DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED ACN 010 489 326
PROSPECTUS ______
FINANCIAL ADVISER LEAD MANAGER IMPORTANT NOTICE______
This Prospectus is dated 15 April 2005 and was lodged with ASIC on that date. It is a replacement prospectus which replaces the Company’s prospectus dated 13 April 2005. Neither ASIC nor ASX take any responsibility for the content of this Prospectus or the merits of the investment to which this Prospectus relates. The Company will apply for admission to the official list of ASX and quotation of the Shares on ASX within seven days after the date of this Prospectus. No securities will be issued on the basis of this Prospectus later than 13 months after the date of the Prospectus. You should read this Prospectus in its entirety before deciding to complete and lodge an Application Form and, in particular, in considering the prospects of the Company, you should consider the assumptions underlying the Forecast Financial Information and the risk factors that could affect the financial performance of the Company. You should consider these factors in the light of your personal circumstances (including financial and taxation issues). If you have any questions you should seek professional advice from your stockbroker, accountant or other professional adviser before deciding to invest. Some of the risk factors that should be considered by potential investors are outlined in Section 7. The offer of securities under this Prospectus does not constitute a public offer in any jurisdiction other than Australia. This Prospectus does not constitute an offer to any person to whom, or an offer in any place in which, it would be unlawful to make such an offer. The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law and persons who come into possession of the Prospectus should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities law.
NO DISTRIBUTION OR SALE IN THE UNITED STATES No action has been taken to register or qualify this Prospectus, the Shares or the Offer, or otherwise permit a public offering of Shares, in any jurisdiction outside Australia. The shares being offered in this Prospectus have not been, and will not be, registered under the US Securities Act of 1933 and may not be offered, sold or resold in the US or to, or for the account or benefit of US Persons, except in accordance with an available exemption from registration, under the US Securities Act and applicable US state securities laws. Neither this Prospectus nor the accompanying Application Forms may be sent to investors in the US or otherwise distributed in the US or to US Persons. The Offer constituted by this Prospectus in electronic form is available only to persons receiving this Prospectus in electronic form within Australia.
DISCLAIMER No person is authorised to give any information or make any representation in connection with the Offer which is not contained in this Prospectus. Any information or representation not contained in this Prospectus may not be relied on as having been authorised by the Vendor Shareholders, the Company or the Directors.
EXPOSURE PERIOD This Prospectus will be made generally available to Australian residents during the Exposure Period by being posted on the Company’s Internet site at www.dominos.com.au. The purpose of the Exposure Period is to enable examination of the Prospectus by market participants prior to the raising of funds. Applications under this Prospectus received during the Exposure Period will not be processed until after the expiry of the Exposure Period. No preference will be conferred on Applications received during the Exposure Period. A free paper copy of this Prospectus is available on request to the Company during the Exposure Period.
ELECTRONIC PROSPECTUS This Prospectus may be viewed at www.dominos.com.au. The Prospectus is only available online to residents in Australia. Persons who access the electronic version of this Prospectus should ensure that they download and read the entire Prospectus. A paper copy of this Prospectus is available free of charge to any person in Australia on request to the Registry or the Lead Manager during the Offer Period. Applications may only be made on a printed copy of the Application Form attached to or accompanying this Prospectus. The Corporations Act prohibits any person from passing the Application Form on to another person unless it is attached to a hard copy of this Prospectus or the completed and unaltered electronic version of this Prospectus.
PRIVACY If you apply for Shares, you will provide personal information to the Vendor Shareholders, the Company and the Registry. The Vendor Shareholders, the Company and the Registry collect, hold and use your personal information in order to assess your Application, service your needs as an investor, provide facilities and services that you request and carry out appropriate administration. Company and tax laws require some of the information to be collected. If you do not provide the information requested, your Application may not be able to be processed efficiently, or at all. The Vendor Shareholders, the Company and the Registry may disclose your personal information for purposes related to your investment to their agents and service providers including those listed below or as otherwise authorised under the Privacy Act 1988: • Lead Manager in order to assess your Application; • Registry for on-going administration of the register; and • Printers and the mailing house for the purposes of preparation and distribution of statements and for handling of mail. Under the Privacy Act 1988 (Cwlth), you may request access to your personal information held by (or on behalf of) the Company, the Vendor Shareholders or the Registry. You can request access to your personal information by telephoning or writing to the Vendor Shareholders or the Company through the Registry as follows: Mailing address: GPO Box 7115, Sydney NSW 2001 Delivery address: Level 3, 60 Carrington Street, Sydney NSW 2000
DEFINITIONS AND ABBREVIATIONS Defined terms and abbreviations used in this Prospectus are explained in the Glossary at the end of this document.
FINANCIAL AMOUNTS The financial amounts in this Prospectus are expressed in Australian dollars unless stated otherwise. DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
CONTENTS ______
KEY DATES AND OFFER STATISTICS 2
CHAIRMANS LETTER 3
1. INVESTMENT OVERVIEW 16
2. DETAILS OF THE OFFER 24
3. INDUSTRY OVERVIEW 32
4. BUSINESS PROFILE 38
5. OWNERSHIP, MANAGEMENT AND CORPORATE GOVERNANCE 48
6. FINANCIAL INFORMATION 58
7. RISK FACTORS 78
8. INVESTIGATING ACCOUNTANTS’ REPORT 84
9. REVIEW OF DIRECTORS’ FORECAST FINANCIAL INFORMATION 90
10. MATERIAL CONTRACTS 98
11. ADDITIONAL INFORMATION 104
12. GLOSSARY 118
APPENDIX A - DETAILED FINANCIAL INFORMATION 123
LOCATION OF STORES 139
APPLICATION FORMS 141
DIRECTORY INSIDE BACK COVER
1 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
KEY DATES AND OFFER STATISTICS______
KEY DATES
Offer Opens Wednesday, 20 April 2005 Offer Closing Date for Priority Offer and Exempt Employee Plan Offer 12 noon, Tuesday, 3 May 2005 Offer Closing Date for Broker Firm Offer 12 noon, Friday, 6 May 2005 Expected date for Allotment of Shares Tuesday, 10 May 2005 Expected despatch of holding statements Wednesday, 11 May 2005 Shares expected to commence trading on ASX on a normal settlement basis Monday, 16 May 2005
KEY OFFER STATISTICS
Offer Price per Share $2.20 Number of Shares Offered 34,090,909 Total Shares on issue on completion of the Offer 60,000,000 Market Capitalisation at the Offer Price $132 million
Forecast for year ending 30 June 2005 30 June 2006(1) Network Sales $300.0 million $350.5 million Revenue $139.8 million $157.1 million NPAT (pre goodwill amortisation and share issue costs) $7.8 million $10.7 million NPAT (post goodwill amortisation and share issue costs) $5.8 million $9.3 million Earnings per Share (pre goodwill amortisation and share issue costs)(4) 13.0 cents 17.8 cents Earnings per Share (post goodwill amortisation and share issue costs)(4) 9.7 cents 15.5 cents Dividends per Share (fully franked) 0.7 cents(2) 8.5 cents Price earnings multiple at the Offer Price (pre goodwill amortisation and share issue costs)(5) 16.9x 12.3x Forecast dividend yield (fully franked) at the Offer Price 2.5%(3) 3.9%
Notes: (1) 2006 Forecasts based on AGAAP. Refer to Table 1.1 in Section 1.5 for 2006 A-IFRS Forecast. (2) Forecast 2005 Dividend based on 1.5 months to 30 June 2005. (3) Forecast 2005 Dividend yield based on the Offer Price and annualised for 12 months. (4) Basic Earnings Per Share not diluted for options on issue. Refer Section 11.5 and 11.11. 2 (5) Price earnings multiple at the Offer Price calculated using basic Earnings Per Share. Refer footnote 4. DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
CHAIRMAN’S LETTER ______
13 April 2005
Dear Investor
On behalf of the Directors, I have great pleasure in offering you the opportunity to invest in Domino’s Pizza Australia New Zealand Limited (“Domino’s Pizza”).
The Domino’s brand was founded in the United States in 1960 and is owned by Domino’s Pizza, Inc, a listed US company. Today, there are more than 7,500 Domino’s stores in over 50 countries.
Domino’s Pizza holds the exclusive Master Franchise Agreement for Domino’s in Australia and New Zealand. The first Domino’s store was opened in Australia in 1983. Under the leadership of CEO Don Meij, for the three years from 30 June 2001 to 30 June 2004, Domino’s Pizza has achieved compound annual Network Sales growth of over 26%. As at 31 December 2004, the Company operated a Network of 333 stores in Australia and New Zealand, and is forecast to have a Network of 376 stores at 30 June 2005, with forecast Network Sales of $300.0 million in the financial year to 30 June 2005(1).
Domino’s Pizza is a leading Australian food retailer operating the largest pizza chain in Australia by both Network Store numbers and Network Sales(2). The cornerstone of the Company’s success has been the ability to leverage a diversified Network of both Corporate and Franchised Stores, backed by strong store level economic fundamentals and the power and proprietary systems of a global network.
The Company plans to continue its expansion throughout Australia and New Zealand and expects that Domino’s Pizza and its Franchisees will continue to benefit from the economies of scale generated by operating the largest pizza Network in Australia. Future growth is expected from new store openings, growth in sales from existing stores and the potential for new store and menu formats.
Domino’s Pizza has a strong, operationally focused Senior Management Team, with over 100 years’ experience collectively in the Domino’s Pizza Network, either within the Company or as Franchisees. The Directors and I are very confident in the Senior Management Team’s ability to continue to execute the Company’s expansion plans and to deliver strong, profitable growth.
The Offer provides an opportunity for you to share in our exciting future. This Prospectus contains detailed information about the Offer and the financial and operating performance of Domino’s Pizza. I encourage you to read it carefully in its entirety before making your investment decision.
On behalf of the Directors, I commend this investment opportunity to you and look forward to welcoming you as a Shareholder.
Yours sincerely
Ross Adler CHAIRMAN
(1) Refer to Section 6 for detail. 3 (2) BIS Shrapnel, Australian Foodservice, 2005-2008. DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
4 A leading Australian pizza company
LARGEST PIZZA COMPANY IN AUSTRALIA BY STORES AND SALES
333 STORES THROUGHOUT AUSTRALIA AND NEW ZEALAND(1)
PIZZA IS ONE OF AUSTRALIA’S TOP FIVE MOST POPULAR MEAL SOLUTIONS(2)
DOMINO’S SERVES IN EXCESS OF 700,000 PIZZAS EVERY WEEK TO THE EQUIVALENT OF APPROXIMATELY 5% OF AUSTRALIAN HOMES(3)
NOTES: (1) STORE NUMBERS AS AT 31 DECEMBER 2004 (2) BASED ON NUMBER OF PURCHASES PER HEAD/YEAR IN 2002, BIS SHRAPNEL, FAST FOOD AND EATING OUT IN AUSTRALIA (2003-2005). (3) BASED ON APPROXIMATELY 350,000 ORDERS PER WEEK (COMPANY DATA) AND 7,507,100 AUSTRALIAN HOUSEHOLDS, INCOME AND HOUSEHOLD CHARACTERISTICS FOR SELECTED LIFE CYCLE, AUSTRALIAN BUREAU OF STATISTICS.
5 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
6 A dynamic, scaleable business
A PROVEN, SUCCESSFUL BLEND OF CORPORATE AND FRANCHISED STORES
STORE NUMBERS
450 418 400 376
350
300 294 293 250 245 270 202 200 178 206
STORE NUMBERS STORE 150 175 149 128 100
50 50 53 70 88 106 125 0 2001 2002 2003 2004 2005F 2006F YEAR ENDING 30 JUNE CORPORATE STORES FRANCHISED STORES 7 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
NETWORK SALES(1) 400
350.5 350
300.0 300
245.8 250
205.1 200 $M 175.0
150 120.9
100
50
0 2001 2002 2003 2004 2005F 2006F YEAR
Note: (1) Network Sales means the total sales generated from Franchised Stores and Corporate Stores. 8 Strong, consistent financial performance
OVER 26% COMPOUND ANNUAL NETWORK SALES GROWTH OVER THE PAST 3 YEARS
$300 MILLION IN NETWORK SALES FORECAST FOR YEAR ENDING 30 JUNE 2005(1)
NOTE: (1) BASED ON THE FORECAST FINANCIAL INFORMATION
REVENUE 160 157.1
139.8 140
120 109.7
100 88.0 80 SM 70.4
60
40 34.7
20
0 9 2001 2002 2003 2004 2005F 2006F YEAR DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
•ALASKA •ICELAND
•CANADA SCOTLAND• •DENMARK N. IRELAND• •NETHERLANDS IRELAND• •BELGIUM WALES••ENGLAND •SWITZERLAND •UNITED STATES •FRANCE •GREECE •TURKEY •MOROCCO LEBANON• •ARUBA •BAHAMAS JORDAN •CAYMAN ISLANDS ISRAEL•• MEXICO• •CURACAO EGYPT• •KUWAIT •DOMINICAN REPUBLIC BAHRAIN• GUATEMALA• •HAITI •JAMAICA SAUDI ARABIA• HONDURAS• •PUERTO RICO •HAWAII EL SALVADOR• •ST. LUCIA •ST. MAARTEN NICARAGUA• •VIRGIN ISLANDS COSTA RICA• PANAMA• •VENEZUELA •COLOMBIA •EQUADOR
•PERU •BRAZIL
•CHILE
10 Leveraging the strength of an international network
ESTABLISHED FOR OVER 40 YEARS
7,500 STORES IN OVER 50 COUNTRIES
GLOBAL PRODUCT INNOVATION, SYSTEMS, TRAINING AND INSIGHTS
EXTENSIVE DISTRIBUTION SYSTEM SERVICING 333 STORES ACROSS AUSTRALIA AND NEW ZEALAND (1)
NOTE: (1) STORE NUMBERS AS AT 31 DECEMBER 2004
NT 4 stores
•RUSSIA
QLD 88 stores
•SOUTH KOREA SA NSW •CHINA •JAPAN WA 20 stores 116 stores 37 stores •PAKISTAN ACT •TAIWAN 10 stores VIC 32 stores INDIA • •GUAM TAS 10 stores PHILIPPINES •SRI LANKA •
MALAYSIA • NZ 16 stores
•AUSTRALIA
•NEW ZEALAND
11 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
I’ve got the hots for what’s in the box with the dots
12 Highly visible and recognised brand
AUSTRALIA’S DOMINANT PIZZA ADVERTISER
FRESH, FUN, YOUTHFUL IMAGE
HIGHLY RECOGNISED SLOGAN – “I’VE GOT THE HOTS FOR WHAT’S IN THE BOX WITH THE DOTS”
MEMORABLE NATIONAL TELEPHONE NUMBER – 131 888
131•888 I’ve got the hots for what’s in the box with the dots
13 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Pat McMichael Andrew Megson New Concept Brinley Meyer National Operations Sam McMahon Steven Page Daniel Hobbs Development Manager Team Member Manager – Franchise Delivery Driver Delivery Driver Manager
14 Passionate, experienced team
OVER 9,700 FULL-TIME OR CASUAL STAFF ACROSS AUSTRALIA AND NEW ZEALAND
OVER 100 YEARS COMBINED INDUSTRY EXPERIENCE ACROSS SENIOR MANAGEMENT TEAM
Peter Jones Michael Locke New Zealand Zane Zappacosta Chief Marketing Peter Spehar Sarah Begeng General Manager Franchisee Officer Store Manager Operations Manager
15 16 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER SECTION 1
INVESTMENT OVERVIEW ______
17 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
1. INVESTMENT OVERVIEW ______
1.1 OVERVIEW OF DOMINO’S PIZZA Domino’s Pizza holds the exclusive Master Franchise Agreement for the Domino’s brand and Network in Australia and New Zealand. The Domino’s brand is owned by Domino’s Pizza, Inc, a listed US company. Domino’s Pizza operates both company-owned and operated Corporate Stores and Franchisee owned and operated Franchised Stores, both selling home delivered and take-away pizza. As at 31 December 2004, Domino’s Pizza had: • 333 stores across every Australian state and territory and in New Zealand, comprising: – 101 Corporate Stores; and – 232 Franchised Stores. • Over 9,700 staff working across the Network as at 31 December 2004, of which: – 3,271 were employed directly by Domino’s Pizza; and – approximately 6,430 were employed by Franchisees. Domino’s Pizza has grown to become: • the largest pizza chain in Australia in terms of both Network store numbers and Network Sales; • the fifth largest Quick Service Restaurant (“QSR”) chain in Australia by Network Store number (behind Subway, McDonald’s, KFC and Red Rooster/Chicken Treat); and • the sixth largest QSR chain in Australia by Network Sales (behind McDonald’s, KFC, Hungry Jack’s, Subway and Red Rooster/Chicken Treat)(1).
1.2 KEY INVESTMENT FEATURES • An attractive growth profile supported by: – expansion into new geographic markets, including Victoria and New Zealand and in-filling in existing territories, including Sydney; – growth in sales from existing stores; – potential for new store and menu formats; – continued growth in market share of chains over independents; and – a large and stable QSR market. STORE NUMBERS – 2001-2006 450 418
400 376
350
294 300
293 245 250 270 202 200 178 206
175
STORE NUMBERS STORE 150 149 128 100
125 106 50 88 70 50 53 0 2001 2002 20032004 2005F 2006F YEAR ENDING 30 JUNE
Corporate Stores Franchised Stores
Note: Store numbers as at 30 June 2005 and 2006 based on forecast store numbers, see Section 6 for further detail. 18 Note: (1) BIS Shrapnel, Australian Foodservice, 2005-2008. DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
• Domino’s Pizza has a diversified revenue base. – Revenue streams Domino’s Pizza generates include: • operating revenue from Company owned stores; • franchise royalties and other fees and charges for services provided to Franchisees; • profits from the sale of stores redeveloped within the Network; and • other miscellaneous sources. – Domino’s Pizza’s revenues are also diversified geographically across: • countries: Australia and New Zealand; and • regions: regional and metropolitan. • Corporate and Franchised Stores generate strong economic returns at store level. – Across the Australian Store Network in the year to 30 June 2004, stores generated an average return on capital of 33.4%(1). • A scaleable business with the infrastructure to support sustainable growth. – Franchised Stores enable Domino’s Pizza to expand its Network with minimal incremental capital expenditure; – significant buying power driven by the size of the Network; and – operating systems designed to deliver high volume production and maximise profitability. • Strong track record of profitability and growth: – a compound annual growth rate of 26.7% in Network Sales, 46.8% in revenue and 60.4% in EBITDA for the period 30 June 2001 to 30 June 2004; – Same Store Sales Growth of 7.0% and 3.8% in the financial years to 30 June 2003 and 2004 respectively; and – a proven ability to roll-out new stores.
EBITDA AND EBITDA MARGIN – 2001-2006 25 16%
13.9% 14% 12.8% 12.9% 21.9 20 11.7% 11.1% 12%
18.1 10% 15 8.9%
8% 12.8
$ MILLION 10 11.3 6%
7.8 4% 5
2% 3.1
0 0% 2001 2002 20032004 2005 F 2006 F
EBITDA ($) EBITDA Margin (%)
Notes: – Domino’s Pizza entered the New Zealand market in year ending 30 June 2004 – Australian EBITDA margins continued to increase in 2004 year, excluding the impact of entry into the New Zealand market – Pro Forma 2005 Forecast for year ending 30 June 2005 is based on the adjusted performance for the six months ended 31 December 2004, and forecast performance for the six months ending 30 June 2005. Refer to Section 6 for more detail.
