directors Leadership team members Other Total in the whole organisation WOMEN (%) 20% 8% 26% 26% The members of the Leadership teams comprise the senior executives at Group level and at in each of the Company’s markets, who are responsible for the key functions in those markets including finance, marketing, information technology, human resources, corporate, operations and business development. The Company understands that diversity is a larger dimension than just gender and includes matters of age, disability, ethnicity, material or family status, religious or cultural background. The Company ensures that the recruitment and selection practices (from the Board downwards) are appropriately structured so that a diverse range of candidates are considered and that there are no conscious or unconscious biases that might discriminate against certain candidates. 11 CORPORATE GOVERNANCE STATEMENTCONTINUED2015 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 2015 report to the Workplace Gender Equality Agency. A copy of this report can be found in the Investors section of the Company’s website http://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. 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; • The AGM. DPE Limited encourages shareholders to attend and participate in DPE Limited’s AGM to canvass relevant issues of interest by scheduling the AGM at an appropriate time and CBD location. If shareholders are unable to attend the AGM personally, they are encouraged to participate through the appointment of a proxy or proxies; • Its investor relations program which is designed to facilitate effective two –way communication with investors; and • The Company’s website. 12 CORPORATE GOVERNANCE STATEMENT CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDASX Corporate Governance Recommendations At the date of this report the Company considers that the above Corporate Governance practices comply with the ASX Principles, except for the independence of the Chairman. The information required to be disclosed by those recommendations is found both in this Corporate Governance Statement and in the Directors’ Report on pages 14 to 27. The corporate website is located at http://www. dominos.com.au and contains: Specifically in managing risk, the Company and the Board adhere to the following principles: • 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. 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. • 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 and as such has been undertaken during this reporting period. 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. 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. 13 CORPORATE GOVERNANCE STATEMENTCONTINUED2015 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 and its controlled entities (“Consolidated entity”) for the financial year ended 28 June 2015. 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 Lynda O’Grady Don Meij POSITION Non-Executive Chairman Non-Executive Deputy Chairman Non-Executive Director 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 (ceased 28 October 2014) Appointed 24 August 2001 Appointed 23 March 2005 Appointed 16 April 2015 Appointed 24 August 2001 Barry Alty ceased being a Non-Executive Director on 28 October 2014 and Lynda O’Grady was appointed as a Non-Executive Director on 16 April 2015. 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. Mr Grant Bourke is currently a director of Pacific Smiles Group Limited. Paul Cave is currently a director and chairman of Lovisa Holdings Limited. 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 Grant Bourke Paul Cave Lynda O'Grady Don Meij DOMINO'S PIZZA ENTERPRISES LIMITED FULLY PAID ORDINARY SHARES NUMBER - 215,796 1,798,344 369,166 - 1,849,506 SHARE OPTIONS NUMBER CONVERTIBLE NOTES NUMBER - - - - - 1,400,000 - - - - - - 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 18-27. Share options granted to directors and senior management During and since the end of the financial year, an aggregate 653,000 share options were granted to the following directors and senior management of the Company as part of their remuneration. DIRECTORS AND SENIOR MANAGEMENT Allan Collins Andrew Rennie Andrew Megson Craig Ryan Don Meij John Harney Richard Coney Nick Knight 14 NUMBER OF OPTIONS GRANTED 38,500 150,000 29,500 27,000 300,000 27,000 54,000 27,000 ISSUING ENTITY DPE Limited DPE Limited DPE Limited DPE Limited DPE Limited DPE Limited DPE Limited DPE Limited NUMBER OF ORDINARY SHARES UNDER OPTION 153,500 650,001 29,500 77,000 1,400,000 77,000 214,000 67,000 2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDCompany Secretary Craig Ryan General Counsel 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 18 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. 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 28 June 2015 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. Consolidated entity: Profit before tax growth of 47.0% and profit after tax growth of 51.1% was primarily driven by strong sales and new store rollouts across all regions. Contributing to this is the same store sales (SSS) of 11.3% in ANZ, 6.1% in Europe (EU) and 1.8% in Japan. In ANZ, this is mainly attributed to the success of our marketing campaigns and continued growth in digital sales. In EU, this growth is attributed to strong marketing, benefits from scale, and product and digital developments. Japan continues to trade to expectations during this phase of investment and shows promising growth from stores that have been remodelled and relocated. The effective tax rate (tax expense divided by profit before tax) for FY15 was 30.1% compared with 32.0% in FY14 and this decrease was primarily driven by a reduction in the statutory tax rate in Japan. Cash flows from operating activities have increased by $15.4m from FY14, due to increased profits across all regions. We continue to set new records, with 177 new store openings in the period, which has resulted in 670 network stores in ANZ, 452 in Europe and 384 in Japan. Australia and New Zealand: ANZ EBITDA increased by 23.2% and revenue by 6.6%, compared with FY14. Contributing to this growth is the SSS result of 11.3% for the year, which was driven by promotional and marketing activity, increase in digital sales and the opening of 59 new stores to the network. Europe Europe EBITDA increased by 117.9% and revenue by 18.6%, compared with FY14, while underlying EBITDA increased by 92.3%. Contributing to this growth is the strong SSS result of 6.1% for the year, the opening of 54 new stores and the significant scale benefits as the region grows. OLO continues to break records in all three countries, with The Netherlands achieving over 60% of sales from online. Japan Japan EBITDA increased by 56.4% and revenue by 30.4%, compared with FY14. Contributing to this movement is the prior year ownership period being 10 months and the construction of 64 new stores. Franchised stores are now 26% of the system, up from 17% at the time of the DPE acquisition (Sept 13) and 20% at the end of FY14. We opened stores in seven new markets for the fiscal year and we continue to relocate stores to pick up friendly locations and remodel existing stores which further assisted in profit growth. EBITDA and Underlying EBITDA 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 and FY14 refer to the 52 week period ending in the 2013 and 2014 financial year. 2015 $’000 97,840 (29,419) 68,421 2014 $’000 66,560 (21,264) 45,296 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. Changes in state of affairs There were no 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. 15 DIRECTORS’ REPORT CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDFuture developments In Australia and New Zealand, the focus is to increase and leverage our digital capabilities and maximise online sales, as well as continue growth in store numbers. We have plans to provide customers with quicker and more efficient ways to order and this will form the foundation of a variety of new ways to connect with Domino’s in FY16. In Europe, we will continue to focus on delivering a number of new initiatives that have been put in place to improve operational efficiencies. The rollout of the global point of sale (“POS”) and online ordering systems in France will be complete and we will continue to improve on our digital technologies. Strong organic store growth will continue and the new Paris (France) commissary is expected to yield substantial logistical and production benefits. In Japan, the key areas of focus in FY16 will be the continuation of new store rollouts. Stores will also be relocated to pick up friendly locations and a new POS system will begin rolling out before the end of financial year. Economic, environmental and social sustainability risks The Consolidated entity is not subject to any significant environmental regulation or mandatory emissions reporting and does consider that it has material exposure to economic, environmental and social sustainability risks. Dividends In respect of the financial year ended 29 June 2014, as detailed in the Directors’ Report for the financial year, a final dividend of 19.0 cents per share franked to 100% at 30% corporate income tax rate was paid to the holders of fully paid ordinary shares on 12 September 2014. In respect of the financial year ended 28 June 2015, an interim dividend of 24.6 cents per share franked to 100% at 30% corporate income tax rate was paid to the holders of fully paid ordinary shares on 10 March 2015. In respect of the financial year ended 28 June 2015, the Company will be paying a final dividend of 27.2 cents per share franked to 100% at 30% corporate income tax rate to the holders of fully paid ordinary shares on 11 September 2015. 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: ISSUING ENTITY DPE Limited DPE Limited DPE Limited DPE Limited DPE Limited DPE Limited DPE Limited DPE Limited DPE Limited DPE Limited NUMBER OF SHARES UNDER OPTION CLASS OF SHARES EXERCISE PRICE OF OPTION 189,167 500,000 416,667 600,000 456,667 300,000 323,750 150,000 50,500 39,900 Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary $5.83 $8.97 $9.13 $14.90 $13.74 $22.89 $22.89 $16.52 $22.89 $36.31 EXPIRY DATE OF OPTIONS 31 August 2015 2 November 2016 31 August 2016 2 November 2017 31 August 2017 28 October 2020 31 August 2018 28 October 2020 31 August 2018 31 August 2018 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: NUMBER OF SHARES ISSUED 30,000 197,500 400,000 CLASS OF SHARES AMOUNT PAID FOR SHARES AMOUNT OF UNPAID SHARES Ordinary Ordinary Ordinary $2.83 $5.83 $5.83 $nil $nil $nil ISSUING ENTITY DPE Limited DPE Limited DPE Limited 16 DIRECTORS’ REPORT CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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, ten board meetings, seven nomination and remuneration committee meetings and eight audit committee meetings were held. DIRECTORS Jack Cowin Ross Adler (ii) Barry Alty (i) Grant Bourke Paul Cave Lynda O'Grady (i) Don Meij BOARD OF DIRECTORS NOMINATION & REMUNERATION COMMITTEE AUDIT COMMITTEE HELD ATTENDED HELD ATTENDED HELD ATTENDED 10 10 10 10 10 10 10 10 10 5 10 9 2 10 7 7 7 7 7 7 - 7 7 2 7 7 2 - - 8 8 8 8 - - - 5 3 8 7 - - (i) Barry Alty ceased being a Non-Executive director on 28 October 2014 and Lynda O’Grady was appointed as a Non-Executive Director on 16 April 2015. (ii) Ross Adler was appointed to the committee with effect from 29 October 2014. 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 28 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. 17 DIRECTORS’ REPORT CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDOn 13 July 2015, Nick Knight was appointed Chief Executive Officer ANZ, and Andrew Megson ceased to be in senior management. Remuneration Policy 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. The Board has a Nomination and Remuneration Committee. Information about this Committee is set out on page 18 & 19. Non-executive director remuneration Non-executive directors are remunerated by way of cash fees and superannuation contributions. The level of directors fees should reflect the time commitment and responsibilities of the role and market standards. During the reporting period, non-executive directors did not receive any performance based remuneration or equity- based remuneration. Non-executive directors are not entitled to receive any termination payments on ceasing to be a director. Executive remuneration The Board of Directors (“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. 