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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Dp Eurasia N.v. | LSE:DPEU | London | Ordinary Share | NL0012328801 | ORD EUR0.12 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 190.00 | 100.00 | 296.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
TIDMDPEU
RNS Number : 2804Y
DP Eurasia N.V
08 September 2020
For Immediate Release 8 September 2020
DP Eurasia N.V.
("DP Eurasia" or the "Company", and together with its subsidiaries, the " Group ")
Interim Results for the Period Ended 30 June 2020
Accelerating trend to online drives resilient performance
Highlights
Hot Features
Premium
For the period ended
30 June
-----------------------
2020 2019 Change
----------- ---------- -------
(in millions of TRY,
unless otherwise
indicated)
Number of stores 754 736 18
Group system sales (1)
Group 664.7 645.4 3.0%
Turkey 438.9 386.4 13.6%
Russia 212.7 249.0 -14.6%
Azerbaijan & Georgia 13.1 10.0 30.4%
Group system sales like-for-like growth(2)
Group(8) 6.0% 7.3%
Turkey 13.5% 7.7%
Russia (based on RUB) -20.1% 4.7%
Group revenue 437.7 462.5 -5.4%
Group adjusted EBITDA(3) (excl.
IFRS 16) 12.1 46.4 -73.9%
Group adjusted net loss (4)
(excl. IFRS 16) (57.4) (7.4) n.m.
Group adjusted net debt(5)
(excl. IFRS 16) 237.3 224.9 5.5%
Group adjusted EBITDA(3) 42.7 79.6 -46.4%
Group adjusted net loss(4) (60.9) (12.1) n.m.
Turkey adjusted EBITDA(3) 50.4 55.5 -9.2%
Turkey adjusted EBITDA(3)
(excl. IFRS 16) 39.1 41.3 -5.3%
Russia adjusted EBITDA(3) (3.0) 27.5 n.m.
Russia adjusted EBITDA(3)
(excl. IFRS 16) (22.3) 8.6 n.m.
Financial Highlights
-- Strong liquidity position with TRY 256 million of cash at hand and additional available bank lines of TRY 82 million as at 30 June 2020
-- Adjusted net debt (excl. IFRS 16) of TRY 237.3 million as at 30 June 2020 (2019: TRY 226.5 million)
-- Group system sales up 3.0% and revenue down 5.4%, due to Covid-19 related operational constraints and increased competition in Russia due to aggregators
o Turkish systems sales growth of 13.6%
o Russian system sales decrease of 14.6% (21.2% based on RUB)
-- Adjusted EBITDA (excl. IFRS 16) of TRY 12.1 million, including TRY 8.6 million of Covid-19 related costs
-- Adjusted net loss (excl. IFRS 16) of TRY 57.4 million
Operational Highlights
-- Enhanced health and safety procedures rolled out in line with local regulations and best practice to protect colleagues and build trust with customers
-- Turkey and Russia continue to leverage online ordering - share of delivery system sales surpassed 75% for the period (H1 2019: 67.5%)
-- Group online system sales(7) growth of 27.7%
o Turkish online system sales growth of 38.2%
o Russian online system sales growth of 14.2% (5.3% based on RUB)
-- 11 net store closures in H1 2020 due to Covid -- Andrew Rennie joins the Group as Board Advisor
Commenting on the results, Chief Executive Officer, Aslan Saranga said:
"On behalf of the Board, I am pleased to report a set of resilient results for the first half of 2020. The on-going Covid-19 pandemic has resulted in unprecedented trading conditions and I am proud of the way our business has reacted so positively to the challenges. We took immediate measures at the outset to ensure that we were able to continue our operations, albeit with some heavy constraints due to the government restrictions imposed. I am happy to report that almost all our stores are now open for business for delivery, take-away and dine-in services. I would like to thank all our employees and franchisees for their sacrifice, hard work and determination.
"Our Turkish business performed well, indeed broadly in line with our start of year pre Covid-19 expectations whilst the performance in Russia reflected the heavier operational constraints imposed on us along with the increased competition due to the aggregators. While delivery system sales in Russia were flat in the post-Covid period (16 Mar-30 Jun) compared to the same period in 2019, our dine-in/take-away system sales were down in excess of 75%. This drop in sales had a significant impact on our Russian profitability; however, we are seeing an improved like-for-like growth of -10.9% in July/August (as compared to the same months in 2019) and coupled with the cost cutting measures that we have taken, we are experiencing a reduction in EBITDA losses. Trading continues to remain strong in Turkey at a like-for-like growth of 27.5% in July/August on the back of the delivery channel.
"We have continued to make operational progress during the period with the launch of a new wrap and additional chicken products in Turkey that are performing well in the early days. We also started trialling our loyalty programme in Russia, following its success in Turkey. Our technology and product innovation pipeline remains strong with new pizzas to be launched in the second half of 2020 in both countries.
"Digital continues to drive our business forward with significant growth achieved in both of our markets. Online ordering as a percentage of delivery has surpassed 75% across the Group, an increase of 7.6 percentage points from last year, with the Russian and Turkish businesses reaching approximately 90% and 70%, respectively.
"I am pleased to announce that Mr. Andrew Rennie has joined the Group as Board Advisor. Andrew is a 25-year veteran of the Domino's system, who last served as Domino's Pizza Enterprises Limited's ("DMP") CEO of European Operations and was responsible for six markets. Under his leadership, DMP's European Operations achieved a 10-fold increase over a 13-year period."
" Assuming that we are not faced with significantly worse operational constraints, with the strong liquidity of TRY 256 million of cash at hand and additional available bank lines, the Board remains confident in the Group's near-term plans for business continuity and cash flow as well as its overall prospects in the longer term. However, given the considerable uncertainty ahead, including the risk of additional lockdowns and a possible decline in consumer spending in the countries in which the Group operates, the Board is not in a position to provide meaningful guidance on the likely financial and operating results for 2020 and will continue to 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 / Giles Stewart / Tilly +44 20 7466 5000 Abraham dp@buchanan.uk.com
A conference call will be held at 9.30am on 8 September 2020 for analysts and investors via the following dial-in details:
Conference UK Toll: +44 3333000804
call: UK Toll Free: 08003589473
Participant PIN code: 43153604#
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 2020 interim 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.
(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).
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 754 stores (542 in Turkey, 199 in Russia, nine in Azerbaijan and four in Georgia as at 30 June 2020), 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
For the period ended
System Sales 30 June
-------------------------------
2020 2019 Change
---------------- ------------- -------
(in millions of TRY,
unless otherwise indicated)
Group system sales (1)
Group 664.7 645.4 3.0%
Turkey 438.9 386.4 13.6%
Russia 212.7 249.0 -14.6%
Azerbaijan & Georgia 13.1 10.0 30.4%
Group system sales like-for-like
growth(2)
Group(8) 6.0% 7.3%
Turkey 13.5% 7.7%
Russia (based on RUB) -20.1% 4.7%
Store Count As at 30 June
----------------------------------------------------------------
2020 2019
Corporate Franchised Total Corporate Franchised Total
Turkey 121 421 542 136 402 538
Russia 120 79 199 101 86 187
Azerbaijan - 9 9 - 7 7
Georgia - 4 4 - 4 4
Total 241 513 754 237 499 736
DP Eurasia's store count grew by 18 stores year-on-year, but performance was affected by the Covid-19 pandemic as a result of which the Group reported a decrease of 11 stores since the end of 2019. The Group increased its system sales by 3.0% year-on-year, where the effect of the increase in store count was off-set by negative like-for-like performance in Russia, primarily due to the operational constraints imposed as a result of Covid and increased competition from the aggregators. DP Eurasia had started 2020 with a strong performance, driven by its Turkish business and system sales increased by 20.0% year-on-year in the pre-Covid period (1 Jan - 15 Mar). However, the impact of the pandemic in the post-Covid period (16 Mar - 30 Jun) resulted in an 8.7% contraction in system sales.
The Turkish operations' system sales, representing 66% of Group system sales, increased by 13.6%. The Group achieved 13.5% like-for-like growth in Turkey despite the negative effects of the operational constraints levied on it due to the pandemic, especially in the dine-in and take-away channels. The Group countered the negative effect of the pandemic with its strong performance in the delivery channel. As a result of the volatile backdrop, the Company's Turkish store count (including Azerbaijan and Georgia) increased by six over the last twelve months, while decreasing by seven since the end of 2019.
The Russian operations' system sales, representing 32% of Group system sales, decreased by 14.6% (21.2% based on RUB). The Group reported -20.1% like-for-like growth in Russia during the period. The main reasons for the contraction of the Russian business were the operational constraints levied on it due to the pandemic where Moscow was under strict curfew measures for a period of 72 days until 9 June 2020, alongside increased competition from aggregators and fast food players supported by them. Following the appointment of the Russian management team, the Group had just started executing the Russia plan when the pandemic hit Russia, which makes it very difficult to assess the effect of the plan on the business. The Group added twelve stores over the last twelve months, while it closed four stores since the end of 2019.