Note: 19 (1) Measured by Average Network Store EBITDA/Average Network Store set-up cost, during the year to 30 June 2004. See Section 4.5 for detail. DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
• Strong cash flows: – generated through an efficient operating platform with a strong focus on cash flow management down to store level; and – store roll-out to date has predominantly been funded by strong operating cash flow. • Member of a global network: – the sharing of intellectual property throughout the entire international Domino’s network means Domino’s Pizza has access to significant operational knowledge; and – the PULSE™ point of sale system was developed by Domino’s, Inc., and provides Domino’s Pizza with a leading management system. • Experienced Senior Management Team: – a highly experienced Senior Management Team with an aggregate of over 100 years’ experience in the Domino’s Pizza Network; – strong operational focus, with most of the Senior Management Team having worked throughout various levels of the Company and the industry during their careers; and – four members of the Senior Management Team have also been Franchisees. • Strong team culture and employee development that incentivises staff and Franchisees to continue to grow and improve the business: – Domino’s Pizza operates a development program that is designed to attract, train and retain staff, optimise performance and reduce staff turnover; – in-house pizza “colleges” provide quality training to staff; and – many Franchisees are sourced from within the Domino’s Pizza Network, providing continuity of culture and a natural progression for employee development. • Proprietary management systems and technology platforms support significant expansion: – PULSE™ point of sale system; – Domino’s Direct, the company-owned direct mail centre; and – the “Luv Lab”, a purpose built research kitchen through which new pizza concepts are regularly tested and evaluated. • Domino’s is a highly visible and successful brand in the Australian advertising market: – largest advertising spend in pizza industry(1); – a distinctive advertiser in the “youth” and “pizza” markets; – an easily recalled national telephone number: 131 888(2); and – a memorable TV slogan: “I’ve got the hots for what’s in the box with the dots”(2). • Financial capacity to support further growth: – the Directors believe that, following the Offer, the Company’s capital structure will enable it to take advantage of growth opportunities and effectively undertake its expansion plans.
Notes: 20 (1) Nielsen Media Research AdEx TV estimates, January-December 2004. (2) Eureka Strategic Research Pty Ltd, U&A Study 2003. DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
1.3 DOMINO’S “HYBRID” MODEL Domino’s Pizza operates a “hybrid” model based on a combination of Corporate Stores and Franchised Stores. The model operates on the basis of approximately 30% Corporate Stores and 70% Franchised Stores and has proven to be very successful for the Company in combining: • the high performance benchmarks of the Corporate Store Network which are analysed daily by management and used as performance metrics for the Franchise Store Network; • the operating leverage from the Franchised Stores which can be rolled-out with limited capital expenditure; • stability of earnings and cash flows from Franchised Stores to supplement the higher earnings from Corporate Stores; and • an additional level of innovation and entrepreneurial thinking from Franchisees.
1.4 GROWTH STRATEGY Domino’s Pizza’s strategic initiatives for growth include: • roll-out of new Corporate and Franchised Stores in under-developed markets, including Victoria, New Zealand and parts of regional Australia; • acquisition or conversion of other chains, including independents, in under-developed metropolitan and regional areas; and • continuing to grow market share via: – operational efficiencies and innovations; – new product development; and – reviewing business development opportunities, including: • other time segments, such as lunch and late night opportunities; and • store layout and location.
1.5 SELECTED FINANCIAL INFORMATION The following table is a summary of Domino’s Pizza’s: • Pro Forma Adjusted Historical Financial Information for the financial years ending 30 June 2001, 30 June 2002, 30 June 2003 and 30 June 2004; and • Forecast Financial Information for the years ending 30 June 2005 and 30 June 2006. This information is intended as a summary only. More detailed information can be found in Section 6.
21 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Table 1.1 – Summary Statement of Financial Performance
AGAAP A-IFRS(5) Pro Forma 2006 Pro Forma Adjusted 2005 2006 A-IFRS Historical Financial Information(1) Forecast(3) Forecast Forecast (Year ended 30 June) 2001 2002 2003 2004 2005 2006 2006 $ million Network Sales(2) 120.9 175.0 205.1 245.8 300.0 350.5 350.5 Revenue 34.7 70.4 88.0 109.7 139.8 157.1 151.9 EBITDA 3.1 7.8 11.3 12.8 18.1 21.9 21.4 EBITA 1.8 4.9 8.2 8.4 13.2 16.1 15.5 EBIT 1.7 4.4 7.8 7.8 12.0 14.7 15.5 NPAT (pre amortisation and share issue costs)(4) 7.8 10.7 10.2 NPAT (post amortisation and share issue costs)(4) 5.8 9.3 10.2 Earnings Per Share (pre amortisation and share issue costs) 13.0 cents 17.8 cents 17.0 cents Earnings Per Share (post amortisation and share issue costs) 9.7 cents 15.5 cents 17.0 cents Dividend Per Share paid to new and Existing Shareholders (fully franked) 0.7 cents(6) 8.5 cents 8.5 cents
Notes: (1) The Pro Forma Adjusted Historical Financial Information is based on the audited financial performance for the years ending 30 June 2001, 2002, 2003 and 2004. Pro Forma adjustments are set out in Table 6.11. (2) Network Sales have not been independently audited or reviewed by Deloitte Touche Tohmatsu or Deloitte Corporate Finance Pty Limited. (3) The Pro Forma 2005 Forecast (excluding the store data) for the year ending 30 June 2005 is based on the financial performance for the six months ended 31 December 2004, as reviewed by Deloitte Touche Tohmatsu and set out in Section 8, and the forecast performance for the six months ending 30 June 2005. (4) Details of one-off share issue costs are set out in Section 6. (5) For the year ending 30 June 2006, Domino’s Pizza will adopt A-IFRS. Further details on A-IFRS are set out in Sections 6.15 and 6.16. (6) Forecast 2005 dividend based on 1.5 months to 30 June 2005.
1.6 DIVIDEND POLICY Subject to the Company’s forecasts being achieved and other relevant factors, the Directors intend to declare the following fully franked dividends in respect of the Forecast Period. Table 1.2 – Forecast Dividend – CPS and Yield %
Cents per Share Annualised Forecast Yield at Offer Price (%)(3) Forecast Final Dividend for year ending 30 June 2005(1) 0.7 2.5% Forecast full year dividend for year ending 30 June 2006(2) 8.5 3.9%
Notes: (1) Based on 1.5 months to 30 June 2005, payable in October 2005. (2) Full year dividend comprises interim dividend payable in March 2006 and final dividend payable in October 2006. (3) Based on the Offer Price and annualised for 12 months.
Beyond the Forecast Period, the Directors will endeavour to provide Shareholders with fully franked 22 dividends and currently intend to maintain a dividend payout ratio of 50% to 60% of NPAT. The forecast DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
dividend for the year ending 30 June 2006 represents a payout ratio of 50% based on the 2006 A-IFRS Forecast NPAT. However, the Directors can give no assurances as to the future dividend policy, the extent of future dividends, nor the franking status as these will depend upon the actual levels of profitability, capital requirements and taxation of Domino’s Pizza at the relevant time.
1.7 RISKS There are a number of factors, both specific to Domino’s Pizza and of general nature, which may affect the future operating and financial performance of the Company and the outcome of an investment in Domino’s Pizza. There can be no guarantee that Domino’s Pizza will achieve its stated objectives, that forecasts will be met or that forward looking statements will be realised. Before deciding to invest in the Company, potential investors should read the entire Prospectus and, in particular, should consider the assumptions underlying the prospective financial information and the risk factors that could affect the financial performance of Domino’s Pizza. These risks are set out in Section 7 of this Prospectus.
1.8 PURPOSE OF THE OFFER The purpose of the Offer is to: • establish a financial and ownership structure which will facilitate the continued expansion of the Company’s business; • enable the Existing Shareholders to realise part of their investment in the Company; • fund the retirement of certain debt; • provide the Company with sufficient working capital and a capital structure that gives flexibility for future acquisitions and other business opportunities which may arise; and • provide an opportunity for Eligible Employees and Eligible Franchisees to invest in the Company. The gross proceeds from the Offer will be used to: • fund the purchase of Shares from Vendor Shareholders; • fund the Capital Reduction – see Section 11.4; • repay loans from Somad Pty Ltd and Marou Pty Ltd; • repay loans from Westpac Banking Corporation; and • provide the Company with working capital and pay its share of Offer expenses.
1.9 OFFER PROCEEDS The funds raised by the Offer will be used as follows: Table 1.3 – Use of Offer Proceeds
$Millions
Capital Reduction 14.7 Sale of Shares by Vendor Shareholders(1) 35.3 Repayment of loans from Somad Pty Ltd and Marou Pty Ltd 8.7 Repayment of loans to other parties 0.7 Repayment of loans from Westpac Banking Corporation 12.1 Working capital for Domino’s Pizza(2) 3.5 Total 75.0
Notes: (1) Balance of $50 million raising after selective capital reduction of $14.7 million. (2) Incorporates the Company’s share of expenses of the Offer.
Working capital will be committed towards payment of the Company’s share of expenses of the Offer, including payout of the Senior Management incentive plan. See Section 11.16 for details. Domino’s Pizza and the Vendor Shareholders will share the expenses of the Offer. Refer to Section 11.16. 23 1.10 HOW TO APPLY FOR SHARES? Details of how to apply for Shares are set out in Section 2. 24 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER SECTION 2
DETAILS OF THE OFFER ______
25 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
2. DETAILS OF THE OFFER______
2.1 DESCRIPTION OF THE OFFER This Prospectus invites investors to apply for a total of 34,090,909 shares comprising: • 18,046,000 New Shares, being offered by Domino’s Pizza; and • 16,044,909 Sale Shares being offered by the Vendor Shareholders. All Shares are being offered at a price of $2.20 per Share. Following the Offer, the Shares issued pursuant to this Prospectus will represent approximately 56.8% of Domino’s Pizza’s issued capital. The remaining 43.2% represents shares retained by the Continuing Shareholders. Details of voluntary escrow agreements in favour of the Company entered into by the Continuing Shareholders are contained in Section 11.8.
2.2 PURPOSE OF THE OFFER AND USE OF FUNDS The purpose of the Offer is to: • establish a financial and ownership structure which will facilitate the continued expansion of the Company’s business; • enable the Existing Shareholders to realise part of their investment in the Company; • fund the retirement of certain debt; • provide the Company with sufficient working capital and a capital structure that gives flexibility for future acquisitions and other business opportunities which may arise; and • provide an opportunity for Eligible Employees and Eligible Franchisees to invest in the Company. The gross proceeds from the Offer will be used to: • fund the purchase of Shares from Vendor Shareholders; • fund the Capital Reduction – see Section 11.4; • repay loans from Somad Pty Ltd and Marou Pty Ltd; • repay loans from Westpac Banking Corporation; and • Provide the Company with working capital and pay its share of Offer expenses.
2.3 SHAREHOLDERS
Shareholder Pre Offer At Completion of Offer(3) Shares % Shares % Somad Holdings Pty Ltd 36,249,126 74.5% 16,683,217 27.8% Don Meij and related parties 5,342,487 11.0% 4,126,578 6.9% Grant Bourke and related parties(1) 5,342,487 11.0% 3,397,032 5.7% Andrew Rennie and related parties(2) 1,702,264 3.5% 1,702,264 2.8% New shareholders pursuant to the Offer Nil Nil 34,090,909 56.8% Total 48,636,364 100.0% 60,000,000 100.0%
Notes: (1) Entities associated with Grant Bourke include Tiggerbell Enterprises Pty Ltd and Pizzabest Pty Ltd. (2) Entities associated with Andrew Rennie include Success Pizzas Pty Ltd. (3) This assumes that the transfer of the Sale Shares, issue and allotment of the New Shares and Capital Reduction occurs at the same time after the Closing Date. (4) Don Meij, Grant Bourke and Andrew Rennie will also be granted options on completion of the Offer – see Section 11.5 and 11.13 for further details. 26 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
2.4 STRUCTURE OF THE OFFER The Offer will comprise: a. Broker Firm Offer to Australian resident retail investors who receive a firm allocation of Shares from their broker; b. a Priority Offer to: • Eligible Employees, being all employees of the Company or its subsidiaries who are resident in Australia as at the date of the Prospectus and remain employed by a group company as at the Closing Date; and • Eligible Franchisees, being all Franchisees of the Company who are resident in Australia as at the date of the Prospectus and remain a Franchisee as at the Closing Date; c. an Exempt Employee Plan Offer to Eligible Employees, being all employees of the Company or its subsidiaries who are resident in Australia as at the date of the Prospectus and remain employed by a group company as at the Closing Date; and d. an Institutional Offer, open to certain Australian and international institutional investors. There will be no general retail offer. All Applicants must be eligible to apply under either the Broker Firm Offer, Priority Offer, Exempt Employee Plan Offer or Institutional Offer.
2.5 BROKER FIRM OFFER The Broker Firm Offer is open only to Australian resident retail investors who have received a firm allocation of Shares from their broker. Such investors will be treated as Broker Firm Applicants under the Offer. The minimum Application under the Broker Firm Offer is for 1,000 Shares and thereafter in multiples of 100 Shares. HOW TO APPLY UNDER THE BROKER FIRM OFFER If you are a Broker Firm Applicant you should contact your broker for information about how to submit your Application Form. Your broker will be your agent and, in submitting your Application Form and Application Monies, you must: • make cheque(s) payable to the broker that has given you the Broker Firm Offer allocation; and • deliver your completed Application Form and Application Monies to that broker. It is your broker’s responsibility to ensure that your Application Form and Application Monies are submitted before the Closing Date for the Broker Firm Offer. The Company and the Lead Manager take no responsibility for any acts or omissions by your broker in connection with your Application. The Lead Manager, in consultation with the Company, reserves the right to reject any Application which is not correctly completed, or which is submitted by a person who it believes may be an ineligible Applicant, or to waive or correct any errors made by the Applicant in completing the Application Form.
2.6 PRIORITY OFFER The Company will reserve up to a total of 1,300,000 Shares for allocation to Eligible Employees and Eligible Franchisees. The Priority Offer to Eligible Employees is open to all employees of the Company or its subsidiaries who are resident in Australia as at the date of the Prospectus and remain employed by the Company as at the Closing Date. Participation in the Priority Offer is voluntary. The Priority Offer to Eligible Franchisees is open to all Franchisees of the Company who are resident in Australia as at the date of the Prospectus and remains a Franchisee as at the Closing Date. Participation in the Priority Offer is voluntary. Eligible Applicants under the Priority Offer will be entitled to receive a guaranteed minimum allocation of 1,000 Shares. Applications under the Priority Offer must be for a minimum of 1,000 Shares.
27 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
HOW TO APPLY UNDER THE PRIORITY OFFER Eligible Employees and Eligible Franchisees will be sent a Prospectus together with a Priority Offer Application Form, which must be completed in accordance with the instructions on that form. Completed paper Application Forms and Application Monies under the Priority Offer must be made and will only be accepted on the Priority Offer Application Form attached to or accompanying this Prospectus. Completed Application Forms and Application Monies must be mailed or delivered to the Registry as set out below: Mailing address: Computershare Investor Services Pty Limited GPO Box 7115 Sydney NSW 2001 Delivery address: Computershare Investor Services Pty Limited Level 3 60 Carrington Street Sydney NSW 2000 Regardless of the method of lodgement, all Applications must be received by the Registry no later than the Closing Date of the Priority Offer. In the event that the Company receives Applications for Shares under the Priority Offer in excess of 1,300,000 Shares, Applications will be scaled back. The Company in consultation with the Lead Manager have absolute discretion regarding the level of scaleback and the allocation of Shares under the Priority Offer.
2.7 THE EXEMPT EMPLOYEE PLAN OFFER The Exempt Employee Plan Offer is being made under the terms of the Domino’s Pizza Exempt Employee Share Plan, as described in Section 11.9. The Exempt Employee Plan Offer is open to Eligible Employees, being all employees of the Company or its subsidiaries who are resident in Australia as at the date of the Prospectus and remain employed by the Company as at the Closing Date. Participation in the Exempt Employee Plan Offer is completely voluntary. Eligible Employees (“Exempt Employee Plan Offer Applicants”) may apply for and, if they apply correctly, receive 454 Shares (being approximately $1,000 worth at the Offer Price). Exempt Employee Plan Offer Applicants are also entitled to apply for Shares under the Priority Offer, as described in Section 2.6. Applicants should note: • Successful Applicants will have their pre-tax cash, salary or wages reduced by $1,000 in instalments, over a 12 month period from July 2005 to July 2006; • Shares must remain in the Exempt Employee Share Plan for a minimum of three years from the date of allocation, unless participants leave Domino’s Pizza earlier. During this period, participants may not sell or grant a security interest over or otherwise dispose of Shares; and • the allocation of $1,000 in Shares is tax-free, provided you complete a valid tax election form for the financial year ending 30 June 2005. See Section 11.10 for further details of the Exempt Employee Plan Offer. Exempt Employee Plan Offer Applicants are required to apply for the full $1,000 worth of Shares. If they apply for Shares correctly, they are guaranteed an allocation of approximately $1,000 worth of Shares. Any Shares allocated to the successful Exempt Employee Plan Offer Applicants, will be registered in the name of the Exempt Employee Plan Offer Applicant. HOW TO APPLY UNDER THE EXEMPT EMPLOYEE PLAN OFFER Eligible Employees will be sent a Prospectus together with an Exempt Employee Plan Offer Application Form, which must be completed in accordance with the instructions on that form. Completed Application Forms and Application Monies under the Exempt Employee Plan Offer, must be made and will only be accepted on the Exempt Employee Plan Offer Application Form attached to or accompanying this Prospectus. 28 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Completed Applications Forms must be mailed or delivered to the Registry as set out below: Mailing address: Computershare Investor Services Pty Limited GPO Box 7115 Sydney NSW 2001 Delivery address: Computershare Investor Services Pty Limited 60 Carrington Street Sydney NSW 2000 Regardless of the method of lodgement, all Applications must be received by the Registry no later than the Closing Date for the Exempt Employee Plan Offer. If participating in both the Priority Offer for Eligible Employees and the Exempt Employee Plan Offer, the Applicant must complete both: • the Exempt Employee Plan Offer Application Form to apply for Shares under the Exempt Employee Plan Offer; and • the Priority Offer Application Form to apply for Shares under the Priority Offer for Eligible Employees, and return the completed forms together with payment for the Shares applied for by the applicable Closing Date.
2.8 THE INSTITUTIONAL OFFER The Company is inviting certain Australian and international institutional investors (Institutional Investors) to apply for Shares under the Institutional Offer made under this Prospectus. Application procedures for Institutional Investors will be advised by the Lead Manager. Allocation of Shares under the Institutional Offer will be at the discretion of the Lead Manager and the Company. There is no assurance that any Institutional Investor will be allocated any Shares. In addition, the allocation of Shares between an Institutional Offer and a Broker Firm Offer will be at the discretion of the Lead Manager and the Company.
2.9 ALLOCATION POLICY The Lead Manager and the Company will determine the allocation of Shares between the Broker Firm Offer, the Priority Offer, the Exempt Employee Plan Offer and the Institutional Offer, having regard to the allocation policy described below. Each Offer is inter conditional. If one Offer does not proceed for whatever reason, each other offer may also not proceed, at the Company’s election. All Shares being offered under this Prospectus rank equally with each other and will rank equally with existing Shares. The Lead Manager will determine the allocation of Shares among bidders under the Institutional Offer. The Lead Manager has absolute discretion regarding the basis of allocation of Shares and there is no assurance that any bidder in the Institutional Offer will be allocated all or any of the Shares for which it has bid. Bidding instructions and details of the arrangements for notification and settlement of allocations applying to applicants in the Institutional Offer will be provided to participants prior to the opening of the Institutional Offer. It will be a matter for the brokers as to how they allocate Shares among their retail clients in the Broker Firm Offer. It is the sole responsibility of the brokers to ensure that their retail clients with a firm allocation receive their relevant Shares. In the case of a scaleback of the Broker Firm Offer, the Lead Manager will manage the priority allocation process in regard to the Priority Offer.
