Source - RNS
RNS Number : 7920H
DP Eurasia N.V
27 March 2020
 

 

 

 

For Immediate Release

27 March 2020

 

DP Eurasia N.V.

("DP Eurasia" or the "Company", and together with its subsidiaries, the " Group ")

Results for the Year Ended 31 December 2019

Significant online growth drives resilient performance

Highlights

 

For the year ended

31 December

 

 

2019

2018

Change

 

 

(in millions of TRY, unless otherwise indicated)

 

 

 

Number of stores

765

724

41

 

 

 

 

 

 

Group system sales (1)

 

 

 

 

Group

1,370.3

1,125.3

21.8%

 

Turkey

845.7

736.1

14.9%

 

Russia

503.3

373.5

34.8%

 

Azerbaijan & Georgia

21.2

15.7

34.8%

 

 

 

 

 

 

Group system sales like-for-like growth(2)

 

 

Group(8)

10.7%

10.3%

 

 

Turkey

13.1%

9.3%

 

 

Russia (based on RUB)

0.7%

16.0%

 

 

 

 

 

 

 

Group revenue

980.2

856.9

14.4%

 

Group adjusted EBITDA(3) (excl. IFRS 16)

124.5

110.6

12.6%

 

Group adjusted net income (4) (excl. IFRS 16)

2.9

(7.1)

n.m.

 

Group adjusted net debt(5) (excl. IFRS 16)

226.5

154.6

 

 

Group adjusted EBITDA(3)

189.8

110.6

n.m.

 

Group adjusted net loss(4)

(6.3)

(7.1)

n.m.

 

Turkey adjusted EBITDA(3)

134.6

96.5

n.m.

 

Turkey adjusted EBITDA(3) (excl. IFRS 16)

108.7

96.5

12.6%

 

Russia adjusted EBITDA(3)

63.9

23.9

n.m.

 

Russia adjusted EBITDA(3) (excl. IFRS 16)

24.5

23.9

2.7%

 

 

 

 

 

 

 

 

 

Financial Highlights

· Group revenue up 14.4% and system sales up 21.8%, driven by like-for-like growth and store openings

Turkish systems sales growth of 14.9%

Russian system sales growth of 34.8% (17.5% based on RUB)

· Adjusted EBITDA (excl. IFRS 16) up 12.6% to TRY 124.5 million (2018: TRY 110.6 million)

· Adjusted net income (excl. IFRS 16) of TRY 3.2 million versus an adjusted net loss of TRY 7.1 million in 2018

 

Operational Highlights

· 41 new stores were added over the last 12 months, bringing the total number to 765

· Turkey and Russia continue to leverage online ordering; share of delivery system sales reached 70% for the year (2018: 61%)

· Group online system sales(7) growth of 39.8%

Turkish online system sales(7) growth of 33.5%

Russian online system sales(7) growth of 49.0% (29.9% based on RUB)

· Management appointments completed in Russia and strategies to improve performance are already being implemented

 

Current Trading

 

System sales growth and like-for-like growth for the first two months of 2020 were as follows:

 

Group system sales growth(1)

For the two months ended 29 February 2020

Group

21.7%

Turkey

26.1%

Russia

14.2%

Azerbaijan & Georgia

40.5%

 

 

Group system sales like-for-like growth(2)

Group(8)

13.9%

Turkey

21.2%

Russia (based on RUB)

-10.4%

 

The robust like-for-like growth in Turkey experienced in Q4'2019 has continued into the current year.  The Group is focused on addressing the issues and challenges in Russia, including appointing new management and adopting a new marketing strategy.  In Russia, the Group's advertising spend was materially higher in the first half of 2019 compared to its budgeted advertising expenses for the same period in 2020, as management is budgeting a flatter profile of advertising through the current year, and plans to use celebrity endorsement, a different channel mix, and simpler, price-led advertisements.  This year will be a year of transition in Russia in which the Group will focus on getting the new team established and strengthening the operating model, whilst also adapting its strategic approach.

 

Outlook

 

Whilst the Group remains comfortable with its medium-term financial guidance, the Board is mindful of the considerable current uncertainty surrounding the spread of the COVID-19 outbreak and its impact on the business and wider economy in the countries in which the Group operates.  Therefore, the Board is not in a position to provide meaningful guidance on the likely financial and operating results for the current year. 

 

The Board believes that certain features of the Group's business may help it withstand the adverse impact of the pandemic including the essential nature of food services to consumers, its focus on delivery to customers, the growing reluctance of customers to leave their homes to dine out or buy groceries for fear of contracting the virus, and the affordable nature of the product at a time when domestic budgets may be under pressure. In the year to date, the pandemic has had a relatively small impact on the business with the exception of a reduction in dine in business in our Turkish restaurants (although our delivery and take out operations continue as normal). 

 

There is no indication whether governmental measures will have an effect in preventing a further spread of the disease around the world and therefore the duration of the pandemic.  If the pandemic and its impact on the business last for a protracted period, it is likely to have a more detrimental effect on the financial performance of the Group. The Group has taken proactive measures to ensure that its customers and employees continue to be safe and has established an internal task force to ensure that the supply chain is managed, critical inventory is available, and restaurants remain adequately staffed.  The Group appreciates that the Turkish government has indicated its preparedness to support companies and encourage banks to maintain access to credit facilities so as to assist the corporate sector manage through the crisis and maintain employment.

 

The Board is closely monitoring the potential impact of the pandemic on the Group, particularly with regard to the wellbeing of our colleagues and customers, has a comprehensive contingency plan in place and will further update the financial market in due course. 
 

The Russia Plan

The Group is implementing a detailed plan to address the challenges in the Russian market and continues to take proactive steps, including:

i.  hiring a new management team comprising CEO, COO and CFO;

ii.  making long term improvements to product, service and technology and further investment in the brand;

iii.  adopting a new marketing strategy making use of celebrity endorsement, cluster-based pricing, different channel mix, and simpler, price-led advertisements;

iv.  launching new products at entry level pricing;

v.  creating regional castles - starting with the Krasnodar area in the south;

vi.  expanding the use of corporate stores as well as franchise stores on to the aggregator platform; and

vii.  cost cutting measures.

Commenting on the results, Chief Executive Officer, Aslan Saranga said:

 

"On behalf of the Board, I am pleased to report another year of solid growth in 2019.  We continued to grow our store portfolio, adding 41 stores during 2019 and reaching a total of 765 stores across our four countries of operations.

"The Turkish business performed strongly in 2019 despite macro headwinds and posted a rising performance in each successive quarter.  Due to the recovery in macro parameters, the strong momentum has continued in Turkey into Q1 2020.

"In Russia, we successfully resolved certain issues with regional franchisees by acquiring and converting their stores to corporate stores.  The challenge in Russia in terms of like-for-like growth in 2019 was mainly attributable to record advertising spend by online aggregators fighting for market dominance and increasing delivery fast food competition through the aggregators.  We have completed the appointment of our Russian management team and launched a new marketing strategy in Russia with effect from the end of February to address the new market dynamics.

"We continue to focus on product innovation to drive growth; a key element of the Group's success to date.  Following our introduction of the co-branded KitKat® chocolate pizza and "Dürümos" wrap, we introduced four additional types of oven-baked sandwiches in Turkey.  We have relaunched the wrap and the pizza Quadro (rectangular pizza) at attractive entry level prices in Russia.  Additionally, we will start trialling the loyalty programme in Russia during 2020.

"Digital continues to drive our business forward with significant growth achieved in both of our markets. Online ordering as a percentage of delivery has reached 70% across the Group, an increase of more than nine percentage points from 2018, with the Russian business exceeding 80%.

"The Board is closely monitoring the potential impact of the COVID-19 pandemic on the Group, particularly with regard to the wellbeing of our colleagues and customers. It has a comprehensive contingency plan in place and will further update the financial market in due course."

 

Enquiries

DP Eurasia N.V.

 

Selim Kender, Chief Strategy Officer & Head of Investor Relations

+90 212 280 9636

 

 

Buchanan (Financial Communications) 

 

Richard Oldworth / Victoria Hayns / Tilly Abraham

+44 20 7466 5000

[email protected]

 

 

A conference call will be held at 9.30am (GMT) on 27 March 2020 for analysts and investors via the following dial-in details:

 

Conference call:

UK Toll: +44 3333000804

UK Toll Free: 08003589473

Participant PIN code: 32473974#

URL for international dial in numbers: http://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf

 

DP Eurasia N.V.'s 2019 results and corporate presentation are available at www.dpeurasia.com.  A conference call replay will be available on the website in due course.

Notes

(1) System sales are sales generated by the Group's corporate and franchised stores to external customers and do not represent revenue of the Group.

 (2) Like-for-like growth is a comparison of sales between two periods that compares system sales of existing system stores. The Group's system stores that are included in like-for-like system sales comparisons are those that have operated for at least 52 weeks preceding the beginning of the first month of the period used in the like-for-like comparisons for a certain reporting period, assuming the relevant system store has not subsequently closed or been "split" (which involves the Group opening an additional store within the same map of an existing store or in an overlapping area).

(3) EBITDA, adjusted EBITDA and non-recurring and non-trade income/expenses are not defined by IFRS. These items are determined by the principles defined by the Group management and comprise income/expenses which are assumed by the Group management to not be part of the normal course of business and are non-trading items. These items which are not defined by IFRS are disclosed by the Group management separately for a better understanding and measurement of the sustainable performance of the Group.  Please refer to Note 3 in the Consolidated Financial statements for a reconciliation of these items with IFRS.

(4) Adjusted net income is not defined by IFRS.  Adjusted net income excludes income and expenses which are not part of the normal course of business and are non-recurring items. Management uses this measurement basis to focus on core trading activities of the business segments and to assist it in evaluating underlying business performance.  Please refer to Note 3 in the Consolidated Financial statements for a reconciliation of this item with IFRS.

(5) Net debt and adjusted net debt are not defined by IFRS. Adjusted net debt includes cash deposits used as a loan guarantee and cash paid, but not collected during the non-working day at the year end. Management uses these numbers to focus on net debt including deposits not otherwise considered cash and cash equivalents under IFRS.  Please refer to Note 16 in the Consolidated Financial statements for a reconciliation of these items with IFRS.

(6) Delivery system sales are system sales of the Group generated through the Group's delivery distribution channel.