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 period ended 30 June
--------------------------------------------------
2020 2019
------------------------ ------------------------
Turkey Russia Total Turkey Russia Total
Store 28.3% 10.9% 23.5% 34.0% 20.8% 30.0%
Group's online
Online platform 25.1% 73.9% 41.5% 30.1% 79.2% 48.0%
Aggregator 44.4% 15.2% 33.6% 31.9% - 19.5%
Total online 69.5% 89.1% 75.1% 62.0% 79.2% 67.5%
Call centre 2.3% - 1.4% 4.0% - 2.5%
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 period ended
30 June
-----------------------
2020 2019
----------- ----------
Group online system sales like-for-like growth(2)(7)
Group(8) 32.3% 22.9%
Turkey 38.6% 24.1%
Russia (based on RUB) 8.9% 16.9%
The Group's like-for-like growth continues to be driven by the performance of its online ordering platforms. Online delivery system sales as a share of delivery system sales surpassed 75% for the period, which represents a 7.6 percentage point increase on a year-on-year basis.
In Turkey, online system sales like-for-like growth for the period was 32.3%, as a result of which online delivery system sales as a share of delivery system sales reached 69.5% for the period, a 7.5 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 8.9%, as a result of which online delivery system sales as a share of delivery system sales reached 89.1% for the period, a 9.9 percentage point increase from a year ago, aided by the Group's participation in an aggregator for the first time.
Online system sales continued to outpace the overall system sales growth at 27.7% for the Group. Turkish online system sales grew by 38.2%, while Russian online system sales grew by 14.2% (5.3% based on RUB).
Financial Review
For the period ended
30 June
-----------------------
2020 2019 Change
----------- ---------- -------
(in millions of TRY)
Revenue 437.7 462.5 -5.4%
Cost of sales (excl. IFRS 16) (311.4) (314.5) -1.0%
Gross Profit (excl. IFRS 16) 126.4 148.0 -14.6%
General administrative expenses
(excl. IFRS 16) (78.8) (72.1) 9.3%
Marketing and selling expenses (79.5) (63.8) 24.6%
Other operating expenses, net
(excl. IFRS 16) (1.0) 3.3 0.0%
Operating profit (excl. IFRS
16) (32.9) 15.5 n.m.
Foreign exchange (losses)/gains
(excl. IFRS 16) (8.6) 2.8 n.m.
Financial income (excl. IFRS
16) 5.4 3.2 68.8%
Financial expense (excl. IFRS
16) (29.0) (25.1) 15.5%
(Loss)/Profit before income
tax (excl. IFRS 16) (65.1) (3.5) n.m.
Tax expense (excl. IFRS 16) (0.0) (5.3) n.m. (Loss)/Profit after tax (excl. IFRS 16) (65.0) (8.9) n.m. Group adjusted EBITDA(3) (excl. IFRS 16) 12.1 46.4 -73.9% Group adjusted net loss (4) (excl. IFRS 16) (57.4) (7.4) n.m. Group adjusted net debt(5) (excl. IFRS 16) 237.3 224.9 5.5% Group adjusted EBITDA(3) 42.7 79.6 -46.4% Group adjusted net loss (4) (60.9) (12.1) n.m. Turkey adjusted EBITDA(3) 50.4 55.5 -9.2% Turkey adjusted EBITDA(3) (excl. IFRS 16) 39.1 41.3 -5.3% Russia adjusted EBITDA(3) (3.0) 27.5 n.m. Russia adjusted EBITDA(3) (excl. IFRS 16) (22.3) 8.6 n.m.
Revenue
Group revenue contracted by 5.4% to TRY 437.7 million. Turkish segment revenue grew by 8.7% to TRY 283.8 million, while Russian segment revenue contracted by 23.6% to TRY 154.0 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 and provides figures above both under IFRS 16 and prior to the adoption of IFRS 16 to assist comparability between periods.
The Group's adjusted EBITDA (excluding IFRS 16) contracted by 73.9% to TRY 12.1 million. Adjusted EBITDA (excluding IFRS 16) for the Turkish segment, which includes the Azerbaijani and Georgian businesses, was TRY 39.1 million, a year-on-year decrease of 5.3%, and adjusted EBITDA (excluding IFRS 16) for the Russian segment was TRY -22.3 million. The Group's adjusted EBITDA figure includes TRY 8.6 million of Covid-19 related costs of which TRY 7.7 million are considered to be of non-recurring nature. The breakdown of these costs between Turkey and Russia was TRY 5.8 million and TRY 2.8 million, respectively. Additionally, costs relating to our Dutch corporate expenses reduced adjusted EBITDA by TRY 4.7 million in the first half of 2020. The comparable adverse effect of this item was TRY 3.5 million for the same period in 2019, with the increase in 2020 primarily due to the devaluation of the TRY against the EUR and the GBP.
For the period ended 30 June 2020, the Group's adjusted EBITDA (excluding IFRS 16) margin as a percentage of system sales was 1.8% compared to 7.2% over the same period in 2019. The main reasons for the decrease were the contraction in the Russian business due to the operational constraints levied for Covid-19 and the Covid-19 related costs.
Adjusted EBITDA (excluding IFRS 16) margin as a percentage of system sales for the Turkish segment (including Azerbaijan and Georgia) recorded a decrease to 8.7% from 10.4% mainly due to Covid-19 related costs.
The Russian segment margin decreased to -10.5% from 4.9%. The main reason for the decrease is the system sales contraction caused by the pandemic and increased competition from the aggregators. Management has started to take actions to address the issues in line with the plan laid out at the Company's 2019 results announcement, such as making long term improvements to product, service and technology and further investment in the brand ; adopting a new marketing strategy making use of celebrity endorsement, cluster-based pricing, different channel mix, and simpler, price-led advertisements ; expanding the use of the aggregator platform ; and cost cutting measures. 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 period ended 30 June 2020, adjusted net loss (excluding IFRS 16) was TRY 57.4 million. The decreases in revenue and adjusted EBITDA (excluding IFRS 16) were the main reasons for the increase in this loss compared to the same period in 2019. While the Group's bank facilities are TRY and RUB denominated, the Group recorded a foreign exchange loss of TRY 8.6 million due to the intragroup loans made between group companies in different jurisdictions versus a foreign exchange gain of TRY 2.8 million in the same period of the previous year.
Capital expenditure and Cash conversion
The Group incurred TRY 24.6 million of capital expenditure in the period ended 30 June 2020. The Turkish segment capital expenditure was TRY 16.5 million and the Russian segment capital expenditures amounted to TRY 8.1 million (RUB 87.1 million).
Cash conversion, defined as (adjusted EBITDA (excluding IFRS 16)- capital expenditure)/adjusted EBITDA (excluding IFRS 16)) for the period decreased to -103.3% (H1 2019: 36.3%) for the Group as a result of the pandemic and increased competition in Russia. The Turkish segment improved its cash conversion to 57.8% (H1 2019: 53.6%) as a result of its resilient performance and prudent capital expenditure management. The Russian segment had negative cash conversion due to its negative adjusted EBITDA.
Adjusted net debt and leverage
Excluding the impact of IFRS 16, the Group's adjusted net debt at 30 June 2020 was TRY 237.3 million, representing an increase of 5.5% from 30 June 2019 and an increase of 4.8% from 31 December 2019. The Group's bank borrowings continue to be denominated in its operational currencies of TRY and RUB. As at 30 June 2020, 68% of the Group's bank borrowings were denominated in TRY, compared to 52% as at 31 December 2019, while the remainder is denominated in RUB.
The Group's leverage ratio (defined as adjusted net debt (excluding IFRS 16)/adjusted EBITDA excluding IFRS 16)) increased to 2.6x as at 30 June 2020 (H1 2019: 1.9x) as a result of the depressed EBITDA performance.
The Group's treasury has succeeded in extending the duration of its Turkish bank borrowings in the face of interest rate uncertainty in the market. As at 30 June 2020, long term bank borrowings made up 48% of the Group's total Turkish bank borrowings, whereas the Group previously relied on short term revolver facilities.
The Group's Russian loan facility carries financial covenants, which the Group was unable to meet in the first two quarters of 2020, due to the impact of Covid-19, and the Group was granted waivers. As of 31 August 2020, the Group has obtained a new waiver letter from Sberbank which covers the quarters ending 30 September 2020 and 31 December 2020. The bank confirmed that it will not penalize the Group for violation of covenants for any period through to 31 December 2020 following the Group's agreement to reset the covenants based on a mutually agreed upon business plan by 1 October 2020. In July 2020, DP Eurasia made a prepayment of RUB 0.6 billion under its Russian loan, reducing the principal outstanding to RUB 1.0 billion of which RUB 0.2 billion is supported by a cash collateral deposit. The Group's strong liquidity position enables it to repay its bank borrowings in Russia if required, and still maintain a strong liquidity position. As at 30 June 2020, DP Eurasia had TRY 256 million of cash at hand and additional available bank lines of TRY 82 million.
New Appointment
Mr. Andrew Rennie has joined the Group as Board Advisor. Andrew is a 25-year veteran of the Domino's system, who last served as Domino's Pizza Enterprises Limited's ("DMP") CEO of European Operations and was responsible for six markets. Under his leadership, DMP's European Operations achieved a 10-fold increase over a 13-year period. He will provide professional and technical advice for the strategic direction as well as operational and tactical business decisions of the DPEU Board. Andrew has been granted a call option from our largest shareholder to acquire four million DPEU shares at a strike price of GBP 1.05 that expires on 30 September 2022 and will receive a retainer fee from the Company.
Board compliance statement
The Board of DP Eurasia N.V. declares that, to the best of their knowledge, the attached condensed combined and consolidated financial statements give a true and fair view of the assets, liabilities, financial position and the result of DP Eurasia N.V. and its subsidiaries included in the attached condensed combined and consolidated financial statements and the interim report includes a fair review of the information required pursuant to section 5:25d, subsections 8 and 9 of the Dutch Financial Markets Supervision Act (Wet op het financieel toezicht).