2.10 BROKERAGE, COMMISSION AND STAMP DUTY No brokerage, commission or stamp duty is payable by Applicants for Shares under the Offer. Stamp duty payable on sale of Shares (if any) will be borne by the Vendor Shareholders.
29 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
2.11 ALLOTMENT OF SHARES Subject to ASX granting approval for the Company to be admitted to the Official List, the Shares will be allotted as soon as possible after the Broker Firm Offer Closing Date (expected to be 10 May 2005). An Application constitutes an offer by the Applicant to subscribe for Shares on the terms and subject to the conditions set out in this document.
2.12 ASX LISTING The Company will apply for admission to the official list of ASX and quotation of the Shares on ASX within seven days after the date of this Prospectus. If the Shares are not admitted to quotation within three months after the date of this Prospectus (or any longer period permitted by law) the Offer will be cancelled and Application Monies will be returned to Applicants as soon as practicable, without interest. It is expected that Offer Shares will be allotted to successful Applicants by 10 May 2005 and trading of the Shares on ASX will commence on a normal basis on or about 16 May 2005.
2.13 UNDERWRITING All 34,090,909 million Shares offered under this Prospectus have been underwritten by Goldman Sachs JBWere. The Underwriting Agreement provides that Goldman Sachs JBWere may terminate the Underwriting Agreement in limited circumstances. The Underwriting Agreement is summarised in Section 10.3.
2.14 CHESS AND HOLDING STATEMENTS The Company will apply to participate in CHESS, and, in accordance with the Listing Rules and the ASTC Settlement Rules, will maintain an electronic issuer-sponsored sub-register and an electronic CHESS sub register. Following the transfer and issue and allotment of Offer Shares to successful Applicants, shareholders will be sent an initial holding statement that sets out the number of Shares which they have been allocated. Holding statements are expected to be despatched on 11 May 2005. This statement will also provide details of a shareholder’s identification number or, where applicable, the security holder reference number for each of the sponsored holders. It is the responsibility of Applicants to determine their allocation prior to trading Shares. Shareholders will receive subsequent statements showing changes to their shareholding in the Company. No share certificates will be issued.
2.15 TAXATION The Australian taxation consequences of any investment in Offer Shares will depend upon the investor’s particular circumstances. It is an obligation of investors to make their own enquiries concerning the taxation consequences of an investment in the Company. If you are in doubt as to the course you should follow, you should consult your stockbroker, lawyer, accountant or other professional adviser.
2.16 WITHDRAWAL OR EARLY CLOSE OF THE OFFER The Company, in consultation with the Underwriter, reserves the right to close the Offer early or withdraw the Offer. If the Offer does not proceed, Application Monies will be refunded, without interest, to Applicants in accordance with the Corporations Act.
2.17 ENQUIRIES If you are unclear in relation to any matter or uncertain as to whether the Offer is a suitable investment for you, you should seek professional advice from your stockbroker, lawyer, accountant or other professional adviser.
30 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
2.18 FOREIGN SELLING RESTRICTIONS No action has been taken to register or qualify this Prospectus, the Shares or the Offer or otherwise to permit a public offering of the Shares in any jurisdiction outside Australia. The distribution of the Prospectus in jurisdictions outside Australia may be restricted by law and therefore persons into whose possession this Prospectus comes should inform themselves about, and observe, any such restrictions. Any failure to comply with these restrictions may constitute a violation of applicable securities laws. This Prospectus does not constitute an offer or invitation in any jurisdiction where, or to any person to whom, such an offer or invitation would be unlawful. Each Applicant in the Broker Firm Offer, Priority Offer and Exempt Employee Plan Offer will be taken to have represented, warranted and agreed that such person: • is an Australian citizen or resident in Australia, is located in Australia at the time of such Application and is not acting for the account or benefit of any person in the US, a US Person or any other foreign person; and • will not offer or sell the Shares in the US or in any other jurisdiction outside Australia or to a US Person, except in transactions exempt from registration under the US Securities Act and in compliance with all applicable laws in the jurisdiction in which such Shares are offered and sold. Each person in Australia to whom the Institutional Offer is made under this Prospectus will be required to represent, warrant and agree as follows (and will be taken to have done so if it bids the Institutional Offer): • it understands that the Shares have not been and will not be registered under the US Securities Act and may not be offered, sold or resold in the United States or to a US Person, except in transactions exempt from registration under the US Securities Act; • it is not in the US nor a US Person and is not acting for the account or benefit of a US Person; and • it is not engaged in the business of distributing securities or, if it is, it agrees that it will not offer or resell in the US or to a US Person (a) any Shares it acquires in the Offer at any time or (b) any Shares it acquires other than in the Offer until 40 days after the date on which the Final Price is determined and the Shares are allocated in the Offer, in either case other than in a transaction meeting the requirements of Rule 144A under the US Securities Act. No person is authorised to provide any information or make any representations other than those contained in this Prospectus and, if given or made, such information or representations will not be relied upon as having been authorised by the Company or the Lead Manager or any other person, nor will any such persons have any liability or responsibility therefor.
31 32 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER SECTION 3
INDUSTRY OVERVIEW ______
33 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
3. INDUSTRY OVERVIEW ______
3.1 BACKGROUND QSR INDUSTRY SIZE AND SEGMENTATION Domino’s Pizza operates within the Quick Service Restaurant (“QSR”) pizza segment of the fast food market in Australia and New Zealand. QSR outlets are major chains that are distinguishable due to standard formats, menus, pricing and centralised administration, as opposed to smaller chains and independent outlets. According to Euromonitor, the total Australian fast food market was worth $8,782 million in 2003 and was forecast to grow to $9,030 million in 2004. Euromonitor estimates that the total chain segment (both major and minor chains) had sales of $5,309 million in 2003 and was forecast to have sales of $5,459 million in 2004. Of the chain segment, QSRs (major chains) dominate the Australian fast food market. BIS Shrapnel estimates that in 2004, QSR outlets generated sales of $5,028 million. The QSR market comprises the top 12 major chains, including McDonald’s and KFC.
ESTIMATED VALUE OF AUSTRALIAN FAST FOOD MARKET IN 2004 $9,029.7 million(1)
MINOR CHAINS AND INDEPENDENTS(3) 44% QSR OPERATORS(2) 56%
INDUSTRY GROWTH According to Euromonitor, the Australian fast food market grew from $7,763 million in 2000 to an estimated $9,030 million in 2004 and is estimated to grow to $10,287 million by 2008.
34 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
AUSTRALIAN FAST FOOD MARKET GROWTH – 2000-2004 10,000
9,030 8,782 8,391 8,048 8,000 7,763
6,000
$ MILLION 4,000
2,000
0 2000 2001 2002 2003 2004
Ind stry Sales ($ million)
INDUSTRY SEGMENTATION BY MARKET VALUE AND STORE COUNT Domino’s Pizza estimates the value of the Australian pizza market, comprising QSR outlets, small chains and independents at approximately $1.6 billion. The Australian QSR pizza market (represented by Domino’s Pizza, Pizza Hut, Eagle Boys and Pizza Haven) was estimated by BIS Shrapnel at $663 million in 2004, equating to approximately 40% of the Australian pizza market and approximately 7.3% of the total Australian fast food market.
AUSTRALIAN FAST FOOD MARKET SEGMENTATION AUSTRALIAN FAST FOOD MARKET SEGMENTATION (MARKET VALUE, $ MILLION) (STORE NUMBER)
A stralian QSR A stralian QSR (Ma or Chains) Pi a (Ma or Chains) Pi a Market $663 million(1) Market 880 stores(4)
Total A stralian Pi a Total A stralian Pi a Market $1,600 million(2) Market 2,408 stores(5)
Total A stralian Fast Food Market Total A stralian Fast Food Market $9,030 million(3) 14,415 stores(6)
35 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
GROWTH IN MARKET SHARE OF CHAINS According to BIS Shrapnel, the number of QSR outlets as a percentage of total fast food outlets has increased from 13% in 1992 to 27% in 2004. The share of QSR outlets has been steadily increasing at the expense of smaller independent outlets. This structural industry shift towards QSR outlets is driven by a number of factors, including the operational advantages that QSR outlets typically enjoy over independent outlets. These advantages include greater purchasing power and economies of scale, greater advertising and brand profile and more advanced operational systems and controls.
TOTAL QSR OUTLETS AS % OF TOTAL AUSTRALIAN FAST FOOD OUTLETS – 1992-2004 30%
27%
25%
22%
20%
17% 17% 16% 15% 15% 13%
10%
5%
0% 1992 1994 1996 1998 2000 2002 2004
QSR o tlets as % of Total Fast Food Market
NEW ZEALAND PIZZA MARKET SIZE Domino’s Pizza estimates the New Zealand QSR pizza market (excluding minor chains and independents) to have a retail value of approximately NZ$110 million to NZ$130 million.
3.2 COMPETITIVE LANDSCAPE AUSTRALIA In Australia, the QSR pizza market is dominated by four chains, which together have approximately 880 stores in the chain pizza market: • Domino’s Pizza; • Pizza Hut; • Eagle Boys Pizza; and • Pizza Haven. Pizza Hut is owned by YUM! Brands, Inc., a US based company with a market capitalisation of approximately US$14.9 billion as at 8 March 2005. YUM! Brands, Inc. also owns a number of other QSR brands, including KFC, Taco Bell, A&W All American Food Restaurants and Long John Silvers. There are 310 Pizza Hut stores in Australia.(1) Eagle Boys is a privately owned pizza chain, based in Brisbane. Eagle Boys has approximately 150 stores across Australia, focused in regional Queensland and regional New South Wales. Pizza Haven is a privately owned pizza chain with approximately 103 stores. Pizza Haven operates predominantly in the southern states of Australia.
36 Note: (1) BIS Shrapnel, Australian Foodservice, 2005 - 2008. DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
AUSTRALIAN CHAINS BY STORE NUMBER – 1998-2004 2004 INDUSTRY PROFILE BY NETWORK SALES 400
350 EAGLE BOYS 300 12% PIZZA 250 HAVEN 11% DOMINO’S 200 40%
150 NUMBER OF STORES 100 PIZZA HUT 37%
50
0 2000 2002 December 2004
Domino’s Pi a Pi a H t Pi a Haven Eagle Boys
NEW ZEALAND In New Zealand, Pizza Hut has the largest number of stores with 100 stores throughout both the north and south islands. In March 2005, Domino’s Pizza acquired the right to operate the Pizza Haven franchise network in New Zealand. As a result, Domino’s Pizza now controls 45 stores across both the north and south islands.
3.3 CUSTOMER CHANNELS The pizza market can be viewed in terms of three purchasing channels: pick-up; home delivery; and dine-in. Domino’s Pizza believes pick-up and home delivery are the key growth areas for the pizza industry in Australia. Domino’s Pizza has evolved from a heritage of operating within the home delivery market in the United States into offering a combination of both pick-up and home delivery in the Australian market. PIZZA INDUSTRY HERITAGE PRESENT SERVICE CHANNELS
(1) Home Delivery Domino’s (US) Domino’s Pi a
(2) Pick- p Domino’s Pi a
(3) Dine-in
Domino’s Pizza believes the Australian pizza market has been affected by an increasing move away from “dine-in” restaurants towards takeaway outlets. Domino’s Pizza believes it has been a major beneficiary of this trend. This is supported by BIS Shrapnel data that indicates that the average number of times Australians dined out fell from 1.8 times a week in 2000 to 1.6 times a week in 2002. The Directors believe that the growth in the pizza home delivery market will continue as a result of longer working days and the increase in dual career households supporting demand for freshly cooked delivered food. Pizza also has a wide appeal to younger age groups and as this population ages they are likely to retain similar tastes and pass these on to their children, thereby expanding this segment of the market. Pizza is a “social food” that is suited to occasions and families.
3.4 PRODUCT CUSTOMISATION There has been a well-publicised trend toward healthier fast food alternatives in recent years. Domino’s Pizza believe pizza as a product has the advantage of being a customisable product, that can be varied with different toppings and bases, broadening the potential customer base and addressing different tastes and 37 preferences. The Company believes this will be a key differentiator between Domino’s Pizza and some other fast food alternatives. 38 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER SECTION 4
BUSINESS PROFILE ______
39 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
4. BUSINESS PROFILE ______
4.1 BACKGROUND Domino’s is a global brand that was founded by Thomas and James Monaghan in December 1960, in the United States. The first international store was opened in 1983 in Winnipeg, Canada. Today Domino’s Pizza, Inc. and its franchisees operate over 7,500 stores in over 50 countries, including over 2,500 stores outside of the United States. In 1998, the Monaghan family sold a controlling interest to Bain Capital, LLC. The organisation was recapitalised and the business and management was refocused. In 2004, Domino’s Pizza, Inc. was listed on the New York Stock Exchange under the ticker symbol DPZ. As at 10 March 2005, Domino’s Pizza, Inc. had a market capitalisation of US$1.2 billion. Domino’s Pizza holds the Master Franchise Agreement to exclusively operate Domino’s Pizza Stores in Australia and New Zealand. Domino’s Pizza is now: • the largest pizza chain in Australia in terms of both Network Store numbers and Network Sales; • the fifth largest Quick Service Restaurant (“QSR”) chain in Australia by Network Store number (behind Subway, McDonald’s, KFC and Red Rooster/Chicken Treat); and • the sixth largest QSR chain in Australia by Network Sales (behind McDonald’s, KFC, Hungry Jack’s, Subway and Red Rooster/Chicken Treat)(1). The first Australian Domino’s Pizza store opened in Springwood, Queensland on 27 December 1983. Domino’s Pizza quickly expanded throughout Brisbane, Sydney and Perth. In 1993 the Australian and New Zealand Master Franchise was purchased by Silvio’s Dial-a-Pizza. From 1993 to 1995 the Domino’s Pizza and Silvio’s Dial-a-Pizza brands were operated separately. In 1995, the decision was made to combine both operations and convert the Silvio’s Dial-a-Pizza stores to Domino’s Pizza Stores. At this time Silvio’s operated 70 pizza stores across suburban and regional Australia. Starting in 1995, Silvio’s Dial-a-Pizza stores were progressively re-branded as Domino’s Pizza Stores. In 2001, the foundations of the current Senior Management Team came together when Don Meij and Grant Bourke, the two largest Domino’s Pizza franchisees in Australia, merged their 25 Franchised Stores into the Corporate Store Network. As consideration for their stores, Don Meij and Grant Bourke and their related parties received 20% of Domino’s Pizza, and subsequently acquired a further 2.8% in 2002. Following the merger in July 2001, Domino’s Pizza had 50 Corporate Stores and 128 Franchised Stores. In 2004, a key franchisee, Andrew Rennie, merged his nine Franchised Stores into the Corporate Store Network in return for a 3.5% interest in the Company. As a result of these mergers, Don Meij, Grant Bourke and Andrew Rennie have a relevant interest in the Company as at the date of this Prospectus equating to 25.5%. Don Meij and other members of the Senior Management Team have presided over a number of material enhancements to the business: • Opened 155 new stores, including 51 Corporate Stores, since 30 June 2001; • Increased Network Sales from $120.9 million in year ending 30 June 2001, to $245.8 million in the year ending 30 June 2004; • Expanded into new markets, including Victoria and New Zealand; • Improved management systems and processes, including the initial rollout of PULSE™, an enhanced point of sale software system that has improved the way the Company operates; • Established Pizza College centres to train staff in all capital cities in Australia; • Opened the Luv Lab, the national Domino’s Pizza product development kitchen; and • Opened Domino’s Direct, the Company owned direct mail centre. Domino’s Pizza is now the largest quick service pizza franchise in Australia with more Network Stores and Network Sales than any competitor.
40 Note: (1) BIS Shrapnel, Australian Foodservice, 2005-2008. DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
4.2 A COMBINATION OF CORPORATE STORES AND FRANCHISED STORES Domino’s Pizza operates a “hybrid” model, operating both Company-owned and operated Corporate Stores and Franchisee-owned and operated Franchised Stores. As at 31 December 2004, there were 333 Domino’s Pizza Stores in Australia and New Zealand, comprising 101 Corporate Stores and 232 Franchised Stores. The “hybrid” model currently operates on the basis of an approximate 30% to 70% Corporate to Franchised Store ratio, which the Directors believe is an appropriate mix for the business. However, the actual ratio may vary over time as Domino’s Pizza expands its store Network and operations. The benefits of Domino’s Pizza operating its own Corporate Store Network include: • maximising the potential earnings for Domino’s Pizza; and • assisting in setting best practice throughout the entire Network by: – setting high performance benchmarks which are analysed daily by management and used as performance metrics for the Franchised Stores; – promoting a system of healthy competitiveness; – sharing information between Corporate and Franchised Stores; and – focusing management on core operations and strategy for the health of the entire Network. The benefits of a focused and efficient Franchise network include: • an additional stable revenue stream that is geographically diverse; • operating leverage that requires minimal incremental capital expenditure by Domino’s Pizza to expand; • strong cash returns with low capital outlay; and • provision of additional innovation and entrepreneurial thinking from individual Franchisees.
4.3 STORE NETWORK COVERAGE Domino’s Pizza has an expansive Store Network across both Australia and New Zealand, delivering Domino’s Pizza economies of scale in purchasing, advertising and overheads. Further, the Directors believe that significant store growth potential remains. Australia and New Zealand Network Coverage – as at 31 December 2004
NT 4 stores
QLD 88 stores NZ SA NSW 16 stores WA 20 stores 116 stores 37 stores
ACT 10 stores VIC 32 stores TAS 10 stores
41 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Stores by Region – 31 Dec 2004 Corporate Stores Franchised Stores Total Stores Queensland 38 50 88 New South Wales 23 93 116 Western Australia 19 18 37 South Australia 7 13 20 Northern Territory 1 3 4 ACT 0 10 10 Victoria 6 26 32 Tasmania 0 10 10 New Zealand 7 9 16 Total 101 232 333
4.4 DIVERSIFIED REVENUE STREAMS Domino’s Pizza generates revenues across three key business segments: • Corporate Store operating revenue: – Domino’s Pizza is the owner and operator of 101 Corporate Stores as principal. From this revenue 2% is paid by the Company to Domino’s Pizza Inc., as a service fee under the terms of the Master Franchise Agreement (refer to Section 10.1 for details). • Franchised Store revenue: – as the master franchisee, Domino’s Pizza charges Franchisees a royalty of 7%, from which 2% is paid by the Company to Domino’s Pizza, Inc., as a service fee under the terms of the Master Franchise Agreement (refer to Section 10.1 for details); – a commission is charged on food and equipment supplies, and revenue earned on provision of services to Franchisees, which can include the sale of new stores through a “turn key” offering to Franchisees. Under the Accounting Policies and A-IFRS, the gross proceeds from the construction and sale of stores to Franchisees is recorded as revenue; and – there are also a number of ancillary revenue sources, including interest charged on Franchisee loans, bank interest received, and lease management fees (where property is managed for Franchisees). • Corporate Development: – as part of building its distribution network, the Company regularly purchases and improves stores, both from independent operators and Franchisees. Domino’s Pizza is typically able to improve the operational performance of these stores and the refurbished and improved stores are often onsold to Franchisees at a profit. There are also a number of ancillary revenue sources, including print room and guarantee fee charges to Franchisees.
4.5 STRONG ECONOMICS AT STORE LEVEL The Domino’s Pizza Network has proven to be successful due to the level of initial capital investment required and the high return on capital invested that can be generated at each store. The Company’s successful formula allows Domino’s Pizza to not only attract motivated individuals, but to also replicate year-on-year growth as Domino’s Pizza expands in new and existing markets. In the year to 30 June 2004, the average return at store level was 33.4% across the Australian Store Network.