(7) Online system sales are system sales of the Group generated through its online ordering channel.

(8) Group like-for-like growth is a weighted average of the country like-for-like growths based on store numbers as described in Note (2) above.

Notes to Editors

 

DP Eurasia N.V. is the exclusive master franchisee of the Domino's Pizza brand in Turkey, Russia, Azerbaijan and Georgia. The Company was admitted to the premium listing segment of the Official List of the Financial Conduct Authority and to trading on the main market for listed securities of the London Stock Exchange plc on 3 July 2017. The Company (together with its subsidiaries, the "Group") is the largest pizza delivery company in Turkey and the third largest in Russia. The Group offers pizza delivery and takeaway/ eat-in facilities at its 765 stores (550 in Turkey, 203 in Russia, eight in Azerbaijan and four in Georgia as at 31 December 2019), and operates through its owned corporate stores (32%) and franchised stores (68%). The Group maintains a strategic balance between corporate and franchised stores, establishing networks of corporate stores in its most densely populated areas to provide a development platform upon which to promote best practice and maximise profitability. The Group has adapted the Domino's Pizza globally proven business model to its local markets.

 

 

Performance Review

System Sales

For the year ended

31 December

 

 

2019

2018

Change

 

(in millions of TRY, unless otherwise indicated)

 

 

 

Group system sales (1)

 

 

 

Group

1,370.3

1,125.3

21.8%

Turkey

845.7

736.1

14.9%

Russia

503.3

373.5

34.8%

Azerbaijan & Georgia

21.2

15.7

34.8%

 

 

 

 

Group system sales like-for-like growth(2)

 

 

Group(8)

10.7%

10.3%

 

Turkey

13.1%

9.3%

 

Russia (based on RUB)

0.7%

16.0%

 

 

Store Count

As at 31 December

 

2019

 

2018

 

Corporate

Franchised

Total

 

Corporate

Franchised

Total

Turkey

123

427

550

 

137

398

535

Russia

121

82

203

 

101

78

179

Azerbaijan

-

8

8

 

-

6

6

Georgia

-

4

4

 

-

4

4

Total

244

521

765

 

238

486

724

 

DP Eurasia achieved strong operational growth in the year, with a further 41 stores added to the store portfolio.  The Group increased its system sales by 21.8% year-on-year, driven by a combination of like-for-like sales growth and store openings.

The Turkish operations' system sales, representing 62% of Group system sales, increased by 14.9%.  Despite the slow start to the year due to the lingering effects of the 2018 macro volatility, the Group achieved 13.1% like-for-like growth in Turkey, mainly attributable to the strategies that were undertaken in sales and marketing.  The "Dürümos" wrap launch, celebrity endorsed advertising campaigns and cluster-based pricing combined with the rapidly improving macroeconomic parameters in the second half of the year drove growth.  As a result of the volatile situation in the first half of the year, a total of 17 stores were opened in the Turkish segmentActive management and optimisation of the Turkish estate, which is ordinary course of business for the Group, continued in 2019.  26 stores were transferred from corporate to franchisee ownership, with an additional eight transfers in the opposite direction.

The Russian operations' system sales, representing 37% of Group system sales, increased by 34.8% (17.5% based on RUB).  This increase was driven primarily by store openings.  The Russian operations achieved like-for-like sales growth of 0.7% for the year, with growth affected by the increased competition especially in terms of aggregators and fast food players that are supported by them.  The Group intends to replicate the success it had turning around like-for-like growth in Turkey in early 2019 by deploying similar strategies in Russia in 2020, including celebrity endorsed advertising campaigns and cluster-based pricing.  The regional franchisee disagreements were resolved with the Group acquiring a majority of the stores in the regions.  A total of 22 stores were acquired in Russia during 2019, while the Group continued its refranchising efforts with 20 stores transferred from corporate to franchisee ownership.  Russian franchised stores amounted to 82, representing 40% of the Russian store portfolio.

Delivery Channel Mix and Online like-for-like growth

The following table shows the Group's delivery system sales, analysed by ordering channel and by the Group's two largest countries in which it operates, as a percentage of delivery system sales:

 

 

For the year ended 31 December

 

 

2019

2018

 

 

Turkey

Russia

Total

Turkey

Russia

Total

Store

 

32.0%

18.0%

27.8%

42.4%

23.9%

37.1%

Online

Group's online platform

28.5%

80.5%

47.0%

30.2%

76.1%

44.7%

Aggregator

35.7%

1.5%

22.8%

24.2%

-

16.1%

Total online

64.2%

82.0%

69.9%

54.4%

76.1%

60.8%

Call centre

 

3.8%

-

2.3%

3.1%

-

2.1%

Total(6)

 

100%

100%

100%

100%

100%

100%

 

The following table shows the Group's online like-for-like growth(2), analysed by the Group's two largest countries in which it operates:

 

For the year ended

31 December

 

2019

2018

Group online system sales like-for-like growth(2)(7)

Group(8)

29.3%

35.4%

Turkey

32.6%

33.7%

Russia (based on RUB)

15.4%

43.5%

 

The Group's like-for-like growth continues to be driven mainly by the performance of its online ordering platforms.  Online delivery system sales as a share of delivery system sales reached 70% for the year, which represents a 9.1 percentage point increase on a year-on-year basis.

In Turkey, online system sales like-for-like growth for the period was 32.6%, as a result of which online delivery system sales as a share of delivery system sales reached 64.2% for the period, a 9.8 percentage point increase from a year ago, aided also by an increase in volumes through the aggregator.

In Russia, online system sales like-for-like growth for the period was 15.4%, as a result of which online delivery system sales as a share of delivery system sales reached 82.0% for the period, a 5.9 percentage point increase from a year ago.

Online system sales continued to outpace the overall system sales growth at 39.8% for the Group.  Turkish online system sales grew by 33.5%, while Russian online system sales grew by 49.0% (29.9% based on RUB).
 

Financial Review

 

For the year ended

31 December

 

 

2019

2018

Change

 

(in millions of TRY)

 

 

 

Revenue

980.2

856.9

14.4%

Cost of sales (excl. IFRS 16)

(645.7)

(566.3)

14.0%

Gross Profit (excl. IFRS 16)

334.5

290.6

15.1%

General administrative expenses (excl. IFRS 16)

(154.0)

(136.1)

13.1%

Marketing and selling expenses

(137.0)

(104.3)

31.4%

Other operating expenses, net (excl. IFRS 16)

15.1

3.1

385.9%

Operating profit (excl. IFRS 16)

58.5

53.3

9.8%

Foreign exchange (losses)/gains (excl. IFRS 16)

6.8

(18.8)

n.m.

Financial income (excl. IFRS 16)

2.4

5.5

(57.0)%

Financial expense (excl. IFRS 16)

(49.3)

(43.9)

12.4%

(Loss)/Profit before income tax (excl. IFRS 16)

18.4

(3.9)

n.m.

Tax expense (excl. IFRS 16)

(14.8)

(7.2)

105.1%

(Loss)/Profit after tax (excl. IFRS 16)

3.6

(11.1)

n.m.

 

 

 

 

Group adjusted EBITDA(3) (excl. IFRS 16)

124.5

110.6

12.6%

Group adjusted net income (4) (excl. IFRS 16)

2.9

(7.1)

n.m.

Group adjusted net debt(5) (excl. IFRS 16)

226.5

154.6

 

Group adjusted EBITDA(3)

189.8

110.6

n.m.

Group adjusted net loss (4)

(6.3)

(7.1)

n.m.

Turkey adjusted EBITDA(3)

134.6

96.5

n.m.

Turkey adjusted EBITDA(3) (excl. IFRS 16)

108.7

96.5

12.6%

Russia adjusted EBITDA(3)

63.9

23.9

n.m.

Russia adjusted EBITDA(3) (excl. IFRS 16)

24.5

23.9

2.7%

 

Revenue

Group revenue grew by 14.4% to TRY 980.2 million.  Turkish segment revenue grew by 15.4% to TRY 559.3 million, while Russian segment revenue grew by 13.1% to reach TRY 420.9 million.

Adjusted EBITDA

The Board maintains that adjusted EBITDA is the most relevant indicator of the Group's profitability at this stage of its development.  The Group has adopted IFRS 16 from 1 January 2019 but has not restated comparatives for the 2018 reporting period, as permitted under the specific transition provisions in the standard, the Group has applied the modified retrospective method for adoption.  As such, the Board believes that analysing the adjusted EBITDA (excluding IFRS 16) serves as a better comparative for the prior period.

The Group's adjusted EBITDA (excluding IFRS 16) grew by 12.6% to TRY 124.5 million.  Adjusted EBITDA (excluding IFRS 16) for the Turkish segment, which includes the Azerbaijani and Georgian businesses, was TRY 108.7 million, a year-on-year increase of 12.6%, and adjusted EBITDA (excluding IFRS 16) for the Russian segment was TRY 24.5 million, a year-on-year increase of 2.7% (a decrease of 10.3% based on RUB).  Additionally, costs relating to our Dutch corporate expenses (excluding those that relate to our initial public offering) reduced adjusted EBITDA by TRY 8.7 million in 2019.  The comparable adverse effect of this item was TRY 9.8 million in 2018.

In 2019, the Group's adjusted EBITDA (excluding IFRS 16) margin as a percentage of system sales was 9.1% compared to 9.8% in 2018.  The main reasons for the decrease were the reduction in the Russian segment margin and the mix effect associated with the Russia segment becoming a larger part of the business.

Adjusted EBITDA (excluding IFRS 16) margin as a percentage of system sales for the Turkish segment (including Azerbaijan and Georgia) recorded an immaterial decrease to 12.5% from 12.8% as the Group was successful in preserving margins.

The Russian segment margin decreased to 4.9% from 6.4%.  The main reason for the decrease is the lower like-for-like growth in Russia due to increased competition and the longer than expected ramp up times in regional stores.  The Group changed its beverage supplier in Q3 2019 and began testing on one of the aggregator platforms in Q4 2019, where it is generating incremental sales.  The Board continues to remain confident in the medium- and long-term potential of the Russian market for DP Eurasia.