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. Executives may receive bonuses on the achievement of specific goals related to the performance of the Company (including operational results). 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. 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 for the 2015 financial year. Payment of $38,220 (2014: $33,600) 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 remuneration consultant is not a related party to any member of the key management personnel. As such, the Committee 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. REMUNERATION REPORT This Remuneration Report (Audited), which forms part of the Directors’ Report, sets out information about the remuneration of the Company’s directors and its senior management for the financial year ended 28 June 2015. 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 Lynda O’Grady Don Meij POSITION Non-Executive Chairman Non-Executive Deputy Chairman Non-Executive Director (ceased 28 October 2014) Non-Executive Director Non-Executive Director Non-Executive Director (appointed 16 April 2015) Managing Director/Chief Executive Officer (CEO) Barry Alty ceased being a Non-Executive Director on 28 October 2014 and Lynda O’Grady was appointed as a Non-Executive Director on 16 April 2015. 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 (ceased 13 July 2015) • Andrew Rennie, Chief Executive Officer Europe and CEO France • Scott Oelkers, President and Chief Executive Officer of Japan • Nick Knight, Chief Executive Officer ANZ (from 13 July 2015) 18 DIRECTORS’ REPORT CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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 employee share options plan (“ESOP”). 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, 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 19. 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 28 June 2015: 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 (1) Final dividend per share (1) Basic earnings per share Diluted earnings per share 28 JUNE 2015 $’000 29 JUNE 2014 $’000 30 JUNE 2013 $’000 1 JULY 2012 $’000 3 JULY 2011 $’000 702,437 97,840 68,421 588,673 66,560 45,296 294,890 40,765 28,657 264,887 37,644 26,936 246,659 29,668 21,435 28 JUNE 2015 29 JUNE 2014 30 JUNE 2013 1 JULY 2012 3 JULY 2011 21.82 36.16 24.6 cents 27.2 cents 74.2 cents 72.8 cents 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 1 Franked to 100% at 30% corporate income tax rate. The denominators for the purpose of calculating both the basic and diluted earnings per share were adjusted to reflect the bonus element in the capital raising in 2014 (Note 12). Policy on hedging equity incentive schemes Participants are not permitted, without the prior written consent of the Chairman, to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating the scheme. 19 DIRECTORS’ REPORT CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED REMUNERATION OF DIRECTORS AND SENIOR MANAGEMENT SHORT TERM EMPLOYEE BENEFITS SALARY & FEES $ 2015(i) Non-executive directors Jack Cowin Ross Adler Lynda O'Grady (iii) Barry Alty (iii) Grant Bourke Paul Cave Executive director Don Meij 160,000 160,000 16,000 30,785 80,000 80,000 892,505 NON- MONE- TARY $ BONUS $ OTHER (V) $ - - - - - - 4,178 4,178 849 1,389 4,178 4,178 765,000 4,178 - - - - - - - POST- EMPLOY- MENT BENEFITS SUPER- ANNUA- TION $ OTHER LONG- TERM EMPLOYEE BENE- FITS(ii) $ SHARE- BASED PAYMENT TERMI- NATION BENEFITS $ OPTIONS & RIGHTS $ 15,200 15,200 1,520 2,925 7,468 7,600 - - - - - - - - - - - - - - - - - - PERCENT- AGE OF COMPEN- SATION FOR THE YEAR CON- SISTING OF OPTIONS % - - - - - - TOTAL $ 179,378 179,378 18,369 35,098 91,646 91,778 18,783 19,125 - 1,415,766 3,115,357 45.44% Executive officers Richard Coney Andrew Rennie Andrew Megson Scott Oelkers Craig Ryan Allan Collins John Harney 346,156 661,887 313,436 513,959 273,708 371,863 276,845 212,500 185,264 40,500 323,138 120,000 113,900 120,000 4,177,144 1,880,302 59,361 - 4,178 92,170 4,178 4,178 4,178 191,371 - - - 405,407 - - - 405,407 18,783 - 18,783 - 18,783 18,783 18,783 162,611 9,651 6,088 4,838 - 7,839 12,687 37,569 97,797 207,675 538,689 45,913 - 854,126 - 1,391,928 - 427,648 - - 1,334,674 - 505,962 - 672,025 538,829 - - 2,521,565 9,436,196 81,454 150,614 81,454 24.31% 38.70% 10.74% - 16.10% 22.41% 15.12% 26.72% 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) Barry Alty ceased being a Non-Executive director on 28 October 2014 and Lynda O’Grady was appointed as a Non-Executive Director on 16 April 2015. (iv) Nick Knight joined senior management on 13 July 2015. As this date is after the financial year end date, his remuneration is not included above. “Other” in short term employee benefits includes amounts relating to tax equalization for the period 1 January 2009 to 31 December 2013. (v) 20 DIRECTORS’ REPORT CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDSHORT TERM EMPLOYEE BENEFITS NON- MONE- TARY $ BONUS $ OTHER (V) $ SALARY & FEES $ 2014(i) Non-executive directors Jack Cowin (iv) Ross Adler Barry Alty Grant Bourke Paul Cave Executive director Don Meij 44,308 160,000 92,000 80,000 80,000 761,790 - - - - - 3,635 3,635 3,635 3,635 3,635 560,000 3,635 Executive officers Richard Coney Andrew Rennie (iii) Andrew Megson (iii) Scott Oelkers (v) Craig Ryan Allan Collins John Harney Patrick McMichael (iii) 329,630 441,943 316,157 383,233 253,721 349,252 249,450 211,402 140,250 255,000 - 204,227 80,000 100,000 95,000 250,500 3,752,886 1,684,977 45,120 114,481 29,276 73,049 3,635 3,635 3,635 3,635 298,276 POST- EMPLOY- MENT BENEFITS SUPER- ANNUA- TION $ 4,106 15,093 8,678 7,546 7,546 OTHER LONG- TERM EMPLOYEE BENE- FITS(ii) $ SHARE- BASED PAYMENT TERMI- NATION BENEFITS $ OPTIONS & RIGHTS $ - - - - - - - - - - - - - - - PERCENT- AGE OF COMPEN- SATION FOR THE YEAR CON- SISTING OF OPTIONS % - - - - - TOTAL $ 52,049 178,728 104,313 91,181 91,181 18,076 57,516 - 841,540 2,242,557 37.53% 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 - - 149,517 105,858 645,587 - 251,750 1,078,987 - 354,411 - - 660,509 - - 426,889 37,762 - 598,819 86,853 - 403,694 37,762 - 483,386 - - - 1,361,525 7,412,291 16.40% 23.33% - - 8.85% 14.50% 9.35% - 18.37% - - - - - - - - - - - - - - - (i) (ii) (iii) 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. Patrick McMichael ceased to be included in Senior Management at year end. (iv) On 20 March 2014, Jack Cowin was appointed Chairman and Ross Adler was appointed Deputy Chairman of the Board. (v) 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. 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. 21 DIRECTORS’ REPORT CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED BONUSES AND SHARE-BASED PAYMENTS GRANTED AS COMPENSATION FOR THE FINANCIAL YEAR Bonuses On 10 August 2015, Don Meij, Richard Coney, Andrew Rennie, Craig Ryan, Allan Collins, Andrew Megson, Scott Oelkers and John Harney were granted a cash bonus for their performance during the year ended 28 June 2015. The bonus conditions were agreed by the Board during the year. 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 2015. Short-term incentive bonus Directors Don Meij Key management personnel Richard Coney Andrew Megson Andrew Rennie Scott Oelkers Craig Ryan Allan Collins John Harney INCLUDED IN COMPEN- SATION $ (I) PERCENTAGE VESTED IN YEAR % PERCENTAGE FORFEITED IN YEAR % (II) 765,000 90 212,500 40,500 185,264 323,138 120,000 113,900 120,000 100 45 70 100 100 85 100 10 - 55 30 - - 15 - (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 28 June 2015. 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. 22 DIRECTORS’ REPORT CONTINUED2015 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 (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 (18) Issued 29 October 2014 (19) Issued 29 October 2014 (20) Issued 27 January 2015 (21) Issued 3 February 2015 (22) Issued 20 June 2015 OPTIONS SERIES (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 (18) Issued 29 October 2014 (19) Issued 29 October 2014 (20) Issued 27 January 2015 (21) Issued 3 February 2015 (22) Issued 20 June 2015 GRANT DATE 2 November 2011 7 November 2012 7 November 2012 1 November 2013 29 October 2013 29 October 2014 29 October 2014 27 January 2015 3 February 2015 20 June 2015 EXPIRY DATE 31 August 2015 2 November 2017 31 August 2016 2 November 2017 31 August 2017 28 October 2020 31 August 2018 31 August 2020 31 August 2018 31 August 2018 GRANT DATE FAIR VALUE $1.43 $1.17 $1.16 $3.14 $3.23 $7.16 $7.39 $10.51 $7.11 $7.03 EXERCISE PRICE $5.83 $8.97 $9.13 $14.90 $13.74 $22.89 $22.89 $16.52 $22.89 $36.31 VESTING DATE 31 August 2014 31 August 2015 31 August 2015 31 August 2016 31 August 2016 1 September 2017 1 September 2017 1 September 2017 1 September 2017 1 September 2017 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 Proportion of options based on EBIT growth performance of region Proportion of options based on EBIT growth performance of region Proportion of options based on EBIT growth performance of region Options and shares issued on the exercise of series (14) and (16) will be subject to an escrow period commencing on the date of issue and ending on 2 November 2016. Options and shares issued on the exercise of series (18) will be subject to an escrow period commencing on the date of issue and ending on 28 October 2019. Options and shares issued on the exercise of series (20) will be subject to an escrow period commencing on the 2 January 2014 and ending on 1 January 2019. There are no further services 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 Don Meij John Harney Allan Collins Richard Coney Craig Ryan NO. OF ORDINARY SHARES OF DPE LIMITED ISSUED 400,000 25,000 57,500 50,000 25,000 NO. OF OPTIONS EXERCISED 400,000 25,000 57,500 50,000 25,000 AMOUNT PAID AMOUNT UNPAID $2,332,000 $145,750 $335,225 $291,500 $145,750 $nil $nil $nil $nil $nil 23 DIRECTORS’ REPORT CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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 Megson 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) $ 2,148,000 399,060 218,005 1,576,500 284,515 199,530 199,530 12,024,000 988,500 - - 1,136,775 494,250 494,250 - - - - - - - (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. 24 DIRECTORS’ REPORT CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDFully paid ordinary shares of Domino’s Pizza Enterprises Limited 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. 2015 Ross Adler (i) (iii) Barry Alty (i) (iv) Grant Bourke (i) Paul Cave (i) Don Meij (i) (ii) (v) Richard Coney (i) (vi) Allan Collins (vii) John Harney (xvii) Andrew Megson (i) (viii) Andrew Rennie (i) (ix) Craig Ryan (xviii) 2014 Ross Adler (i) (xii) Barry Alty (i) (xiii) Grant Bourke (i) (xiv) Paul Cave (i) (xv) Don Meij (i) (ii) (xvi) Richard Coney (i) Allan Collins (xi) Andrew Megson (i) Andrew Rennie (i) (x) 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 - - - - - - - - - - - - - - - - - - - - - - - - 400,000 50,000 57,500 25,000 - - 25,000 - - - - - - 60,000 - 306,000 (16,908) (83,148) - - (123,754) (25,000) - (6,000) 3,500 (50,000) (24,715) 30,483 (21,295) 251,312 (12,834) (1,214,296) - - - 115,592 215,796 - 1,798,344 369,166 1,849,506 25,719 117,500 19,000 96,579 689,305 285 232,704 83,148 1,798,344 369,166 1,573,260 719 60,000 93,079 739,305 - - - - - - - - - - - - - - - - - - - - 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 3 September 2014, 12,704 shares were sold, 4 September 2014, 796 shares were purchased, and 24 February 2015, 5000 shares were sold. (iv) On 28 October 2014, Barry Alty ceased to be a Director. (v) On 17 February 2015, 400,000 options were exercised and converted to shares. On 1 July 2014, 18,000 shares were sold, 1 July 2014, 60 shares were sold, 7 July 2014, 20 shares were sold, 5 August 2014, 65 shares were sold, 31 October 2014, 40,000 shares were sold, 3 November 2014, 40,000 shares were sold, 17 February 2015, 25,000 shares were sold, and 7 May 2015, 609 shares were sold. (vi) On 1 September 2014, 50,000 options were exercised into shares, and on 3 September 2014, 25,000 shares were sold. (vii) On 4 September 2014, 57,500 options were exercised into shares. (viii) On 7 November 2014, 3,500 shares were purchased. (ix) On 21 August 2014, 20,000 shares were sold, and on 18 February 2015, 30,000 shares were sold. (x) On 16 August 2013, 306,000 options were exercised into shares. 