Australian Store Network – year ending 30 June 2004 Average Average Store Build Cost(1) $354,923 Average Annual EBITDA(2) $118,581 Average Return(3) 33.4%
Source: (1) Australian Corporate and Franchise Store builds in Australia in year to 30 June 2004. The store build costs ranged from $269,383 to $395,991 42 (2) Represents average store EBITDA (after in-store wages) across Australian Network in the year to 30 June 2004 (3) Average Return defined as Average Annual EBITDA/Average Store Build Cost for Network Stores DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
4.6 THE DOMINO’S FRANCHISE NETWORK As at 17 February 2005, there were 106 Franchisees in the Network. A total of 54 Franchisees owned a single store, with the remaining 52 owning more than one store (being multi unit franchisees). There are 10 Franchisees that own five or more stores. The Australian Store Network comprised 106 Corporate Stores and 227 Franchised Stores as at 17 February 2005.
DOMINO’S PIZZA AUSTRALIA STORE NETWORK Domino’s Pizza actively encourages and assists successful BY STORE – AS AT 17 FEBRUARY 2005 Franchisees in becoming multi-store Franchises by providing finance on a selective basis to assist in store set-up. Franchisees typically have franchise agreements granted by SINGLE-UNIT Domino’s Pizza for a period of 10 years, with an option to FRANCHISEE renew for a further 10 years. Each franchise covers a STORES 54 defined geographic area. Domino’s Pizza supports each CORPORATE Franchisee by offering training, infrastructure and STORES 106 marketing support. Domino’s Pizza also assists some of its key store managers and key regional managers in buying into the Domino’s Pizza Franchise Network by providing the upfront capital. A summary of the key provision of franchise agreements is contained in Section 10.2. MULTI-UNIT FRANCHISEE STORES The Company works hard to maintain a good relationship 173 with its Franchisees and understands the importance of assisting and motivating Franchisees and maintaining an open communication channel. Management attempts to do this through sharing of best practice benchmarking, weekly communication and performance updates, monthly regional meetings and quarterly events where the Senior Management Team presents to larger Franchisee groups. The Company also holds an annual “Rally” for all Network team members and undertakes regional visits on a periodic basis to update on developments within the Domino’s Pizza Network. Domino’s Pizza also operates a Franchised Store development program whereby Domino’s Pizza offers a “turn-key” service to Franchisees whereby the Company will setup a new store (for around $350,000) and then on-sell the store to a Franchisee for the cost of setup and small margin. The Company in some instances will also staff the store prior to sale to the Franchisee.
4.7 DOMINO’S PIZZA STORE OPERATIONS The focus of Domino’s Pizza store operations is on the take-out and delivery channels of the pizza QSR sector. Domino’s Pizza Stores are leased properties that are typically located on strip developments. The Company’s simple and efficient operational processes include: • highly visible store locations; • production-oriented store designs; • focused menu; • efficient order taking, production and delivery; • Domino’s PULSE™ point-of-sale system; and • maintenance of highest standards and consistency. HIGHLY VISIBLE STORE LOCATIONS Domino’s Pizza seeks to locate its stores in highly visible, prime locations which facilitate both its take-out and delivery service. In order to ensure its store objectives can be satisfied, the Company rates store locations based on a number of variables including store visibility, store front size, car parking and nearby national tenants. Stores also have a standard fit out and design that provides customers with a consistent “look and feel” across the Network and are easily identifiable with their distinctly red, blue and white branding. PRODUCTION-ORIENTED STORE DESIGNS A typical Domino’s Pizza store is relatively small, occupying approximately 100-120 square metres and is designed with a focus on efficient and timely production of consistent, quality pizza for pick-up and delivery. The store layout has been refined over time to provide an efficient flow from order taking to customer delivery. 43 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
FOCUSED MENU Domino’s Pizza operates a focused menu based on a single pizza size and a standardised number of side items. The objective of running a standardised menu is to maximise efficiency and reduce the cost of production. EFFICIENT ORDER TAKING, PRODUCTION AND DELIVERY Each Domino’s Pizza store executes an operational process that includes order taking, pizza preparation, cooking (via automated, conveyor-driven ovens), boxing and delivery. These operational processes are supplemented by an extensive employee training program designed to ensure world-class quality and customer service. DOMINO’S PULSE™ POINT-OF-SALE SYSTEM Domino’s Pizza’s computerised management information systems are designed to improve operating efficiencies, provide management with timely access to financial and marketing data and reduce administrative time and expense. Domino’s Pizza is currently installing the Domino’s PULSE™ system, a proprietary point-of-sale system licensed from Domino’s Pizza, Inc., throughout the Network. The benefits of PULSE™ include: • touch screen ordering, which improves accuracy and facilitates more efficient order taking; • improved administrative and reporting capabilities, which enables store managers to better focus on store operations and customer satisfaction; and • a customer relationship management tool, which enables us to recognise customers and track ordering preference. MAINTENANCE OF HIGHEST STANDARDS AND CONSISTENCY Maintenance of the Domino’s image is of the highest priority for the Company. All Network Stores are regularly monitored by Domino’s Pizza to ensure the highest standards in product quality, customer service, health and safety and store image are maintained. Domino’s Pizza employs an Operational Evaluation and Report (“OER”) team, which monitors and evaluates standards across the entire Network. The OER team is independent from operations and is tasked with undertaking independent audits on every store in the Network every 30 days. Store visits are made by the OER team unannounced and a formal report is documented and distributed to the Senior Management Team. Stores are given formal feedback, an overall ranking within the Network and action plans addressing any under performance. In cases of repeated under performance, formal breaches of Franchise agreements are issued. Domino’s Pizza, Inc. also undertakes OER audits of Domino’s Pizza to assess performance.
4.8 SUPPLY CHAIN MANAGEMENT The supply of food and consumables is centrally negotiated by Domino’s Pizza for the Network. This centralised purchasing model allows Domino’s Pizza and its Franchisees to enjoy the dual benefits of leveraging Network size in purchasing product, while also enabling it to monitor and maintain the quality of its product. Inventory is owned and distributed through a third party network of distributors, enabling Domino’s Pizza to centrally control the supply chain and the quality of product while minimising the amount of capital employed in the form of warehouses and vehicles. Domino’s Pizza earns revenue for providing and managing this service. Domino’s Pizza maintains long-term relationships with its distribution partners and undertakes periodic cost reviews. The majority of dough is made in-store daily to ensure a fresh, high quality pizza. This has also proven to be the most efficient way to handle large volumes of raw material, thereby lowering the raw material costs for the Network.
4.9 STORE DEVELOPMENT PROGRAM Domino’s Pizza undertakes development of stores as a way of expanding and improving the Network. Other benefits of the program include maintaining physical store quality and balancing the Franchise and Corporate Networks. The Corporate Store development program involves Domino’s Pizza identifying and purchasing Franchised Stores and external stores that are underdeveloped and then redesigning, re-fitting and re-staffing the 44 stores and improving operational performance. The majority of those stores are then subsequently on-sold to Franchisees. DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
4.10 REGULAR MONITORING OF PERFORMANCE AND PROFITABILITY Domino’s Pizza has a strong focus on monitoring financial profitability and operating performance. The performance of Corporate Stores is monitored daily, with the Senior Management Team receiving reports on both the key profitability and operational drivers of the business. Senior Management monitors the same information from Franchisees on a weekly basis.
4.11 EMPLOYEES The strength and commitment of all staff in the Domino’s Pizza Network has been a major factor in the success of the business in Australia and New Zealand. EMPLOYEE NUMBERS As at 31 December 2004, Domino’s Pizza employed 3,271 staff on a full time and casual basis, with approximately 2,902 being in-store employees or drivers. In addition, the Company estimates there are approximately 6,430 staff employed on a full or part time basis throughout the Franchise Network. Stores operate with a store manager and typically have three full-time employees and up to 30 casual employees. ENTREPRENEURIAL CORPORATE CULTURE Domino’s Pizza has a culture that incentivises both staff and Franchisees to continue to grow and improve the business and deliver the Company’s goals: • to maximise profitability for the Company and Franchisees; • to develop and grow the business to achieve clear market leadership in the QSR pizza market in Australia and New Zealand; and • to be recognised for consistent service and value for money by their customers. OPPORTUNITIES FOR EMPLOYEES Domino’s Pizza has a low staff turnover. Management believe this is a result of Domino’s Pizza’s entrepreneurial culture, and the incentives and career opportunities that are provided to employees who prove themselves in the business. Domino’s Pizza believes that remuneration incentives are an effective way to motivate managers to perform and to help ensure that the Company’s objectives are achieved. Accordingly, the Company incentivises store managers by awarding bonuses based on profit share as part of their remuneration package. In addition to monetary incentives, Domino’s Pizza also provides non-monetary incentives including Company awards such as National Sales Champion, Golden Franchisee Award, Franchisee of the Year Award, Store Manager of the Year Award, all of which are designed to help encourage individuals and each store to strive to meet local and regional targets. Domino’s Pizza provides career progression incentives to employees by actively promoting strong leaders through the organisation so their skills can be improved and career fast-tracked. This helps to ensure that experience is not lost from the Network. Many store managers go on to own their own Franchised Stores. Of the 106 Franchisees in the Franchise Network as at 17 February 2005, 66 had previously worked as a manager in the Corporate or Franchise Store Network.
4.12 TRAINING AND DEVELOPMENT The Company has a strong focus on training and development, operated through a network of inhouse training centres which Domino’s Pizza refers to as “Pizza Colleges”. • Pizza College is a three month program designed for Corporate Store managers, combining classroom learning with practical application of skills on-site. • An advanced Pizza College is also available for Franchisees and regional Corporate Store managers, structured as a two to three day management workshop providing a theoretical management framework.
4.13 MARKETING AND ADVERTISING Domino’s Pizza has a strong focus on presenting a consistent and well-branded image to consumers and has made a significant investment in developing brand awareness, particularly in the “youth” and “pizza” markets. The result is that Domino’s is now a highly recognisable and successful brand in the Australian 45 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
advertising market. This is enhanced by the Company’s easily recalled national telephone number 131 888 and its TV slogan “I’ve got the hots for what’s in the box with the dots”. Domino’s Pizza operates TV advertising and production funds on behalf of the Network. TV advertising and production represents up to a maximum of 6.0% of sales depending on store location. The advertising decision is made centrally by Domino’s Pizza on behalf of the Network and the Network Stores contribute to the advertising funds. The average TV advertising and marketing contribution in the calendar year to 31 December 2004, was 5.2% of sales. In addition to TV advertising, local store marketing efforts represent an additional expense of approximately 4.0% of Network Sales. Local marketing includes print advertising such as newspaper inserts and direct mail. The Company owns and operates Domino’s Direct, a custom-built direct mail centre. Management believes the direct mail centre is a valuable tool, providing the Company with a competitive edge to its marketing activities in Australia. Specifically, Domino’s Direct can produce high volumes of printed marketing material, at short notice and low cost, which is tailored to a Store’s individual promotional requirements.
4.14 STRATEGY FOR GROWTH Domino’s Pizza has rapidly expanded from its origins in Queensland into every State and Territory in Australia, and into New Zealand. Domino’s Pizza is forecasting to have 418 Network Stores by the year ending 30 June 2006. Network Sales are forecast to grow from $245.8 million in the year to 30 June 2004 to $350.5 million in the year to 30 June 2006. EXPANSION BY REGION STORE NUMBERS – 2001-2006 450 418 Following the successful expansion over
400 the last three years, Domino’s Pizza is now 376 the leading pizza QSR operator in NSW, 350 Queensland, Western Australia, the ACT 294 300 and Northern Territory. Domino’s Pizza is 293 245 now expanding into New Zealand and 250 270 Victoria and it believes that the combined 202 200 178 206 Australian and New Zealand market could
175 sustain over 550 traditional Domino’s
STORE NUMBERS STORE 150 149 Pizza Stores. 128 100 NEW STORE OPENINGS 125 106 50 88 70 50 53 Between 30 June 2004 and 31 December 0 2001 2002 20032004 2005F 2006F 2004, Domino’s Pizza opened 39 stores YEAR ENDING 30 JUNE across Australia and New Zealand. The
Corporate Stores Franchised Stores Company plans to open another 43 stores across Australia and New Zealand in the Note: second half of financial year ending Store numbers as at 30 June 2005 and 2006 based on forecast store numbers, see Section 6 for further detail. 30 June 2005, taking total store numbers in the Network to 376. Domino’s Pizza is targeting 42 store openings in the year ending 30 June 2006. On average, a new store costs approximately $355,000 to setup and on average returns 33.4% per annum, based on EBITDA after in-store wages (refer to Section 4.5 for further detail). GROWTH IN SAME STORE SALES Domino’s Pizza expects Same Store Sales Growth will be assisted by continued growth in the pizza market and the chain pizza segment in particular. This growth will be driven by continued product and operational innovation and on-going promotion of new products. Refer to Section 6 for details of assumptions underlying the forecast Same Store Sales Growth. NEW INITIATIVES The Company continues to investigate various initiatives as part of its on-going business development. Some of these initiatives include review of menu formats, store layout designs and other time segments, such as lunch and late night opportunities. Domino’s Pizza is able to leverage the developments and experience from the Domino’s international network in determining its strategic direction in Australia.
46 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
ACQUISITIONS The pizza industry in Australia and New Zealand remains highly fragmented. Domino’s Pizza will consider small acquisition opportunities of other chains on a case-by-case basis, similar to the recent acquisition of Big Daddy’s 16 Victorian stores and Pizza Haven’s 34 New Zealand stores.
4.15 DEVELOPMENT OF YOUNG AUSTRALIANS AND COMMUNITY SERVICE Domino’s Pizza is the sole sponsor of the Australian Youth Development Program that brings together secondary school leaders, school captains and vice captains, from across Australia, to participate in leadership programs. Management recognises that it is the youth of Australia that will develop to lead organisations such as Domino’s Pizza, and is very keen to provide this service to the community. The Partners Foundation is a non-profit organisation established to assist Domino’s Pizza team members in time of special need or tragedy as a result of natural disasters, unexpected afflictions, on-the-job accidents and other emergencies. Since its inception in 1997, the Partners Foundation has donated more than $240,000 to over 100 Domino’s Pizza team members and their families. Most recently, the Partners Foundation donated $25,000 to the World Vision Tsunami Appeal. Management believes the Partners Foundation is another feature that assists in developing and strengthening the team culture of Domino’s Pizza.
4.16 RELATIONSHIP WITH DOMINO’S PIZZA, INC. Domino’s Pizza has the exclusive Master Franchise Agreement to operate Domino’s Pizza Stores in Australia and New Zealand. At the end of the current term in February 2018, there is provision for the term to be renewed for a further 10 years. Under the Master Franchise Agreement Domino’s Pizza pays Domino’s Pizza, Inc. an annual royalty of 2.0% of net Network Sales. In return Domino’s Pizza receives exclusive use of the Domino’s brand in Australia and New Zealand, use of systems and best practice sharing with over 50 countries throughout the worldwide network. For further information on the Master Franchise Agreement, refer to Section 10.1.
4.17 COMPARISON WITH OTHER DOMINO’S BUSINESSES GLOBALLY In addition to Domino’s Pizza, Inc., other listed Domino’s groups include Domino’s UK & IRL plc (“Domino’s UK”) and Alsea, S.A. de C.V (“Alsea”). Domino’s Pizza, Inc., is the US-based owner of the Domino’s brand and Master Franchisor for the Domino’s network globally. Domino’s Pizza, Inc. has a total of 5,008 stores domestically, of which 580 are corporate- owned. Domino’s Pizza, Inc. was listed on the New York Stock Exchange in 2004 and as at 10 March 2005, had a market capitalisation of US$1.2 billion. Alsea operates the largest Domino’s franchise outside of the United States with 500 stores, including 328 corporate stores. Alsea is listed on the Mexico Stock Exchange, and as at 10 March 2005 had a market capitalisation of P 2,888.7 million. Domino’s UK is the holder of the Domino’s master franchise in the UK and Ireland and has 357 Network wide stores, the majority of which are operated by franchisees. Domino’s UK was listed in 1999 and as at 10 March 2005 had a market capitalisation of £150.0 million.
Domino’s Domino’s Domino’s Pizza UK Pizza(1) Pizza, Inc.(2) & IRL plc(3) Alsea(4) Australia and UK and Geographic coverage New Zealand USA Ireland Mexico Number of Corporate Stores 101 580 19 328 Number of Domestic Franchised Stores 232 4,428 338 172 Total number of Domestic Stores 333 5,008 357 500 Corporate Store Ratio % 30% 12% 5% 66%
Notes: (1) Includes stores in Australia and New Zealand. Store numbers are as at 31 December 2004 (source: Company). (2) US store numbers are as at 3 January 2005 (source: Domino’s Pizza, Inc.). (3) UK and Ireland total store numbers are as at 2 January 2005 (source: Domino’s UK). (4) Mexico store numbers are as at 30 September 2004 (source: Alsea). 47 48 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER SECTION 5 OWNERSHIP, MANAGEMENT AND CORPORATE GOVERNANCE____
49 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
5. OWNERSHIP, MANAGEMENT AND CORPORATE GOVERNANCE ______
5.1 OWNERSHIP Domino's Pizza is currently owned by Somad Holdings Pty Ltd (74.5%), Don Meij and related entities (11.0%), Grant Bourke and related entities (11.0%), and Andrew Rennie and related entities (3.5%). The major shareholder, Somad Holdings Pty Limited, is 100% owned by Agrade Enterprises Pty Limited. Mr Ross Edward Ledger is the sole director and shareholder of Agrade Enterprises. Mr Ledger holds the shares in Agrade Enterprises in his capacity as trustee of the MMJS Trust, a discretionary trust whose beneficiaries include certain members of the Cowin family (and their controlled entities) but do not include Jack Cowin (and his controlled entities) as Jack Cowin (and his controlled entities) has a beneficial interest in other QSR operators including the operators of some KFC stores. KFC is owned by YUM! Brands, Inc. which also owns Pizza Hut, a competitor to Domino's Pizza in Australia and New Zealand. A Jack Cowin controlled entity originally held an interest in Domino’s Pizza, but disposed of that interest on 30 June 1999 in order to comply with various obligations with KFC. That interest is now held by Somad Holdings Pty Ltd. To the extent that the Sale Shares are held by controlled entities of the Vendor Shareholders, the Vendor Shareholders will cause their controlled entities to do all things necessary or required to enable the Vendor Shareholders to meet their obligations under the offer. Following the Offer, the Continuing Shareholders in total will own 43.2% of the Company’s issued capital of which Somad Holdings Pty Ltd will own 27.8%, and Don Meij and Andrew Rennie (and their related entities) will own 6.9% and 2.8% respectively. Grant Bourke will become a Non-Executive Director and will hold 5.7%. On completion of the Offer, options will also be granted to the Directors, managing director and the Senior Management Team – see Sections 11.5 and 11.13 for further details.