Amsterdam, 8 September 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 ahin*
Thomas Singer*
* Non-Executive Directors
Auditor's Involvement
This Interim Report for the six months ended 30 June 2020, and the attached condensed consolidated financial statements included herein have been reviewed but not audited by an external auditor.
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 period ended 30 June
----------------------------------------------------------
2020 2019
---------------------------- ----------------------------
Currency Period End Period Average Period End Period Average
----------- --------------- ----------- ---------------
EUR/TRY 7.708 7.132 6.557 6.343
RUB/TRY 0.097 0.093 0.091 0.086
EUR/RUB 78.678 77.961 71.820 73.840
Delivery - Take away / Eat in mix
For the period ended 30 June
--------------------------------------------------
2020 2019
------------------------ ------------------------
Turkey Russia Total Turkey Russia Total
Delivery 70.0% 77.4% 72.4% 63.9% 60.3% 62.5%
Take away / Eat
in 30.0% 22.6% 27.6% 36.1% 39.7% 37.5%
Total(2) 100% 100% 100% 100% 100% 100%
DP EURASIA N.V.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIODED 30 JUNE 2020 AND 30 JUNE 2019
( Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.)
30 June 30 June
------------------------------------- ------
Notes 2020 2019
------------------------------------- ------ ---------- ----------
INCOME OR LOSS
Revenue 4 437,745 462,484
Cost of sales (309,339) (305,377)
------------------------------------- ------ ---------- ----------
GROSS PROFIT 128,406 157,107
------------------------------------- ------ ---------- ----------
General administrative expenses (76,934) (71,327)
Marketing and selling expenses (79,534) (63,751)
Other operating income (891) 1,585
------------------------------------- ------ ---------- ----------
OPERATING (LOSS)/ PROFIT (28,953) 23,614
------------------------------------- ------ ---------- ----------
Foreign exchange (losses)/gains 6 (7,594) 2,277
Financial income 6 12,664 8,264
Financial expense 6 (45,506) (44,629)
------------------------------------- ------ ---------- ----------
LOSS BEFORE INCOME TAX (69,389) (10,474)
------------------------------------- ------ ---------- ----------
Tax expense 882 (3,110)
Income tax expense 20 (4,574) (3,712)
Deferred tax income 20 5,456 602
------------------------------------- ------ ---------- ----------
LOSS FOR THE PERIOD (68,507) (13,584)
------------------------------------- ------ ---------- ----------
OTHER COMPREHENSIVE EXPENSE (16,735) (13,948)
Items that will not be reclassified
to profit or loss
- Remeasurements of post-employment
benefit obligations, net of tax 124 274
Items that may be reclassified
to profit or loss
- Currency translation differences (16,859) (14,222)
------------------------------------- ------ ---------- ----------
TOTAL COMPREHENSIVE LOSS (85,242) (27,532)
------------------------------------- ------ ---------- ----------
Loss per share 7 (0.47) (0.09)
------------------------------------- ------ ---------- ----------
The accompanying notes on pages 17 till 41 form an integral part of these condensed consolidated interim financial statements.
DP EURASIA N.V.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 30 JUNE 2020 AND 31 DECEMBER 2019
( Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.)
ASSETS Notes 30 June 2020 31 December 2019 --------------------------- -------- ------------- ----------------- Trade receivables 13 13,092 23,422 Lease receivables 10 30,200 39,568 Right-of-use assets 10 145,740 180,236 Property and equipment 8 146,286 160,043 Intangible assets 9 77,990 81,424 Goodwill 11 47,297 47,133 Deferred tax assets 20 23,375 18,060 Other non-current assets 16 35,271 35,903 --------------------------- -------- ------------- ----------------- Non-current assets 519,251 585,789 --------------------------- -------- ------------- ----------------- Cash and cash equivalents 12 231,010 70,928 Trade receivables 13 97,770 114,493 Lease receivables 10 18,364 16,618 Inventories 15 59,857 70,062 Other current assets 16 61,008 65,247 --------------------------- -------- ------------- ----------------- Current assets 468,009 337,348 --------------------------- -------- ------------- ----------------- TOTAL ASSETS 987,260 923,137 --------------------------- -------- ------------- -----------------
The accompanying notes on pages 17 till 41 form an integral part of these condensed consolidated interim financial statements.
DP EURASIA N.V.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 30 JUNE 2020 AND 31 DECEMBER 2019
( Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.)
Notes 30 June 2020 31 December 2019
-------------------------------------------- ------------ ------------- -----------------
EQUITY
Paid in share capital 19 36,353 36,353
Share premium 119,286 119,286
Contribution from shareholders 21 20,696 19,970
Other reserves
not to be reclassified to profit or loss
- Remeasurements of post-employment
benefit obligations (2,467) (2,591)
Other reserves
to be reclassified to profit or loss
- Currency translation differences (39,147) (22,288)
Retained earnings (108,839) (40,332)
-------------------------------------------- ------------ ------------- -----------------
Total equity 25,882 110,398
-------------------------------------------- ------------ ------------- -----------------
LIABILITIES
Financial liabilities 17 307,501 153,159
Lease liabilities 17 146,048 184,708
Other non-current liabilities 16 34,720 39,092
-------------------------------------------- ------------ ------------- -----------------
Non - current liabilities 488,269 376,959
-------------------------------------------- ------------ ------------- -----------------
Financial liabilities 17 173,085 164,854
Lease liabilities 17 74,878 71,427
Trade payables 13 158,112 121,178
Current income tax liabilities 2,014 8,955
Provisions 4,274 5,354
Other current liabilities 16 60,746 64,012
-------------------------------------------- ------------ ------------- -----------------
Current liabilities 473,109 435,780
-------------------------------------------- ------------ ------------- -----------------
TOTAL LIABILITIES 961,378 812,739
-------------------------------------------- ------------ ------------- -----------------
TOTAL LIABILITIES & EQUITY 987,260 923,137
-------------------------------------------- ------------ ------------- -----------------
The accompanying notes on pages 17 till 41 form an integral part of these condensed consolidated interim financial statements.
DP EURASIA N.V.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIODED 30 JUNE 2020 30 JUNE 2019
Remeasurement
of
Contribution post-employment Currency
Share Share from benefit translation Retained Total
capital premium shareholders obligations differences earnings Equity
----------------- ----------- ------------ ------------- ---------------- ------------ ----------- ------------
Balances at 1
January 2019 36,353 119,286 20,697 (2,484) (689) (34,714) 138,449
Remeasurements
of
post-employment
benefit
obligations,
net - - - 274 - - 274
Currency
translation
adjustments - - - - (14,222) - (14,222)
Total loss for
the period - - - - - (13,584) (13,584)
Total
comprehensive
loss - - - 274 (14,222) (13,584) (27,532)
Transfers (Note
21) - - (2,192) - - 2,192 -
Share-based
incentive plans
(Note 21) - - 841 - - - 841
----------------- ----------- ------------ ------------- ---------------- ------------ ----------- ------------
Balances at 30
June 2019 36,353 119,286 19,346 (2,210) (14,911) (46,106) 111,758
----------------- ----------- ------------ ------------- ---------------- ------------ ----------- ------------
Balances at 1
January 2020 36,353 119,286 19,970 (2,591) (22,288) (40,332) 110,398
----------------- ----------- ------------ ------------- ---------------- ------------ ----------- ------------
Remeasurements
of
post-employment
benefit
obligations,
net - - - 124 - - 124
Currency
translation
adjustments - - - - (16,859) - (16,859)
Total loss for
the period - - - - - (68,507) (68,507)
Total
comprehensive
loss - - - 124 (16,859) (68,507) (85,242)
Share-based
incentive plans
(Note 21) - - 726 - - - 726
Balances at 30
June 2020 36,353 119,286 20,696 (2,467) (39,147) (108,839) 25,882
----------------- ----------- ------------ ------------- ---------------- ------------ ----------- ------------
( Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.)
The accompanying notes on pages 17 till 41 form an integral part of these condensed consolidated interim financial statements.
DP EURASIA N.V.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIODED 30 JUNE 2020 AND 30 JUNE 2019
( Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.)
Notes 30 June 30 June
2020 2019
--------------------------------------------- ----------- ---------- ---------
Loss before income tax (69,389) (10,474)
Adjustments for:
Depreciation 8 49,172 20,388
Amortisation 9 14,835 34,103
Gains on sale of property and equipment 6 728 (1,097)
Impairment of tangible and intangible
assets 8,9 5,321 -
Non-cash employee benefits expense
-
share based payments 21 726 841
Interest income 6 (12,664) (1,396)
Interest expense 6 45,506 37,676
--------------------------------------------- ----------- ---------- ---------
Changes in operating assets and liabilities
Changes in trade receivables 20,762 (92,933)
Changes in other receivables and assets 12,547 (19,339)
Changes in inventories 10,205 (3,505)
Changes in contract assets 198 1,750
Changes in contract liabilities (3,881) 3,798
Changes in trade payables 36,216 10,958
Changes in other payables and liabilities (751) (5,015)
Income taxes paid (11,562) (3,372)
Performance bonuses paid (4,119) (7,010)
--------------------------------------------- ----------- ---------- ---------
Cash flows generated from/ (used in)
operating activities 93,850 (34,627)
--------------------------------------------- ----------- ---------- ---------
Purchases of property and equipment 8 (7,227) (20,184)
Purchases of intangible assets 9 (13,248) (9,051)
Disposals from sale of tangible and
intangible assets 997 5,543
--------------------------------------------- ----------- ---------- ---------
Cash flows used in investing activities (19,478) (23,692)
--------------------------------------------- ----------- ---------- ---------
Interest paid (24,855) (28,484)
Interest on leases paid (9,272) (15,089)
Interest received 5,444 1,396
Loans obtained 309,497 141,728
Loans paid 17 (151,564) (20,656)
Payment of lease liabilities 17 (51,064) (24,515)
Cash flows generated from
from financing activities 78,186 54,380
--------------------------------------------- ----------- ---------- ---------
Effect of currency translation differences 7,525 (2,963)
--------------------------------------------- ----------- ---------- ---------
Net increase/ (decrease) in cash and
cash equivalents 160,083 (6,902)
--------------------------------------------- ----------- ---------- ---------
Cash and cash equivalents at the
beginning of the period 12 70,928 28,444
--------------------------------------------- ----------- ---------- ---------
Cash and cash equivalents at the
end of the period 12 231,010 21,542
--------------------------------------------- ----------- ---------- ---------
The accompanying notes on pages 17 till 41 form an integral part of these condensed consolidated interim financial statements.