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. (xi) On 5 November 2013, Allan Collins exercised 60,000 options. (xii) On 28 August 2013, 43,962 shares were acquired through equity raising. On 24 February 2014 13,479 shares were disposed. (xiii) 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. (xiv) On 18 September 2013, 336,312 shares were acquired through equity raising. On 30 October 2013, 85,000 shares were disposed. (xv) 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. (xvi) 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. (xvii) On 1 September 2014, 25,000 options were exercised into shares and on 3 September 2014, 6,000 shares were sold. (xviii) On 1 September 2014, 25,000 options were exercised into shares and on 3 September 2014, 25,000 shares were sold. On 26 February 2015, 285 shares were purchased. (xix) Nick Knight joined senior management on 13 July 2015 as he was appointed ANZ CEO. As this date is after the financial year end date, his information is not included above. 25 DIRECTORS’ REPORT CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDExecutive share options of Domino’s Pizza Enterprises Limited BALANCE AT BEGIN- NING OF FINANCIAL YEAR NO. GRANTED AS COMPEN- SATION NO. NET OTHER CHANGE NO. EXERCISED 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 EXERISE- ABLE NO. OPTIONS VESTED DURING YEAR NO. 2015(i) Don Meij Richard Coney Andrew Megson Andrew Rennie Allan Collins John Harney Craig Ryan 2014(ii) Don Meij Richard Coney Andrew Megson Andrew Rennie Allan Collins John Harney Craig Ryan 1,500,000 210,000 - 500,001 172,500 75,000 75,000 900,000 130,000 - 639,334 175,000 50,000 50,000 300,000 54,000 29,500 150,000 38,500 27,000 27,000 600,000 80,000 - 166,667 57,500 25,000 25,000 (400,000) (50,000) - - (57,500) (25,000) (25,000) - - - (306,000) (60,000) - - - - - - - - - - - - - - - - 1,400,000 214,000 29,500 650,001 153,500 77,000 77,000 1,500,000 210,000 - 500,001 172,500 75,000 75,000 - - - 166,667 - - - - - - - - - - - - - - - - - - - - - - - - - - - 166,667 - - - 400,000 50,000 - 166,667 57,500 25,000 25,000 - - - - - - - - - - - - - - (i) (ii) During the financial year, Don Meij and other executives were granted share options under the ESOP on 29 October 2014 and 3 February 2015. In addition, 557,500 options (2014: 366,000 options) were exercised by key management personnel for 557,500 ordinary shares in the Company (2014: 366,000 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 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. (iii) Nick Knight joined senior management on 13 July 2015 as he was appointed ANZ CEO. As this date is after the financial year end date, his information is not included above. CONTRACTS FOR SERVICES OF KEY MANAGEMENT PERSONNEL Executive service contracts TERM OF CONTRACT CONTRACT COMMENCEMENT NOTICE TERMINATION – BY COMPANY NOTICE TERMINATION – BY EXECUTIVE Ongoing Ongoing Ongoing Ongoing 5 years 5 years Ongoing 5 years Ongoing 16 May 2005 8 August 2012 8 January 2013 12 May 2014 6 months 3 months 3 months 3 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 2 November 2011 12 months 12 months Amount equal to 12 months compensation 2 January 2014 2 July 2010 3 September 2013 1 October 2012 6 months 3 months 3 months 3 months 6 months 3 months 3 months 3 months Amount equal to 6 months compensation Amount equal to 3 months compensation Amount equal to 3 months compensation Amount equal to 3 months compensation NAME Richard Coney Craig Ryan Allan Collins Andrew Megson Don Meij Andrew Rennie John Harney Scott Oelkers Nick Knight 26 DIRECTORS’ REPORT CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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, 10 August 2015 Don Meij Managing Director/Chief Executive Officer Sydney, 10 August 2015 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 (2014: $80,000), Chairman of the Board was $160,000 per annum (2014: $160,000) and $160,000 per annum for the Deputy Chairman, who is also the Chairman of the Audit Committee (from 29 October 2014). In 2014 the Chairman of the Audit Committee was remunerated $92,000 for the period until 28 October 2014. 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. 27 DIRECTORS’ REPORT CONTINUED2015 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 Tel: +61 (0) 7 3308 7000 Fax: +61 (0) 7 3308 7001 www.deloitte.com.au 10 August 2015 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 financial year ended 28 June 2015, 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 Accountant Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited 28 2015 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 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 28 June 2015, 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’s end or from time to time during the financial year as set out on pages 31-93. 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 judgment, 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 29 2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DOMINO’S PIZZA ENTERPRISES LIMITED CONTINUED Auditor’s Independence Declaration In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. 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 28 June 2015 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 18-27 of the directors’ report for the period ended 28 June 2015. 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 28 June 2015, complies with section 300A of the Corporations Act 2001. DELOITTE TOUCHE TOHMATSU Stephen Tarling Partner Chartered Accountants Brisbane, 10 August 2015 30 2015 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, 10 August 2015 31 2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED32 2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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 security exchange information Glossary Corporate directory 71 72 73 74 74 75 75 84 86 87 88 89 90 91 91 92 92 93 93 93 94 96 97 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 Notes to the financial statements 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. Investment in joint venture 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 26. Other provisions 27. Retirement benefit plans 34 35 36 37 38 38 40 50 51 52 54 54 55 55 58 59 60 61 62 62 63 64 65 67 68 68 68 69 69 69 70 2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 33 33 2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDCONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 JUNE 2015 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 Royalties 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 Gain/(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 2015 $’000 539,138 163,299 6,444 (213,059) (172,112) (18,278) (27,480) (27,252) (2,451) (43,733) (37,640) (16,841) (10,927) - (41,268) 97,840 (29,419) 2014 $’000 452,811 135,862 3,710 (175,579) (153,759) (15,931) (21,712) (22,658) (2,458) (38,053) (31,398) (14,761) (8,553) (3,230) (37,731) 66,560 (21,264) 68,421 45,296 926 183 421 104 (557) 1,077 (14,817) (1,325) 3,838 (255) (659) (13,218) Total comprehensive income for the year 69,498 32,078 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 38-93. 34 64,048 4,373 68,421 64,843 4,655 69,498 42,303 2,993 45,296 32,781 (703) 32,078 12 12 74.2 cents 72.8 cents 50.5 cents 49.8 cents 2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDCONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 28 JUNE 2015 NOTE 2015 $’000 2014 $’000 39 13 14 15 10 21 14 16 18 10 19 20 21 22 23 24 10 25 23 24 25 10 29 30 31 43,174 43,883 6,812 12,282 295 10,101 116,547 31,265 1,626 121,612 7,255 283,496 68,740 59 514,053 630,600 108,826 1,920 3,262 12,765 4,358 131,131 122,912 54,048 9,655 7,798 194,413 325,544 305,056 198,291 390 106,375 305,056 42,283 36,567 2,807 11,707 117 9,663 103,144 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 35 ASSETS Current assets Cash and cash equivalents Trade and other receivables Other financial assets Inventories Current tax assets Other Total current assets Non-current assets Other financial assets Investment in Joint Ventures 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 Total non-current liabilities Total liabilities Net assets EQUITY Capital and reserves Issued capital Reserves Retained earnings Total equity Notes to the financial statements are included on pages 38-93. 2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 28 JUNE 2015 ISSUED CAPITAL $’000 HEDGING RESERVE $’000 FOREIGN CURRENCY TRANSLATION RESERVE $’000 OTHER RESERVE $’000 RETAINED EARNINGS $’000 MINORITY INTEREST $’000 40,855 - - 2,334 - 1,760 (6,852) - (11,163) 2,533 - (119) 63,712 42,303 - - 2,993 (3,696) TOTAL $’000 102,582 45,296 (13,218) - 1,760 (11,163) (119) 42,303 (703) 32,078 156,336 1,624 (4,622) - - - - 194,193 - - - - - - - - - - - - 4,094 - - (18,015) - - - 1,461 - (4,706) - (831) - - - - - - (26,067) 79,948 - - - - 45,267 (44,564) - - 156,336 1,624 (4,622) 1,461 45,267 (49,270) (26,067) 259,389 Balance at 30 June 2013 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 Balance at 29 June 2014 194,193 4,094 (18,015) (831) 79,948 - 259,389 Profit for the period Other comprehensive income Total comprehensive income for the period Other shares issued Capital costs related to Japan acquisition Share options trust Recognition of share based payments Non-controlling interest put option adjustment Payment of dividends Balance at 28 June 2015 - - - 3,568 530 - - - 423 423 - - - - - 321 321 - - - - - - 198,291 - - 4,517 - - (17,694) - 41 41 - - 8,768 2,944 2,645 - 13,567 64,048 - 64,048 - - - - - (37,621) 106,375 4,373 292 4,665 - - - - (4,665) - - 68,421 1,077 69,498 3,568 530 8,768 2,944 (2,020) (37,621) 305,056 Notes to the financial statements are included on pages 38-93. 36 2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDCONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 28 JUNE 2015 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 Net cash outflow on investment in joint ventures Loans to 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 Dividends paid Capital costs associated with equity raising Capital costs associated with debt raising Proceeds from issue of equity securities Net cash generated (used in)/from financing activities Net increase 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 2015 $’000 2014 $’000 39 38 46 780,199 (652,481) 756 (2,452) (19,984) 106,038 (12,168) (1,626) (3,162) (59,686) 18,851 (14,851) - (72,642) 27,831 (24,831) (37,621) - - 3,568 (31,053) 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 2,343 22,353 42,283 (1,452) 18,691 1,239 Cash and cash equivalents at the end of the year 39 43,174 42,283 Notes to the financial statements are included on pages 38-93. 37 2015 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 333 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 Amendments to AASBs and the new Interpretation that are mandatorily effective for the current year In the current year, the Consolidated entity has applied a number of amendments to AASBs and a new Interpretation issued by the Australian Accounting Standards Board (AASB) that are mandatorily effective for an accounting period that begins on or after 1 July 2014, and therefore relevant for the current year end. Standards affecting presentation and disclosure AASB 2012-3 ‘Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities’ AASB 2013-3 ‘Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets’ The amendments to AASB 132 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of ‘currently has a legally enforceable right of set-off’ and ‘simultaneous realisation and settlement’. The Consolidated entity has assessed whether certain of its financial assets and financial liabilities qualify for offset based on the criteria set out in the amendments and concluded that the application of the amendments does not have any material impact on the amounts recognised in the Consolidated entity‘s consolidated financial statements. The amendments to AASB 136 remove the requirement to disclose the recoverable amount of a cash-generating unit (CGU) to which goodwill or other intangible assets with indefinite useful lives had been allocated when there has been no impairment or reversal of impairment of the related CGU. Furthermore, the amendments introduce additional disclosure requirements applicable to when the recoverable amount of an asset or a CGU is measured at fair value less costs of disposal. These new disclosures include the fair value hierarchy, key assumptions and valuation techniques used which are in line with the disclosure required by AASB 13 ‘Fair Value Measurements’. The application of these amendments does not have any material impact on the disclosures in the Consolidated entity‘s consolidated financial statements. 