50 5.2 Board of Directors Don Meij Chief Executive Officer/ Grant Bourke Managing Director (Age 36) Non-Executive Director Don commenced his career as (Age 40) a delivery driver for Silvio’s Grant has been a part of Dial-a-Pizza in 1987 and Domino’s Pizza for 12 years became a store manager in since he became a Franchisee 1989. Don became Director of Paul Cave Barry Alty in 1993. National Operations between Non-Executive Director Non-Executive Director In 2001 Grant vended his 1991 and 1993 for Silvio’s (Age 59) (Age 60) eight-store franchise network Dial-a-Pizza. Paul is the founder and Barry has had a retail career into Domino’s Pizza’s Corporate In 1993, when Silvio’s Chairman of BridgeClimb. spanning 40 years with leading Network. Between 2001 and Dial-a-Pizza acquired Domino’s Paul founded BridgeClimb in retailers including Woolworths 2004 Grant was a Director of Ross Adler in Australia, Don became 1998, following nine years of and Foodland. Corporate Store operations for Non-Executive Chairman General Manager of Domino’s development, planning and Barry spent the first 16 years Domino’s Pizza. (Age 60) Pizza. In 1996 Don became a construction. Paul, along with of his career with Woolworths Prior to joining Domino’s Pizza, Ross was a Non-Executive Franchisee and built a network the BridgeClimb business, (New Zealand), culminating Grant spent six years with Director of the Commonwealth of 17 stores, before vending his has been highly rewarded by in his appointment as National Masterfoods (Mars Inc) working Bank of Australia from 1991 to stores into Domino’s Pizza in the tourism and business Merchandise Controller. in various technical, sales and September 2004, and was 2001. Don became Chief community in Australia. Barry began employment with marketing roles for the company a Director of Telstra between Operating Officer of Domino’s Paul was awarded the National Foodland in March 1993 as throughout South East Asia, 1995 and 2001. Ross is also Pizza in 2001 and Chief Executive Entrepreneur of the Year General Manager – Western New Zealand and Australia. Chairman of AUSTRADE and Officer in 2002. (Business) in 2001, and the Australian Operations. He was Grant has won many Executive Chairman of Amtrade Don has won a number of Australian Export Heroes Award appointed Chief Executive awards within Domino’s Pizza, International Pty Ltd. international Domino’s awards, in 2002/2003. Officer in September 1994 and including National Sales Ross was Chief Executive Officer notably, 1996 International Paul’s career included Managing Director in November Champion in 1995, Golden of Santos Ltd from 1984 to 2000. Manager of the Year and in marketing and general of the same year, serving until Franchisee award in 1995, Previously he was Deputy 2004 the Chairman’s Award, management roles for B&D 2000. Franchisee of the year 1997 Managing Director of Australian for Outstanding Leadership Roll-A-Door, before founding Barry was appointed General and 1998, and the Golden Eagle Paper Manufacturers (now in Domino’s Pizza in the the Amber Group in 1974. Manager of Queensland in 1999 for his contribution to AMCOR) and Managing Director worldwide network. In 1996, Paul sold his interest Independent Wholesalers in Domino’s Pizza. Most notably of Brown & Dureau. Don’s Industry Awards in the Amber Group to 1987, and held various industry Grant won the Chairman’s Ross has been an adviser also include the 2002 Qld Retail management. consulting appointments Award, for Outstanding to Domino’s Pizza for Franchise Australian Institute of Paul is a director and founding in Queensland and Papua New Leadership in Domino’s Pizza three years. Management (AIM) Professional shareholder of InterRisk Guinea. in the worldwide network. Ross holds a Bachelor of Manager of the Year 2004, and Australia Pty Ltd. Barry is a Member of the Grant holds a Bachelor of Commerce from Melbourne The Ernst & Young Australian Paul holds a Bachelor of Australian Institute of Company Science (Food Technology) University and an MBA from Young Entrepreneur of the Year Commerce from the University Directors. from the University of NSW. Columbia University. in 2004. of NSW.
51 Ken Lewis Andrew Rennie General Counsel and National Operations Pat McMichael Company Secretary Manager – Corporate New Concept (Age 36) (Age 37) Development Manager Years with Domino’s: Years with Domino’s: 11 years Michael Locke (Age 36) Three months Jon Saunders Andrew joined Domino’s Pizza in Chief Marketing Officer Years with Domino’s: 15 years Ken is a solicitor of the Supreme General Manager 1994 and has held a number of (Age 52) Pat has over 15 years’ Court of Queensland and High Supply Chain (Age 42) roles within Domino’s Pizza, Years with Domino’s: Six years experience in the Australian Court of Australia with over Years with Domino’s: Eight years including that of Franchisee. Michael joined Domino’s Pizza pizza industry, nine of which 11 years’ experience. Jon has been with Domino’s After being involved in operating Australia as Marketing Officer were spent as a Domino’s Ken joined Domino’s Pizza as Pizza since 1997 and has Domino’s Pizza Stores between in 1999, and has over 30 years Pizza Franchisee. General Counsel in 2005. Prior 15 years’ experience in 1994 and 2004, Andrew sold his of experience in consumer and Pat joined Domino’s Pizza in to this he was the principal of purchasing. nine Franchised Stores to retail marketing. 1990 in Sydney as a trainee his own law firm where he acted Jon has held various roles Domino’s Pizza in 2004 and Michael has held previous manager and won Rookie for a large number of Domino’s throughout his career, including joined Domino’s Pizza as positions as Director of Manager of the Year in 1991. Franchisees throughout Purchasing Manager for the National Operations Manager Marketing of Conrad Jupiters Between 1991 and 1994, Pat Australia. Collins Food Group, National (Corporate) in 2004. and Marketing Director for held Area Manager positions, Prior to establishing his own Purchasing Manager for Austotel Andrew has won a number of Australia for Boots and was National Property firm, Ken was a partner with Hotel Group and a company Domino’s Pizza awards, including Pharmaceuticals. Manager between 1994 to 1995. a mid-sized Brisbane law firm, buyer for Queensland Liquor the International Silver Franny Michael holds a Bachelor of Pat was a Domino’s Pizza Cranston McEachern Lawyers. Distributors. Award in 2001. Commerce (Marketing) from franchisee between 1995 and Ken holds a Bachelor of Laws Prior to joining Domino’s Pizza, the University of NSW. He has 2004, owning a total of 10 stores from the Queensland University Andrew was an Avionics also taught university under during this period. Pat won of Technology. Technician in the RAAF for graduate and post graduate Franchisee of the Year in 1998 10 years. programs. (Regional) and 1999. Andrew holds a Bachelor of Pat was appointed as New Teaching from the University of Concept Development Manager Technology, Sydney. in 2004.
52 5.3 Senior Management
Andrew Megson Peter Jones National Operations General Manager Manager – Franchise New Zealand (Age 40) Richard Coney [Age 42] Years with Domino’s: 19 years Chief Financial Officer Years with Domino’s: 4 years Andrew joined Domino’s Pizza (Age 40) Peter has been with Domino’s as a store manager in 1985, Years with Domino’s: 10 years Pizza for four years, and has before going on to own his Richard is a Chartered spent a total of 11 years in the own Franchise. Accountant with over 17 years QSR industry. Andrew was a franchise of experience. Peter jointed Domino’s as a Andy Masood consultant between 1996 Richard is responsible for the Franchise Trainer in 2001. Chief Development and 2000. Company’s financial accounting, Since this time, Peter has held Officer – Property In 2000, Andrew was promoted planning & reporting, treasury, a number of positions, including (Age 45) to his present position of tax, internal audit and has acting as a Franchise Consultant Years with Domino’s: 13 years National Operations Manager overall responsibility for in Sydney and Wollongong, and Since joining Domino’s Pizza in for the Franchise Network. information technology. Corporate Operations Director 1992, Andy has held various Prior to joining Domino’s in New Zealand. Peter was roles, including Store Manager, in 1994, Richard spent appointed to his current role of National Purchasing & Logistics four years in the UK, General Manager New Zealand, Manager and National predominantly working in 2005. Peter is responsible Operational Manager for for BET Plc as a Treasury/Group for overseeing Domino’s Pizza Franchises. Andy has been the Accountant. Prior to this, New Zealand current expansion. Chief Development Officer – Richard worked for Deloitte Prior to joining Domino’s Pizza, Property for Domino’s Pizza Don Meij Touche Tohmatsu in their Peter spent seven years with since 2000. Chief Executive Audit Division. Tricon. Andy holds a Masters in Officer/Managing Director Richard holds a Bachelor Industrial Economics from the (Age 36) of Management Studies University of Bucharest. Years with Domino’s: 18 years and is a Chartered Accountant Don’s details are set out in for the Institute of Chartered Section 5.2 Accountants of New Zealand.
53 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
The Senior Management of Domino’s Pizza has been highly awarded by Domino’s Pizza, Inc. and by the industry. In 2004, Don Meij and Grant Bourke received The Chairman’s Award, for Outstanding Leadership in the Domino’s worldwide network. Don and Grant are only two of six people to enter the Domino’s Hall of Fame since its inception in 1999. In 2004, Don Meij won the Ernst & Young, Young Entrepreneur of the Year Northern Region award and the Australian Young Entrepreneur of the Year award, and the Queensland Australian Institute of Management Professional Manager of the Year Award. Other members of the Senior Management have also been awarded by Domino’s Pizza for outstanding performance within Domino’s Pizza. Of particular note is Andrew Rennie, who won Domino’s International Silver Franny Award in 2001. Four members of the Senior Management team have been Franchisees previously, demonstrating the close link between Domino’s Pizza and its Franchisee Network, and the level of practical operational experience of the Senior Management team.
5.4 ORGANISATIONAL STRUCTURE As at 31 December 2004, Domino’s Pizza employed 3,271 staff on a full time or casual basis, with approximately 2,902 being in-store employees or drivers. In addition, the Company estimates there are approximately 6,430 staff employed on a full or casual basis throughout the Franchisee Network.
Don Meij Chief Executive Officer/ Managing Director
Operations Support
Andrew Megson Andrew Rennie Michael Locke Ken Lewis Richard Coney National Operations National Operations Chief Marketing Officer General Counsel/ Chief Financial Officer Manager (Franchise) Manager (Corporate) Company Secretary
Peter Jones Pat McMichael Jon Saunders Andy Masood General Manager New Concept Manager General Manager Chief Development New Zealand Supply Chain Officer (Property)
The Directors believe that the Company can rollout its expansion strategy in the next three years without materially increasing the number of its head office staff.
5.5 CORPORATE GOVERNANCE This section summarises the main corporate governance practices which have been adopted by the Company. The Board has adopted a Corporate Governance Charter, Code of Conduct and a comprehensive set of Board policies regarding Independence and Conflicts of Interest, Risk Management, Board Performance Evaluation, CEO Performance Evaluation, Continuous Disclosure, Securities Trading and an Audit Committee Charter to assist to discharge its corporate governance responsibilities. Copies are available from the Company’s registered office. BOARD ROLE AND COMPOSITION The Board of the Company is responsible for ensuring the existence of an effective corporate governance environment to safeguard the interests of the Company, its shareholders, and other stakeholders. The Board will meet regularly and will be responsible for providing strategic direction, identifying significant business risks, approving major investment proposals and acquisitions, establishing goals and monitoring the achievement of these goals. The full Board is responsible for establishing criteria for Board membership, reviewing Board membership and nominating directors for appointment to the Board. Candidates initially appointed by the Board must stand for election at the next general meeting of shareholders.
54 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
The Board considers that the following non-executive directors are independent in terms of ASX’s Corporate Governance Guidelines: • Ross Adler (Chairman); • Barry Alty; and • Paul Cave. The Company also has a Directors’ Code of Conduct which sets out standards to which each director will adhere whilst conducting his duties. The code requires a Director, amongst other things, to: • act honestly, in good faith and in the best interests of the Company as a whole; • perform the functions of office and exercise the powers attached to that office with a degree of care and diligence that a reasonable person would exercise if he were a Director in the same circumstances; and • consider matters before the board having regard to any possible personal interests, the amount of information appropriate to properly consider the subject matter and what is in the best interests of the Company. AUDIT COMMITTEE The Board has established a separate audit committee which operates under its own Audit Committee Charter. The Committee comprises Barry Alty (chairman), Ross Adler and Paul Cave. Each of them are financially literate (i.e. they are able to read and understand financial statements) and have an understanding of the industry in which the Company operates. The role of the Audit Committee is to assist the Board in discharging its obligations with respect to ensuring the correctness and reliability of financial information prepared for use by the Board and the integrity of the Company’s internal controls affecting the preparation and provision of that financial information in determining policies or for inclusion in the financial report. The Audit Committee will: • be the focal point of the communication between the Board, management and the external auditor; • recommend and supervise the engagement of the external auditor and monitor auditor performance; • review the effectiveness of management information and other systems of internal control; • review all areas of significant financial risk and arrangements in place to contain those to acceptable levels; • review significant transactions that are not a normal part of the Company’s business; • review the year end and interim financial information and ASX reporting statements; • to monitor the internal controls and accounting compliance with the Corporations Act, ASX Listing Rules, review external audit reports and ensure prompt remedial action; and • review the Company’s financial statements (including interim reports) and accounting procedures. NOMINATION AND REMUNERATION COMMITTEE The Nomination and Remuneration Committee comprises the entire Board and is responsible for determining remuneration packages applicable to the Board members and managing director. The managing director determines the remuneration packages for the senior executives of the Company in accordance with compensation guidelines set by the Board. The Board remuneration policy has been developed to ensure that remuneration packages properly reflect each person’s duties and responsibilities and that remuneration is competitive in attracting, retaining and motivating people of the highest quality. The Board will undertake an annual review of its performance. When a Board vacancy occurs or where it is considered that the Board would benefit from the services of a new director with particular skills, directors are asked to nominate suitable candidates. The Board reviews potential candidates, with advice from external consultants if necessary, and then appoints the most suitable candidate. The Company’s remuneration policy will link the nature and amount of executive directors’ and officers’ emoluments to the Company’s financial and operational performance.
55 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
SHAREHOLDER COMMUNICATION The Board of Directors aims to ensure that the shareholders, on behalf of whom they act, are informed of information necessary to assess the performance of the Company. Information on major developments affecting the Company is communicated to the shareholders through the Annual and Half-Yearly Reports, General Meetings and notices of the General Meetings, and by general correspondence from the Board. Shareholders will be encouraged to participate in the Annual General Meeting and other general meetings to ensure a high level of accountability and identification with the Company’s strategies and goals. Important issues are presented to shareholders as single resolutions. SECURITIES TRADING POLICY The Company has adopted a policy that imposes certain restrictions on officers, employees and franchisees trading in the securities of the Company. The restrictions have been imposed to prevent inadvertent contraventions of the insider trading provisions of the Corporations Act. The key aspects of the policy are: • trading whilst in the possession of material price sensitive information is prohibited; • trading is permitted without approval in the six week period after the release to ASX of the half-yearly and annual results, the end of the AGM or at any time the Company has a prospectus open, but only if they have no inside information and the trading is not for short term or speculative gain; and • trading in other circumstances is only permitted if the person is personally satisfied that they are not in possession of inside information and they have obtained approval. Permission will be given for such trading only if the approving person is satisfied that the transaction would not be contrary to law, for speculative gain or to take advantage of inside information. CONTINUOUS DISCLOSURE The Company has adopted a continuous disclosure policy so as to comply with its continuous disclosure obligations once listed on ASX. The aims of this policy are to: • assess new information and co-ordinate any disclosure or releases to ASX, or any advice required in relation to that information, in a timely manner; • provide an audit trail of the decisions regarding disclosure to substantiate compliance with the Company’s continuous disclosure obligations; • report to the Board on continuous disclosure matters; and • ensure that employees, consultants, associated entities and advisers of the Company understand the obligations to bring material information to the attention of the Company Secretary. The Company Secretary is responsible for communications with ASX including responsibility for ensuring compliance with the continuous disclosure requirements in ASX Listing Rules and overseeing information going to ASX, shareholders and other interested parties.
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57 58 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER SECTION 6
FINANCIAL INFORMATION______
59 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
6. FINANCIAL INFORMATION______
6.1 INTRODUCTION This Section contains a summary of the historical and Forecast Financial Information for Domino’s Pizza (“Financial Information”). All Financial Information presented in this Section should be read in conjunction with the other information contained in this Section 6, the Risk Factors in Section 7, the Investigating Accountants’ Report in Section 8, the Review of Directors’ Financial Forecasts in Section 9 and other information contained in the Prospectus. Domino’s Pizza utilises a 52 week year for its Financial Information. The accounts are closed on the nearest Sunday to 30 June of each year. Domino’s Pizza has a 53 week year every fifth year. The year ending 30 June 2005 is a 53 week period. Given the immateriality of the discrepancies between actual year end and 30 June and the actual half year end and 31 December, all year ends are expressed as 30 June and half year periods as 31 December. Unless otherwise stated, the Financial Information has been prepared in accordance with the basis of the accounting policies outlined in Note 1 of Appendix A to this Prospectus (the “Accounting Policies”). The Financial Information comprises: • The Pro Forma Adjusted Historical Statements of Financial Performance for the years ended 30 June 2001, 2002, 2003 and 2004 (“Pro Forma Adjusted Historical Financial Information”) prepared in accordance with the Accounting Policies; • The Forecast Financial Information, comprising: – The Pro Forma Forecast Statement of Financial Performance and Statement of Cash Flows for the year ending 30 June 2005 (“Pro Forma 2005 Forecast”) prepared in accordance with the Accounting Policies. The Pro Forma 2005 Forecast is based on the adjusted performance for the six months ended 31 December 2004 and the forecast performance for the six months ending 30 June 2005; and – The Forecast Statement of Financial Performance and Statement of Cash Flows for the year ending 30 June 2006, prepared in accordance with the Accounting Policies (“2006 Forecast”) and the concurrent requirements of Australian equivalents to International Financial Reporting Standards (“2006 A-IFRS Forecast”); and • The Pro Forma Adjusted Statement of Financial Position as at 31 December 2004 (“Pro Forma Adjusted Financial Position”), prepared in accordance with the Accounting Policies.
6.2 PREPARATION OF PRO FORMA ADJUSTED HISTORICAL FINANCIAL INFORMATION The Pro Forma Adjusted Historical Financial Information adjusts the Company’s Audited Historical Statutory Financial Statements (“Statutory Historical Financial Information”) to provide comparability with the Forecast Financial Information. A reconciliation is provided in Table 6.11. The Pro Forma Adjusted Historical Financial Information does not include any costs associated with operating as a publicly listed company. Additional costs associated with a listed public company structure have been assumed for the purposes of the Forecast Financial Information. Included in Appendix A is the Pro Forma Adjusted Historical Financial Information for the six months ended 31 December 2004, which has been reviewed by Deloitte Touche Tohmatsu as set out in the Investigating Accountants’ Report in Section 8 of the Prospectus. The Pro Forma Adjusted Financial Position is based on the reviewed Statement of Financial Position as at 31 December 2004, adjusted to reflect the impact of the capital restructure and the subsequent capital raising that will be in place following the Offer as if the Company was listed as at 31 December 2004. A reconciliation is provided in Table 6.8 for the Pro Forma Adjusted Financial Position. The Pro Forma Adjusted Financial Position should be read in conjunction with the Investigating Accountants’ Report in Section 8, the Accounting Polices disclosed in Appendix A and other information contained in this Prospectus.
60 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
6.3 PREPARATION OF FORECAST FINANCIAL INFORMATION The Forecast Financial Information is based on the Directors’ assessment of current economic and operating conditions and on a number of assumptions regarding future events and actions, which, at the date at which the Forecast Financial Information was adopted, the Directors consider will take place. These events or actions may or may not take place. The Forecast Financial Information is, by its very nature, subject to uncertainties and unexpected events, many of which are outside the control of the Company and its Directors. Events and circumstances often do not occur as anticipated and therefore actual results may differ from the Forecast Financial Information and these differences may be material. Accordingly, the Directors cannot and do not give any guarantee that the Forecast Financial Information will be achieved. Events and outcomes may differ in quantum and timing from the best estimate assumptions, with material consequential impact on the Forecast Financial Information. The Forecast Financial Information should be read in conjunction with the best estimate general assumptions outlined below, the best estimate specific assumptions underlying the Forecast Financial Information set out in Section 6.8, the sensitivity analysis set out in Section 6.9, the Risk Factors in Section 7, the Investigating Accountants’ Report set out in Section 8, the Review of Directors’ Financial Forecasts set out in Section 9 and other information contained in this Section and the Prospectus. The material best estimate general assumptions made by the Directors in preparing the Forecast Financial Information are as follows: • there is no loss of key management personnel; • there is no adverse change to the efficiency of the Company’s supply chain during the Forecast Period; • there are no material beneficial or adverse effects arising from the actions of competitors; • the operating and financial performance of Domino’s Pizza is influenced by a variety of general economic and business conditions, including the levels of consumer spending, levels of inflation, interest rates and exchange rates, government fiscal, monetary and regulatory policies. The Forecast Financial Information assumes that there will be no material changes in these conditions. Domino’s Pizza has made the following general macroeconomic assumptions in its Forecast Financial Information in relation to Australia and New Zealand: Table 6.1 – General Assumptions
Assumption AUD/NZD exchange rate 1.08 CPI Annual Growth Rate 3.0%
• there is no material amendment to any material agreement relating to Domino’s Pizza’s business; • there are no material acquisitions or disposals, other than as set out in this Prospectus; • there is no change to Domino’s Pizza’s funding or capital structure other than as outlined in this Prospectus; • there are no changes to the statutory, legal or regulatory environment, including taxation, which would be detrimental to Domino’s Pizza or its key suppliers in any of the jurisdictions in which they operate; • accounting policies remain consistent with those adopted in preparing historical financial statements, as set out in Note 1 to Appendix A; and • there are no material changes in Australian Accounting Standards, Statements of Accounting Concepts or other mandatory professional reporting requirements, being Urgent Issues Group Consensus Views and the Corporations Act, which would have a material effect on the Forecast Financial Information. The impact of the adoption of Australian equivalents to International Financial Reporting Standards is discussed in Sections 6.15 and 6.16.