DP EURASIA N.V.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS AS AT 30 JUNE 2020
(Amounts expressed in thousands of Turkish Lira (TRY) unless otherwise stated.)
NOTE 1 - GROUP'S ORGANIZATION AND NATURE OF ACTIVITIES
DP Eurasia N.V. (the "Company"), public limited company, having its statutory seat in Amsterdam, the Netherlands, was incorporated under the law of the Netherlands on 18 October 2016. The Company has been incorporated by integrating shares of Fides Food Systems Coöperatief U.A. and Vision Lovemark Coöperatief U.A. in Fidesrus B.V. and Fides Food Systems B.V. Acquisitions occurred on
18 October 2016 when the Company acquired Fidesrus and Fides Foods and their subsidiaries and from this point forward consolidated Group was formed. This was a transaction under common control.
The Company's registered address is: Herikerbergweg 238, Amsterdam, the Netherlands.
The Company and its subsidiaries (together referred as the "Group") operate corporate-owned and franchise-owned stores in Turkey and the Russian Federation, including providing technical support, control and consultancy services to the franchisees.
As at 30 June 2020, the Group hold franchise operating and sub-franchising right in 754 stores (513 franchise stores, 241 corporate-owned stores) (31 December 2019: 765 stores (521 franchise stores, 244 corporate-owned stores).
Subsidiaries
The Company has a total of four fully-owned subsidiaries. The entities included in the scope of the condensed consolidated financial interim information and nature of their business is as follows:
30 June 30 June
2020 2019
Effective Effective
Subsidiaries ownership (%) ownership (%) Registered country Nature of business
-------------------------------------------- -------------- -------------- ------------------- -------------------
Pizza Restaurantları A. . ( " 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 is established in the Russian Federation. Domino's Russia is operating a pizza delivery network of company and franchise-owned stores in 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.
NOTE 1 - GROUP'S ORGANIZATION AND NATURE OF ACTIVITIES (Continued)
Pizza Restaurantları A. . ("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.
Significant changes in the current reporting period
The condensed interim consolidated financial statements have been prepared assuming that the Group will continue as a going concern and be able to realise its assets and discharge its liabilities in the normal course of business. The Group currently utilizes internally generated cash flow and bank borrowings in Turkey and Russia to meet its financing needs. The Group's Turkish operations are well established and cash generative and act as a source of liquidity for the wider Group. The Group's Russian business is still in the early stages of growth and does not yet generate cash, so is funded by local bank borrowings and intra-group cash injections, and loan guarantees from its Turkish affiliate. The Group's Russian loan facility carries financial covenants, which the Group was unable to meet in the first two quarters of 2020, mainly due to the impact of Covid-19. The Group is currently in discussions with its Russian loan provider to reset the covenants for the remainder of the year. The Group's strong liquidity position enables it to repay its bank borrowings in Russia if required , and still maintain a strong liquidity position.
The Board has been closely monitoring the Group's strategy as well as the financial and operational performance throughout the Covid-19 pandemic. There remains considerable uncertainty ahead, including the risk of additional lockdowns and a decline in consumer spending, which could result in the potential for a prolonged period of uncertainty following the Covid-19 pandemic and related market volatility. Even though this uncertainty remains, based on the Group's experience with the operational constraints during the March-June period and the resources available in the form of TRY 256 million of cash at hand and additional available bank lines of TRY 82 million , the Group has formed a judgement on a reasonable basis, that the Company will be able to continue as a going concern and, therefore, will be able to realise its assets and discharge its liabilities in the normal course of business.
The Group took certain measures to optimise its and its franchisees' liquidity during the uncertainty surrounding the pandemic, such as extending the payment terms to its suppliers, extending payment terms for its franchisees and waiving certain commissions from its franchisees.
The Group also took certain actions to minimise infection risk for both its customers and employees, such as heightened hygienic standards at its stores, commissaries and headquarters and the launch of contactless delivery, take-away and payment services.
In preparation of the condensed interim consolidated financial statements as of 30 June 2020, the Group has assessed the possible impacts of Covid-19 pandemic on the financial statements and reviewed the critical estimates and assumptions. Within this scope, the Group has tested the tangible and intangible assets, goodwill, deferred tax assets and trade receivables for possible impairment. As a result of these tests, TRY 5.3 million of impairments were recognised for tangible and intangible assets in the 30 June 2020 consolidated financials. No impairments were identified for other assets and receivables.
NOTE 2 - BASIS OF PRESENTATION OF INTERIM FINANCIAL STATEMENTS 2.1 Basis of preparation
These condensed consolidated interim financial statements for the six months period ended 30 June 2020 have been prepared in accordance with International Accounting Standard 34 ("IAS 34") Interim Financial Reporting.
The interim report does not include all the notes of the type normally included in the annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended
31 December 2019 and any public announcements made by the Company during the interim reporting period.
The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period.
Seasonality of operations
There is no significant seasonality effect on the Group's revenue. According to financial year ended
31 December 2019, 47% of revenues accumulated in the first half year, with 53% accumulating in the second half.
2.1 Basis of preparation (Continued)
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 ('TRY'), 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:
30 June 2020 31 December 2019 30 June 2019
------------------ ------------------- ------------------
Period Period Period Period Period Period
Currency End Average End Average End Average
Euros 7.7080 7.1322 6.6506 6.3484 6.5507 6.3445
Russian Rubles 0.0972 0.0933 0.0955 0.0872 0.0908 0.0856
NOTE 2 - BASIS OF PRESENTATION OF INTERIM FINANCIAL STATEMENTS (Continued)
2.2 New and amended international financial reporting standards as adopted by European Union
New and amended standards adopted by the Group, which are effective for the interim financial statements as at 30 June 2020
A number of new or amended standards became applicable for the current reporting period:
- Amendments to IAS 1 and IAS 8 on the definition of material
- Amendments to IFRS 3 - definition of a business
- Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate benchmark reform
- Amendment to IFRS 16, 'Leases' - Covid-19 related rent concessions
These standards did not have any impact on the Group's accounting policies and did not require retrospective adjustments.
The new standards, amendments and interpretations, which are issued but not effective for the interim financial statements as at 30 June 2020
- IFRS 17, 'Insurance contracts'
- Amendments to IAS 1, Presentation of financial statements' on classification of liabilities
- A number of narrow-scope amendments to IFRS 3, IAS 16, IAS 17 and some annual improvements on IFRS 1, IFRS 9, IAS 41 and IFRS 16
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 30 June 2020 and 2019 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.
NOTE 3 - SEGMENT REPORTING (Continued)
The segment analysis for the periods ended 30 June 2020 and 2019 are as follows:
1 January-30 June 2020 Turkey Russia Other Total
---------------------------------- --------- --------- -------- ---------
Corporate revenue 94,947 108,822 - 203,769
Franchise revenue and
royalty
revenue obtained from
franchisees 176,292 42,401 - 218,693
Other revenue 12,542 2,741 - 15,283
Total revenue 283,781 153,964 - 437,745
- At a point in time 280,825 152,570 - 433,395
- Over time 2,956 1,394 - 4,350
---------------------------------- --------- --------- -------- ---------
Operating profit 23,035 (47,271) (4,717) (28,953)
Capital expenditures 16,485 8,137 - 24,622
Tangible and intangible
disposals (997) - - (997)
Depreciation and amortisation
expenses (24,816) (39,191) - (64,007)
Adjusted EBITDA 50,379 (2,989) (4,717) 42,673
31 December 2019 Turkey Russia Other Total
---------------------------------- --------- --------- -------- ---------
Borrowings
TRY 326,418 - - 326,418
RUB - 154,169 - 154,169
---------------------------------- --------- --------- -------- ---------
326,418 154,169 - 480,586
Lease liabilities
TRY 78,547 - - 78,547
RUB - 142,378 - 142,378
---------------------------------- --------- --------- -------- ---------
78,547 142,378 - 220,926
Total 404,965 296,547 - 701,512
---------------------------------- --------- --------- -------- ---------
NOTE 3 - SEGMENT REPORTING (Continued)
1 January-30 June 2019 Turkey Russia Other Total
--------------------------------------- --------- --------- -------- ---------
Corporate revenue 99,232 144,538 - 243,770
Franchise revenue and royalty -
revenue obtained from franchisees 143,069 43,920 - 186,989
Other revenue 18,730 12,995 - 31,725
Total revenue 261,031 201,453 - 462,484
- At a point in time 258,632 200,615 - 459,247
- Over time 2,399 838 - 3,237
--------------------------------------- --------- --------- -------- ---------
Operating profit 31,487 (4,417) (3,456) 23,614
Capital expenditures 19,178 10,392 - 29,570
Tangible and intangible disposals (1,840) (2,602) - (4,442)
Depreciation and amortisation
expenses (23,356) (31,135) - (54,491)
Adjusted EBITDA 55,547 27,474 (3,456) 79,565
30 June 2019 Turkey Russia Other Total
--------------------------------------- --------- --------- -------- ---------
Borrowings
TRY 94,000 - - 94,000
RUB - 192,396 - 192,396
--------------------------------------- --------- --------- -------- ---------
94,000 192,396 - 286,396
Lease liabilities
TRY 94,958 - - 94,958
RUB - 149,977 - 149,977
--------------------------------------- --------- --------- -------- ---------
94,958 149,977 - 244,935
Total 188,958 342,373 - 531,331
--------------------------------------- --------- --------- -------- ---------
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.