Adjusted Net Income

For the year ended 31 December 2019, adjusted net income (excluding IFRS 16) was TRY 2.9 million.  The increased financial expenses (excluding IFRS 16) were offset by the increase in operating profit (excluding IFRS 16).  The increase in tax expense (excluding IFRS 16) was more than offset by the increase in foreign exchange gains (excluding IFRS 16), resulting in a positive adjusted net income (excluding IFRS 16).  Despite not having any hard currency denominated loans, the Group recorded a foreign exchange gain of TRY 6.8 million due to the intragroup loans made from Turkey to Russia versus a foreign exchange loss of TRY 18.8 million in the previous year.

Capital expenditure and Cash conversion

The Group incurred TRY 106.8 million of capital expenditure in 2019.  The Turkish segment capital expenditure was TRY 37.2 million and the Russian segment capital expenditures amounted to TRY 69.6 million (RUB 800 million).  The Russian segment capital expenditure was higher than previous guidance due to the acquisition of franchised stores in the regions.

Cash conversion, defined as (adjusted EBITDA (excluding IFRS 16)- capital expenditure)/adjusted EBITDA (excluding IFRS 16)) for the period was 14.2% (2018: 28.5%) for the Group and 65.8% (2018: 61.9%) for the Turkish segment. The Russian segment had negative cash conversion as it is in a period of rapid expansion relative to its size.

Adjusted net debt and Leverage

Excluding the impact of IFRS 16, the Group's adjusted net debt at 31 December 2019 was TRY 226.5 million.  Following the refinancing of its Euro denominated loans in Russia with a Rouble denominated bank facility in 2018, the Group does not carry any hard currency denominated loans on its balance sheet.  In 2019, the Group switched a portion of its Rouble denominated bank loans to Turkish Lira denominated bank loans to align the currency of its bank loans more closely with the currency breakdown of its EBITDA.  As a result, at 31 December 2019, 52% of the Group's bank borrowings were denominated in Turkish Liras, compared to 13% a year ago, while the remainder is denominated in Roubles.

The Group continues its prudent and conservative approach to debt and its leverage ratio (defined as adjusted net debt (excluding IFRS 16)/adjusted EBITDA (excluding IFRS 16)) was 1.8x as at 31 December 2019 (2018: 1.4x).

The main reasons for the increase in the Group's indebtedness were the unusually high interest rates in Turkey during the first three quarters of 2019, RUB's appreciation against the TRY and the extra capital expenditure incurred for the acquisition of the regional franchised stores.  Currently, more than 90% of the Group's Turkish Lira denominated bank loans have fixed interest rates for 2020 as the Group looks to take advantage of the relatively lower interest rates currently available.

 

Amsterdam, 26 March 2020

 

The Directors of DP Eurasia N.V. as at the date of this announcement are as set out below:

 

Peter Williams*

Aslan Saranga, Chief Executive Officer

Frederieke Slot, Company Secretary

Seymur Tarı*

Izzet Talu*

Aksel Şahin*

Thomas Singer*

* Non-Executive Directors

Forward looking statements

This press release includes forward-looking statements which involve known and unknown risks and uncertainties, many of which are beyond the Group's control and all of which are based on the Directors' current beliefs and expectations about future events. They appear in a number of places throughout this press release and include all matters that are not historical facts and include predictions, statements regarding the intentions, beliefs or current expectations of the Directors or the Group concerning, among other things, the results of operations, financial condition, prospects, growth and strategies of the Group and the industry in which it operates.

No assurance can be given that such future results will be achieved; actual events or results may differ materially as a result of risks and uncertainties facing the Group. Such risks and uncertainties could cause actual results to vary materially from the future results indicated, expressed, or implied in such forward-looking statements.

Forward-looking statements contained in this press release speak only as of the date of this press release. The Company and the Directors expressly disclaim any obligation or undertaking to update these forward-looking statements contained in this press release to reflect any change in their expectations or any change in events, conditions, or circumstances on which such statements are based.

 

 

Appendices

 

Exchange Rates

 

For the year ended 31 December

 

2019

 

2018

Currency

Period End

Period Average

 

Period End

Period Average

EUR/TRY

6.651

6.348

 

6.028

5.679

RUB/TRY

0.096

0.087

 

0.075

0.076

EUR/RUB

69.341

72.513

 

79.461

73.950

 

Delivery - Take away / Eat in mix

 

For the year ended 31 December

 

2019

2018

 

Turkey

Russia

Total

Turkey

Russia

Total

Delivery

63.8%

62.2%

63.1%

63.0%

60.2%

62.0%

Take away / Eat in

36.2%

37.8%

36.9%

37.0%

39.8%

38.0%

Total(2)

100%

100%

100%

100%

100%

100%

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME  

FOR THE YEAR ENDED 31 DECEMBER 2019 AND 2018

( Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.)

 

 

Notes

31 December 2019

31 December 2018

 

 

 

 

 

 

 

 

Revenue

4

980,208

856,874

Cost of sales

  4

(636,466)

(566,250)

 

 

 

 

GROSS PROFIT

 

343,742

290,624

 

 

 

 

General administrative expenses

 

(150,175)

(136,145)

Marketing and selling expenses

 

(137,043)

(104,294)

Other operating income

6

22,411

10,466

Other operating expense

 6

(7,869)

(7,361)

 

 

 

 

OPERATING PROFIT

 

71,066

53,290

 

 

 

 

Foreign exchange income/(losses)

7

4,665

(18,770)

Financial income

7

16,100

5,508

Financial expense

 7

(85,103)

(43,927)

 

 

 

 

PROFIT/(LOSS) BEFORE INCOME TAX

 

6,728

(3,899)

 

 

 

 

Income tax expense

21

(12,344)

(7,194)

 

 

 

 

LOSS FOR THE PERIOD

 

(5,616)

(11,093)

 

 

 

 

OTHER COMPREHENSIVE EXPENSE/INCOME

 

(21,708)

10,015

Items that will not be reclassified

 

 

 

to profit or loss

 

 

 

- Remeasurements of post-employment

 

 

 

  benefit obligations, net of tax

 

(107)

(291)

 

 

 

 

Items that may be reclassified

 

 

 

to profit or loss

 

 

 

- Currency translation differences

 

(21,601)

10,306

 

 

 

 

TOTAL COMPREHENSIVE LOSS

 

(27,324)

(1,078)

 

 

 

 

Loss per share (*)

 

(0.0386)

(0.0763)

 

 

 

 

 

(*)  Amounts represent the basic and diluted earnings per share

 

The accompanying notes, which are in abridged form, form an integral part of these consolidated financial statements.  Please refer to the Group's Annual Report and Accounts for the full notes.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY  

FOR THE YEAR ENDED 31 DECEMBER 2019

( Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.)

 

Share capital

Share premium

Contribution from shareholders

Remeasurement of post-employment benefit obligations

Currency translation differences

Retained earnings

Total Equity

 

 

 

 

 

 

 

 

Balances at 1 January 2018

36,353

119,286

18,183

(2,193)

(10,993)

(23,623)

137,013

 

 

 

 

 

 

 

 

Remeasurements of post-employment benefit obligations, net

-

-

-

(291)

-

-

(291)

Total loss for the period

-

-

-

-

-

(11,093)

(11,093)

Currency translation adjustments

-

-

-

-

10,306

-

10,306

Total comprehensive loss

-

-

-

(291)

10,306

(11,093)

(1,078)

Share-based incentive plans (Note 22)

-

-

2,514

-

-

-

2,514

 

 

 

 

 

 

 

 

Balances at 31 December 2018

36,353

119,286

20,697

(2,484)

(687)

(34,716)

138,449

 

 

 

 

 

 

 

 

Balances at 1 January 2019

36,353

119,286

20,697

(2,484)

(687)

(34,716)

138,449

 

 

 

 

 

 

 

 

Remeasurements of post-employment benefit obligations, net

-

-

-

(107)

-

-

(107)

Currency translation adjustments

-

-

-

-

(21,601)

-

(21,601)

Total loss for the period

-

-

-

-

-

(5,616)

(5,616)

Total comprehensive loss

-

-

-

(107)

(21,601)

(5,616)

(27,324)

Cancellation of Share-based incentive (Note 22)

-

-

(2,729)

-

-

-

(2,729)

Share-based incentive plans (Note 22)

-

-

2,002

-

-

-

2,002

 

 

 

 

 

 

 

 

Balances at 31 December 2019

36,353

119,286

19,970

(2,591)

(22,288)

(40,332)

110,398

 

The accompanying notes, which are in abridged form, form an integral part of these consolidated financial statements.  Please refer to the Group's Annual Report and Accounts for the full notes.

CONSOLIDATED STATEMENT OF CASH FLOWS  

FOR THE YEAR ENDED 31 DECEMBER 2019

( Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.)

 

 

Notes

2019

2018

 

 

 

 

Profit/(Loss) before income tax

 

6,728

(3,899)

 

 

 

 

Adjustments for:

 

 

 

Depreciation

9-11

94,746

37,018

Amortisation

10

21,960

16,250

Gains on sale of property and equipment

6

11

(4,054)

Performance bonus accrual

 

4,562

7,408

Non-cash employee benefits expense -

 

 

 

  share based payments

22

(727)

2,514

Interest income

7

(16,100)

(5,508)

Interest expense

7

78,506

41,512

Unrealised foreign exchange losses

 

 

 

  on borrowings

 

-

11,473

Changes in operating assets and liabilities

 

 

 

Changes in trade receivables

 

(52,348)

(10,535)

Changes in other receivables and assets

 

(23,794)

(2,156)

Changes in inventories

 

7,557

(21,360)

Changes in contract assets

 

(294)

(1,650)

Changes in contract liabilities

 

4,246

8,722

Changes in trade payables

 

47,030

14,078

Changes in other payables and liabilities

 

27,010

(8,194)

Income taxes paid

21

(15,918)

(6,788)

Performance bonuses paid

 

(7,009)

(5,876)

 

 

 

 

Cash flows generated from

 

 

 

  operating activities

 

176,166

68,955

 

 

 

 

Purchases of property and equipment

9

(54,715)

(49,324)

Purchases of intangible assets

10

(48,228)

(24,036)

Disposals from sale of tangible and intangible assets

 

15,039

25,987

 

 

 

 

Cash flows used in investing activities

 

(87,904)

(47,373)

Interest paid

 

(40,255)

(37,353)

Interest on leases paid

 

(22,031)

-

Interest received

 

1,837

5,508

Loans obtained

 

165,233

59,848

Loans paid

18

(85,453)

(104,957)

Payment of lease liabilities

18

(60,875)

(10,653)

 

 

 

 

Cash flows (used in)

 

 

 

  from financing activities

 

(41,544)

(87,607)

 

 

 

 

Effect of currency translation differences

 

(4,234)

18,341

 

 

 

 

Net increase in cash and cash equivalents

 

42,484

(47,684)

 

 

 

 

Cash and cash equivalents at the

 

 

 

  beginning of the period

12

28,444

76,128

 

 

 

 

Cash and cash equivalents at the

  end of the period

12

70,928

28,444

The accompanying notes, which are in abridged form, form an integral part of these consolidated financial statements.  Please refer to the Group's Annual Report and Accounts for the full notes.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS AT 31 DECEMBER 2019

(Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.)