61 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
6.4 SUMMARY STATEMENT OF HISTORICAL AND FORECAST FINANCIAL PERFORMANCE Table 6.2 sets out a summary of the Pro Forma Adjusted Historical Financial Information and the Forecast Financial Information. The Pro Forma Adjusted Historical Financial Information is presented to the EBIT line only and excludes interest and tax given the different corporate and funding structures going forward. Table 6.2 – Statement of Financial Performance
AGAAP A-IFRS(5) Pro Forma 2006 Pro Forma Adjusted 2005 2006 A-IFRS Historical Financial Information(1) Forecast(3) Forecast Forecast (Year ended 30 June) 2001 2002 2003 2004 2005 2006 2006 $ million Network Sales(2) 120.9 175.0 205.1 245.8 300.0 350.5 350.5 Revenue 34.7 70.4 88.0 109.7 139.8 157.1 151.9 EBITDA 3.1 7.8 11.3 12.8 18.1 21.9 21.4 Depreciation (1.3) (2.9) (3.1) (4.4) (4.9) (5.8) (5.9) EBITA 1.8 4.9 8.2 8.4 13.2 16.1 15.5 Amortisation (0.1) (0.5) (0.4) (0.6) (1.2) (1.4) – EBIT 1.7 4.4 7.8 7.8 12.0 14.7 15.5 Net Interest Expense (2.2) (0.8) (0.9) Income Tax (3.2) (4.6) (4.4) Pro Forma NPAT (pre share issue costs) 6.6 9.3 10.2 After Tax share issue costs(4) (0.8) – – NPAT 5.8 9.3 10.2 Key Operating Data: Network Sales Growth % NA 44.7% 17.2% 19.8% 22.1% 16.8% NA Revenue Growth % NA 102.9% 25.0% 24.7% 27.4% 12.4% NA EBITDA Growth % NA 151.6% 44.9% 13.3% 41.4% 21.0% NA EBITDA Margin % 8.9% 11.1% 12.8% 11.7% 12.9% 13.9% 14.1% EBIT Margin % 4.9% 6.3% 8.9% 7.1% 8.6% 9.4% 10.2% Franchised Stores 128 149 175 206 270 293 293 Corporate Stores 50 53 70 88 106 125 125 Total Network Stores 178 202 245 294 376 418 418 Corporate Store % 28.1% 26.2% 28.6% 29.9% 28.2% 29.9% 29.9%
Notes: (1) The Pro Forma Adjusted Historical Financial Information is based on the audited financial performance for the years ended 30 June 2001, 2002, 2003 and 2004. Pro Forma adjustments are set out in Table 6.11. (2) Network Sales have not been independently audited or reviewed by Deloitte Touche Tohmatsu or Deloitte Corporate Finance Pty Limited. (3) The Pro Forma 2005 Forecast (excluding the store data) for the year ending 30 June 2005 is based on the financial performance for the six months ended 31 December 2004, as reviewed by Deloitte Touche Tohmatsu and set out in Section 8, and the forecast performance for the six months ending 30 June 2005. (4) In the year ending 30 June 2005, the Directors are forecasting to expense non-recurring pre Offer costs before tax of $1.2 million comprising costs of $1.1 million associated with paying out the existing Senior Management incentive plan prior to the Offer and ancillary costs of $0.1 million incurred in preparation for listing on ASX. The after tax amount, based on the Company’s tax rate of approximately 30%, is $0.8 million. (5) For the year ending 30 June 2006, Domino’s Pizza will adopt A-IFRS and as a consequence there will be a number of adjustments. Further details on A-IFRS are set out in Sections 6.15 and 6.16. 62 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
6.5 BUSINESS SEGMENT INFORMATION As discussed in Section 4.4, Domino’s Pizza has three key business segments: • Corporate – Revenue earned by the Company as the owner and operator of Corporate Stores as principal, from which 2% is paid by the Company to Domino’s Pizza Inc., as a service fee under the terms of the Master Franchise Agreement (refer to Section 10.1 for details). • Franchise – Revenue earned by the Company from charging Franchisees a royalty of 7%, from which 2% is paid by the Company to Domino’s Pizza Inc., as a service fee under the terms of the Master Franchise Agreement (refer to Section 10.1 for details); – a commission is also charged by the Company on food and equipment supplies, and revenue earned on provision of services to Franchisees, which can include the sale of new stores through a “turn key” offering to Franchisees. Under the Accounting Policies and A-IFRS, the gross proceeds from the construction and sale of stores to Franchisees is recorded as revenue; and – there are also a number of ancillary revenue sources, including interest charged on Franchisee loans, bank interest received, and lease management fees (where property is managed for Franchisees). • Corporate Development – The Company regularly purchases stores, from both independent operators and Franchisees. Domino’s Pizza is typically able to improve the operational performance of these stores and the refurbished and improved stores are often onsold to Franchisees at a profit. Under the Accounting Policies, the gross proceeds from the sale of Corporate Stores is recorded as Corporate Development revenue. Under A-IFRS, the net profit from the sale of Corporate Stores will be included as a separate item in the profit and loss (see Sections 6.15 and 6.16 for further details). There are also a number of ancillary revenue sources, including print room and guarantee fee charges to Franchisees.
63 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Table 6.3 – Business Segment Information
AGAAP A-IFRS(2) Pro Forma 2006 Pro Forma Adjusted 2005 2006 A-IFRS Historical Financial Information(1) Forecast Forecast Forecast (Year ended 30 June) 2001 2002 2003 2004 2005 2006 2006 $ million
Revenue Corporate 17.0 53.6 63.0 80.9 97.2 116.6 116.6 Franchise 16.8 14.6 17.8 20.8 32.2 32.5 32.5 Corporate Development 0.6 1.7 5.7 5.0 7.3 5.2 0.0 Other/Unallocated 0.3 0.5 1.5 3.0 3.1 2.8 2.8 Total Revenue 34.7 70.4 88.0 109.7 139.8 157.1 151.9 Revenue – Growth % Corporate NA 215.3% 17.5% 28.4% 20.1% 20.0% NA Franchise NA (13.1)% 21.9% 16.9% 54.8% 0.9% NA Corporate Development NA 183.3% 235.3% (12.3)% 46.0% (28.8)% NA Other/Unallocated NA 66.7% 200.0% 100.0% 3.3% (9.7)% NA Total Revenue – Growth % NA 102.9% 25.0% 24.7% 27.4% 12.4% NA Revenue – % Segmentation Corporate 49.0% 76.1% 71.6% 73.7% 69.5% 74.2% 76.8% Franchise 48.4% 20.7% 20.2% 19.0% 23.0% 20.7% 21.4% Corporate Development 1.7% 2.4% 6.5% 4.6% 5.2% 3.3% 0.0% Other/Unallocated 0.9% 0.7% 1.7% 2.7% 2.1% 1.8% 1.8% Total Revenue – % Segmentation 100% 100% 100% 100% 100% 100% 100% EBITDA Corporate 0.0 4.0 5.9 7.2 9.4 13.8 13.8 Franchise 5.2 5.5 7.1 7.1 11.0 12.1 12.1 Corporate Development 0.2 0.8 1.4 0.9 1.4 0.6 0.6 Other/Unallocated (2.3) (2.5) (3.1) (2.4) (3.7) (4.6) (5.1) Total EBITDA 3.1 7.8 11.3 12.8 18.1 21.9 21.4
Notes: (1) The Pro Forma Adjusted Historical Financial Information is based on the audited financial performance for the years ending 30 June 2001, 2002, 2003 and 2004. Pro Forma adjustments are set out in Table 6.11. (2) For the year ending 30 June 2006, Domino’s Pizza will adopt A-IFRS. Further details on A-IFRS are set out in Sections 6.15 and 6.16.
64 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
6.6 GEOGRAPHICAL SEGMENT INFORMATION Table 6.4 – Geographical Segment Information
AGAAP A-IFRS(2) Pro Forma 2006 Pro Forma Adjusted 2005 2006 A-IFRS Historical Financial Information(1) Forecast Forecast Forecast (Year ended 30 June) 2001 2002 2003 2004 2005(1) 2006 2006 $ million Revenue
Australia 34.7 70.4 88.0 104.3 132.1 149.1 144.6
New Zealand – – – 5.4 7.7 8.0 7.3
Total Revenue 34.7 70.4 88.0 109.7 139.8 157.1 151.9
EBITDA
Australia 3.1 7.8 11.3 13.6 18.3 21.1 20.6
New Zealand – – – (0.8) (0.2) 0.8 0.8
Total EBITDA 3.1 7.8 11.3 12.8 18.1 21.9 21.4
EBITDA Margin %
Australia 8.9% 11.1% 12.8% 13.0% 13.9% 14.2% 14.2%
New Zealand – – – NA NA 10.0% 11.0%
Total EBITDA Margin % 8.9% 11.1% 12.8% 11.7% 12.9% 13.9% 14.1%
Stores
Australia 178 202 245 282 330 364 364
New Zealand – – – 12 46 54 54
Total Stores 178 202 245 294 376 418 418
Notes: (1) The Pro Forma Adjusted Historical Financial Information is based on the audited financial performance for the years ending 30 June 2001, 2002, 2003 and 2004. Pro Forma adjustments are set out in Table 6.11. (2) For the year ending 30 June 2006, Domino’s Pizza will adopt A-IFRS. Further details on A-IFRS are set out in Sections 6.15 and 6.16.
65 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
6.7 MANAGEMENT DISCUSSION OF PRO FORMA ADJUSTED HISTORICAL FINANCIAL INFORMATION YEAR ENDED 30 JUNE 2002 COMPARED TO YEAR ENDED 30 JUNE 2001 In April 2001, Grant Bourke and Don Meij merged their 25 Franchise Stores into the Company’s Corporate Store Network and Don Meij became the Chief Operating Officer of the Company. As at 1 July 2001, there were 178 stores in the Domino’s Pizza Network, comprising 50 Corporate Stores and 128 Franchised Stores. During the course of the year to 30 June 2002, an additional 21 Franchised Stores and 3 Corporate Stores were added to the Network, taking total Network Stores at 30 June 2002 to 202. The key focus of the Company in 2002 was to improve the operational performance of the Network, especially the Corporate Store Network, by refocusing the business on monitoring profitability at store level and investing in systems and staff to support the future growth of the Company. This operational focus, combined with aggressive pricing and promotions, was reflected in the 44.7% increase in Network Sales and in the 14.0% increase in Same Store Sales Growth in 2002. Total revenue increased by 102.9% in 2002, driven principally by the 215.3% increase in Corporate Store revenue from $17.0 million in 2001 to $53.6 million in 2002. This significant increase was as a result of both the operational initiatives implemented by the Company and the benefit of operating the 25 merged Franchise Stores of Don Meij and Grant Bourke for a full 12 months in 2002 as opposed to the three months of operation in 2001. EBITDA margins improved from 8.9% to 11.1% as a result of the increased Network Sales improving operational efficiencies across the Network. Given the initial focus of the Company on improving the Corporate Stores, the benefits of the operational efficiencies were most evident in the Corporate EBITDA margin which improved from a breakeven result in 2001 to 7.5% in 2002. Franchise EBITDA margin increased from 31.0% to 37.7% due to improved operational focus throughout the Network. Total EBITDA increased by 151.6% in 2002 to $7.8 million. YEAR ENDED 30 JUNE 2003 COMPARED TO YEAR ENDED 30 JUNE 2002 In the 12 months to 30 June 2003, the key focus was on improving the performance of the Franchise Store Network. This was undertaken by implementing key initiatives that had been introduced in the Corporate Store Network in 2002, including simplifying the operational structures for Franchisees, thereby better incentivising Franchisees to grow sales, improve profitability and re-invest back into their businesses. The Company also sought to grow its Network, opening 43 stores with a particular focus on expanding the Sydney Network. These initiatives and the expanded store base resulted in total Network Sales in 2003 increasing 17.2% to $205.1 million and Same Store Sales growing 7.0%. This flowed through to both Corporate revenue, which increased 17.5% and Franchise revenue which increased 21.9%. Total revenue growth of 25% was also assisted by the $4.0 million increase in Corporate Development revenue as the Company sought to re-balance and expand the Network. While EBITDA margins continued to improve to 12.8% as a result of the increased Network Sales and improved operational efficiencies, in 2003 the benefits were evident across the entire Network, with Corporate EBITDA margin increasing from 7.5% to 9.4% and Franchise EBITDA margin increasing from 37.7% to 39.9%. Total EBITDA increased by 44.9% to $11.3 million. YEAR ENDED 30 JUNE 2004 COMPARED TO YEAR ENDED 30 JUNE 2003 In the 12 months to 30 June 2004, the economies of scale from the larger Network continued to benefit the Company. Key business development initiatives included Domino’s Pizza entering New Zealand where it opened its first 12 stores, as well as continuing its expansion and “in-filling” into the Sydney metropolitan market, opening a further 5 stores in the Sydney metropolitan area. Total Network Sales increased to $245.8 million in 2004, driven by the larger Network store base and Same Store Sales Growth of 3.8%. Revenue grew by 24.7% to $109.7 million, aided by particularly strong Corporate revenue growth of 28.4%. While EBITDA increased to $12.8 million in 2004, EBITDA margins fell to 11.7% as result of the entry into New Zealand and the associated costs incurred.
66 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
6.8 MANAGEMENT DISCUSSION OF SPECIFIC ASSUMPTIONS UNDERLYING THE FORECAST FINANCIAL INFORMATION NEW STORE ROLL OUT, ACQUISITIONS AND DISPOSALS Domino’s Pizza has a detailed store development program which identifies the geographical areas in which new stores are to be developed and opened. The Domino’s Pizza Corporate and Franchisee development team currently consists of 8 people who plan, identify, construct and open new stores. Identification of a geographic location is based on demographic assessments of residential density and time access to the local store. Demographic data is interfaced with census data to identify potential areas which meet the required coverage benchmarks. As at 31 December 2004, there were 333 Network Stores. Network Store numbers are forecast to be 418 stores by 30 June 2006 with 43 new stores forecast to open in the six months ending 30 June 2005 and a further 42 new stores forecast to be opened in the year to 30 June 2006. Although specific geographical areas for new stores have been identified, specific store locations have not necessarily been identified as at the date of this Prospectus. However, Domino’s Pizza has a proven model and track record of identifying profitable new store areas and rolling out new stores in accordance with the store development program. A Corporate Store or Franchised Store to be opened by an existing Franchisee normally has a 12-week timeline to open, from geographic area selection through to specific site selection, council approvals, construction and opening. Shop fit out normally takes approximately four weeks. Sourcing an external new Franchisee can add an additional 13 weeks, although this is becoming less common because of the high demand from existing Franchisees within the Domino’s Pizza Franchise Network to take on new Franchise areas. New store construction costs are forecast to be approximately $355,000 per store, and there is no significant variation in cost in building in New Zealand. New Franchised Stores constructed by Domino’s Pizza are forecast to be sold to the Franchisee at cost. New Franchisees may also be charged a new franchise fee. On average, it takes new stores approximately five years to reach mature sales levels. New stores opened in the forecast period, are forecast to contribute average weekly sales of approximately $12,700 per week, compared to forecast average weekly sales of $17,200 per week for stores existing at the start of the forecast period. Gross margin at store level for new stores is also forecast to start at a lower level than the average across the Network, but is forecast to increase as the stores mature in sales. In addition to developing “turn-key” stores for Franchisees, as part of Domino’s Pizza normal business operations, it will also sell Corporate Stores to Franchisees. In certain circumstances, Domino’s Pizza will acquire non-performing Franchisee stores and focus on improving the financial performance of these stores. Domino’s Pizza has also identified a number of specific Corporate Stores which it intends to dispose of during the forecast period. Pre-tax profit from the sale of Corporate Stores is forecast to be $1.4 million in Pro Forma 2005 Forecast, including $1.1 million in the six months to 30 June 2005 from the sale of 8 Corporate Stores and $0.6 million in 2006 Forecast from the sale of 13 Corporate Stores, all of which have been specifically identified. FORECASTS FOR YEAR ENDED 30 JUNE 2005 COMPARED TO YEAR ENDED 30 JUNE 2004 The number of new stores is the major driver of forecast growth in Network Sales in 2005, with a total of 82 new stores (comprising 18 Corporate and 64 Franchised) forecast to be opened or acquired in the year ending 30 June 2005. A total of 39 stores were opened or acquired in the six months to 31 December 2004, increasing total Network Stores to 333, comprising 232 Franchised Stores and 101 Corporate Stores. Of the 39 new stores, 4 were opened in New Zealand and 35 in Australia. The new Australian stores included 16 stores which were acquired from the Big Daddy’s chain and converted into Domino’s Pizza Stores. For the six months ending 30 June 2005, Domino’s Pizza is forecasting that it will open or acquire a further 13 new stores in Australia and 30 new stores in New Zealand, taking total Network Stores to 376 at 30 June 2005. In New Zealand, the forecast new stores include 29 Pizza Haven stores, which became part of the Company’s Network in March 2005. A further store is currently being constructed and is forecast to open in New Zealand by 30 June 2005. In Australia the Company is forecast to open eleven new stores (of which seven are already open or currently under construction) and is in the process of finalising the acquisition of an additional two stores. The number of forecast new store openings in the 12 months to 30 June 2005 is unusually high due to the Pizza Haven acquisition in New Zealand and the forecast acquisitions of two existing independent outlets in Victoria. Within the Network, a total of eight Corporate Stores are forecast to be sold by Domino’s Pizza to Franchisees and 10 stores are forecast to be purchased from Franchisees in accordance with the Company’s Corporate Development activities, resulting in a net purchase of two Corporate Stores in the six months ending 30 June 2005. 67 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Total Network Sales are forecast to grow 22.1%, primarily as a result of the contribution of the 82 new stores, while Same Store Sales Growth of 1.1% is forecast for the year ending 30 June 2005. The Directors are forecasting revenue to increase 27.4% to $139.8 million in 2005. Corporate revenue is forecast to increase 20.1% from $80.9 million in 2004 to $97.2 million in 2005, due primarily to the 18 new Corporate Stores, of which 16 have already opened and two which are currently under construction as at the date of this Prospectus. Franchise revenue is expected to increase by 54.8% to $32.2 million in 2005, which the Directors consider to be unusually high as it includes the gross proceeds of $5.4 million from the prompt sale to Franchisees of 11 of the 16 Big Daddy’s stores acquired by the Company in Victoria in September 2004. In the first half to 31 December 2004, Franchise revenue also includes approximately $600,000 from the construction and sale of new stores. Additional gross proceeds of $7.8 million are forecast to be earned from the construction and sale of new Franchised Stores in the six months to 30 June 2005, of which approximately $4.9 million has been received at the date of this Prospectus with the remainder either identified or currently under construction. Excluding the impact of gross proceeds received on the sale of Franchised Stores, Franchise revenues are forecast to increase by 17.3% due to the impact of a total of 64 Franchised Stores forecast to be added to the Network through the year ended 30 June 2005. Corporate Development revenue is forecast to increase by 46.0% to $7.3 million in 2005, due to the planned disposal of 18 Corporate Stores to Franchisees, eight of which are forecast to be sold in the six months ending 30 June 2005. EBITDA is forecast to increase 41.4% to $18.1 million in 2005, driven by the additional 82 stores forecast to be added to the Network, as well as EBITDA margins improving from 11.7% to 12.9%. EBITDA margin improvement is expected through improved cost controls and operating efficiencies in the form of purchasing and advertising savings, derived from the expanded Network and improved portfolio of Corporate Stores. The overhead cost base is expected to increase to cater for the planned expansions and growth. Corporate Store EBITDA is expected to increase 30.6% to $9.4 million due to increased trading through the expanded Network and an improved portfolio of Corporate Stores. Franchise EBITDA is expected to increase 54.9% to $11.0 million in 2005 due to an additional 64 Franchised Stores being added to the Network. Corporate Development EBITDA is expected to increase to $1.4 million as a result of the planned disposal of specific Corporate Stores which have already been sold or are currently awaiting settlement or are in sale negotiations. Revenue contribution from New Zealand is forecast to increase 42.6% to $7.7 million in 2005, primarily as a result of the acquisition of the 29 Pizza Haven stores. EBITDA in New Zealand is forecast to be marginally negative in 2005. Depreciation is expected to increase to $4.9 million in 2005 due to the larger Corporate Store Network. Amortisation is expected to increase in 2005 to $1.2 million, due to the acquisitions of Franchised Stores, Pizza Haven in New Zealand, and other store acquisitions. EBIT is forecast to increase by 53.9% to $12.0 million in 2005. Interest expense in 2005 is calculated based on actual interest expense for the six months ended 31 December 2004 and the forecast interest expense for the six months ending 30 June 2005, taking into account a reduction in net debt from the date of the Offer. Interest has been calculated based on existing finance facilities, forecast movements and an average interest rate of 7.4% for the year ending 30 June 2005. Refer to Section 6.10 for further details on net debt. Pro Forma 2005 Forecast income tax expense has been based on the statutory company tax rate of 30%, after taking into account any permanent differences.