.
NOTE 3 - SEGMENT REPORTING (Continued)
The reconciliation of adjusted EBITDAs as of 30 June 2020 and June 2019 is as follows:
Turkey 30 June 2020 30 June 2019 -------------------------------- ------------- ------------- Adjusted EBITDA (*) 50,379 55,547 -------------------------------- ------------- ------------- Non-recurring and non-trade (income)/expenses per Group Management (*) One off non-trading costs (**) 1,449 129 Share-based incentives 1,079 575 -------------------------------- ------------- ------------- EBITDA 47,851 54,843 -------------------------------- ------------- ------------- Depreciation and amortisation (24,816) (23,356) -------------------------------- ------------- ------------- Operating profit 23,035 31,487 -------------------------------- ------------- -------------
Dominos Turkey EBITDA was TRY 55.547 in 2019 and down 9.3% in 2020. This decline was primarily due to Covid-19 related costs amounting to TRY 5.825 to ensure that operations were carried out safely.
Russia 30 June 2020 30 June 2019 -------------------------------- ------------- ------------- Adjusted EBITDA (*) (2,989) 27,474 -------------------------------- ------------- ------------- Non-recurring and non-trade (income)/expenses per Group Management (*) One off non-trading costs (**) 5,444 489 Share-based incentives (353) 267 -------------------------------- ------------- ------------- EBITDA (8,080) 26,718 -------------------------------- ------------- ------------- Depreciation and amortisation (39,191) (31,135) -------------------------------- ------------- ------------- Operating loss (47,271) (4,417) -------------------------------- ------------- -------------
Dominos Russia EBİTDA includes TRY 2.737 Covid-19 related costs. These Covid-19 related costs and the negative impact of Covid-19 on sales of Dominos Russia are the primary reasons of EBITDA down from the prior year.
(**) The reason for the significant increase in one-off non-trading costs is mainly impairments of tangible and intangible assets.
NOTE 3 - SEGMENT REPORTING (Continued)
Dutch Corporate Expenses 30 June 2020 30 June 2019 ------------------------------- ------------- ------------- Adjusted EBITDA (*) (4,717) (3,456) ------------------------------- ------------- ------------- Non-recurring and non-trade (income)/expenses per Group Management (*) One off non-trading costs - - ------------------------------- ------------- ------------- EBITDA (4,717) (3,456) ------------------------------- ------------- ------------- Depreciation and amortisation - - ------------------------------- ------------- ------------- Operating loss (4,717) (3,456) ------------------------------- ------------- -------------
(*) 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.
The reconciliation of adjusted net income as of 30 June 2020 and 2019 is as follows:
30 June 2020 30 June 2019
Loss for the period as reported (68,507) (13,584)
----------------------------------------------- ------------- -------------
Non-recurring and non-trade (income)/expenses
per Group Management (*)
Share-based incentives 726 842
One-off expenses 6,893 618
Adjusted net loss for the period (60,888) (12,124)
----------------------------------------------- ------------- -------------
(*) 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.
NOTE 4 - REVENUE AND COST OF SALES
30 June 2020 30 June 2019
Corporate revenue 203,769 243,770
Franchise revenue and royalty
revenue obtained from franchisees 218,693 186,989
Other revenue 15,283 31,725
-----------------------------------
Revenue 437,745 462,484
----------------------------------- ------------- -------------
Cost of sales (309,339) (305,377)
----------------------------------- ------------- -------------
Gross profit 128,406 157,107
----------------------------------- ------------- -------------
NOTE 5 - EXPENSES BY NATURE
30 June 2020 30 June 2019
Employee benefit expenses (100,498) (96,681)
Depreciation and amortisation expenses (64,007) (54,491)
----------------------------------------- ------------- -------------
(164,505) (151,172)
---------------------------------------- ------------- -------------
NOTE 6 - FOREIGN EXCHANGE LOSSES, FINANCIAL INCOME AND EXPENSES
Foreign exchange gains / (losses) 30 June 2020 30 June 2019
--------------------------------------------- ------------- -------------
Foreign exchange (losses) / gains, net (8,582) 2,277
Foreign exchange gains on lease liabilities 988 -
--------------------------------------------- ------------- -------------
(7,594) 2,277
--------------------------------------------- ------------- -------------
Financial income 30 June 2020 30 June 2019
--------------------------------------------- ------------- -------------
Interest income from lease receivables 7,220 6,868
Interest income 5,444 1,396
--------------------------------------------- ------------- -------------
12,664 8,264
--------------------------------------------- ------------- -------------
Financial expense 30 June 2020 30 June 2019
--------------------------------------------- ------------- -------------
Interest expense (29,014) (22,587)
Interest expense on lease liabilities (16,492) (21,957)
Other - (85)
(45,506) (44,629)
--------------------------------------------- ------------- -------------
NOTE 7 - LOSS PER SHARE
The reconciliation of adjusted loss per share as of 30 June 2020 and 2019 is as follows:
30 June 2020 30 June 2019
-------------------------------------- ------------- -------------
Average number of shares existing
during the period 145,372 145,372
Net loss for the period attributable
to
equity holders of the parent (68,507) (13,584)
-------------------------------------- ------------- -------------
Loss per share (0.47) (0.09)
-------------------------------------- ------------- -------------
The reconciliation of adjusted loss per share as of 30 June 2020 and 2019 is as follows:
30 June 2020 30 June 2019
-------------------------------------- ------------- -------------
Average number of shares existing
during the period 145,372 145,372
Net loss for the period attributable
to equity
holders of the parent (68,507) (13,584)
-------------------------------------- ------------- -------------
Non-recurring and non-trade expenses
per Group Management (*)
Share-based incentives 726 842
One-off expenses 6,893 618
-------------------------------------- ------------- -------------
Adjusted net loss for the period
attributable to equity holders
of the parent (60,888) (12,124)
-------------------------------------- ------------- -------------
Adjusted Loss per share (*) (0.42) (0.08)
-------------------------------------- ------------- -------------
(*) Adjusted earnings per share 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 incomes/expenses which are assumed by the Group management that are not part of the normal course of business and are non-recurring 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.
There are no shares or options with a dilutive effect and hence the basic and diluted earnings per share are the same.
The loss per share presented for the period ended 30 June 2020 is based on the issued share capital of DP Eurasia N.V. at the date of its incorporation.
NOTE 8 - PROPERTY AND EQUIPMENT
Currency
translation
1 January Additions Disposals Transfers Impairment adjustments 30 June 2020
2020
-------------------------- ---------- ---------- ---------- ---------- ----------- ------------ -------------
Cost
Machinery and equipment 76,825 499 - 2,200 (128) 1,394 80,790
Motor vehicles 29,975 4,147 - - (84) 611 34,649
Furniture and fixtures 62,552 2,978 (329) - - 84 65,285
Leasehold improvements 113,118 2,096 (434) 1,401 (4,595) 1,122 112,708
Construction in progress 7,425 1,654 - (3,601) (95) 20 5,403
-------------------------- ---------- ---------- ---------- ---------- ----------- ------------ -------------
289,895 11,374 (763) - (4,902) 3,231 298,835
-------------------------- ---------- ---------- ---------- ---------- ----------- ------------ -------------
Accumulated depreciation
Machinery and equipment (26,380) (6,009) - - - (659) (33,048)
Motor vehicles (19,601) (4,518) - - 84 (476) (24,511)
Furniture and fixtures (28,778) (3,764) 34 - - (44) (32,552)
Leasehold improvements (55,093) (8,286) 80 - 1,539 (678) (62,438)
-------------------------- ---------- ---------- ---------- ---------- ----------- ------------ -------------
(129,852) (22,577) 114 - 1,623 (1,856) (152,549)
-------------------------- ---------- ---------- ---------- ---------- ----------- ------------ -------------
Net book value 160,043 146,286
-------------------------- ---------- ---------- ---------- ---------- ----------- ------------ -------------
For the period ended 30 June 2020, depreciation expense of TRY17,789 has been charged in cost of sales and TRY4,788 has been charged in general administrative expenses.