 

NOTE 1 - THE GROUP'S ORGANISATION AND NATURE OF ACTIVITIES

 

DP Eurasia N.V. (the "Company"), a public limited company, having its statutory seat in Amsterdam, the Netherlands, was incorporated under the law of the Netherlands on 18 October 2016. Upon incorporation Fides Food Systems Coöperatief U.A. and Vision Lovemark Coöperatief U.A. contributed and transferred all shares in Fidesrus B.V. and Fides Food Systems B.V. and their subsidiaries to the Company. From this point forward, the consolidated Group was formed. This was a transaction under common control.

 

The consolidated financial statements of DP Eurasia N.V. have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The consolidated financial statements also comply with the financial reporting requirements included in Title 9 of Book 2 of the Dutch Civil Code, as far as applicable.

 

The Company's registered address is: Herikerbergweg 238, Amsterdam, the Netherlands.

 

The Management report within the meaning of Article 391 of Book 2 of the Dutch Civil Code consists of the following parts of the annual report:

 

•   At a glance

•   Highlights

•   Key financial figures

•   Message from CEO

•   Strategic review

•   Remuneration report

•   Corporate governance report

•   How we manage risk

•   Consolidated financial statements: Note 3 - Segment Reporting

•   Consolidated financial statements: Note 24 - Financial Instruments and financial risk management

 

The Company and its subsidiaries (together referred to as the "Group") perform its activities in corporate-owned and franchise stores in Turkey and the Russian Federation, including providing technical support, control and consultancy services to the franchisees.

 

As at 31 December 2019, the Group holds franchise operating and sub-franchising right in 765 stores (521 franchise stores, 244 corporate-owned stores) (31 December 2018: 724 stores (486 franchise stores, 238 corporate-owned stores).

 

The consolidated financial statements as at and for the period ended 31 December 2019 have been approved and authorized for issue on 23 March 2020 by authorisation of the Board. The financial statements are subject to adoption by the Annual General Meeting.

 

 

 

 

Subsidiaries

 

The Company has a total of four fully owned subsidiaries. These entities and nature of their business is as follows:

 

 

2019

2018

 

 

 

Effective

Effective

 

 

Subsidiaries

ownership (%)

ownership (%)

Registered country

Nature of business

 

 

 

 

 

Pizza Restaurantları A.Ş. ("Domino's Turkey")

100

100

Turkey

Food delivery

Pizza Restaurants LLC ("Domino's Russia")

100

100

Russia

Food delivery

Fidesrus B.V. ("Fidesrus")

100

100

the Netherlands

Investment company

Fides Food Systems B.V. ("Fides Food")

100

100

the Netherlands

Investment company

 

Pizza Restaurants LLC ("Domino's Russia") is established in the Russian Federation. Domino's Russia is operating a pizza delivery network of corporate and franchised stores in the Russian Federation. Domino's Russia has a Master Franchise Agreement (the "MFA Russia") with Domino's Pizza International for the pizza delivery network in Russia until 2030.

 

Pizza Restaurantları A.Ş. ("Domino's Turkey") is established in Turkey. Domino's Turkey is operating a pizza delivery network of corporate and franchised stores in Turkey. Domino's Turkey is a food delivery company, which has a Master Franchise Agreement (the "MFA Turkey") with Domino's Pizza International pizza delivery network in Turkey until 2032. The Group expects the terms of the MFAs to be extended.

 

Fides Food and Fidesrus are established in the Netherlands. Both Fides Food Systems and Fidesrus are acting as investment companies.
 

NOTE 2 -   BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.1  Principles of consolidation

 

The consolidated financial statements include the parent company, DP Eurasia N.V. and its subsidiaries for the year ended at 31 December 2019. Subsidiaries are fully consolidated from the date on which control is transferred to the Company (the "acquisition date").

 

Basis of Consolidation

 

The consolidated financial statements include the accounts of the Group on the basis set out in sections below. The financial results of the subsidiaries are fully consolidated from the date on which control is transferred to the Group or deconsolidated from the date that control ceases.

 

Subsidiaries are all companies over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.

 

The subsidiaries fully consolidated, the proportion of ownership interest and the effective interest of the Group in these subsidiaries as of 31 December 2019 are disclosed in Note 1.

 

The result of operations of subsidiaries acquired or sold during the year are included in the consolidated statement of comprehensive income from the acquisition date or until the date of sale.

 

The statements of financial position and statements of comprehensive income of the subsidiaries are consolidated on a line-by-line basis and the carrying value of the investment held by the Company and its subsidiaries are eliminated against the related shareholders' equity. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

Consolidation of foreign subsidiaries

 

Financial statements of subsidiaries operating in foreign countries are prepared in the currency of the primary economic environment in which they operate. Assets and liabilities in financial statements prepared according to the Group's accounting policies are translated into the Group's presentation currency, Turkish Liras, from the foreign exchange rate at the statement of financial position date whereas income and expenses are translated into TRY at the average foreign exchange rate. Exchange differences arising from the translation are included in the "currency translation differences" under shareholders' equity.

 

The foreign currency exchange rates used in the translation of the foreign operations within the scope of consolidation are as follows:

                      31 December 2019          31 December 2018 

                                                                       Period  Period  Period  Period

Currency                                                           End  Average  End  Average

 

Euros                                                             6.6506  6.3484  6.0280                 5.6751

Russian Roubles                                         0.0955  0.0872  0.0753                   0.0760                                                                                               

 

 

2.2  Functional and presentation currency

 

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency").

 

The consolidated financial statements are presented in TRY, which is the Group's presentation currency.

 

NOTE 3 - SEGMENT REPORTING

 

The business operations of the Group are organised and managed with respect to geographical positions of its operations. The information regarding the business activities of the Group as of 31 December 2019 and 2018 comprise the performance and the management of its Turkish and Russian operations and head office.

 

The Group has two business segments, determined by management according to the information used for the evaluation of performance and the allocation of resources, the Turkish and Russian operations. Other operations are composed of corporate expenses of Dutch companies. These segments are managed separately because they are affected by the economic conditions and geographical positions in terms of risks and returns.

 

The segment analysis for the periods ended 31 December 2019 and 2018 are as follows:

 

1 January-31 December 2019

Turkey

Russia

Other

Total

 

 

 

 

 

Corporate revenue

210,833

283,567

-

494,400

Franchise revenue and royalty

 

 

 

 

  revenue obtained from franchisees

314,772

91,440

-

406,212

Other revenue

33,729

45,867

-

79,596

Total revenue

559,334

420,874

-

980,208

  -  At a point in time

553,396

417,732

-

971,128

  -  Over time

5,938

3,142

-

9,080

Operating profit

82,664

175

(11,773)

71,066

Capital expenditures

37,171

69,597

-

106,768

Tangible and intangible disposals

(4,442)

(10,608)

-

(15,050)

Depreciation and amortization expenses

(50,468)

(66,238)

-

(116,706)

Adjusted EBITDA (*)

134,599

63,889

(8,691)

189,797

 

 

 

 

 

(*) Adjusted EBITDA figures for 2019 include impact of the adoption of IFRS 16, and are therefore not on a  like-for-like basis with the 2018 figures.

 

31 December 2019

Turkey

Russia

Other

Total

 

 

 

 

 

Borrowings

 

 

 

 

TRY

164,800

-

-

164,800

RUB

-

153,213

-

153,213

 

 

 

164,800

153,213

-

318,013

Lease liabilities

 

 

 

 

TRY

93,054

-

-

93,054

RUB

-

163,081

-

163,081

 

 

93,054

163,081

-

256,135

 

Total

257,854

316,294

-

574,148

 

 

 

1 January-31 December 2018

Turkey

Russia

Other

Total

 

 

 

 

 

Corporate revenue

203,958

277,945

-

481,903

Franchise revenue and royalty

 

 

 

 

  revenue obtained from franchisees

257,313

43,946

-

301,259

Other revenue

23,399

50,313

-

73,712

Total revenue

484,670

372,204

-

856,874

  -  At a point in time

482,490

371,543

-

854,033

  -  Over time

2,180

661

-

2,841

 

Operating profit

66,540

(3,173)

(10,077)

53,290

Capital expenditures

36,797

42,213

-

79,010

Tangible and intangible disposals

(7,318)

(14,615)

-

(21,933)

Depreciation and amortization expenses

(28,910)

(24,358)

 

(53,268)

Adjusted EBITDA

96,537

23,853

(9,810)

110,580

 

 

 

 

 

31 December 2018

Turkey

Russia

Other

Total

 

 

 

 

 

Borrowings

 

 

 

 

TRY

24,820

-

-

24,820

RUB

-

173,321

-

173,321

 

 

24,820

173,321

-

198,141

Lease liabilities

 

 

 

 

TRY

2,610

-

-

2,610

RUB

-

14,855

-

14,855

 

 

2,610

14,855

-

17,465

 

Total

27,430

188,176

-

215,606

 

EBITDA, adjusted EBITDA, net debt, adjusted net debt, adjusted net income and non-recurring and non-trade income/expenses are not defined by IFRS. The amounts provided with respect to operating segments are measured in a manner consistent with that of the financial statements. These items determined by the principles defined by Group management comprise income/expenses which are assumed by the Group management to not be part of the normal course of business and are non-recurring items. These items which are not defined by IFRS are disclosed by Group management separately for a better understanding and measurement of the sustainable performance of the Group.