68 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
FORECASTS FOR YEAR ENDED 30 JUNE 2006 COMPARED TO THE FORECASTS FOR THE YEAR ENDED 30 JUNE 2005 In the 12 months to 30 June 2006, Network Sales are forecast to increase 16.8% to $350.5 million, driven in part by the forecast opening of 42 new stores, of which 19 are Corporate Stores and 23 are Franchised Stores. Of the 42 new stores, 34 are in Australia and eight are in New Zealand. Same Store Sales Growth is forecast to be 2.6% for the year ending 30 June 2006. The Directors are forecasting revenue growth of 12.4% to $157.1 million in 2006. Corporate revenue is forecast to grow 20.0% to $116.6 million, driven by the forecast increase of 19 Corporate Stores in 2006. The increase of 19 Corporate Stores comprises 14 existing Franchised Stores targeted for purchase and 18 new Corporate Stores to be acquired externally or developed in greenfield locations, the geographical areas of which have been identified but specific sites have not been located. Domino’s Pizza has identified 13 existing Corporate Stores which are forecast to be redeveloped and sold to Franchisees in 2006, resulting in a net movement of 19 Corporate Stores. Franchise revenue is forecast to grow by only 0.9% to $32.5 million, due to unusually high revenue resulting from the sale of 16 Big Daddy’s stores to Franchisees in the year ending 30 June 2005. The contribution to Franchise revenues from gross proceeds earned on the sale of new stores is forecast to decrease by $4.9 million, from $13.8 million in 2005 to $8.9 million in 2006. There are 24 new stores identified for development and sale to Franchisees in 2006. These stores are forecast to be sold at cost. The net increase in Franchisee Stores in 2006 is forecast to be 23, reflecting the development of 24 new Franchise Stores, and the net impact of a decrease of one due to the sale of 13 Corporate Stores to Franchisees and the purchase by Corporate of 14 existing Franchise Stores. Franchise revenue, excluding the impact of gross proceeds received on the sale of Franchised Stores, is forecast to increase by 28.4% in 2006, driven by the forecast increase of 23 Franchised Stores. The forecast Corporate Development revenue of $5.2 million for 2006 comprises 13 Corporate Stores currently being redeveloped and forecast to be sold to Franchisees in 2006. It does not include any other sites that may be identified, or acquisitions that may occur after the date of this Prospectus. Forecast sale prices are based on Management’s estimates, based on current market conditions and prior transactions. The revenue contribution from New Zealand is expected to increase 3.9% to $8.0 million in 2006 as the Company opens eight new Franchised Stores and consolidates its position in the market following the acquisition of 29 Pizza Haven stores in 2005. The overhead cost base is forecast to increase in line with the full year impact of staff increases in the Pro Forma 2005 Forecast, in addition to further staff appointments in response to further growth in 2006. EBITDA is forecast to increase 21.0% in 2006 to $21.9 million while EBITDA margin is forecast to increase from 12.9% to 13.9%, driven by continued improvement in cost controls, operating efficiencies derived from an expanded Network and the improved performance of those Franchised Stores acquired by the Company. Depreciation is expected to increase to $5.8 million in 2006 due to the continued expansion of the Corporate Store Network. Amortisation is expected to increase in 2006 to $1.4 million. EBIT is forecast to increase by 22.5% in 2006. Interest expense in the 2006 Forecast is calculated based on the remaining net debt and an average finance facility rate of 6.9%. 2006 Forecast income tax expense has been based on the statutory company tax rate of 30%, after taking into account any permanent differences.
69 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
6.9 SENSITIVITY ANALYSIS OF FORECAST FINANCIAL INFORMATION Domino’s Pizza’s earnings are considered to be sensitive in varying degrees to movements in a number of key business drivers. A summary of the likely impact of movements in certain key assumptions on Domino’s Pizza’s forecast earnings for the year ending 30 June 2006 is set out in Table 6.5. The effect on earnings presented for each sensitivity is not intended to be indicative or predictive of the likely range of outcomes to be experienced with each sensitivity nor are the changes in the key assumptions detailed below intended to be indicative of the complete range of variations that may occur. Extreme care should be taken in interpreting this information. This analysis treats each movement in an assumption in isolation from possible movements in other assumptions, which may not be the case. Movements in one assumption may have offsetting or compounding effects on other variables, the effects of which are not reflected in the following analysis. In addition, it is possible that more than one assumption may move at any one point in time, giving rise to cumulative effects, which also are not reflected in this analysis. In practice, Domino’s Pizza would respond to any adverse changes in one variable by taking action to minimise its impact. The effect of any such mitigating action has been excluded from the following analysis. A sensitivity analysis has not been provided for the Pro Forma 2005 Forecasts due to the inclusion of the adjusted performance for the six months ended 31 December 2004, and the forecast period being limited to six months to 30 June 2005. Table 6.5 – Sensitivity Analysis – NPAT
Impact on NPAT for year ending 30 June 2006 Sensitivity % Change $million Sales ±1% ±0.3 Operating expenses (excluding food expenses)(1) ±1% ±0.6 Food expenses ±1% ±0.3 Timing of new stores delayed by one quarter NA –0.6
Note: (1) Includes the following expenses: labour; marketing; rent; utilities; travel and accommodation; other administrative.
6.10 PRO FORMA ADJUSTED STATEMENT OF FINANCIAL POSITION The Pro Forma Adjusted Statement of Financial Position has been prepared by adjusting the reviewed Statement of Financial Position as at 31 December 2004 for the impact of the Listing that will be in place following the Offer as if Domino’s Pizza was listed as at 31 December 2004. The adjustments made to the Pro Forma Financial Position are as follows:
70 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Table 6.6 – Pro Forma Adjusted Statement of Financial Position
Pro Forma Adjusted Financial Pro Forma Financial Position Adjustments Position As at As at 31 December 31 December $ million 2004 2004 Current assets Cash assets 3.2 3.5(1) 6.7 Receivables 3.3 3.3 Inventories 0.9 0.9 Other 5.1 5.1 Total current assets 12.5 3.5 16.0 Non-current assets Receivables 0.0 0.0 Investments 0.1 0.1 Other financial assets 3.1 3.1 Property, plant and equipment 30.2 30.2 Intangibles 17.7 17.7 Deferred tax assets 0.4 0.4 Total non-current assets 51.5 – 51.5 Total assets 64.0 3.5 67.5 Current liabilities Payables 8.7 3.7(2) 12.4 Interest-bearing liabilities 1.9 (0.7)(3) 1.2 Current tax liabilities 1.6 (0.4)(5) 1.2 Provisions 1.0 1.0 Other 1.6 1.6 Total current liabilities 14.8 2.6 17.4 Non-current liabilities Interest-bearing liabilities 25.8 (18.8)(3) 7.0 Deferred tax liabilities 1.0 1.0 Provisions 0.3 0.3 Other 2.0 (2.0)(3) 0.0 Total non-current liabilities 29.1 (20.8) 8.3 Total liabilities 43.9 (18.2) 25.7 Net assets 20.1 21.7 41.8 Equity Contributed equity 2.1 37.1(4)(5) 39.2 Retained profits 18.0 (15.4)(5) 2.6 Foreign Currency Translation Reserve 0.0 0.0 Total equity 20.1 21.7 41.8
Notes: (1) Excess cash following receipt of Offer proceeds, and partial pay down of debt facilities. (2) $2.5 million in costs associated with the Offer have been accrued. Note that the $2.5 million is net of $1.9 million that will be funded by the Vendor Shareholders. Included in the $3.7 million, in addition to other Offer costs, is an accrual of $1.1 million with respect to a pre-existing Senior Management incentive plan liability which becomes payable upon Listing and $0.1 million of ancillary costs incurred in preparation for listing on ASX (see note 4, Table 6.2). (3) Reduction in debt facilities from Offer proceeds. (4) Total raising of $39.7 million, net of Offer costs of $2.5 million and reduction in contributed equity of $0.1 million in relation to the Capital Reduction. (5) Contemporaneously with the completion of the Offer and the transfer and allotment of Offer Shares, there will be a selective capital reduction and cancellation of certain shares currently held by Tiggerbell Enterprises Pty Ltd and Somad Holdings Pty Ltd. This Pro Forma Adjustment has been recorded as a reduction in contributed equity of $0.1 million and a reduction in retained profits of $14.6 million in relation to the Capital Reduction of $14.7 million. In addition, the adjustment to retained profits includes the after tax costs of $0.8 million associated with the 71 payout of the Senior Management incentive plan of $1.1 million and ancillary restructuring costs of $0.1 million. The Pro Forma Adjustments assume the liability arising on the selective Capital Reduction is paid out by proceeds from the Offer. DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
The Directors are forecasting net debt of $13.3 million for the year ending 30 June 2005. Net debt levels fluctuate during the course of the year. A combination of the following factors will have the effect of increasing forecast net debt as at 30 June 2005, compared to the Pro Forma Adjusted Financial Position: • Pizza Haven New Zealand acquisition; • Forecast acquisitions of Franchised and independent Stores; and • Capital Expenditure on existing and new Corporate Stores. Net debt is also impacted by positive operating cash flows. Table 6.7 – Forecast Net Debt at 30 June 2005
$ million 30 June 2005 Interest-bearing debt 13.9 Non-interest-bearing debt 1.4 Less cash (2.0) Net debt 13.3
The Company has total funding facilities to the value of $26.7 million with Westpac Banking Corporation. For further information on facilities see Section 11.6.
6.11 RECONCILIATION OF THE PRO FORMA ADJUSTED FINANCIAL POSITION The reconciliation of the adjustments to the Pro Forma Adjusted Financial Position is as follows: Table 6.8 – Reconciliation of the Pro Forma Adjusted Statement of Financial Position
Pro Forma $ million 31 December 2004 Actual Net Assets as at 31 December 2004 20.1 Capital Reduction (14.7) Proceeds from Issue of New Shares 39.7 Offer costs (2.5) Payout of Senior Management incentive plan (1.1) Ancillary restructuring costs (0.1) Tax effect of Pro Forma adjustments 0.4 Pro Forma Adjusted Net Assets as at 31 December 2004 41.8
Investors should note that the actual Statement of Financial Position that arises following the Offer will be based on actual assets and liabilities at the date of the Offer. The actual Statement of Financial Position may differ to the position set out above. The Pro Forma Adjusted Statement of Financial Position has been reviewed by Deloitte Touche Tohmatsu as set out in the Investigating Accountants’ Report in Section 8 of the Prospectus. Further detail is presented in Appendix A.
6.12 SUMMARY OF FORECAST FINANCIAL CASH FLOWS The Directors believe that the Company will have sufficient cash reserves and cash flow to finance the operations and forecast capital expenditure in the Forecast Financial Information. The following table sets out the actual cash flow for the years ended 30 June 2001, 2002, 2003 and 2004 and the forecast cash flows for the Forecast years ended 30 June 2005 and 2006.
72 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Table 6.9 – Statement of Cash Flows
AGAAP A-IFRS(2) Pro Forma 2006 Pro Forma Adjusted 2005 2006 A-IFRS Historical Financial Information(1) Forecast Forecast Forecast (Year ended 30 June) 2001 2002 2003 2004 2005 2006 2006 $ million Cash flows from operating activities EBITDA 3.1 7.8 11.3 12.8 18.1 21.9 21.4 Non-cash A-IFRS adjustment ––––––0.5 Tax adjusted share issue costs ––––(0.8) – – Profit on sale of assets (0.2) (0.7) (1.5) (1.2) (1.3) (0.6) (0.6) Tax paid (0.1) (1.1) (2.3) (1.9) (2.8) (3.5) (3.5) Borrowing costs (0.6) (1.0) (1.3) (1.5) (2.2) (0.8) (0.8) Investment in working capital (0.2) 2.0 1.0 (2.6) 0.6 0.2 0.2 Net cash provided by operating activities 2.0 7.0 7.2 5.6 11.6 17.2 17.2 Cash flows from investing activities Payments for investment 0.0 (0.1) 0.0 0.0 (0.0) 0.0 0.0 Loans to related parties, franchisees 0.9 (2.0) (1.7) 4.0 (1.8) (1.0) (1.0) Payment for intangible assets (0.2) (0.2) (1.4) (2.8) (13.1) (2.7) (2.7) Payment for property, plant and equipment (3.8) (8.4) (9.7) (15.4) (16.8) (12.4) (12.4) Proceeds from sale of property, plant and equipment 0.6 2.9 5.8 5.1 12.7 5.1 5.1 Net cash used in investing activities (2.5) (7.8) (7.0) (9.1) (19.0) (11.0) (11.0) Cash flows from financing activities Net proceeds from borrowings 2.1 2.6 4.3 5.8 6.4 0.0 0.0 Net repayments from borrowings (1.1) (1.3) (2.0) 0.0 (24.1) (3.3) (3.3) Proceeds from IPO(3) 0.0 0.0 0.0 0.0 37.2 0.0 0.0 Share buy back (0.1) 0.0 (1.8) 0.0 (14.7) 0.0 0.0 Dividends paid 0.0 0.0 0.0 0.0 0.0 (2.5) (2.5) Net cash provided by or used in financing activities 0.9 1.3 0.5 5.8 4.8 (5.8) (5.8) Net increase/(decrease) in cash held 0.4 0.5 0.7 2.3 (2.6) 0.4 0.4 Exchange rate effects on cash balances 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Cash at beginning of the financial year 0.8 1.2 1.7 2.4 4.7 2.1 2.1 Cash at the end of the financial year 1.2 1.7 2.4 4.7 2.1 2.5 2.5
Notes: (1) The Pro Forma Adjusted Historical Financial Information is based on the audited financial performance for the years ending 30 June 2001, 2002, 2003 and 2004. Pro Forma adjustments are set out in Table 6.11. (2) For the year ending 30 June 2006, Domino’s Pizza will adopt A-IFRS. Further details on A-IFRS are set out in Sections 6.15 and 6.16. 73 (3) Proceeds from IPO comprises $39.7 million proceeds from new shares less $2.5 million in offer costs. DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
In the year ended 30 June 2002, cash flow was impacted by expenditure on plant and equipment of $8.4 million, the majority of which related to store relocations and refurbishments. In the year ended 30 June 2003, cash flow was impacted by expenditure on plant and equipment of $9.7 million, the majority of which related to store relocations and refurbishments. Other investing activities include $5.8 million in sales of Corporate Stores. In the year ended 30 June 2004, cash flow was negatively impacted by an increase in working capital of $2.6 million, relating to funding of inventories and timing differences on debtors. Cash flow was also impacted by expenditure on plant and equipment of $15.4 million, relating to construction of nine Corporate Stores in New Zealand and Australia and new store development. In the 2005 Pro Forma Forecast period to 30 June 2005, payments of $13.1 million relate to intangibles arising from the acquisitions of Big Daddy’s, Pizza Haven New Zealand, and a number of small independent chains and acquisitions of existing Franchised Stores. Expenditure on plant and equipment of $16.8 million includes $10.4 million spent to 31 December 2004 plus another $6.4 million forecast to be spent on refurbishments, plant, new stores and acquiring stores from Franchisees in the six months to 31 June 2005. The year to 30 June 2005 also includes $12.7 million from the sale of Corporate Stores to Franchisees (including the Big Daddy’s acquisition) and normal trading of Corporate Stores. In the 2006 Forecast period to 30 June 2006, the Company is forecasting existing Corporate Store refurbishments of $3.3 million, $5.5 million on construction of new Corporate Stores and $6.3 million on the acquisition of Franchised Stores (comprising goodwill of $2.7 million and fixed assets of $3.6 million). Dividends will be paid in respect of the final dividend for the year ending 30 June 2005 and the interim dividend for the year ending 30 June 2006.
6.13 DIVIDEND POLICY Subject to the forecasts being achieved and other relevant factors, the Board intends to declare the following dividends. It is expected that these dividends will be fully franked in Australia. Table 6.10 – Forecast Dividend – CPS and Yield %
Annualised Forecast Yield at Cents per Offer Price Share (%)(3) Forecast Final dividend for year ending 30 June 2005(1) 0.7 2.5% Forecast Full year dividend for year ending 30 June 2006(2) 8.5 3.9%
Notes: (1) Based on 1.5 months to 30 June 2005, payable in October 2005. (2) Full year dividend comprises interim dividend payable in March 2006 and final dividend payable in October 2006. (3) Based on the Offer Price and annualised for 12 months.
The payment of dividends by the Company will depend on the availability of distributable earnings, the Company’s franking credit position, operating results, available cash flows, financial condition, taxation and future capital requirements as well as general business and financial conditions and any other factors the Directors may consider relevant. It is intended that dividends will be franked/imputed to the greatest extent possible. Whilst the Company will take account of any benefits from the proposed Australia New Zealand triangulation tax relief measures, ultimately the level of imputation for New Zealand shareholders will be determined by the imputation credits available and the profitability of the Company. No person, including the Directors, can give any assurance regarding the payment of dividends, the level of franking/imputation of such dividends or the extent of payout ratios for the years ending 30 June 2005 and 2006 or for any future period. Subject to the considerations above and the Director’s discretion, the dividend policy of the Company will be to distribute between 50% and 60% of reported NPAT in the form of dividends. The forecast dividend for the year ending 30 June 2006 represents a payout ratio of 50% based on the 2006 A-IFRS Forecast NPAT. Dividends, if any, will normally be paid twice a year with an interim dividend paid in April and a final dividend 74 paid in October of each calendar year. The interim dividend for the 2006 forecast period is forecast to be 40% DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
of the total forecast dividend with the remaining 60% to be paid as the final dividend. Consistent with this policy, the Company is forecasting a final dividend for the period from listing until 30 June 2005 of 0.7 cents per Share, which the Company expects to pay in October 2005.