NOTE 8 - PROPERTY AND EQUIPMENT (Continued)
Currency translation
1 January 2019 Additions Disposals Transfers adjustments 30 June 2019
------------------------- --------------- ---------- ---------- ---------- ----------------------- -------------
Cost
Machinery and equipment 55,668 2,960 (3,290) 1,738 9,822 66,898
Motor vehicles 32,963 334 (8,023) - 4,843 30,117
Furniture and fixtures 62,109 3,858 (2,018) - 523 64,472
Leasehold improvements 91,207 5,957 (3,416) - 9,621 103,369
Construction in progress 3,024 7,409 - (1,738) 635 9,330
------------------------- --------------- ---------- ---------- ---------- ----------------------- -------------
244,971 20,518 (16,747) - 25,444 274,186
------------------------- --------------- ---------- ---------- ---------- ----------------------- -------------
Accumulated depreciation
Machinery and equipment (17,975) (5,113) 2,091 - (3,110) (24,107)
Motor vehicles (18,218) (4,287) 7,038 - (2,354) (17,821)
Furniture and fixtures (27,848) (3,694) 1,040 - (187) (30,689)
Leasehold improvements (44,889) (7,294) 2,260 - (3,287) (53,210)
------------------------- --------------- ---------- ---------- ---------- ----------------------- -------------
(108,930) (20,388) 12,429 - (8,938) (125,827)
------------------------- --------------- ---------- ---------- ---------- ----------------------- -------------
Net book value 136,041 148,359
------------------------- --------------- ---------- ---------- ---------- ----------------------- -------------
For the period ended 30 June 2019, depreciation expense of TRY16,722 has been charged in cost of sales and TRY3,666 has been charged in general administrative expenses.
NOTE 9 - INTANGIBLE ASSETS
Currency
1 January translation 30 June
2020 Additions Disposals Impairment adjustments 2020
-------------------------- ---------- ---------- ---------- ----------- ------------ ---------
Cost
Key money 50,622 592 (424) (2,342) 269 48,717
Computer software 68,672 12,656 (139) (2,329) 608 79,468
Franchise contracts 48,485 - - - - 48,485
-------------------------- ---------- ---------- ---------- ----------- ------------ ---------
167,779 13,248 (563) (4,671) 877 176,670
-------------------------- ---------- ---------- ---------- ----------- ------------ ---------
Accumulated depreciation
Key money (12,038) (3,759) 205 603 (85) (15,074)
Computer software (28,989) (8,652) 10 2,026 (249) (35,854)
Franchise contracts (45,328) (2,424) - - - (47,752)
-------------------------- ---------- ---------- ---------- ----------- ------------ ---------
(86,355) (14,835) 215 2,629 (334) (98,680)
-------------------------- ---------- ---------- ---------- ----------- ------------ ---------
Net book value 81,424 77,990
-------------------------- ---------- ---------- ---------- ----------- ------------ ---------
For the period ended 30 June 2020, amortisation expense of TRY6,286 has been charged in cost of sales and TRY8,549 has been charged in general administrative expenses.
1 January Currency translation
2019 Additions Disposals adjustments Transfers 30 June 2019
-------------------------- ---------- ---------- ---------- --------------------------- ---------- -------------
Cost
Key money 17,456 3,519 (503) 1,948 - 22,420
Computer software 45,573 5,532 (136) 741 - 51,710
Franchise contracts 48,485 - - - - 48,485
-------------------------- ---------- ---------- ---------- --------------------------- ---------- -------------
111,514 9,051 (639) 2,689 - 122,615
-------------------------- ---------- ---------- ---------- --------------------------- ---------- -------------
Accumulated amortisation
Key money (5,342) (3,126) 503 (582) - (8,547)
Computer software (17,178) (3,363) 8 - - (20,533)
Franchise contracts (40,480) (2,614) - (26) - (43,120)
-------------------------- ---------- ---------- ---------- --------------------------- ---------- -------------
(63,000) (9,103) 511 (608) - (72,200)
-------------------------- ---------- ---------- ---------- --------------------------- ---------- -------------
Net book value 48,514 50,415
-------------------------- ---------- ---------- ---------- --------------------------- ---------- -------------
For the period ended 30 June 2019, amortisation expense of TRY4,507 has been charged in cost of sales and TRY4,596 has been charged in general administrative expenses.
NOTE 10 - RIGHT OF USE ASSETS
Details of right-of-use assets as of 30 June 2020 and 31 December 2019 are as follows :
30 June 2020 31 December 2019
Right-of-use assets
Properties 143,609 166,147
Vehicles 2,131 14,089
145,740 180,236
--------------------- ------------- -----------------
Details of lease receivable as of 30 June 2020 and 31 December 2019 are as follows :
30 June 2020 31 December 2019
Lease receivables
Current 18,364 16,618
Non-current 30,200 39,568
48,564 56,186
------------------- ------------- -----------------
Details of lease liabilities as of 30 June 2020 and 31 December 2019 are as follows :
30 June 2020 31 December 2019
Lease liabilities
Current 74,878 71,427
Non-current 146,048 184,708
220,926 256,135
------------------- ------------- -----------------
The movement of right-of-use assets as of 30 June 2020 and 2019 are as follows:
2020 2019
Opening - 1 January 180,236 162,446
Depreciation (26,595) (25,000)
Current year additions 9,046 15,438
Current year disposals (18,748) (8,640)
Currency translation adjustments 1,801 22,219
---------------------------------- --------- ---------
Closing - 30 June 145,740 166,463
---------------------------------- --------- ---------
For the period ended 30 June 2020, amortisation expense of TRY 22,969 has been charged in cost of sales and TRY 3,626 has been charged in general administrative expenses (20 June 2019: TRY24,229 and TRY771, respectively).
The total amount of interest of sub-lease income is TRY 7,220 as of 30 June 2020.
As of June 2020, the total cash outflow for principle of leases and interest of leases is TRY 51,064 and TRY 9,272, respectively (30 June 2019: TRY 39,604 and TRY 15,089).
NOTE 11 - GOODWILL
30 June 2020 31 December 2019
1 January 47,133 45,195
Currency translation impact 164 1,938
----------------------------- ------------- -----------------
31 December 47,297 47,133
----------------------------- ------------- -----------------
These Goodwill relates to Turkish and Russian CGUs at the amounts TRY 36,023 and RUB 11,274 respectively (31 December 2019: TRY 36,023 and RUB 9,172 respectively).
Goodwill impairment test
In accordance with IFRS and the accounting policies, the Group performs impairment tests on goodwill to assess whether impairment exists. The Group is obliged to test goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired, as goodwill is deemed to have an indefinite useful life.
In order to perform this test, management is required to compare the carrying value of the relevant cash generating unit ("CGU"), defined as stores of the Group including goodwill with its recoverable amount. The recoverable amounts of the CGU are determined based on a value in use calculation.
The recoverable amounts of CGUs are calculated based on value in use. These calculations require estimations and use pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. For the purpose of assessing impairment, the discounted cash flows calculated based on the Group's revenue projections for five years are compared to the carrying value of all assets in CGUs, including allocated goodwill.
The Group prepares pre-tax cash flow forecasts derived from the most recent financial budgets approved by management for the next five years and extrapolates cash flows for the remaining term based on the average long-term growth rate of 8.5% for the Turkish market and 4.2% for the Russian market. The impact of IFRS 16 has been included in the discounted cash flow models and resulted in an increase in weighted average cost of capital.
Other key assumptions applied in the impairment tests include the expected product price, demand for the products, product cost and related expenses, which are reflected in the projected sales growth rates for the coming years. Management used projected sales growth rates of 10.3% and 16% for Turkey and Russia, respectively. Growth projections also include inflation expectations for the related CGUs. Management determined these key assumptions based on past performance and its expectations on market development. Furthermore, management applied pre-tax discount rates of 17.4% as of 30 June 2020 (22.0% as of 31 December 2019) for Turkey and 17.5% as of 30 June 2020 (17.5% as of 31 December 2019) for the Russian Federation to reflect country specific risks.
NOTE 11 - GOODWILL (continued)
Sensitivities - Turkish operations
The assumptions used for value in use calculations to which the recoverable amount is more sensitive are growth rate beyond five years and pre-tax discount rate. Management determined these key assumptions based on past performance and its expectations on market development. Further, management adopts different discount rates each year that reflect specific risks related to the Group as discount rates. Impairment loss has not been recognized as a result of the impairment tests performed with the above assumptions as at 30 June 2020. A further test with a 10% adverse change to the above assumptions did not result in any impairment loss, either.
Sensitivities - Russian operations
The assumptions used for value-in-use calculations to which the recoverable amount is more sensitive are growth rate beyond five years and pre-tax discount rate. Management determined these key assumptions based on past performance and its expectations on market development.
Impairment loss has not been recognized as a result of the impairment tests performed with the above assumptions as at 30 June 2020. A further test with a 10% adverse change to the above assumptions would result in TRY 1.1 million impairment loss.
NOTE 12 - CASH AND CASH EQUIVALENTS
The details of cash and cash equivalents as of 30 June 2020 and 31 December 2019 are as follows:
30 June 31 December 2019
2020
Cash 579 897
Banks 219,496 16,744
Term bank deposits (less than three
months) - 42,745
Credit card receivables 10,935 10,542
------------------------------------- -------- -----------------
231,010 70,928
------------------------------------- -------- -----------------
Maturity term of credit card receivables are 30 days on average (31 December 2019: 30 days).