 

 

 

The reconciliation of adjusted EBITDAs for 2019 and 2018 is as follows:

 

 

 

Excluding IFRS 16 impact

 

TURKEY

2019

2019

2018

 

 

 

 

Adjusted EBITDA (*)

134,599

108,701

96,537

 

 

 

 

Non-recurring and non-trade

 

 

 

  (income)/expenses per Group

 

 

  management (*)

 

 

 

 

 

 

 

One off non-trading costs 

131

131

191

Share-based incentives

1,336

1,336

896

 

 

 

 

EBITDA

133,132

107,234

95,450

 

 

 

 

Depreciation and amortization

(50,468)

(31,160)

(28,910)

 

 

 

 

Operating profit

82,664

76,074

66,540

 

 

 

 

Excluding IFRS 16 impact

 

RUSSIA

2019

2019

2018

 

 

 

 

Adjusted EBITDA (*)

63,889

24,495

23,853

 

 

 

 

Non-recurring and non-trade

 

 

 

  (income)/expenses per Group

 

 

  management (*)

 

 

 

 

 

 

 

One off non-trading costs 

(461)

(461)

1,051

Share-based incentives

(2,063)

(2,063)

1,618

 

 

 

 

EBITDA

66,413

27,019

21,184

 

 

 

 

Depreciation and amortization

(66,238)

(32,800)

(24,358)

 

 

 

 

Operating loss

175

(5,781)

(3,174)

 

  

 

 

 

Excluding IFRS 16 impact

 

OTHER

2019

2019

2018

 

 

 

 

Adjusted EBITDA (*)

(8,691)

(8,691)

(9,810)

 

 

 

 

Non-recurring and non-trade

 

 

 

  (income)/expenses per Group

 

 

  management (*)

 

 

 

 

 

 

 

One off non-trading costs (**)

3,082

3,082

267

 

 

 

 

EBITDA

(11,773)

(11,773)

(10,077)

 

 

 

 

Depreciation and amortization

-

-

-

 

 

 

 

Operating loss

(11,773)

(11,773)

(10,077)

 

(*)  EBITDA, adjusted EBITDA and non-recurring and non-trade income/expenses are not defined by IFRS. These items are determined by the principles defined by the Group management and comprise income/expenses which are assumed by Group management to not be part of the normal course of business and are non-trading items. These items, which are not defined by IFRS, are disclosed by Group management separately for a better understanding and measurement of the sustainable performance of the Group. In addition, adjusted EBITDA figures for 2019 includes impact of adoption of IFRS 16 and not like for like basis with 2018 figures.

 

(**)  The reason for the significant increase in one-off non-trading costs is related to a 2017 expense from the IPO that was invoiced in 2019.

 

The reconciliation of adjusted net income as of 31 December 2019 and 2018 is as follows:

 

 

 

Excluding IFRS 16 impact

 

 

2019

2019

2018

 

 

 

 

(Loss)/Profit for the period as reported

(5,616)

3,619

(11,093)

 

 

 

 

Non-recurring and non-trade (income)/expenses

 

 

  per Group management (*)

 

 

 

 

 

 

 

Share-based incentives

(727)

(727)

2,514

One-off expenses

18

18

1,507

 

 

 

 

Adjusted net (loss)/Profit for the period

(6,325)

2,910

(7,072)

 

 (*)  Adjusted net income and non-recurring and non-trade income/expenses are not defined by IFRS. Adjusted net income excludes income and expenses which are not part of the normal course of business and are non-recurring items. Management uses this measurement basis to focus on core trading activities of the business segments, and to assist it in evaluating underlying business performance.

 

 

 

 

The average headcount for the Group is as follows:

 

31 December 2019

Netherlands

Turkey

Russia

 

Number of employees

3

1,651

1,922

 

 

 

 

31 December 2018

Netherlands

Turkey

Russia

 

Number of employees

3

2,286

1,816

 

 

NOTE 4 - REVENUE AND COST OF SALES

 

 

2019

2018

 

 

 

Corporate revenue

494,400

481,903

Franchise revenue and royalty 

 

 

revenue obtained from franchisees

406,212

301,259

Other revenue

79,596

73,712

 

 

 

Revenue

980,208

856,874

 

 

 

Cost of sales

(636,466)

(566,250)

 

 

 

Gross profit

343,742

290,624

 

 

 

 

Revenue recognised in relation to contract liabilities

 

The movements of performance obligations and revenue recognised in relation to contract liabilities for the years ended 31 December 2019 and 2018 are as follows:

 

2019

2018

 

 

 

As of January 1,

28,943

21,983

Recognized as revenue

(9,080)

(2,841)

Increases due to new franchise agreements entered

13,042

9,801

As of December, 31

32,905

28,943

 

Unsatisfied long-term franchisee contracts

 

The Group recognised net sales amounting to TRY 4,668 with respect to the performance obligations satisfied at a point in time for the year ended 31 December 2019 (31 December 2018: 4,374).

 

The amount of performance obligations relating to ongoing contracts of the Group that will be recognized in the future is TRY 37,572 (31 December 2018: TRY 33,326). The Group expects that this amount will be recorded as revenue within 15 years.
 

 

 

NOTE 5 - EXPENSES BY NATURE

 

 

2019

2018

 

 

 

Employee benefit expenses

204,091

193,285

Depreciation and amortization expenses

116,706

53,268

 

 

 

 

320,797

246,553

 

 

 

 

     

 

NOTE 6 - OTHER OPERATING INCOME AND EXPENSES

 

Other income

2019

2018

 

 

 

Marketing service income (*)

9,152

-

Interest income arising from

 

 

  sales with extended terms

4,841

1,748

Gain from sale of property and equipment

2,222

6,354

Foreign exchange gains

2,674

1,651

Other

3,522

713

 

 

 

 

22,411

10,466

 

 

 

Other expense

2019

2018

 

 

 

Legal and other provision expenses

3,783

821

Losses from sale of property and equipment

1,666

2,300

Foreign exchange losses

1,348

3,295

Other

1,072

945

 

 

 

 

7,869

7,361

 

 

 

Other operating income, net

14,542

3,105

 

 

 

(*) For 2019, the marketing income mainly includes cross-promotion income.

 

 

NOTE 7 - FINANCIAL INCOME AND EXPENSES

 

Foreign exchange gains / (losses)

2019

2018

 

 

 

Foreign exchange gains / (losses), net

6,840

(18,770)

Foreign exchange losses on lease liabilities

(2,175)

-

 

 

 

4,665

(18,770)

 

 

 

Financial income

2019

2018

 

 

 

Interest income on lease liabilities

13,736

-

Interest income

2,364

5,508

 

 

 

16,100

5,508

 

 

 

Financial expense

2019

2018

 

 

 

Interest expense

42,739

41,118

Interest expense on lease liabilities

35,767

-

Other

6,597

2,809

 

 

 

85,103

43,927

 

 

 

 

 

 

 

NOTE 8 - EARNINGS/(LOSS) PER SHARE

 

2019

2018

 

 

 

Average number of shares existing during the period

145,372,414

145,372,414

Net loss for the period attributable to

 

 

  equity holders of the parent

(5,616)

(11,093)

 

 

 

Loss per share

(0.0386)

(0.0763)

 

The reconciliation of adjusted earnings per share as of 31 December 2019 and 2018 is as follows:

 

 

2019

2018

 

 

 

Average number of shares existing during the period

145,372,414

145,372,414

Net loss for the period attributable to equity

 

 

  holders of the parent

(5,616)

(11,093)

 

 

 

Non-recurring and non-trade expenses

 

 

  per Group management (*)

 

 

Share-based incentives

(727)

2,514

One-off expenses

18

1,507

 

 

 

Adjusted net loss for the period

 

 

  attributable to equity holders of the parent

(6,325)

(7,072)

 

 

 

Adjusted Earnings per share (*)

(0.04)

(0.05)

 

 

 

 (*)   Adjusted earnings per share and non-recurring and non-trade income/expenses are not defined by IFRS. The amounts provided with respect to operating segments are measured in a manner consistent with that of the financial statements. These items determined by the principles defined by the Group management comprises income/expenses which are assumed by Group management to not be part of the normal course of business and are non-recurring items. These items which are not defined by IFRS are disclosed by Group management separately for a better understanding and measurement of the sustainable performance of the Group.

 

There are no shares or options with a dilutive effect and hence the basic and diluted earnings per share are the same.

NOTE 9 - PROPERTY AND EQUIPMENT

 

 

 

1 January 2019

Additions

Disposals

Transfers

Currency translation adjustments

31 December 2019

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

Machinery and equipment

55,668

20,911

(11,553)

-

11,799

76,825

Motor vehicles

32,963

3,825

(13,082)

-

6,269

29,975

Furniture and fixtures

62,109

9,211

(9,544)

-

776

62,552

Leasehold improvements

91,207

22,798

(13,987)

-

13,100

113,118

Construction in progress

3,024

1,795

-

-

2,606

7,425

 

 

 

 

 

 

 

 

244,971

58,540

(48,166)

-

34,550

289,895

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

Machinery and equipment

(17,975)

(11,120)

6,868

-

(4,153)

(26,380)

Motor vehicles

(18,218)

(8,290)

10,168

-

(3,261)

(19,601)

Furniture and fixtures

(27,848)

(7,271)

6,600

-

(259)

(28,778)

Leasehold improvements

(44,889)

(15,319)

9,242

-

(4,127)

(55,093)

 

 

 

 

 

 

 

 

(108,930)

(42,000)

32,878

-

(11,800)

(129,852)

 

 

 

 

 

 

 

Net book value

136,041

 

 

 

 

160,043

 

Depreciation expense of TRY 33,705 has been charged in cost of sales and TRY 8,295 has been charged in general administrative expenses.

 

 

1 January 2018

Additions

Disposals

Transfers

Currency translation adjustments

31 December 2018

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

Machinery and equipment

42,094

16,209

(10,028)

1,882

5,511

55,668

Motor vehicles

25,831

5,651

(1,283)

-

2,764

32,963

Furniture and fixtures

58,646

12,609

(12,069)

2,652

271

62,109

Leasehold improvements

80,470

20,069

(15,169)

206

5,631

91,207

Construction in progress

7,240

437

-

(5,260)

607

3,024

 

 

 

 

 

 

 

 

214,281

54,975

(38,549)

(520)

14,784

244,971

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

Machinery and equipment

(11,494)

(8,167)

2,988

-

(1,302)

(17,975)

Motor vehicles

(10,596)

(7,953)

1,143

-

(812)

(18,218)

Furniture and fixtures

(26,953)

(7,087)

6,261

-

(69)

(27,848)

Leasehold improvements

(36,842)

(13,812)

7,054

-

(1,289)

(44,889)

 

 

 

 

 

 

 

 

(85,885)

(37,019)

17,446

-

(3,472)

(108,930)

 

 

 

 

 

 

 

Net book value

128,396

 

 

 

 

136,041

 

Depreciation expense of TRY 23,311 has been charged in cost of sales and TRY 13,708 has been charged in general administrative expenses.