38 2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDAASB 2014-1 ‘Amendments to Australian Accounting Standards’ The Annual Improvements 2010-2012 has made number of amendments to various AASBs, which are summarised below. (Part A: Annual Improvements 2010–2012 and 2011–2013 Cycles) AASB 2014-1 ‘Amendments to Australian Accounting Standards’ (Part B: Defined Benefit Plans: Employee Contributions Amendments to AASB 119) AASB 1031 ‘Materiality’, AASB 2013-9 ‘Amendments to Australian Accounting Standards’ – conceptual Framework, Materiality and Financial Instruments’ (Part B: Materiality), AASB 2014-1 ‘Amendments to Australian Accounting Standards’ (Part C: Materiality) • The amendments to AASB 2 (i) change the definitions of ‘vesting condition’ and ‘market condition’; and (ii) add definitions for ‘performance condition’ and ‘service condition’ which were previously included within the definition of ‘vesting condition’. The amendments to AASB 2 are effective for sharebased payment transactions for which the grant date is on or after 1 July 2014. • The amendments to AASB 3 clarify that contingent consideration that is classified as an asset or a liability should be measured at fair value at each reporting date, irrespective of whether the contingent consideration is a financial instrument within the scope of AASB 9 or AASB 139 or a non-financial asset or liability. Changes in fair value (other than measurement period adjustments) should be recognised in profit and loss. The amendments to AASB 3 are effective for business combinations for which the acquisition date is on or after 1 July 2014. • The amendments to AASB 8 (i) require an entity to disclose the judgements made by management in applying the aggregation criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining whether the operating segments have ‘similar economic characteristics’; and (ii) clarify that a reconciliation of the total of the reportable segments’ assets to the entity’s assets should only be provided if the segment assets are regularly provided to the chief operating decision-maker. • The amendments to the basis for conclusions of AASB 13 clarify that the issue of AASB 13 and consequential amendments to AASB 139 and AASB 9 did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amounts without discounting, if the effect of discounting is immaterial. • The amendments to AASB 116 and AASB 138 remove perceived inconsistencies in the accounting for accumulated depreciation/amortisation when an item of property, plant and equipment or an intangible asset is revalued. The amended standards clarify that the gross carrying amount is adjusted in a manner consistent with the revaluation of the carrying amount of the asset and that accumulated depreciation/amortisation is the difference between the gross carrying amount and the carrying amount after taking into account accumulated impairment losses. • The amendments to AASB 124 clarify that a management entity providing key management personnel services to a reporting entity is a related party of the reporting entity. Consequently, the reporting entity should disclose as related party transactions the amounts incurred for the service paid or payable to the management entity for the provision of key management personnel services. However, disclosure of the components of such compensation is not required. The Annual Improvements 2011-2013 has made number of amendments to various AASBs, which are summarised below. • The amendments to AASB 3 clarify that the standard does not apply to the accounting for the formation of all types of joint arrangements in the financial statements of the joint arrangement itself. • The amendments to AASB 13 clarify that the scope of the portfolio exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis includes all contracts that are within the scope of, and accounted for in accordance with, AASB 139 or AASB 9, even if those contracts do not meet the definitions of financial assets or financial liabilities within AASB 132. • The amendments to AASB 140 clarify that AASB 140 and AASB 3 are not mutually exclusive and application of both standards may be required. Consequently, an entity acquiring investment property must determine whether the property meets the definition of investment property in terms of AASB 140; and the transaction meets the definition of a business combination under AASB 3. The amendments to AASB 119 clarify how an entity should account for contributions made by employees or third parties to defined benefit plans, based on whether those contributions are dependent on the number of years of service provided by the employee. For contributions that are independent of the number of years of service, the entity may either recognise the contributions as a reduction in the service cost in the period in which the related service is rendered, or to attribute them to the employees’ periods of service using the projected unit credit method; whereas for contributions that are dependent on the number of years of service, the entity is required to attribute them to the employees’ periods of service. The application of these amendments to AASB 119 does not have any material impact on the disclosures or on the amount recognised in the Consolidated entity’s consolidated financial statements. The revised AASB 1031 is an interim standard that cross-references to other Standards and the ‘Framework for the Preparation and Presentation of Financial Statements’ (issued December 2013) that contain guidance on materiality. The AASB is progressively removing references to AASB 1031 in all Standards and Interpretations. Once all of these references have been removed, AASB 1031 will be withdrawn. The adoption of AASB 1031, AASB 2013-9 (Part B) and AASB 2014-1 (Part C) does not have any material impact on the disclosures or the amounts recognised in the Consolidated entity’s consolidated financial statements. The application of these amendments does not have any material impact the Consolidated entity. 39 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 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 are currently undertaking an assessment of the standards. STANDARD/INTERPRETATION AASB 9 ‘Financial Instruments’, and the relevant amending standards AASB 15 ‘Revenue from Contracts with Customers’ and AASB 2014-5 ‘Amendments to Australian Accounting Standards arising from AASB 15’ AASB 2014-3 ‘Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations’ AASB 2014-4 ‘Amendments to Australian Accounting Standards – Clarification of Acceptable Methods of Depreciation and Amortisation’ AASB 2015-1 ‘Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012-2014 Cycle’ AASB 2015-2 ‘Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101’ AASB 2015-3 ‘Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality’ EFFECTIVE FOR ANNUAL REPORTING PERIODS BEGINNING ON OR AFTER EXPECTED TO BE INITIALLY APPLIED IN THE FINANCIAL YEAR ENDING 1 January 2018 30 June 2019 1 January 2017 or 1 January 2018 30 June 2018 or 30 June 2019 1 January 2016 30 June 2017 1 January 2016 30 June 2017 1 January 2016 30 June 2017 1 January 2016 30 June 2017 1 July 2015 30 June 2016 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 28 June 2015. 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 10 August 2015. 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. 40 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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. 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. 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. 41 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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. 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. ii. 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 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. 3.5 Investments in associates 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 and adjusted for post-acquisition changes in the Consolidated entity’s share of associate. When losses of an associate exceeds the Consolidated entity’s interest in that associate (which includes any long-term interests that, in substance, form part of the Consolidated entity’s ‘s net investment in the associate), the Consolidated entity discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Consolidated entity’s has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. 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. 42 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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. 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 profit and loss and other 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. 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. 43 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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. 44 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. 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. 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. NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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. 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. 45 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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. 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 2 – 10 years • Licenses 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. 3.17 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. 46 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 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. Refer to note 19 for our detailed assessment of impairment. 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. 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. 47 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 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. 3.24 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. 48 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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. 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 instruments 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. 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. 49 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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 $283,496 thousand (2014: $278,113 thousand) as per note 19. Any reversal of that impairment loss is recognised in accordance with AASB 136 to the extent that the recoverable amount of the investment subsequently increases. The Consolidated entity discontinues the use of the equity method from the date when the investment ceases to be a joint venture, or when the investment is classified as held for sale. When the Consolidated entity retains an interest in the former joint venture and the retained interest is a financial asset, the Consolidated entity measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition in accordance with AASB 139. The difference between the carrying amount of the joint venture at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the joint venture is included in the determination of the gain or loss on disposal of the joint venture. In addition, the Consolidated entity accounts for all amounts previously recognised in other comprehensive income in relation to that joint venture on the same basis as would be required if that joint venture had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that joint venture would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Consolidated entity reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued. The Consolidated entity continues to use the equity method when an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate. There is no remeasurement to fair value upon such changes in ownership interests. When the Consolidated entity reduces its ownership interest in joint venture but the Consolidated entity continues to use the equity method, the Consolidated entity reclassifies to profit or loss the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities. When a Consolidated entity transacts with a joint venture of the group, profits and losses resulting from the transactions with the joint venture are recognised in the Consolidated entity’s consolidated financial statements only to the extent of interests in the joint venture that are not related to the group. 