NOTE 13 - TRADE RECEIVABLES AND PAYABLES
a) Short-term trade receivables
30 June 2020 31 December 2019
Trade receivables 81,476 89,419
Post-dated cheques (*) 19,338 27,154
100,814 116,573
--------------------------------- ------------- -----------------
Less: Doubtful trade receivable (3,044) (2,080)
--------------------------------- ------------- -----------------
Short-term trade receivables,
net 97,770 114,493
--------------------------------- ------------- -----------------
The average collection period for trade receivables is between 30 and 60 days (2019: 30 and 60 days).
b) Long-term trade receivables
30 June 2020 31 December 2019
Trade receivables 3,409 7,467
Post-dated cheques (*) 9,683 15,955
------------------------ ------------- -----------------
13,092 23,422
------------------------ ------------- -----------------
(*) Post-dated cheques are the receivables from franchisees resulting from store openings.
c) Short-term trade and other payables
30 June 2020 31 December 2019
Trade payables 153,459 108,995
Other payables 4,653 12,183
---------------- ------------- -----------------
158,112 121,178
---------------- ------------- -----------------
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.
NOTE 14 - TRANSACTIONS WITH RELATED PARTIES
Key management compensation
30 June 2020 30 June 2019
------------------------------ ------------- -------------
Short-term employee benefits 11,144 9,780
Share-based incentives 726 841
------------------------------ ------------- -------------
11,870 10,621
------------------------------ ------------- -------------
There are no loans, advance payments or guarantees given to key management.
NOTE 15 - INVENTORIES
30 June 2020 31 December 2019
Raw materials 50,354 66,003
Other inventory 9,503 4,059
----------------- ------------- -----------------
59,857 70,062
----------------- ------------- -----------------
NOTE 16 - OTHER ASSETS AND LIABILITIES
Other current assets
30 June 2020 31 December 2019
---------------------------------- ------------- -----------------
Advance payments 36,854 36,217
Deposits for loan guarantees (*) 9,619 18,683
Prepaid taxes and VAT receivable 5,613 2,740
Prepaid marketing expenses 1,461 1,486
Contract assets related to
franchising contracts (**) 618 482
Prepaid insurance expenses 349 1,029
Other 6,494 4,610
---------------------------------- ------------- -----------------
61,008 65,247
---------------------------------- ------------- -----------------
(*) As of 30 June 2020, the loan carries a TRY 24,468 (RUB 262 million) cash deposit condition that was made as collateral by the Russian operating company. In July 2020, the Group repaid this loan in the amount of TRY 55,236 (RUB 578 million) as a result in the subsequent term the loan carries a TRY 22,360 (RUB 230 million) cash deposit collateral.
(**) The Group incurs certain costs with DP International related to set up of each franchise contract and IT systems used for recording of franchise revenue.
NOTE 16 - OTHER ASSETS AND LIABILITIES (Continued)
Other non-current assets
30 June 2020 31 December 2019
------------------------------ ------------- -----------------
Long-term deposits for
loan guarantees (*) 15,849 15,570
Prepaid marketing expenses 9,096 8,232
Contract assets related to
franchising contracts (**) 3,852 4,186
Deposits given 6,431 7,915
Other 43 -
------------------------------ ------------- -----------------
Total 35,271 35,903
------------------------------ ------------- -----------------
(*) As of 30 June 2020, the loan carries a TRY 24,468 (RUB 262 million) cash deposit condition that was made as collateral by the Russian operating company. In July 2020, the Group repaid this loan in the amount of TRY 55,236 (RUB 578 million) as a result in the subsequent term the loan carries a TRY 22,360 (RUB 230 million) cash deposit collateral.
(**) The Group incurs certain costs with DP International related to set up of each franchise contract and IT systems used for recording of franchise revenue.
Other current liabilities
30 June 2020 31 December 2019
--------------------------------------- ------------- -----------------
Taxes and funds payable 18,029 13,351
Social security premiums payable 12,223 4,109
Unused vacation liabilities 7,785 7,523
Volume rebate advances 6,747 7,805
Advances received from franchisees 4,814 4,057
Payable to personnel 3,529 8,044
Contract liabilities from franchising
contracts (*) 2,722 2,908
Performance bonuses - 4,961
Other expense accruals 4,897 11,254
--------------------------------------- ------------- -----------------
Total 60,746 64,012
--------------------------------------- ------------- -----------------
(*) The Group incurs certain revenue with set up of each franchise contract and these franchise fee revenues are deferred over the period of the franchise agreement.
Other non-current liabilities
30 June 2020 31 December 2019
--------------------------------------- ------------- -----------------
Contract liabilities from franchising
contracts (*) 30,969 34,664
Long term provisions for
employee benefits 2,563 2,051
Other 1,188 2,377
Total 34,720 39,092
--------------------------------------- ------------- -----------------
(*) The Group incurs certain revenue with set up of each franchise contract and these franchise fee revenues are deferred over the period of the franchise agreement.
NOTE 17 - FINANCIAL LIABILITIES
30 June 2020 31 December 2019
Short term bank borrowings 171,381 164,800
--------------------------------------------- ------------- -----------------
Short-term financial liabilities 171,381 164,800
--------------------------------------------- ------------- -----------------
Short-term portions of long-term borrowings 1,704 54
Short-term portions of long-term leases 74,878 71,427
---------------------------------------------
Current portion of long-term financial
liabilities 76,582 71,481
--------------------------------------------- ------------- -----------------
Total short-term financial liabilities 247,963 236,281
--------------------------------------------- ------------- -----------------
Long-term bank borrowings 307,501 153,159
Long-term leases 146,048 184,708
---------------------------------------------
Long-term financial liabilities 453,549 337,867
--------------------------------------------- ------------- -----------------
Total financial liabilities 701,512 574,148
--------------------------------------------- ------------- -----------------
The Group has TRY 82 million additional uncommitted credit line as of 30 June 2020.
30 June 2020
Currency Maturity Interest rate Short-term Long-term
(%)
---------------- ---------- -------------- ----------- ----------
TRY borrowings 2023 10.88 171,381 155,037
RUB borrowings 2024 9.7 1,704 152,464
173,085 307,501
--------------------------- -------------- ----------- ----------
31 December 2019
Currency Maturity Interest rate Short-term Long-term
(%)
---------------- ----------- -------------- ----------- ----------
TRY borrowings Revolving 10.88 164,800 -
RUB borrowings 2024 9.7 54 153,159
164,854 153,159
---------------------------- -------------- ----------- ----------
The loan agreement between Sberbank Moscow and Domino's Russia is subject to covenant clauses whereby Group, Turkish and Russian Divisions are required to meet certain ratios. The Group was unable to meet the required ratios for the first two quarters of 2020 and has been provided with a waiver letter for the related periods by Sberbank.
NOTE 17 - FINANCIAL LIABILITIES (Continued)
The redemption schedule of the borrowings as of 30 June 2020 and 31 December 2019 is as follows:
30 June 2020 31 December 2019
To be paid in one year 173,085 164,854
To be paid between one to two years 87,393 4,627
To be paid between two to three
years 114,237 44,522
To be paid between three years and
more 105,871 104,010
------------------------------------- ------------- -----------------
480,586 318,013
------------------------------------- ------------- -----------------
The details of the finance lease liabilities as of 30 June 2020 and 31 December 2019 are as follows:
30 June 2020 31 December 2019
Leases to be paid in one year 74,878 71,427
Leases to be paid between one to
two years 58,541 77,979
Leases to be paid between two to
three years 33,327 86,849
Leases to be paid between three years
and more 54,1180 19,880
--------------------------------------- ------------- -----------------
220,926 256,135
--------------------------------------- ------------- -----------------
The reconciliation of adjusted net debt as of 30 June 2020 and 31 December 2019 is as follows:
30 June 2020 31 December 2019
-------------------------------------- ------------- -----------------
Short term bank borrowings 173,085 164,854
Short-term portions of
long-term lease borrowings 74,878 71,427
Long-term bank borrowings 307,501 153,159
Long-term lease and borrowings 146,048 184,708
-------------------------------------- ------------- -----------------
Total borrowings 701,512 574,148
-------------------------------------- ------------- -----------------
Cash and cash equivalents (-) (231,010) (70,928)
-------------------------------------- ------------- -----------------
Net debt 470,502 503,220
-------------------------------------- ------------- -----------------
Non-recurring items
per Group management
Long-term deposit for loan guarantee (25,468) (34,253)
Adjusted net debt (*) 445,034 468,967
-------------------------------------- ------------- -----------------
(*) 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 18 - COMMITMENTS, CONTINGENT ASSETS AND LIABILITIES
a) Guarantees given to third parties as of 30 June 2020 and December 2019 are as follows;
30 June 2020 31 December 2019
Guarantee letters given 5,306 5,190
------------------------- ------------- -----------------
5,306 5,190
------------------------- ------------- -----------------
b) Guarantees received for trade receivables are as follows:
30 June 2020 31 December 2019
Guarantee notes received 41,869 39,064
Guarantee letters received 17,605 14,832
---------------------------- ------------- -----------------
59,474 53,896
---------------------------- ------------- -----------------
c) Tax contingencies
Russian tax legislation which was enacted or substantively enacted at the end of the reporting period, is subject to varying interpretations when being applied to the transactions and activities of the Group. Consequently, tax positions taken by management and the formal documentation supporting the tax positions may be challenged by tax authorities. The Russian tax administration is gradually strengthening, including the fact that there is a higher risk of review of tax transactions without a clear business purpose or with tax incompliant counterparties.
The Russian transfer pricing legislation is generally aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD) but has specific characteristics. This legislation provides the possibility for tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with unrelated parties), provided that the transaction price is not arm's length.