NOTE 10 - INTANGIBLE ASSETS

 

 

1 January 2019

 

 

Additions

 

 

Disposals

 

 

Transfers

Currency translation adjustments

 

31 December 2019

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

Key money

17,456

29,725

(1,192)

-

4,633

50,622

Computer software

45,573

18,503

(1,349)

-

5,945

68,672

Franchise contracts

48,485

-

-

-

 

48,485

 

111,514

48,228

(2,541)

-

10,578

167,779

 

 

 

 

 

 

 

Accumulated amortization

 

 

 

 

 

Key money

(5,342)

(6,967)

1,193

-

(922)

(12,038)

Computer software

(17,178)

(10,145)

1,220

-

(2,886)

(28,989)

Franchise contracts

(40,480)

(4,848)

-

-

-

(45,328)

 

(63,000)

(21,960)

2,413

-

(3,808)

(86,355)

 

 

 

 

 

 

 

Net book value

48,514

 

 

 

 

81,424

 

Amortisation expense of TRY 12,994 has been charged in cost of sales and TRY 8,966 has been charged in general administrative expenses.

 

The Group does not have any intangible assets with an indefinite useful life.

 

1 January 2018

Additions

Disposals

Transfers

Currency translation adjustments

31 December 2018

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

Key money

8,755

9,691

(1,852)

-

862

17,456

Computer software

31,502

14,344

(815)

520

22

45,573

Franchise contracts

48,485

-

-

-

-

48,485

 

 

88,742

24,035

(2,667)

520

884

111,514

 

 

 

 

 

 

 

Accumulated amortization

 

 

 

 

 

 

Key money

(2,001)

(4,974)

1,808

-

(175)

(5,342)

Computer software

(10,855)

(6,351)

28

-

-

(17,178)

Franchise contracts

(35,555)

(4,925)

 -

-

-

(40,480)

 

 

(48,411)

(16,250)

1,836

-

(175)

(63,000)

 

 

 

 

 

 

 

Net book value

40,331

 

 

 

 

48,514

 

Amortisation expense of TRY 10,189 has been charged in cost of sales and TRY 6,061 has been charged in general administrative expenses.

 

Franchise contracts

 

The Group has recognized franchise contracts resulting from a business combination on 26 January 2011 amounting to TRY 48,485 and accounted for them as intangible assets in its consolidated financial statements.
 

NOTE 11 - RIGHT OF USE ASSETS

 

Details of right-of-use assets as of 31 December 2019 and 1 January 2019 are as follows :

 

 

31 December 2019

1 January 2019(*)

Right-of-use assets

 

 

Properties

166,147

145,624

Vehicles

14,089

16,822

 

180,236

162,446

 

Details of lease receivable as of 31 December 2019 and 1 January 2019 are as follows :

 

 

31 December 2019

1 January 2019(*)

Lease receivables

 

 

Current

16,618

13,857

Non-current

39,568

44,569

 

 

56,186

58,426

 

Details of lease liabilities as of 31 December 2019 and 1 January 2019 are as follows :

 

 

31 December 2019

1 January 2019(*)

Lease liabilities

 

 

Current

71,427

65,782

Non-current

184,708

172,555

 

 

256,135

238,337

 

(*) In the previous year, the Group only recognised lease assets and lease liabilities (TRY17,465) in relation to leases that were classified as finance leases under IAS 17, "Leases". The assets were presented in property, plant and equipment and the liabilities as part of the Group's borrowings. For adjustments recognised on adoption of IFRS 16 on 1 January 2019, please refer to Note 2.4.  

 

Movement of Right of use assets

 

 

 

 

 

 

 

 

 

Currency

 

 

1 January

 

 

translation

31 December

 

2019

Additions

Disposals

adjustments

2019

 

 

 

 

 

 

Right-of-use assets

 

 

 

 

 

Properties

145,624

62,333

(28,334)

26,034

205,657

Vehicles

16,822

2,522

(1,672)

6,103

23,775

 

162,446

64,855

(30,006)

32,137

229,432

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation charge of right-of-use assets

 

 

 

 

Properties

-

(44,549)

4,653

386

(39,510)

Vehicles

-

(8,197)

1,672

(3,161)

(9,686)

 

-

(52,746)

6,325

(2,775)

(49,196)

 

 

 

 

 

 

 

162,446

 

 

 

180,236

 

For the year ended 31 December 2019, depreciation expense of TRY 44,859 has been charged to the cost of sales and TRY 7,887 has been charged to general administrative expenses.
 

 

2019

2018

Interest expense on lease liabilities

 

 

Properties

(18,932)

-

Vehicles

(4,035)

-

 

 

(22,967)

-

 

The total amount of interest of sub-lease income is TRY 13,736.

 

In 2019, the total cash outflow for principle of leases and interest of leases is TRY 60,875 and TRY 13,736, respectively. In 2019, the total cash inflow for interest of leases is TRY 12,800, respectively.

 

Expenses of low-value assets are TRY 60.

 

NOTE 12 - CASH AND CASH EQUIVALENTS

 

The details of cash and cash equivalents as of 31 December 2019 and 2018 are as follows:

 

 

31 December 2019

31 December 2018

 

 

 

Cash

897

818

Banks

16,744

16,367

Term bank deposits (less than three months)

42,745

-

Credit card receivables

10,542

11,259

 

 

70,928

28,444

 

(*)   Maturity term of credit card receivables are 30 days on average (31 December 2018: 30 days).

 

The details of functional currency of the banks is as follows:

 

31 December 2019

31 December 2018

 

 

 

TRY

12,228

8,914

RUB

45,451

5,425

EUR

1,276

1,638

OTHER

534

390

 

 

59,489

16,367

 

NOTE 13 - TRADE RECEIVABLES AND PAYABLES

 

a)  Short-term trade receivables

 

 

31 December 2019

31 December 2018

 

 

 

Trade receivables

89,419

50,903

Post-dated cheques

27,154

19,148

Receivables from related parties (Note 14)

-

20

 

 

 

 

116,573

70,071

 

 

 

Less: Doubtful trade receivable

(2,080)

(92)

 

 

 

Short-term trade receivables, net

114,493

69,979

 

The average collection period for trade receivables is between 30 and 60 days (2018: between 30 and 60 days).

 

Movement of provision for doubtful receivables is as follows:

 

 

2019

2018

 

 

 

1 January

92

92

Current year charges

1,988

-

 

 

 

31 December

2,080

92

 

The group applied IFRS 9 simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for all trade, lease and other receivables based on historical losses. The Group analysed the impact of IFRS 9 and the historical losses that were incurred in 2019 also impacted the expected credit losses going forward, resulting in an additional TRY 606 recorded as provision for doubtful receivables. The Group also assessed whether the historic pattern would change materially in the future. The expected credit loss applied per aging bucket is shown as below:

 

  Not due

  0-30 days

  31-90 days

  91-180 days

  181-360 days

  Over 360 days

0.02%

0.15%

0.32%

0.59%

11.3%

26.4%

129,995

971

3,726

1,236

1,788

199

 

Lease receivables has no history if default and expected credit loss percentages are close to zero and its effect is immaterial, so the table below consists of only trade and other receivables

 

b)  Long-term trade receivables

 

31 December 2019

31 December 2018

 

 

 

Trade receivables

7,467

10,729

Post-dated cheques

15,955

10,032

 

 

 

 

23,422

20,761

 

(*)   Post-dated cheques are the receivables from franchisees resulting from store openings.

 

c)  Short-term trade and other payables

 

 

31 December 2019

31 December 2018

 

 

 

Trade payables

108,995

70,635

Other payables

12,183

3,513

 

 

 

 

121,178

74,148

 

The weighted average term of trade payables is less than three months. Short-term payables with no stated interest are measured at original invoice amount unless the effect of imputing interest is significant
(31 December 2019 and 2018: less than three months).

 

 

 

NOTE 14 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES

 

The details of receivables and payables from related parties as of 31 December 2019 and 2018 and transactions is as follows:

 

a)  Key management compensation

 

 

31 December 2019

31 December 2018

 

 

 

Short-term employee benefits

18,212

16,243

Share-based incentives

2,002

2,514

 

 

 

 

20,214

18,757

 

There are no loans, advance payments or guarantees given to key management.

 

b)  Board compensation

 

 

 

 

 

 

 

 

 

 

 

31 December 2019

 

Base

 

 

Annual

Long-term

 

Total

 

salary

Benefits

Pension

bonus

incentives

Total

(local

 

(TRY)

(TRY)

(TRY)

(TRY)

(TRY)

(TRY)

currency)

Executive Directors

 

 

 

 

 

 

 

Aslan Saranga

2,295,945

171,479

-

748,086

614,971

3,830,481

  3,830,481

Frederieke Slot

634,840

146,013

224,733

-

-

1,005,586

€ 158,400

Non-Executive Directors

 

 

 

 

 

 

 

Peter Williams

1,083,930

-

-

-

-

1,083,930

 £  150,000

Tom Singer

502,221

-

-

-

-

502,221

 £  69,500

Seymur Tarı

-

-

-

-

-

-

-

İzzet Talu

-

-

-

-

-

-

-

Aksel Şahin

-

-

-

-

-

-

-

                

 

 

 

 

 

 

 

 

 

 

 

31 December 2018

 

Base

 

 

Annual

Long-term

 

Total

 

salary

Benefits

Pension

bonus

incentives

Total

(local

 

(TRY)

(TRY)

(TRY)

(TRY)

(TRY)

(TRY)

currency)

Executive Directors

 

 

 

 

 

 

 

Aslan Saranga

2,000,000

150,599

0

778,667

409,981

3,339,247

  3,339,247

Frederieke Slot

566,140

130,212

200,414

-

-

896,766

€ 158,400

Non-Executive Directors

 

 

 

 

 

 

 

Peter Williams

957,765

-

-

-

-

957,765

 £  150,000

Tom Singer

443,764

-

-

-

-

443,764

 £  69,500

Seymur Tarı

-

-

-

-

-

-

-

İzzet Talu

-

-

-

-

-

-

-

Aksel Şahin

-

-

-

-

-

-

-

                
 

 

 

 

Notes to the table - methodology

 

Base salary

 

This represents the cash paid or receivable in respect of the financial year.