3.26 Investment in Joint Venture A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The results, assets and liabilities of the joint ventures are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment, or a portion thereof, 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, an investment in a joint venture is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Consolidated entity’s share of the profit or loss and other comprehensive income of the joint venture. When the Consolidated entity’s share of losses of a joint venture exceeds the Consolidated entity’s interest in that joint venture (which includes any long-term interests that, in substance, form part of the Consolidated entity‘s net investment in the joint venture), the Consolidated entity discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Consolidated entity has incurred legal or constructive obligations or made payments on behalf of the joint venture. An investment in a joint venture is accounted for using the equity method from the date on which the investee becomes a joint venture. On acquisition of the investment in a joint venture, any excess of the cost of the investment over the Consolidated entity’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Consolidated entity’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired. The requirements of AASB 139 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Consolidated entity’s investment in a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with AASB 136 as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, any impairment loss recognised forms part of the carrying amount of the investment. 50 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 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, quality of the bonds and the identification of outliers which are excluded. 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. 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. 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 2015 $’000 527,269 11,869 539,138 2014 $’000 443,506 9,305 452,811 51 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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 28 JUNE 2015 YEAR ENDED 29 JUNE 2014 AUSTRALIA / NEW ZEALAND $’000 EUROPE $’000 JAPAN $0’00 TOTAL $’000 AUSTRALIA / NEW ZEALAND $’000 EUROPE $’000 JAPAN $0’00 TOTAL $’000 Continuing operations Revenue and other revenue 216,811 171,283 314,343 702,437 203,322 144,361 240,990 588,673 EBITDA 71,623 18,295 37,853 127,771 58,137 8,395 24,198 90,730 Depreciation and amortisation (11,797) (6,939) (8,744) (27,480) (9,544) (6,964) (5,204) (21,712) EBIT 59,826 11,356 29,109 100,291 48,593 1,431 18,994 69,018 Interest Net profit before tax (2,451) 97,840 (2,458) 66,560 Revenue reported above represents revenue generated from external customers and franchisees. There were no inter-segment sales during the period (2014: 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. 52 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 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 2015 $’000 2014 $’000 147,357 95,515 387,728 123,193 79,562 356,253 630,600 559,008 - - 630,600 559,008 2015 $’000 2014 $’000 (99,532) (42,492) (183,520) (98,233) (30,357) (171,029) (325,544) (299,619) - - (325,544) (299,619) 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. 6.4 Other segment information Australia / New Zealand Europe Japan DEPRECIATION AND AMORTISATION ADDITIONS TO NON-CURRENT ASSETS 2015 $’000 11,797 6,939 8,744 2014 $’000 9,544 6,964 5,204 2015 $’000 32,660 19,982 33,344 2014 $’000 36,246 7,692 19,965 27,480 21,712 85,986 63,903 53 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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. 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 Other NON-CURRENT ASSETS 2015 $’000 110,237 56,377 347,439 2014 $’000 90,206 47,863 317,795 514,053 455,864 2015 $’000 2014 $’000 131 631 762 190 450 640 3,862 3,289 69,576 57,591 34,674 28,280 54,425 163,299 46,062 135,862 2015 $’000 762 162,537 163,299 2014 $’000 640 135,222 135,862 2015 $’000 2014 $’000 6,375 - 69 6,444 3,647 63 - 3,710 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). 54 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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 1.64% per annum (2014: 1.94%). 10. INCOME TAXES 10.1 Income tax recognised in profit or loss Tax expense 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 2015 $’000 2014 $’000 2,450 1 2,451 2,440 18 2,458 2015 $’000 2014 $’000 29,320 (42) 29,278 21,990 (65) 21,925 Deferred tax expense/(income) relating to the origination and reversal of temporary differences 482 (661) Deferred tax expense/(income) in relation to previously unrecognised deferred tax assets 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 deferred tax of prior years Adjustments recognised in the current year in relation to the current tax of prior years Effect of change in tax rate in other jurisdictions Income tax expense recognised in profit or loss (341) 29,419 - 21,264 2015 $’000 2014 $’000 97,840 66,560 29,352 19,968 56 64 1,482 (598) 30,356 (341) (41) (555) 29,419 897 (48) 1,414 (902) 21,329 - (65) - 21,264 The tax rate used for the 2015 and 2014 reconciliation above is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. 55 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED10.2 Income tax recognised in equity Deferred Tax Arising on income and expenses in other comprehensive income: (Gain)/Loss on cashflow hedge taken to equity (Gain)/Loss on net investment hedge taken to equity Share options trust 10.3 Current tax assets and liabilities Current tax assets Income tax refund receivable Current tax liabilities Income tax payable 2015 $’000 2014 $’000 (56) (502) 8,767 8,209 397 434 - 831 2015 $’000 2014 $’000 295 295 117 117 (12,765) (12,765) (4,277) (4,277) 56 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED10.4 Deferred tax balances 2015 Temporary differences Property, plant & equipment Intangible assets Provision for employee entitlements Other provisions Doubtful debts Other financial liabilities Options Reserve Unearned Income Other Unused tax losses and credits Tax losses 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 OPENING BALANCE $’000 ACQUIRED WITH DPJ $’000 CHARGED TO INCOME $’000 CHARGED TO EQUITY $’000 EXCHANGE DIFFERENCE $’000 CLOSING BALANCE $’000 1,557 (16,886) 4,385 133 188 1,195 - 26 (36) (9,438) 825 (8,613) - - - - - - - - - - - - (985) (1,305) (389) 44 149 (48) 1,037 (55) 861 (691) 505 (186) - - - - - (559) 8,767 - - 8,208 - 8,208 (12) 66 (16) - - - - - 10 48 - 48 560 (18,125) 3,980 177 337 588 9,804 (29) 835 (1,873) 1,330 (543) 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 Deferred tax balances are presented in the statement of financial position as follows: Deferred tax assets Deferred tax liabilities 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) 2015 $’000 2014 $’000 7,255 (7,798) (543) 188 (8,801) (8,613) 57 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 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: (a) assessable income is derived of a nature and of an amount sufficient to enable the benefit from the deductions to be realised; (b) conditions for deductibility imposed by the law are compiled with; and (c) 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 $49,896,693 (2014: $49,315,998) 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. 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 Depreciation and amortisation expenses Depreciation of property, plant and equipment Amortisation of intangible and other assets 11.2 Employee benefits expense Employee benefit expense: Post employment benefits: Defined contribution plans Retirement benefit plans (see note 27) Share-based payments (see note 35): Equity settled share-based payments Other employee benefits Total employee benefits expense 58 2015 $’000 2014 $’000 68,421 45,296 (18,144) (9,336) (27,480) (14,171) (7,541) (21,712) (4,024) (790) (4,002) (632) (2,762) (1,373) (164,536) (172,112) (147,752) (153,759) NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED12. EARNINGS PER SHARE Basic earnings per share Diluted earnings per share 2015 CENTS PER SHARE 2014 CENTS PER SHARE 74.2 72.8 50.5 49.8 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 2015 $’000 64,048 64,048 2015 NO. ‘000 86,266 2014 $’000 42,303 42,303 2014 NO. ’000 83,835 2015 $’000 64,048 64,048 2014 $’000 42,303 42,303 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) 2015 NO. ‘000 2014 NO. ’000 86,266 83,835 1,654 87,920 1,044 84,879 The weighted average number of ordinary shares for the purpose of calculating both the basic and diluted earnings per share was adjusted in the prior year 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. 59 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED13. TRADE AND OTHER RECEIVABLES Trade receivables Allowance for doubtful debts Other receivables 2015 $’000 42,547 (3,178) 39,369 4,514 43,883 2014 $’000 37,032 (2,863) 34,169 2,398 36,567 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 $1,020 thousand (2014: $2,008 thousand), which are past due at the reporting date for which the Consolidated entity has not provided 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 2015 $’000 74 138 808 1,020 2015 $’000 2,863 1,540 (821) (419) 15 3,178 2014 $’000 560 208 1,240 2,008 2014 $’000 3,413 1,331 (1,354) (625) 98 2,863 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 $3,178 thousand (2014: $2,863 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 60 2015 $’000 97 38 76 2,967 3,178 2014 $’000 136 49 37 2,641 2,863 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 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 Foreign exchange forward contracts Non-current Cross currency swap Foreign exchange forward contracts OTHER LONG TERM DEPOSITS: Non-current Long term store rental security deposits Current Non-current 2015 $’000 2014 $’000 13 13 3,763 3,763 16,586 (949) 15,637 148 148 1,707 1,342 3,049 2,868 3 2,871 14 14 988 988 7,687 (854) 6,833 76 76 1,819 - 1,819 2,301 - 2,301 12,596 12,596 11,107 11,107 38,077 23,138 6,812 31,265 38,077 2,807 20,331 23,138 (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% (2014: 3%) margin in Australia and New Zealand, the average interest charged in France is 4.1% (2014: 4.8%) and in The Netherlands is 9.0% (2014: 8.6%), and the average interest charged in Japan is 5.0% (2014: 5.0%). Included in the Consolidated entity’s balance are loans to franchisees with a carrying amount of $949 thousand (2014: $854 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. 61 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 14. OTHER FINANCIAL ASSETS (CONTINUED) Franchisee Loans Allowance for doubtful loans 2015 $’000 20,349 (949) 19,400 2014 $’000 8,675 (854) 7,821 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 $949 thousand (2014: $854 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. 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 2015 $’000 19,400 19,400 2014 $’000 7,821 7,821 2015 $’000 2014 $’000 854 108 (16) 3 949 2015 $’000 3,006 9,276 - 12,282 910 - (67) 11 854 2014 $’000 3,286 8,441 (20) 11,707 There are no inventories (2014: $nil) expected to be recovered after more than 12 months. Expenses relating to inventories are recorded under Food & paper expenses. 16. INVESTMENT IN JOINT VENTURE On 24th November 2014, the Consolidated entity acquired 50% equity of a joint venture called Stuart Preston Pty Ltd as Trustee for the Preston Holdings Family Trust / Hot Cell Pty Ltd Partnership. On 30th March 2015, the Consolidated entity acquired 50% equity of a joint venture called Triumphant Pizza Pty Ltd / Hot Cell Partnership. The result has not been separately presented in the consolidated statement of profit or loss and other comprehensive income due to it being below materiality. 62 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED17. SUBSIDIARIES Details of the Company’s subsidiaries at 28 June 2015 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. 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 (i) DPE Japan Co., Ltd. Domino's Pizza Japan, Inc. K.K. DPJ Holdings 1 Global Mogul PTC Limited Mogul (B.V.I.) Unit Trust Domino's Pizza Enterprises Ltd Employee Share Trust 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 The Netherlands The Netherlands The Netherlands The Netherlands Belgium Australia Japan Japan Japan British Virgin Islands British Virgin Islands Australia 2015 % 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% 100% 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% - (i) 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. 