Tax liabilities arising from transactions between companies within the Group are determined using actual transaction prices. It is possible, with the evolution of the interpretation of the transfer pricing rules, that such transfer prices could be challenged. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Group.
The Group includes companies incorporated outside of Russia. The tax liabilities of the Group are determined on the assumption that these companies are not subject to Russian profits tax, because they do not have a permanent establishment in Russia. This interpretation of relevant legislation may be challenged but the impact of any such challenge cannot be reliably estimated currently; however, it may be significant to the financial position and/or the overall operations of the Group.
As Russian tax legislation does not provide definitive guidance in certain areas, the Group adopts, from time to time, interpretations of such uncertain areas that reduce the overall tax rate of the Group. While management currently estimates that the tax positions and interpretations that it has taken can probably be sustained, there is a possible risk that an outflow of resources will be required should such tax positions and interpretations be challenged by the tax authorities. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Group.
NOTE 18 - COMMITMENTS, CONTINGENT ASSETS AND LIABILITIES (Continued)
Management will vigorously defend the Group's positions and interpretations that were applied in determining taxes recognised in these consolidated financial statements if these are challenged by the authorities.
d) Legal cases
As of 30 June 2020, the Group had three ongoing legal cases, which were opened by three franchisees in Russia. The Group does not expect any material risk in these legal cases in accordance with the opinions of its legal advisors; therefore, it has not recognised any provision for these legal cases in the consolidated interim financial statements as of 30 June 2020.
NOTE 19 - EQUITY
The shareholders and the shareholding structure of the Group at 30 June 2019 and 31 December 2018 are as follows:
30 June 2020 31 December 2019
------------------- -------------------
Share (%) Amount Share (%) Amount
Fides Food Systems Coöperatief U.A. 32.8 11,928 32.8 11,928
Public shares 62.1 22,591 62.1 22,591
Vision Lovemark Coöperatief U.A. 4.9 1,777 4.9 1,777
Other 0.2 57 0.2 57
36,353 36,353
------------------------------------------ ---------- ------- ---------- -------
As of 30 June 2020, the Group's 145,372,414 shares are issued and fully paid for.
The nominal value of each share is EUR0.12 (2018: EUR0.12). There is no preference stock.
As of 30 June 2020, the Group's 145,372,414 (30 June 2019: 145,372,414) shares are issued and fully paid for.
On 3 July 2017, just prior to Admission, the Company issued (i) 13,046,726 ordinary shares, with a nominal value of EUR 0.12 each, in the capital of the Company to Vision Lovemark Coöperatief U.A. and (ii) 138,037,219 ordinary shares, with a nominal value of EUR 0.12 each, in the capital of the Company to Fides Food Systems Coöperatief U.A., which was paid up by debiting the Company's share premium reserve by TRY 31,239. Also, on 3 July 2017, as part of its initial public offering ("IPO"), the Company issued 10,372,414 new ordinary shares with a nominal value of EUR 0.12 each. As a result, the Company's issued and outstanding share capital, increased to TRY 36,353 (divided into 145,372,414 ordinary shares). After IPO, 52,1% of the shares become public. The net proceeds received by the Company from the IPO is TRY 94,132 (TRY 9,075 per share). DP Eurasia's authorized share capital is EUR 60,000,000.
NOTE 19 - EQUITY (Continued)
Share premium
Share premium represents differences resulting from the incorporation of Fides Food by Fides Food Systems Coöperatief U.A. at a price exceeding the face value of those shares and differences between the face value and the fair value of shares issued at the IPO.
Ultimate controlling party
The ultimate controlling party of the Company is Turkish Private Equity Fund II L.P. There is no individual ultimately controlling the Group.
NOTE 20 - INCOME 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 condensed consolidated financial information, has been calculated on a separate-entity basis. The tax rate used for the period to 30 June 2020 is 25% (31 December 2019: 25%).
The breakdown of cumulative temporary differences and the resulting deferred income tax assets/liabilities at 30 June 2020 and 31 December 2019 using statutory tax rates are as follows:
30 June 2020 31 December 2019
---------------------------- ----------------------------
Deferred Deferred
tax tax
Temporary assets/ Temporary assets/
differences (liabilities) differences (liabilities)
------------------------------------ ------------ -------------- ------------ --------------
Carry forward tax losses (*) 51,817 10,363 44,926 8,985
Contract liabilities from
franchising contracts 31,461 6,755 34,826 7,486
Expense accruals 25,332 5,055 18,529 3,708
Unused vacation liabilities 3,445 758 3,368 741
Legal provisions 3,606 793 3,606 793
Provision for employee termination
benefit 2,563 564 2,051 451
Right of use assets and lease
liability 22,405 4,686 13,625 2,845
Other 1,425 229 5,868 1,222
------------------------------------ ------------ -------------- ------------ --------------
142,054 29,203 126,799 26,231
Property, equipment and intangible
assets (25,613) (5,828) (36,642) (8,171)
------------------------------------ ------------ -------------- ------------ --------------
(25,613) (5,828) (36,642) (8,171)
Deferred income tax assets,
net 23,375 18,060
------------------------------------ ------------ -------------- ------------ --------------
(*) Consists of carry forward losses of Domino's Russia. Domino's Russia has not recognised any additional tax assets on carry forward losses in 2020, the change is the result of the currency translation differences between Russian Roubles and Turkish Lira.
NOTE 21 - SHARE BASED PAYMENTS
The Phantom Option Scheme
The Phantom Option Scheme was put in place during the initial public offering in 2017 to incentivise senior members of management. The incentive plan entitles the employees to a cash payment at the date of an exit by shareholders. The amount payable will be determined based on the difference between the equity value of the entities at the time of exit and their grant dates. Granted options will only vest if certain conditions are met, including continued employment with the Group, and if there is an event of 100% exit by Fides Food Systems Coöperatief UA. and Vision Lovemark Coöperatief UA. However, shareholders have the right to exercise these plans even if they do not exit 100% of their stake and may determine the amount payable to employee's pro rata their exited shareholding.
In relation with the IPO, the shareholders used their right to partly settle the options outstanding under these plans, and 48.6% of the outstanding phantom options were settled in August 2017. As a result, this portion of the outstanding share-based incentives is fully expensed as at 31 December 2017. Subsequently, in relation with the stake sale by Fides Food Systems Coöperatief UA in February 2019, Fides Food Systems Coöperatief UA. used its right to partly settle the options outstanding pro-rata their stake sold an additional 10.8% of the outstanding phantom options were settled in the first half of 2019. The unrecognised portion of the total grant date fair value for the remaining 40.6% of the options amounts to TRY 114 and will be expensed over the remainder of the estimated vesting period.
Senior management long term incentive plan
New share incentive scheme was put in place on 7 May 2018. According to the incentive scheme employees was granted an option to acquire shares, based on performance targets of the Group for the upcoming three years, and continuing employment till the vesting time. The shares under the option will vest at the end of scheme period.
On 8 May 2018, Aslan Saranga was granted an LTIP award amounting to 279,322 shares, 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 which will vest in May 2022 subject to achievement of an EBITDA growth target. The fair value of the LTIP awards granted in 2019 is equal to the share price on the grant date of GBP 0.88 (2018: GBP 1.878).
Under these two existing plans, amounting to TRY 726 has been charged for 30 June 2020, whereas TRY 841 has been charged for 2019 and the cumulative charge is TRY 20,696 as at 30 June 2020 (31 December 2019: TRY 19,970).
NOTE 22 - SUBSEQUENT EVENT
In July 2020, the Group repaid its Russian bank loan in the amount of TRY 55,236 (RUB 578 million) as a result in the subsequent term the loan carries a TRY 22,360 (RUB 230 million) cash deposit condition that was made as collateral by the Russian operating company.
As of 31 August 2020, the Group has obtained a new waiver letter from Sberbank which covers the quarters ending 30 September 2020 and 31 December 2020. The bank confirmed not to penalize the Group for violation of covenants for these periods following our agreement to reset the covenants based on a mutually agreed upon business plan by 1 October 2020.
On 7 September 2020, Andrew Rennie, Domino's Pizza Enterprises Limited's ex-CEO of European Operations, agreed to join the Group as Board Advisor. He obtained a call option from the major shareholder Fides Coop for 4 million DPEU shares at a strike price of 1.05p with an expiry date of 30 September 2022. The impact of this call option will be assessed at the end of 2020 and will be recognized in the 2020 full year financial statements.
Review report To: the board of directors of DP Eurasia N.V.
Introduction
We have reviewed the accompanying condensed consolidated interim financial information for the six-month period ended 30 June 2020 of DP Eurasia N.V., Amsterdam, which comprises the condensed consolidated statement of financial position as at 30 June 2020, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows for the period then ended and the selected explanatory notes. The board of directors is responsible for the preparation and presentation of this (condensed) interim financial information in accordance with IAS 34, 'Interim Financial Reporting' as adopted by the European Union. Our responsibility is to express a conclusion on this interim financial information based on our review.
Scope
We conducted our review in accordance with Dutch law including standard 2410, Review of Interim Financial Information Performed by the Independent Auditor of the entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with auditing standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial information for the six-month period ended 30 June 2020 is not prepared, in all material respects, in accordance with IAS 34, 'Interim Financial Reporting' as adopted by the European Union.
Amsterdam, 7 September 2020
PricewaterhouseCoopers Accountants N.V.
Original has been signed by drs. R.P.R. Jagbandhan RA
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END
IR EANNXESKEEFA
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