 

Benefits 

 

This represents the taxable value of all benefits paid or receivable in respect of the relevant financial year. Aslan Saranga's benefits included private health cover, and company car. Frederieke Slot's benefits included medical disability allowance, mobility allowance and education, communication and IT allowances.

 

Pension

 

Aslan Saranga receives no pension provision; Frederieke Slot receives a pension allowance worth 36% of base salary.

 

Annual bonus

 

This represents the total bonus payable for the relevant financial year under the ADBP.

 

Long-term incentives

 

This column relates to the expense recognised for the LTIP awards during the period in accordance with IFRS. Please note that in the remuneration report on page 48, the value of vested LTIP awards is included in the remuneration table. Since no LTIP awards have been vested to Executive Directors during the period, this column has a zero figure in the remuneration report.

 

On 8 May 2018, Aslan Saranga was granted an LTIP award amounting to 279,322 shares (share price GBP 1.878), which will vest in May 2021 subject to achievement of an EBITDA growth target. On 3 May 2019, Aslan Saranga was granted an LTIP award amounting to 332,706 shares (share price GBP 0.88) which will vest in May 2022 subject to achievement of an EBITDA growth target.

 

Local currency totals

 

Part of Aslan Saranga's remuneration and the whole of Frederieke Slot's remuneration is paid in Euros and Peter Williams' and Tom Singer's remuneration is wholly paid in Pound Sterling. Total amounts received by each individual in local currency are recorded in the final column of the above table. In the other columns of the table, remuneration has been converted into Turkish Lira for consistency with the financial statements.
 

NOTE 15 - OTHER RECEIVABLES, ASSETS AND LIABILITIES

 

Other current assets

 

 

 

31 December 2019

31 December 2018

 

 

 

Advance payments

36,217

9,687

Deposits for loan guarantees (1)

18,683

24,195

Lease receivables

16,618

-

Prepaid taxes and VAT receivable

2,740

3,177

Prepaid marketing expenses

1,486

2,018

Prepaid insurance expenses

1,029

4,857

Contract assets related to

 

 

  franchising contracts (2)

482

438

Other

4,610

1,212

 

 

 

 Total

81,865

45,584

 

(1)  In December 2019, the Group repaid a portion of its loans to Sberbank Moscow and the TRY31,643 (RUB 420 million) cash deposit condition that was made as collateral by the Fidesrus.

 

(2)  The Group incurs certain costs with Domino's Pizza International related to the set up of each franchise contract and IT systems used for recording of franchise revenue.

 

 

Other non-current assets

 

31 December 2019

31 December 2018

 

Lease receivables

Long-term deposits for

21,624

8,342

  loan guarantees (1)

Prepaid marketing expenses 

Contract assets related to

  franchising contracts (2)

Deposits given

Other

-

29

 

Total

75,471

25,389

 

(1)  In December 2019, the Group repaid its 9.7% loan in the amount of RUB 690 million. The loan carries a TRY 31,643 (RUB 420 million) cash deposit condition that was made as collateral by the Russian operating company. The principal amount is payable monthly from August 2019.

 

(2)  The Group incurs certain costs with Domino's Pizza International related to the set up of each franchise contract and IT systems used for recording of franchise revenue.

 

 

Other current liabilities

 

 

 

31 December 2019

31 December 2018

 

 

 

Taxes and funds payable

13,351

6,047

Payable to personnel

8,044

6,970

Volume rebate advances

7,805

942

Unused vacation liabilities

7,523

6,404

Performance bonuses

4,961

7,408

Social security premiums payable

4,109

3,588

Advances received from franchisees

4,057

2,243

Contract liabilities from franchising contracts (1) 

2,908

5,727

Other expense accruals

11,254

2,791

 

 

 

Total

64,012

42,120

 

(1)  The Group incurs certain revenue with the set up of each franchise contract and these franchise fee revenues are deferred over the period of the franchise agreement.

 

Other non-current liabilities

 

 

 

31 December 2019

31 December 2018

 

 

 

Contract liabilities from franchising contracts (1)

34,664

27,599

Long term provisions for

 

 

  employee benefits

2,051

1,665

Other

2,377

774

 

 

 

Total 

39,092

30,038

 

(1) The Group incurs certain revenue with the set up of each franchise contract and these franchise fee revenues are deferred over the period of the franchise agreement.
 

NOTE 16 - FINANCIAL LIABILITIES

 

 

31 December 2019

31 December 2018

 

 

 

Short term bank borrowings

164,800

24,820

 

 

 

Short-term financial liabilities

164,800

24,820

 

 

 

Short-term portions of long-term borrowings

54

11,721

Short-term portions of long-term leases

71,427

7,789

 

 

 

Current portion of long-term financial liabilities

71,481

19,510

 

 

 

Total short-term financial liabilities

236,281

44,330

 

 

 

Long-term bank borrowings

153,159

161,600

Long-term leases

184,708

9,676

 

 

 

Long-term financial liabilities

337,867

171,276

 

 

 

Total financial liabilities

574,148

215,606

 

The summary information of short-term and long-term bank borrowings is as follows:

 

31 December 2019

 

Currency

Maturity

Interest rate (%)

Short-term

Long-term

 

 

 

 

 

TRY borrowings

Revolving

10.88

164,800

-

RUB borrowings

2024

9.70

54

153,159

 

 

 

 

 

 

 

 

 

 

 

 

 

164,854

153,159

 

31 December 2018

 

Currency

Maturity

Interest rate (%)

Short-term

Long-term

 

 

 

 

 

RUB borrowings

2024

9.70

11,721

161,600

TRY borrowings

Revolving

24.71

24,820

-

 

 

 

 

 

 

 

 

36,541

161,600

 

 

 

 

The loan agreement between Sberbank Moscow and Domino's Russia is subject to covenant clauses whereby the Group, Domino's Turkey and Domino's Russia are required to meet certain ratios. The financial indicator of:

 

the Domino's Russia; which requires the ratio of financial debt to adjusted EBITDA for the relevant period, should not be more than 11;

the Domino's Turkey; which requires the ratio of financial debt to adjusted EBITDA for the relevant period, should not be more than 3;

the Group; which requires the ratio of financial debt to adjusted EBITDA for the relevant period, should not be more than 3.5.

 

During the validity period hereof, the number of the restaurant chain (own and franchised) of  Domino's Turkey should be not less than 524 units as of the end of 2018; Annual level of the adjusted EBITDA of the Turkish division should be not less than TRY 87 million during 2018-2020.

 

Throughout the period the Group, Domino's Russia and Domino`s Turkey have met the covenant clauses of Sberbank Moscow.

 

The redemption schedule of the borrowings as of 31 December 2019 and 2018 is as follows:

 

 

31 December 2019

31 December 2018

 

 

 

To be paid in one year

164,854

36,541

To be paid between one to two years

4,627

19,044

To be paid between two to three years

44,522

25,404

To be paid between three years and more

104,010

117,152

 

 

 

 

318,013

198,141

 

The redemption schedule of the leases as of 31 December 2019 and 2018 is as follows:

 

 

31 December 2019

31 December 2018

 

 

 

Leases to be paid in one year

71,427

7,789

Leases to be paid between one to two years

77,979

6,128

Leases to be paid between two to three years

86,849

3,548

Leases to be paid between three years and more

19,880

-

 

 

 

 

256,135

17,465

 

 

 

 

The details of the finance lease liabilities as of 31 December 2019 and 2018 are as follows:

 

 

31 December 2019

31 December 2018

 

 

 

Total financial lease payments

-

25,209

Interest to be paid in upcoming years

-

(7,744)

 

 

 

 

-

17,465

 

 

 

 

 

 

As of 31 December 2019 and 2018, net financial liabilities reconciliation is below:

 

 

31 December 2019

31 December 2018

 

 

 

Cash and cash equivalents

70,928

28,444

Financial liabilities and leases to be paid in one year

(236,281)

(44,330)

Financial liabilities and leases to be paid in one to five years

(337,867)

(171,276)

 

 

 

 

(503,220)

(187,162)

 

 

 

31 December 2019

31 December 2018

 

 

 

Cash and cash equivalents

70,928

28,444

Financial liabilities and lease - fixed rate

(316,294)

(188,176)

Financial liabilities - floating rate

(257,854)

(27,430)

 

 

 

 

(503,220)

(187,162)

 

31 December 2019

Short term financial liabilities and leases

Long term financial liabilities and leases

Total

 

 

 

 

1 January

 

 

 

  financial liabilities

(44,330)

(171,276)

(215,606)

 

 

 

 

Net cash flow effect, loans received

(147,443)

(17,790)

(165,233)

Net cash flow effect, loans paid

5,668

79,785

85,453

Net cash flow effect, leasing payments

60,875

-

60,875

Interest of leases paid

22,031

-

22,031

Lease liability (IFRS 16)

(88,045)

(211,662)

(299,707)

Interest on financial liabilities

(17,311)

-

(17,311)

Currency translation adjustments

(27,726)

(16,924)

(44,650)

 

 

 

 

31 December financial liabilities

(236,281)

(337,867)

(574,148)

 

 

 

 

31 December 2018

Short term financial liabilities and leases

Long term financial liabilities and leases

Total

 

 

 

 

 

 

1 January

 

 

 

 

  financial liabilities

(142,152)

(85,753)

(227,905)

 

 

 

 

 

 

Net cash flow effect, loans received

(48,345)

(11,503)

(59,848)

 

Net cash flow effect, loans paid

91,887

13,070

104,957

 

Net cash flow effect, leasing payments

15,192

4,054

19,246

 

Other non-cash transaction, leasing payment

(11,122)

(3,122)

(14,244)

 

Unrealised FX gain and loss

(1,568)

(9,904)

(11,472)

 

Interest on financial liabilities

(4,159)

(4,159)

 

Currency translation adjustments

(23,282)

1,101

(22,181)

 

 

 

 

 

 

31 December financial liabilities

(123,549)

(92,057)

(215,606)

 

        
 

 

The reconciliation of adjusted net debt as of 31 December 2019 and 2018 is as follows:

 

 

 

 

 

2019

2018

 

 

 

Short term bank borrowings

164,854

36,541

Short-term portions of

 

 

  long-term lease borrowings

71,427

7,789

Long-term bank borrowings

153,159

161,600

Long-term lease and borrowings

184,708

9,676

 

 

 

Total borrowings

574,148

215,606

 

 

 

Cash and cash equivalents (-)

(70,928)

(28,444)

 

 

 

Net debt

503,220

187,162

 

 

 

Non-recurring items

 

 

  per Group management

 

 

Long-term deposit for loan guarantee

(34,253)

(32,537)

 

 

 

Adjusted net debt (*)

468,967

154,625

 

(*)  Net debt, adjusted net debt and non-recurring and non-trade items are not defined by IFRS. Adjusted net debt includes cash deposits used as a loan guarantee and cash paid, but not collected, during the non-working day at the year end. Management uses these numbers to focus on net debt to take into account deposits not otherwise considered cash and cash equivalents under IFRS.