63 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED18. PROPERTY, PLANT AND EQUIPMENT Cost Accumulated depreciation and impairment Plant and equipment Equipment under finance lease Cost 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 Additions Disposals Acquisitions through business combinations (note 38) Net foreign currency exchange differences Balance at 28 June 2015 Accumulated depreciation and impairment Balance at 30 June 2013 Disposals Depreciation expense Reclassification (including asset held for sale) Net foreign currency exchange differences Balance at 29 June 2014 Disposals Depreciation expense Net foreign currency exchange differences Balance at 28 June 2015 2015 $’000 162,229 (40,617) 121,612 115,926 5,686 121,612 PLANT & EQUIPMENT AT COST $’000 EQUIPMENT UNDER FINANCE LEASE AT COST $’000 72,310 35,379 (16,427) 4,298 1,183 25,736 (1,496) 120,983 56,545 (27,539) 3,315 269 153,573 (22,697) 4,431 (13,013) (656) (97) (32,032) 10,788 (16,351) (52) (37,647) 142 2,254 (34) - - 3,434 (316) 5,480 3,141 - - 35 8,656 (62) 25 (1,158) - 27 (1,168) - (1,793) (9) (2,970) 2014 $’000 126,463 (33,200) 93,263 88,951 4,312 93,263 TOTAL $’000 72,452 37,633 (16,461) 4,298 1,183 29,170 (1,812) 126,463 59,686 (27,539) 3,315 304 162,229 (22,759) 4,456 (14,171) (656) (70) (33,200) 10,788 (18,144) (61) (40,617) 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. 64 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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 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 2015 $’000 283,496 - 283,496 2014 $’000 278,113 - 278,113 2015 $’000 2014 $’000 278,113 8,854 - (4,953) 1,209 273 283,496 - - - 57,113 7,841 237,766 (7,263) (17,407) 63 278,113 - - - 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) Europe 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 2015 $’000 13,694 10,124 4,374 8,586 2,705 3,657 11,947 7,912 220,497 283,496 2014 $’000 13,380 9,614 5,616 8,147 2,714 3,153 7,815 8,295 219,379 278,113 65 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 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 enterprise 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. This is a level 3 fair value calculation and the valuation technique is estimating future earnings. The significant unobservable inputs includes an adjusted unlevered price/earnings multiple rate and the relationship of this to the fair value is the stronger the earnings, the higher the fair value. 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 (2014: 4.0% per annum nationally). These figures are based on management’s estimate of forecast cash flow by store after considering the 2014 and 2015 financial years with the 2016 budget year. Management believes that these growth percentages are reasonable considering forecast sales growth and economies of scale. A post-tax discount rate of 9.91% 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 2015 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 (2014: 4.0% per annum). This figure is based on the growth in forecast average franchise weekly sales from the 2014 and 2015 financial years to the 2016 budget year. Management believes that this growth percentage is reasonable considering the sales growth that has been seen in this market during the 2015 financial year. A post-tax discount rate of 9.91% 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 value in use 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 post-tax discount rate of 9.91% 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. 66 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED20. OTHER INTANGIBLE ASSETS Cost Accumulated amortisation and impairment losses Gross carrying amount 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 Additions Additions from internal developments Disposals Reclassification Net foreign currency exchange differences Balance at 28 June 2015 Accumulated amortisation and impairment Balance at 30 June 2013 Amortisation expense (i) Disposals Net foreign currency exchange differences Balance at 29 June 2014 Amortisation expense (i) Disposals Net foreign currency exchange differences Balance at 28 June 2015 2015 $’000 97,037 (28,297) 68,740 CAPITALISED DEVELOP- MENT $’000 OTHER ACQUIRED INTANGIBLES $’000 LICENCES $’000 22,557 1,399 - 11,994 (430) 600 65 36,185 3,706 7,508 (460) 600 74 47,613 (9,396) (5,635) 177 (38) (14,892) (7,401) 299 (29) (22,023) 7,627 675 2,975 - (4) - (85) 11,188 2,644 - (945) - 52 12,939 (3,361) (1,532) 2 (9) (4,901) (1,363) 8 (19) (6,275) - - 39,300 - - - (2,990) 36,310 - - - - 175 36,485 - - - - - - - - - 2014 $’000 83,683 (19,792) 63,891 TOTAL $’000 30,184 2,074 42,275 11,994 (434) 600 (3,010) 83,683 6,350 7,508 (1,405) 600 301 97,037 (12,757) (7,167) 179 (47) (19,792) (8,764) 307 (48) (28,297) (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. For details of the impairment assessment performed, refer to note 19. 67 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 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 2015 $’000 7,189 624 2,288 10,101 59 59 2015 $’000 67,485 5,513 35,828 108,826 2014 $’000 6,338 1,225 2,100 9,663 78 78 2014 $’000 69,518 4,519 26,336 100,373 (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 $0.8 million (2014: $2.0 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 Group for specific use within the AdFund. The Group 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 Group, 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 28 June 2015 were $75.8 million (2014: $49.2 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 2015 $’000 2014 $’000 5,582 18,559 50,436 47,256 3,000 124,832 1,920 122,912 124,832 4,172 18,489 50,329 46,920 - 119,910 1,281 118,629 119,910 23.1 Summary of borrowing arrangements: (i) Secured by the assets leased, the current market value of each exceeds the value of the finance lease liability. (ii) Euro loan is unsecured. (iii) Variable rate loan with Westpac Banking Corporation with maturity periods exceeding 1 year (2014: exceeds 1 year). (iv) Variable rate loan with CBA with maturity periods exceeding 1 year (2014: exceeds 1 year). (v) Variable rate loans with CBA and Westpac with maturity periods exceeding 1 year (2014: exceeds 1 year), secured over the shares held in Domino’s Japan. The unused facilities available on the Consolidated entity’s bank overdraft are $11,793 thousand (2014: $12,010 thousand). 68 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED24. OTHER FINANCIAL LIABILITIES 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 27) (i) Other (note 26) Current Non-current 26. OTHER PROVISIONS Balance at 29 June 2014 Additional provisions recognised Reductions resulting from remeasurement Balance at 28 June 2015 2015 $’000 148 1,422 1,188 51,290 54,048 926 121 2,198 17 3,262 3,262 54,048 57,310 2015 $’000 4,927 6,113 2,973 14,013 4,358 9,655 14,013 MAKE GOOD (ii) $’000 STRAIGHT LINE LEASING (iii) $’000 1,427 1,377 - 2,804 136 - 33 169 2014 $’000 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 TOTAL $’000 1,563 1,377 33 2,973 (i) (ii) The provision includes $10,916 thousand of annual leave and vested long service leave entitlements accrued (2014: $10,633 thousand for the Consolidated entity), a defined benefit plan for qualifying employees in Europe of $124 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 27. 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. 69 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED27. RETIREMENT BENEFIT PLANS 27.1 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 1.0%. 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 2015 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 other 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 VALUATION AT 2015 1.00% 3.04% 406 5.8 yrs 7.5 yrs 2014 0.70% 3.02% 374 6.5 yrs 7.6 yrs 2015 $’000 2014 $’000 730 60 790 (104) (104) 686 598 34 632 255 255 887 Of the expense for the year, an amount of $846 thousand has been included in profit or loss as administration expenses. (2014: $632 thousand). The re-measurement of the net defined benefit liability is included in other comprehensive income. 70 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 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 unfunded 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 (gains)/losses: Actuarial gains and losses arising from changes in financial assumptions Benefits paid Exchange differences on foreign plans 2015 $’000 6,113 - 2014 $’000 5,993 - 6,113 5,993 6,113 5,993 2015 $’000 5,993 - 730 60 (104) (566) - 2014 $’000 - 6,142 598 34 255 (560) (475) Closing defined benefit obligation 6,113 5,993 There are no plan assets of the defined benefit obligation. The Consolidated entity expects to make a contribution of $806 thousand (2014: $753 thousand) to the defined benefit plans during the next financial year. 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. 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 MINIMUM FUTURE LEASE PAYMENTS PRESENT VALUE OF MINIMUM FUTURE LEASE PAYMENTS 2015 $’000 1,920 3,662 - 5,582 - 2014 $’000 1,281 2,891 - 4,172 - 2015 $’000 1,920 3,662 - 5,582 - 2014 $’000 1,281 2,891 - 4,172 - Present value of minimum lease payments 5,582 4,172 5,582 4,172 Included in the financial statements as: (note 23) Current borrowings Non-current borrowings (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. 1,920 3,662 5,582 1,281 2,891 4,172 71 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED29. ISSUED CAPITAL 86,560,773 fully paid ordinary shares (2014: 85,933,273) 2015 $’000 2014 $’000 198,291 194,193 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 costs associated with equity raising Other Balance at end of financial year 2015 2014 NUMBER OF SHARES $’000 SHARE CAPITAL $’000 NUMBER OF SHARES $’000 SHARE CAPITAL $’000 NOTE 85,933 194,193 70,193 40,855 (a) (b) 628 - - - - 86,561 3,568 - - 530 - 198,291 396 15,327 - - 17 85,933 1,261 156,336 - (4,622) 363 194,193 Fully paid ordinary shares carry one vote per share and carry the right to dividends. Share options on issue Options Unexercised options at 28 June 2015 Unexercised options at 28 June 2015 Unexercised options at 28 June 2015 Unexercised options at 28 June 2015 Unexercised options at 28 June 2015 Unexercised options at 28 June 2015 Unexercised options at 28 June 2015 Unexercised options at 28 June 2015 Unexercised options at 28 June 2015 Unexercised options at 28 June 2015 TOTAL NUMBER NUMBER QUOTED EXERCISE PRICE EXPIRY DATE NOTE (a) 189,167 500,000 416,667 600,000 456,667 300,000 343,000 150,000 50,500 39,900 - - - - - - - - - - $5.83 $8.97 $9.13 $14.90 $13.74 $22.89 $22.89 $16.52 $22.89 $36.31 31 August 2015 2 November 2016 31 August 2016 2 November 2017 31 August 2017 28 October 2020 31 August 2018 28 October 2020 31 August 2018 31 August 2018 72 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED(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, 627,500 options were exercised (2014: 396,000). A total of $3,568,325 was received as consideration for 627,500 fully paid ordinary shares of Domino’s Pizza Enterprises Limited on exercise of the options in the current financial year (2014: $1,260,600). (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. 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 28 June 2015 will be paid in cash only. 30. RESERVES Foreign currency translation Other Hedging 30.1 Foreign currency translation Balance at beginning of financial year Translation of foreign operations Balance at end of financial year 2015 $’000 (17,694) 13,567 4,517 390 2015 $’000 (18,015) 321 (17,694) 2014 $’000 (18,015) (831) 4,094 (14,752) 2014 $’000 (6,852) (11,163) (18,015) 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. 73 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED30.2 Other reserve Balance at beginning of financial year Share-based payment Movement in put option liability and non controlling interest Share options trust Remeasurement of defined benefit plan Balance at end of financial year 2015 $’000 (831) 2,944 2,645 8,768 41 13,567 2014 $’000 2,533 1,461 (4,706) - (119) (831) 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. The Consolidated entity settled the Domino’s Pizza Enterprises Ltd Employee Share Trust to manage the share option plan. 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 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 2015 $’000 4,094 295 128 4,517 2015 $’000 79,948 64,048 (37,621) 106,375 2015 $’000 - 4,373 266 26 - (4,665) - 2014 $’000 2,334 2,687 (927) 4,094 2014 $’000 63,712 42,303 (26,067) 79,948 2014 $’000 - 2,993 (3,654) (42) 45,267 (44,564) - 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 generated by operating activities is $29,645 thousand (2014: $37,739 thousand), net cash used in investing activities is $31,684 thousand (2014: $296,464 thousand), and net cash used by financing activities is $105 thousand (2014: $276,932 thousand) for the Japan segment. 74 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 33. DIVIDENDS RECOGNISED AMOUNTS Fully paid ordinary shares Interim dividend Final dividend UNRECOGNISED AMOUNTS Fully paid ordinary shares Final dividend 2015 2014 CENTS PER SHARE TOTAL $’000 CENTS PER SHARE TOTAL $’000 24.6 19.0 43.6 21,294 16,327 37,621 17.7 15.4 33.1 15,207 10,860 26,067 27.2 23,545 19.0 16,327 On 10 August 2015, the directors declared a fully franked final dividend of 27.2 cents per share to the holders of fully paid ordinary shares in respect of the financial year ended 28 June 2015, to be paid to shareholders on 11 September 2015. The dividend will be paid to all shareholders on the Register of Members on 25 August 2015. The total estimated dividend to be paid is $23,545 thousand. Adjusted franking account balance 2015 $’000 1,408 2014 $’000 5,193 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 2014. 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. 34.1.1 Gearing ratio Debt (i) Cash and cash equivalents Net debt Equity (ii) Net debt to equity ratio 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. 2015 $’000 124,832 (43,174) 81,658 305,056 26.8% 2014 $’000 119,910 (42,283) 77,627 259,389 29.9% 75 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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 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 NOTE INTEREST RATE* % 13 14 14 39 14 14 23 22 23 23 23 24 23 23 - 6.15 - 0.28 6.25 - 1.49 - 7.86 - 3.70 6.25 1.77 1.73 2015 2014 $’000 43,883 19,399 13 43,174 148 12,596 18,559 103,313 32 5,550 3,000 148 50,436 47,256 INTEREST RATE* % $’000 - 7.84 - 0.52 6.25 - 1.67 - 7.86 - 3.46 6.25 1.77 1.73 36,567 7,821 14 42,283 76 11,107 18,489 95,852 48 4,124 - 76 50,329 46,920 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. • Forward foreign exchange contracts to hedge the exchange rate risk of purchases. 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. 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 on page 77. 76 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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 JPY 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 $28 thousand in respect of the net assets of European operations were recognised in equity for the Consolidated entity and the Company from the 29 June 2014 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 Australian dollars 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 Japanese Yen respectively. DPE Limited intends to mitigate its foreign currency translation risk exposure by denominating a portion of its senior debt in Euros and Japanese 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 2015 $’000 39,490 25,457 12,329 - - 2014 $’000 32,071 23,692 3,797 - - 2015 $’000 - - - 83,800 65,815 2014 $’000 - - - 77,639 65,856 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 If the calculation is between 80 and 125 per cent, then the hedge is considered effective. 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. 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 $294 thousand (2014: $1,760 thousand) on the hedging instruments were taken directly to equity in the consolidated balance sheet. 77 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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 2015 $’000 18,559 - 50,776 - 69,335 2014 $’000 18,489 - 50,776 - 69,265 2015 $’000 - 1,199 - 4,117 5,316 2014 $’000 - 1,227 - 3,794 5,021 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 (i) Japanese Yen Impact 2015 $’000 2014 $’000 2015 $’000 2014 $’000 - - - - 1,200 - (1,467) 1,190 - (1,454) - - - - - - - - - (i) This is mainly as a result of changes in fair value of borrowings designated as net investment of foreign operation hedges. 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 $466 thousand and decrease by $216 thousand (2014: increase by $366 thousand and decrease by $257 thousand). This is mainly attributable to the Consolidated entity’s exposure to interest rates on its variable rate borrowings. 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. A forward foreign exchange contract is only entered into once the Consolidated entity has committed to the purchase transaction. At 28 June 2015, the notional amount of these contracts is $26,895,794. These contracts are held in USD and are used by the Japanese business. The notional value in USD is $20,667,000 and the notional value in Yen is ¥2,432,933,079. The value that is less than 3 months is $6,561,182 and over 3 months is $20,334,613.The aggregate amount of gains under forward foreign exchange contracts recognised in other comprehensive income and accumulated in the cash flow hedging reserve relating to the exposure on these anticipated future transactions is $1,345,776. At 28 June 2015, no ineffectiveness has been recognised in profit and loss arising from these contracts. 78 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 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 2015 $’000 2014 $’000 Interest rate swap - less than 5 years 1.75% 1.75% NOTIONAL PRINCIPAL VALUE FAIR VALUE 2015 $’000 98,035 98,035 2014 $’000 97,808 97,808 2015 $’000 (2,127) (2,127) 2014 $’000 (1,332) (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. 34.8 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. 34.7.3 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 $4,590 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. 79 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED34.8.1 Financial assets and other credit exposures Consolidated Guarantee provided under deed of guarantee MAXIMUM CREDIT RISK 2015 $’000 2014 $’000 13,233 13,120 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. 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, who have established 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. 80 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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 28 JUNE 2015 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 Commercial bills Euro loan Finance lease liability Other liabilities Japan acquisition - Australian Dollar loan Japan acquisition - Japanese Yen loan Financial guarantee contracts Put Option Liability Lease Incentive Liability 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 - Australian Dollar loan Japan acquisition - Japanese Yen loan Financial guarantee contracts Put Option Liability Lease Incentive Liability 43,883 1,707 4,453 13 43,174 - - (67,485) (926) (57,899) - - (32) - - - - - (121) 36,567 1,825 1,378 14 42,283 - - (69,518) (580) (16,333) - (38) - - - - - (121) - 1,679 5,882 - - 148 12,596 - (1,188) - - (18,559) - - (50,776) (47,596) (148) (51,290) (1,422) - 2,301 6,722 - - 76 11,107 - (751) - (18,489) (10) (1) (50,776) (47,367) (76) (49,270) (1,543) - - 1,746 - - - - - - - - - - - - - - - - - 822 - - - - - - - - - - - - - - - 81 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 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. Net Settled Interest rate swaps Cross currency interest rate swaps Gross Settled Foreign exchange forward contracts 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 LESS THAN 1 MONTH $’000 1 - 3 MONTHS $’000 3 MONTHS TO 1 YEAR $’000 1 TO 5 YEARS $’000 - - 2,187 2,187 - 444 4,374 4,818 (926) 1,263 18,394 18,731 (1,188) 2,867 1,940 3,619 2015 $’000 2014 $’000 133 11,793 11,926 - 12,010 12,010 116,931 71,034 187,965 116,632 36,295 152,927 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. 82 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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). FINANCIAL ASSETS/ FINANCIAL LIABILITIES 1) Interest Rate and Cross Currency Swaps 2) Forward foreign exchange contracts FAIR VALUE AS AT 2015 $’000 2014 $’000 Current asset $1,825, non current assets $2,301, current liability $580 and non current liability $751 (As recognised in other financial assets and financial liabilities) N/A Current asset $1,707, non current assets $2,868, current liability $925 and non current liability $1,188 (As recognised in other financial assets and financial liabilities) Current asset $1,341 and non current asset $3 (As recognised in other financial assets). FAIR VALUE HIERARCHY Level 2 Level 2 3) Put option over non-controlling interest Liability - $51,290 (As recognised in other financial non current liabilities) Liability - $49,270 (As recognised in other financial non current liabilities) 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. 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 contractual 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 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 $49.2m and has a value at year end of $51.3m with the movement recorded in other reserves. No reasonable change in the key inputs would result in a material change of this value. 83 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 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 (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 (18) Issued 29 October 2014 (19) Issued 29 October 2014 (20) Issued 27 January 2015 (21) Issued 3 February 2015 (22) Issued 20 June 2015 GRANT DATE 2 November 2011 7 November 2012 7 November 2012 1 November 2013 29 October 2013 29 October 2014 29 October 2014 27 January 2015 3 February 2015 20 June 2015 EXPIRY DATE 31 August 2015 2 November 2017 31 August 2016 2 November 2017 31 August 2017 28 October 2020 31 August 2018 31 August 2020 31 August 2018 31 August 2018 GRANT DATE FAIR VALUE $1.43 $1.17 $1.16 $3.14 $3.23 $7.16 $7.39 $10.51 $7.11 $7.03 EXERCISE PRICE (i) $5.83 $8.97 $9.13 $14.90 $13.74 $22.89 $22.89 $16.52 $22.89 $36.31 VESTING DATE 31 August 2014 31 August 2015 31 August 2015 31 August 2016 31 August 2016 1 September 2017 1 September 2017 1 September 2017 1 September 2017 1 September 2017 (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 2015 year is $22.42 (2014: $14.40). 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 13 SERIES 14 SERIES 15 SERIES 16 SERIES 17 SERIES 18 SERIES 19 SERIES 20 SERIES 21 SERIES 22 $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% $26.53 $22.89 30.00% 4.40 1.50% 2.74% $26.53 $22.89 30.00% 3.30 1.50% 2.56% $26.76 $16.52 30.00% 4.10 1.50% 1.85% $26.76 $22.89 30.00% 3.10 1.50% 1.80% $36.44 $36.31 30.00% 2.70 1.50% 1.89% (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. 84 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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: 2015 OPTION SERIES (11) Issued 30 April 2009 (13) Issued 4 November 2011 (13) Issued 4 November 2011 (13) Issued 4 November 2011 (13) Issued 4 November 2011 (13) Issued 4 November 2011 (12) Issued 4 November 2011 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 2015 2014 WEIGHTED AVERAGE EXERCISE PRICE $ 10.10 22.42 22.89 5.69 - 14.58 5.83 NUMBER OF OPTIONS 2,129,334 1,056,667 - (396,000) - 2,790,001 30,000 WEIGHTED AVERAGE EXERCISE PRICE $ 6.85 14.40 - 3.18 - 10.10 2.83 NUMBER OF OPTIONS 2,790,001 884,400 (1,000) (627,500) - 3,045,901 189,167 NUMBER EXERCISED 30,000 25,000 50,000 40,000 25,000 57,500 400,000 NUMBER EXERCISED 126,000 15,000 15,000 180,000 60,000 EXERCISE DATE 27 August 2014 1 September 2014 1 September 2014 1 September 2014 1 September 2014 1 September 2014 16 February 2015 SHARE PRICE AT EXERCISE DATE ($) 25.67 25.60 25.60 25.60 25.60 25.60 35.89 EXERCISE DATE 16 August 2013 21 August 2013 29 August 2013 16 August 2013 5 November 2013 SHARE PRICE AT EXERCISE DATE ($) 12.62 14.09 13.71 12.62 15.36 85 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED35.6 Share options outstanding at end of the year 2015 The share options outstanding at the end of the year consist of: • 189,167 options with an exercise price of $5.83, and a weighted average remaining contractual life of 0.34 years. • 500,000 options with an exercise price of $8.97, and a weighted average remaining contractual life of 1.34 years. • 416,667 options with an exercise price of $9.13, and a weighted average remaining contractual life of 1.11 years. • 600,000 options with an exercise price of $14.90, and a weighted average remaining contractual life of 2.34 years. • 456,667 options with an exercise price of $13.74, and a weighted average remaining contractual life of 2.11 years • 300,000 options with an exercise price of $22.89, and a weighted average remaining contractual life of 5.34 years • 343,000 options with an exercise price of $22.89, and a weighted average remaining contractual life of 3.11 years • 150,000 options with an exercise price of $16.52, and a weighted average remaining contractual life of 5.34 years • 50,500 options with an exercise price of $22.89, and a weighted average remaining contractual life of 3.11 years • 39,900 options with an exercise price of $36.31, and a weighted average remaining contractual life of 3.11 years 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 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 2015 $ 6,654,224 162,611 97,796 - 2,521,565 9,436,196 2014 $ 5,736,139 165,110 149,517 - 1,361,525 7,412,291 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 2015 financial year. Payment of $38,220 (2014: $33,600) 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. 