 

 

NOTE 17 - TAX ASSETS, LIABILITIES AND TAX EXPENSE

 

Corporate tax

 

The Group is subject to taxation in accordance with the tax regulations and the legislation effective in the countries in which the Group companies operate. Therefore, provision for taxes, as reflected in the consolidated financial statements, has been calculated on a separate-entity basis.

 

The Netherlands

 

Dutch tax legislation does not permit a Dutch parent company and its foreign subsidiaries to file a consolidated Dutch tax return. Dutch resident companies are taxed on their worldwide income for corporate income tax purposes at a statutory rate of 25%. No further taxes are payable on this profit unless the profit is distributed.

 

Services incurred by Dutch parent companies may generally be divided into two kinds of services being group services for which costs are incurred for the economic and commercial benefit of subsidiaries and shareholder services for which costs are incurred for activities provided in the capacity of the shareholder. All costs incurred by the Company are shareholder services (costs incurred for activities provided in the capacity of shareholder) and not group services (costs incurred for the economic or commercial benefit of subsidiaries).

 

Since shareholder services are not for the benefit of any one specific subsidiary, it is not required to re-charge these fees or costs to a subsidiary or to subsidiaries.

 

If certain conditions are met, income derived from foreign subsidiaries is tax exempted in the Netherlands under the rules of the Dutch participation exemption. However, certain costs such as acquisition costs are not deductible for Dutch corporate income tax purposes. Furthermore, in some cases the interest payable on loans to affiliated companies is non-deductible.

 

When income derived by a Dutch company is subject to taxation in the Netherlands as well as in other countries, generally avoidance of double taxation can be obtained under the extensive Dutch tax treaty network or under Dutch domestic law.

 

Dividend distributions are subject to 15% Dutch withholding tax. However, under the Netherlands' extensive tax treaty network, this rate can, in many cases, be significantly reduced if certain conditions are met.

 

 

 

Turkey

 

The Corporate Tax Law was amended by Law No, 5520, dated 13 June 2006. Most of the articles of the new Corporate Tax Law (No 5520) came into force on 1 January 2006. Corporate tax is payable at a rate of 22% (31 December 2018: 22%) on the total income of the Group after adjusting for certain disallowable expenses, exempt income and investment and other allowances (e.g. research and development allowance). No further tax is payable unless the profit is distributed (except for withholding tax at the rate of 19.8%, calculated on an exemption amount if an investment allowance is granted in the scope of Income Tax Law Temporary Article 61).

 

With the Law on Amendments to Certain Laws and Tax Laws and Decrees by the Courts dated
28 November 2017, the tax rate has been changed to 22% for corporate tax and advance tax of corporate earnings for the 2018, 2019 and 2020 taxation periods.

 

Companies are required to pay advance corporate tax quarterly at the rate of 22% on their corporate income in Turkey. Advance tax is payable by the 17th of the second month following each calendar quarter end. Advance tax paid by corporations is credited against the annual corporate tax liability. If, despite offsetting, there remains a paid advance tax amount, it may be refunded or offset against other liabilities to the government.

 

Russia

 

Income taxes have been provided for in the consolidated financial statements in accordance with legislation enacted or substantively enacted by the end of the reporting period. The income tax charge comprises current tax and deferred tax and is recognised in profit or loss for the year, except if it is recognised in other comprehensive income or directly in equity because it relates to transactions that are also recognised, in the same or a different period, in other comprehensive income or directly in equity.

 

Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxable profits or losses are based on estimates if financial statements are authorised prior to filing relevant tax returns. Taxes other than on income are recorded within operating expenses as established in Chapter 25 of the Tax Code of the Russian Federation. Corporate tax is payable at a rate of 20% (31 December 2018: 20%) as identified in Article 247 of the Tax Code of the Russian Federation Special rules may apply in cases where a different from 20% tax rate is used.

 

Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax balances are measured at tax rates enacted or substantively enacted at the end of the reporting period, which are expected to apply to the period when the temporary differences will reverse, or the tax loss carry forwards will be utilised.

 

 

 

 

 

Corporate tax liability for the year consists of the following:

 

 

2019

2018

 

 

 

Corporate tax calculated

15,318

11,579

Prepaid taxes (-)

(8,947)

(4,608)

 

 

 

Tax liability

6,371

6,971

 

Tax income and expenses included in the statement of comprehensive income are as follows:

 

 

2019

2018

 

 

 

Current period corporate tax expense

(15,318)

(11,579)

Deferred tax income / (expense)

2,974

4,385

 

 

 

Tax expense

(12,344)

(7,194)

 

The reconciliation of the tax expense in the statement of comprehensive income is as follows:

 

 

2019

2018

 

 

 

Profit before tax

6,728

(3,899)

 

 

 

Corporate tax at statutory rates (25%)

(1,682)

975

Disallowable expenses

(7,423)

(5,834)

Unrecognised tax losses

(5,287)

(2,714)

Differences in tax rates

1,646

(323)

Other, net

402

702

 

 

 

Total tax expense

(12,344)

(7,194)

 

 

 

The breakdown of cumulative temporary differences and the resulting deferred income tax assets/liabilities at 31 December 2019 and 2018 using statutory tax rates are as follows:

 

 

31 December 2019

31 December 2018

 

 

Deferred tax

 

Deferred tax

 

Temporary

assets/

Temporary

assets/

 

differences

(liabilities)

differences

(liabilities)

 

 

 

 

 

Carry forward tax losses (*)

44,926

8,985

38,001

7,600

Contract liabilities from franchising contracts

34,826

7,486

28,943

6,367

Expense accruals

18,529

3,708

9,515

2,093

Bonus accruals

4,695

1,011

7,168

1,517

Unused vacation liabilities

3,368

741

2,663

586

Legal provisions

3,606

793

1,816

399

Provision for employee termination benefit

2,051

451

1,665

366

Right of use assets and lease liability

13,625

2,845

-

-

Other

1,173

211

3,220

554

 

126,799

26,231

92,991

19,482

 

 

 

 

 

Property, equipment and intangible assets

(36,642)

(8,171)

(39,727)

(7,861)

 

(36,642)

(8,171)

(39,727)

(7,861)

 

 

 

 

 

Deferred income tax assets, net

 

18,060

 

11,621

 

(*)  Consists of carry forward losses of Domino's Russia.

 

Deferred income tax assets recognition of Fidesrus

 

Deferred tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Various factors are considered to assess the probability of the future utilisation of deferred tax assets, including past operating results, operational plan, expiration of tax losses carried forward, and tax planning strategies. If actual results differ from these estimates or if these estimates must be adjusted in future periods, the financial position, results of operations and cash flows may be negatively affected. In the event that the assessment of future utilisation of deferred tax assets must be reduced, this reduction will be recognised in the income statement.

 

Based on the change in the tax code in the Russian Federation after 31 December 2015, previously applied limitation on carry forward tax losses for a ten-year period has been abolished and any losses incurred since 2007 will be carried forward until fully recognised.

 

Domino's Russia recognizes tax assets for the tax losses carried forward to the extent that the realisation of the related tax benefit through the future taxable profits is probable. Domino's Russia recognise deferred income tax assets arising from tax losses, tax discounts and other temporary differences with the estimates and assumptions relying on Domino's Russia management's five-years business plan and potential growth opportunities in Russia.

 

 

 

 

 

Movement of the deferred tax for the year ended 31 December 2019 and 2018 are as follows:

 

 

2019

2018

 

 

 

Balance at the beginning of the year

11,622

5,929

 

 

 

Charged to the statement of income

2,974

4,746

Currency translation difference

3,434

866

Charged to other comprehensive income

30

81

 

 

 

Balance at the end of the year

18,060

11,622

 

 

 

 

NOTE 18 - SUBSEQUENT EVENTS

 

According to an amendment to the Sberbank Loan Agreement signed by the Group's Russian subsidiary and Sberbank, the Company and its Turkish subsidiary were required to sign the amendment as guarantors by 27 February 2020. At 20 March 2020, the deadline to meet this requirement has been extended by Sberbank to 30 April 2020. The Group expects no difficulty in meeting this requirement.

 

We see the potential for a prolonged period of uncertainty following the COVID-19 worldwide outbreak and related market volatility, which have had relatively little impact on our business operations year to date. Currently, our stores are open and operating as normal with the exception that customers are not able to eat-in in our Turkish stores (although our delivery and take-away businesses continue as normal). Future adverse impacts from the COVID-19 outbreak may include, but are not limited to, employees contracting the disease, difficulty in recruiting new employees, decrease in demand for our products, reduced store operating hours, temporary bans imposed by government on eat-in and/or take-away services, store closures for an unspecified period of time and the Group not being able to perform its obligations under the Master Franchise Agreements. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern and, therefore, its ability to realise its assets and discharge its liabilities in the normal course of business.

 

We have no indication whether governmental measures will have an effect in preventing a further spread of the disease around the world and therefore the duration of the pandemic. If the pandemic and its impact on the business last for a protracted period it is likely to have a more detrimental effect on the financial performance of the Group. The Group has taken proactive measures to ensure that our customers and employees continue to be safe. The Group has already established an internal task force to ensure that the supply chain is managed, critical inventory is available, and restaurants remain adequately staffed.  We appreciate that the Turkish government has indicated its preparedness to support companies and encourage banks to maintain access to credit facilities so as to assist the corporate sector manage through the crisis and maintain employment.

 

 

 

 

 


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