86 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED37. RELATED PARTY TRANSACTIONS 37.1 Other related party transactions 37.1.1 Equity interests in related parties (i) Equity interest in subsidiaries 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 (i) Key management personnel compensation Details of key management personnel compensation are disclosed in note 36 to the financial statements. (ii) Loans to key management personnel There were no loans outstanding at any time during the financial year to key management personnel or to their related parties. 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. (iii) Other transactions with directors of the Consolidated entity 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. (iv) 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. (v) Transactions with other related parties Other related parties include: • associates; • directors of related parties and their director- related entities; and • other related parties. 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. During the financial year, services were provided by: • 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.; Where applicable, details of dividend and interest revenue from other related parties are disclosed in note 7 to the financial statements. • 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 (vi) Transactions within the wholly-owned group 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. 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. (vii) Parent entities The parent entity and the ultimate parent entity in the Consolidated entity is Domino’s Pizza Enterprises Limited. 87 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED38. ACQUISITION OF BUSINESSES NAME OF BUSINESSES ACQUIRED PRINCIPAL ACTIVITY DATE OF ACQUISITION PROPORTION OF SHARE ACQUIRED (%) COST OF ACQUISITION IN 2015 $’000 COST OF ACQUISITION IN 2014 $’000 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 100% 100% 100% - - - 3,622 1,036 1,432 During the year: Significant contract acquisitions for Europe 2015 7 European stores Pizza stores July 2014 100% 5,047 During the year: Other store acquisitions 2015 11 stores in aggregate (AU) 5 stores in aggregate (NZ) 3 Japan stores (JPY) 3 stores in aggregate (EU) 2014 12 stores in aggregate (AU) 6 Japan stores (JPY) 2 stores in aggregate (EU) Pizza stores Pizza stores Pizza stores Pizza stores July - June 2015 July - June 2015 July - June 2015 July - June 2015 Pizza stores Pizza stores Pizza stores July - June 2014 July - June 2014 July - June 2014 100% 100% 100% 100% 100% 100% 100% - - - - - 3,840 2,143 483 719 - - - 5,228 808 115 Total store acquisitions during full year ended 12,232 12,241 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. 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 2015 $’000 2014 $’000 5 58 63 3,315 3,315 13 89 102 4,298 4,298 3,378 4,400 8,854 12,232 7,841 12,241 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. 88 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 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 statement of cash flows can be reconciled to the related items in the 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) 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 Included in the movement of other financial assets are non-cash transactions of $8.5m for loans to Franchisees. 2015 $’000 43,174 43,174 2015 $’000 68,421 (6,375) 2,645 27,480 3,366 95,537 (7,217) (543) (413) 8,047 1,676 8,286 665 106,038 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 89 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED39.2 Businesses acquired Acquisition of stores During the financial year, 29 businesses were acquired in Australia, New Zealand, Japan and Europe (2014: 39 businesses). The net cash outflow on acquisition in the financial statements was $12,232 thousand (2014: $12,241 thousand). Performance Share The Company announced on 13 February 2013 that it had agreed to acquire 15 stores from a franchisee (Knight Stores) through the acquisition of Nisco Trading Pty Ltd. The Purchase Price for the acquisition of the Knight Stores was subject to a minimum Purchase Price of $10,000,000 and maximum Purchase Price of $13,878,000. Of the maximum purchase price, $3,878,000 related to a contingent consideration being an earn out component, subject to the achievement of certain financial performance targets. The Earn Out component was provided in the form of a Performance Share issued at completion, which would convert into fully paid ordinary shares in 2015 depending on the extent to which the Earn Out targets were achieved. The issue of the Performance Share was approved by shareholders on 25 March 2013. These Performance Share earn out targets were not met and, as a result, the final purchase price is $10,000,000 and the Performance Share will, on announcement of the FY2015 audited financial statements, convert into a marketable parcel of shares, being a parcel of shares in the Company having a value of at least $500 based on the closing price on ASX of the Company’s shares on the announcement date. The Company also provides the following further information: • During the reporting period, there was one Performance Share on issue. • The Performance Share carries capital participation rights of $1.00 and is not transferrable. • The Performance Share does not confer any rights on the holder to receive dividends, to vote at meetings of members or to participate in any rights or bonus issues or shares • The Performance Share was not converted or cancelled during the reporting period • No relevant milestone for the Performance Share was met during the reporting period 39.3 Non-cash financing and investing activities During the current financial year, the Consolidated entity acquired $3.1 million under finance lease (2014: $2.3 million). 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. 2015 $’000 43,924 95,331 36,817 176,072 2014 $’000 35,696 77,410 28,146 141,252 2015 $’000 2014 $’000 25 25 168 2,779 2,972 136 1,402 1,563 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) 90 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED41. COMMITMENTS FOR EXPENDITURE 41.1 Capital expenditure commitments Plant & Equipment 41.2 Lease commitments 2015 $’000 553 2014 $’000 862 Finance lease liabilities and non-cancellable operating lease commitments are disclosed in note 28 and 40 to the financial statements. 42. CONTINGENT LIABILITIES AND CONTINGENT ASSETS 42.1 Contingent liabilities Guarantees – franchisee loans and leases 2015 $’000 2014 $’000 5,984 5,901 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 2015 $’000 2014 $’000 7,250 7,219 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. 91 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED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 - accounting advice 43.2 Network firm of parent entity auditor Audit of the financial statements: Europe Europe Taxation services Other non audit services - Europe - transaction services - Europe - other assurance services Japan Other non audit services - Japan - due diligence services - other assurance services 2015 $ 266,084 - - 7,500 30,000 303,584 178,059 53,848 201,034 5,026 195,689 - - 633,656 2014 $ 264,540 103,526 50,000 9,500 - 427,566 171,686 38,382 - - 179,642 89,228 2,484 481,422 The auditor of Domino’s Pizza Enterprises Limited is Deloitte Touche Tohmatsu. 44. EVENTS AFTER THE REPORTING PERIOD On 10 August 2015, the Directors declared a final dividend for the financial year ended 28 June 2015 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. 92 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED 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 2015 $’000 2014 $’000 35,745 389,236 424,981 35,141 123,214 158,355 28,862 362,026 390,888 28,247 120,053 148,300 198,291 51,138 194,193 42,370 15,706 1,491 266,626 3,993 2,032 242,588 2015 $’000 47,090 423 47,513 2014 $’000 27,323 1,759 29,082 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. 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 accounting for the acquisition of DPEJ as reported as provisionally determined for the 2014 financial year, and has now been finalised. There were no significant adjustments to the provisional values determined. 47. APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved by the Board of Directors and authorised for issue on 10 August 2015. 93 NOTES TO THE FINANCIAL STATEMENTS CONTINUED2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDADDITIONAL SECURITY EXCHANGE INFORMATION AS AT 31 JULY 2015 NUMBER OF HOLDERS OF EQUITY SECURITIES Ordinary share capital • 86,560,773 fully paid ordinary shares are held by 4,955 individual shareholders. • All issued ordinary shares carry one vote per share, however partly paid shares do not carry the rights to dividends. Options • 3,031,151 options are held by 61 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 28 115 123 1,058 3,631 4,955 90 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5 6 9 36 5 61 - 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 8,267,802 37,724,846 19.27% 14.76% 9.55% 43.58% - - - - - - - - FULLY PAID PARTLY PAID 94 2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITEDADDITIONAL SECURITY EXCHANGE INFORMATION AS AT 31 JULY 2015 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 Mr Grant Bryce Bourke Mrs Esme Francesca Meij Mr Grant Bryce Bourke & Mrs Sandra Eileen Bourke Citicorp Nominees Pty Limited Mr Andrew Charles Rennie BNP Paribas Nominees Pty Ltd Success Pizzas Pty Ltd Clyde Bank Holdings (Aust) Pty Ltd HSBC Custody Nominees (Australia) Limited Pizza People Enterprises Pty Ltd National Nominees Limited AMP Life Limited FULLY PAID PARTLY PAID NUMBER PERCENTAGE NUMBER PERCENTAGE 23,050,966 20,957,029 12,074,779 5,816,334 5,585,901 2,483,594 1,711,052 1,509,868 1,079,828 864,280 718,516 501,998 343,075 341,290 340,149 308,296 286,433 280,000 255,013 224,960 78,733,361 26.63% 24.21% 13.95% 6.72% 6.45% 2.87% 1.98% 1.74% 1.25% 1.00% 0.83% 0.58% 0.40% 0.39% 0.39% 0.36% 0.33% 0.32% 0.29% 0.26% 90.96% - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 95 2015 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. 96 2015 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 49 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. Lynda O’Grady Non-Executive Director Lynda has extensive experience in executive roles in IT, telecommunications and media organisations including Executive Director and Chief of Product at Telstra and Commercial Director of the publishing division of PBL. She is a Fellow of the Australian Institute of Company Directors, is Chair of the Aged Care Financing Authority and an independent director of the National Electronic Health Transition Authority, amongst other director appointments. Lynda holds a Bachelor of Commerce (Hons) from the University of Queensland. 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 97 2015 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 100 2015 ANNUAL REPORT DOMINO’S PIZZA ENTERPRISES LIMITED

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