6.14 RECONCILIATION OF HISTORICAL FINANCIAL INFORMATION The Pro Forma Adjusted Historical Financial Information adjusts the statutory historical financial information to reflect one off transactions that are not expected to recur during the Forecast Period. The adjustments are made to promote comparability within the historical financial information and the Forecast Financial Information. In arriving at the Pro Forma Adjusted Historical Financial Information for Domino’s Pizza, the following adjustments have been made to the statutory historical financial information. Table 6.11 – Reconciliation of Historical Financial Information
Pro Forma Adjusted Historical Financial Information Audited Audited Audited Audited Reviewed (Year ended 30 June) 31 December $ million 2001 2002 2003 2004 2004 EBITDA(2) 3.1 7.8 11.3 13.4 9.0 Related Party Debt Forgiveness – – – (0.6) – Payout of Senior Management Incentive Plan –––– (1.1) Ancillary restructuring costs –––– (0.1) Adjusted EBITDA 3.1 7.8 11.3 12.8 7.8
Notes: (1) Half year accounts for the six months ended 31 December 2004. (2) EBITDA based on the audited financial statements for the years ended 30 June 2001, 2002, 2003 and 2004 and the reviewed financial performance for the six months to 31 December 2004.
6.15 INTERNATIONAL FINANCIAL REPORTING STANDARDS In July 2002, the Financial Reporting Council (FRC), with subsequent reinforcement by the Federal Government CLERP 9 proposals, formalised its support for the adoption by Australia of International Financial Reporting Standards by 1 January 2005. For reporting periods beginning on or after 1 January 2005, Domino’s Pizza must comply with Australian Equivalents to International Financial Reporting Standards (A-IFRS) as issued by the Australian Accounting Standards Board. Although Australia has been undertaking a harmonisation policy for several years, there are still significant differences between A-IFRS and Australian GAAP, and conversion to A-IFRS will result in many changes to accounting policies, and therefore a consequential impact on financial performance and position. As A-IFRS does not apply until financial years beginning on or after 1 January 2005, or for the year commencing 1 July 2005 for Domino’s Pizza, there is no impact on the financial information reported in this Prospectus up until that date. An initial assessment of the impact of A-IFRS on profit from that date has been performed. The accounting standards below are those identified to have a material impact on Domino’s Pizza and the information contained in this Prospectus. Other differences will result from the first time adoption of A-IFRS for Domino’s Pizza in the year ending 30 June 2006 and the restatement of comparatives for the year ended 30 June 2005. Comparatives for the first year of adoption of A-IFRS will need to be restated for all A-IFRS impacts; including those below and so an adjustment to retained profits will be required upon Domino’s Pizza’s transition to A-IFRS. In addition, the impact on the balance sheet, other than the effects of the profit adjustments below, has not been disclosed in this Section. Section 6.16 provides a reconciliation of the 2006 Forecast and 2006 A-IFRS Forecast, between the Accounting Policies and A-IFRS. 75 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
The following areas have significant potential impact for Domino’s Pizza: SALES OF CORPORATE STORES Domino’s Pizza generates revenue associated with the sale of Corporate Stores to Franchisees. Under existing accounting standards the revenue on the sale of Corporate Stores is recorded as gross revenue. Under A-IFRS, some of the currently recorded gross revenue on sale of stores will not be permitted to be reflected in gross revenue and instead only the net profit/loss on the sale of a store will be permitted to be included in the income/expenses. The profit/loss would not be included in revenue under A-IFRS. Under the requirements of AASB 5 and AASB 116, only the net profit/loss on the sale is to be disclosed in the profit and loss statement. Specifically under paragraph 78 of AASB 116: “The gain or loss arising from the derecognition of an item of property, plant and equipment shall be included in profit or loss when the item is derecognised” and “gains shall not be classified as revenue.” Assets held for sale are required to be held at the lower of carrying value and fair value less costs to sell. Assets held for sale are disclosed as a separate category of assets on the balance sheet and are not depreciated where the sales of the identified assets has not been consummated by year end. In order to be classified as “held for sale” the consummation of the sale of the assets has to be “highly probable” and the asset must be available for immediate sale in its present condition subject only to terms that are customary for sales of such assets. Domino’s Pizza have adjusted their Corporate Development revenue by $5.2 million in the 2006 A-IFRS Forecast under A-IFRS in this Section to reflect this adjustment. IMPAIRMENT OF ASSETS IAS 36 Impairment of Assets and IAS 38 Intangible Assets (equivalent AASB 136 and AASB 138 respectively) do not allow for amortisation of goodwill or intangibles with indefinite useful lives. Currently, Australian Accounting Standards require goodwill to be amortised over not more than a 20 year period. IAS 36 requires an annual impairment test to be performed each period and the amount of goodwill or intangible not considered recoverable to be expensed in the period that loss of value has been incurred. Goodwill will no longer be amortised and as such the amortisation figure shown in Section 6.4 of $1.4 million for the 2006 Forecast will not be included in the 2006 A-IFRS Forecast. Domino’s Pizza believes it is reasonable to assume that intangible assets will not be materially impacted by impairment tests during the Pro Forma 2005 Forecast and 2006 A-IFRS Forecast years. Similarly items of property plant and equipment are required to be recorded at the lesser of cost, fair value or value in use under A-IFRS. Domino’s Pizza believes it is reasonable to assume that property plant and equipment assets will not be materially impacted by any required impairment tests during the Pro Forma 2005 Forecast and 2006 A-IFRS Forecast. Should any of the assets of Domino’s Pizza become impaired during the forecast periods then write down of the asset values would be required. SHARE-BASED PAYMENTS IFRS 2 Share-based Payment (equivalent AASB 2) requires the goods or services received in share-based payments for equity settled transactions to be recorded when those services are obtained and a corresponding equity amount recorded for the transaction. Currently, there is no guidance under Australian Accounting Standards and Domino’s Pizza has not recorded the impact of any share-based payments in the financial information disclosed in the Pro Forma Adjusted Historical Financial Information. Domino’s Pizza’s Director and Executive Share and Option Plan (ESOP) is disclosed in Section 11.11 of the Prospectus. The potential financial impact of Domino’s Pizza’s ESOP on the consolidated entity’s profit following its adoption of A-IFRS is dependent on various factors, including the issue price of Domino’s Pizza shares, the current market price of Domino’s Pizza shares, and the likelihood of the shares vesting. The ESOP will create an expense in Domino’s Pizza’s profit and loss statement that is not currently recorded under AGAAP. A-IFRS requires an expense to be recognised at the time of vesting. Based on the Offer Price and the terms of the options, the financial impact on Domino’s Pizza pre-tax profit is estimated to be approximately $0.5 million for the 2006 A-IFRS Forecast. For the purpose of this calculation it is assumed that there is no further issuance of options that vest during the 2006 A-IFRS Forecast period.
76 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
INCOME TAXES IAS 12 Income Taxes (equivalent AASB 112) will alter the measurement of tax assets and liabilities largely consistent with the revised AASB 1020 currently adopted in Australia. A “balance sheet” approach will be adopted, replacing the “statement of financial performance” approach currently used by Australian companies. This method recognises deferred tax balances when there is a difference between the carrying amount of an asset or liability, and its tax base. It is expected that the standard may require Domino’s Pizza to carry higher levels of deferred tax assets and liabilities. The net effect on profit has been reviewed, and the overall impact was not material. COSTS OF DISMANTLING AND REMOVING ASSETS Under A-IFRS, the cost of dismantling and removing assets, if there was an obligation to do so when the asset was purchased or constructed, needs to be included within the costs of the asset and a corresponding liability needs to be recognised at a discounted amount. Domino’s Pizza has obligations under certain leases to remove leasehold improvements from leased property. Domino’s Pizza has estimated the required asset and liability that will be raised on transition to A-IFRS as $1.1 million. The financial impact on 2006 A-IFRS Forecast profit before tax from the amortisation of the asset and the unwinding of the discount is estimated at $0.2 million.
6.16 RECONCILIATION OF KEY ITEMS – AGAAP AND A-IFRS In performing the reconciliation of key items from AGAAP to A-IFRS, the following assumptions have been made for the 2006 A-IFRS Forecast: • No impairment to Domino’s Pizza’s intangibles assets or property plant and equipment has been allowed for the impairment tests required under A-IFRS. This is due to the fact it is not possible to ascertain the level of impairment, if any, at a future time. Therefore, all amortisation of intangibles has been reversed from AGAAP with no reciprocal A-IFRS adjustment. • No further issuance of options under the ESOP that vest in the year ending 2006. Table 6.12 – Reconciliation of AGAAP and A-IFRS
2006 A-IFRS Forecast (Year ending 30 June) $ million Net Profit After Tax Under AGAAP (2006 Forecast) 9.3 Add: Amortisation charge on goodwill 1.4 Less: Equity based remuneration expense 0.5 Less: Expenses associated with make good for leasehold improvements 0.2 Add: Tax benefit 0.2 Net Profit After Tax Under A-IFRS (2006 A-IFRS Forecast) 10.2
77 78 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER SECTION 7
RISK FACTORS ______
79 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
7. RISK FACTORS ______
7.1 GENERAL COMMENTS There are a number of factors, both specific to the Company and of a general nature, which may affect the future operating and financial performance of the Company, the industry in which it operates and the outcome of an investment in the Company. There can be no guarantee that the Company will achieve its stated objectives, that forecasts will be met or that forward looking statements will be realised. This Section describes certain, but not all, risks associated with an investment in the Company. Each of the risks set out below could, if they eventuate, have a material adverse impact on the Company’s operating performance, profits and the value of its Shares. Before deciding to invest in the Company, potential investors should read the entire Prospectus and, in particular, should consider the assumptions underlying the Forecast Financial Information (set out in Section 6) and the risk factors that could affect the financial performance of the Company. Potential investors should specifically consider the factors contained within this Section in order to fully appreciate the risks associated with an investment in the Company. You should carefully consider these factors in light of your personal circumstances and seek professional advice from your accountant, stockbroker, lawyer or other professional adviser before deciding whether to invest.
7.2 SPECIFIC RISK FACTORS In addition to the general risks set out in Section 7.3, the Directors believe that there are a number of specific factors that should be taken into account before investors decide whether or not to apply for Shares. These are as follows: COMPETITION The Company operates in a competitive market. The Company’s financial performance or operating margins could be adversely affected if the actions of competitors or potential competitors become more effective, or if new competitors enter the market, and the Company is unable to counter these actions. The impact on the Pro Forma 2006 Forecast NPAT for the year ending 30 June 2006 of a reduction in the Company’s sales is set out in the sensitivity analysis in Section 6.9. CONSUMER PREFERENCES AND PERCEPTIONS Food service businesses are affected by changes in consumer tastes, national, regional and local economic conditions, and demographic trends. For instance, there could be a materially adverse effect on the Company’s business and operating results if prevailing health or dietary preferences cause consumers to avoid pizza and other products which the Company offers in favour of foods that are perceived as more healthy. Moreover, because Company is primarily dependent on a single product, if consumers’ demand for pizza should decrease, Company’s business would be impacted more than if it had a more diversified menu, as some other food service businesses do. GROWTH PROSPECTS Over the past few years, the Company has achieved strong growth in sales and profitability. The growth rates forecast in this Prospectus are dependent upon a number of factors, including the Company’s ability to open new stores and sell existing stores on a profitable basis, maturation of new stores and meeting customers’ changing taste preferences. Should sales fail to meet the forecast sales in the Forecast Financial Information, this is likely to translate into the Company’s net profit being lower than the forecast net profit set out in the Forecast Financial Information. Section 6.9 sets out the sensitivity of the pro forma forecast NPAT for the year ending 2006 to changes in forecast sales. The Company’s planned acquisition, store roll-out and disposal program contains a number of risks. The Company intends to open new stores in markets (including Victoria and New Zealand) where the Domino’s brand is less well known than in its established markets. If there is a delay in the opening of one or more stores, or if the Company opens fewer stores than currently planned over the Forecast Period, the Company may not be able to meet its sales or profit forecasts for the Forecast Period. The sensitivity of the pro forma forecast NPAT for the year ending 2006 to store roll-out is set out in the sensitivity analysis in Section 6.9. 80 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
The store roll-out program will also be dependent upon factors such as site availability, competitor activity, pizza store acquisition options and the economic outlook for the economy as a whole and for particular demographic groups. Similarly, the Company has a store disposal program whereby it intends to sell existing Corporate Stores to Franchisees in the ordinary course of its business. If there are any delays in selling these stores, or the market does not exist to sell the stores at the prices forecast, the Company may not be able to meet its sales or profit forecasts. FRANCHISE RISK The Company’s right to operate Domino’s Pizza Stores and grant franchises is conferred by the Master Franchise Agreement (see Section 10.1 for a summary of that agreement). The Master Franchise Agreement can be terminated in certain circumstances, such as breach by Domino’s Pizza, its insolvency or failure to achieve agreed growth targets. If the agreement is terminated, the Company will lose the right to operate Domino’s Pizza Stores and fundamentally impact on its business. The Company’s future growth also depends on its ability to identify, attract and retain suitably qualified and motivated Franchisees. An inability to do so or poor performance by the Franchise Network may have a materially adverse impact on the financial performance of the Company and could cause harm to the reputation of the Domino’s brand. MANAGING GROWTH As the Company and its operations expand, the Company will be required to continue to improve, and where appropriate, upscale its operational and financial systems, procedures and controls and expand, retain, manage and train its employees. There is a risk of a material adverse impact on the Company if it is not able to manage its expansion and growth efficiently and effectively. OPERATING COSTS The Company’s ability to consistently offer low prices and operate profitably is dependent on a combination of the scaleability of its operations and the costs of its operating structure. The Company’s ability to maintain a relatively low cost operating structure is not guaranteed and there is no assurance that these low operating costs can be maintained. PROPERTY LEASES The Company has a large number of leased premises which are used principally for its Corporate Stores. The growth prospects of the Company are likely to result from increased contribution from existing stores and the Company’s ability to continue to open and operate new stores on a profitable basis. Accordingly, there may be a material adverse impact on the Company’s business and profitability if the Company is unable to renegotiate acceptable lease terms for existing stores when leases are due to expire and to identify suitable sites and negotiate suitable leasing terms for new stores. In addition, a large number of leases require the landlord’s consent for the Company to continue as a tenant following a change in control in the Company. The Company intends to seek this consent following completion of the Offer. If any of the leases requiring landlord’s consent are terminated or renegotiated as a result of this, it may have an adverse impact on the Company. INFORMATION TECHNOLOGY The Company relies heavily on management information, point-of-sales systems (including PULSE™, a software package provided by the Company) and other information technology systems designed to maximise the efficiency of Domino’s stores. Should these systems not be adequately maintained, secured or updated, or the Company’s disaster recovery processes not be adequate, system failures may negatively impact on the Company’s performance. PRESERVING THE COMPANY’S CULTURE The Company attributes much of its success to its employees and Franchisees and the culture that binds them at all levels in the Network. The Company may not be able to preserve its existing culture as its growth continues and its operations become more geographically widespread. INVOLVEMENT OF THE MAJOR SHAREHOLDER After issue of the Offer Shares, the Major Shareholder will hold 27.8% of the total issued Shares. The Major Shareholder will have a material influence at any general meeting of the Company at which the Major Shareholder is entitled to vote on matters such as the composition of the Board and a change in control of the Company. 81 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
The Major Shareholder has agreed to a voluntary escrow arrangement with the Company under which it will be restricted from selling, transferring or assigning the Shares held by it until the date on which the Company releases to ASX its preliminary final report for the year ending 30 June 2006. However, once the escrow period ends, the Major Shareholder will be free to sell some or all of its Shares and this may have a materially adverse effect on the share price of the Company. RELIANCE ON KEY PERSONNEL The Company is committed to providing an attractive employment environment, conditions and prospects to assist in retaining its key senior management personnel. However, there can be no assurance that the Company will be able to retain these key personnel. Don Meij has been instrumental in managing the growth of the Company. The loss of Don Meij could have a material adverse impact on the business of the Company. MAINTENANCE OF REPUTATION AND BRAND NAME The success of the Company is heavily reliant on its reputation and branding. Unforeseen issues or events which place the Company’s reputation at risk may impact on its future growth and profitability. Any factors that diminish the Company’s reputation or branding could impede its ability to compete successfully and adversely affect its future business plans. There can be no guarantees that unforeseen issues, events or factors that negatively affect Domino’s Pizza, Inc. or Domino’s master franchisees in other countries or territories, will not damage the local Domino’s brand or diminish future sales, profitability and growth. RELATIONSHIP WITH SUPPLIERS The Company relies on numerous key suppliers in Australia and New Zealand. Any loss of these key suppliers may have an adverse effect on the Company’s sales and/or terms of trade. In addition, any change in the Company’s relationship with its suppliers, or in terms of trade, could have an adverse impact on the Company’s prospects. Material increases in suppliers’ production costs could lead to higher costs and therefore impact the Company’s margins, or require the Company to source products from other locations. In this event, existing gross margins may not be able to be maintained. In addition, any delays in lead times on orders from suppliers could impact the Company’s sales. SUPPLY CHAIN MANAGEMENT The Company’s supply chain is outsourced and managed by a third party warehouse and distribution company. Any adverse changes to the supply chain (such as increased freight costs due to increasing geographical diversity and increasing number of stores) could have a material adverse impact on the Company’s gross margins and prospects. EXCHANGE RATES The Company is exposed to movements in exchange rates. The Company’s financial statements are expressed and maintained in Australian dollars. However, a portion of the Company’s income is earned in New Zealand dollars. Exchange rate movements affecting these currencies may impact the profit and loss account or assets and liabilities of the Company, to the extent the foreign exchange rate risk is not hedged or not appropriately hedged. INTEREST RATES The Company is exposed to adverse interest rate movements where funds are borrowed at a floating interest rate. Whilst this risk may be reduced through interest rate hedging, such as interest rate swaps or other mechanisms, some residual exposure may remain. LITIGATION RISK Litigation risks to the Company include, but are not limited to, customer claims, personal injury claims and employee claims. If any claim were to be pursued and be successful it may adversely impact the sales, profits or financial position of the Company. There is also a risk of claims made by existing Pizza Haven franchisees in New Zealand. Through its wholly owned New Zealand subsidiary, DPH NZ Holdings Limited, the Company acquired the right to operate the Pizza Haven franchise network in New Zealand and is currently negotiating with New Zealand franchisees of the Pizza Haven network either to convert them to Domino’s franchises or to terminate their Pizza Haven
82 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
franchises. If the Company is unsuccessful in converting the New Zealand Pizza Haven franchisees or in terminating their franchises, the Company has legal obligations to continue operating the Pizza Haven network in New Zealand and to continue to provide support to those Pizza Haven franchisees in accordance with the applicable Pizza Haven franchise agreement. DPH NZ Holdings Limited intends to honour fully its legal obligations. However, there is a risk that Pizza Haven franchisees may allege that DPH NZ Holdings Limited is in breach of their legal obligations and make claims against DPH NZ Holdings Limited or the Company for damages or loss of profits. Any such claims, resulting litigation, agreed settlement or adverse Court findings, could have a material adverse impact on the Company’s financial performance or reputation. PRODUCT LIABILITY The Company complies with strict food hygiene protocols within its operations and requires that its Franchisees do the same. Defective food however is an inherent risk of the Company’s business and any such incident may have a material adverse impact on the Company’s business and reputation of the Domino’s brand.
7.3 GENERAL RISK FACTORS SHARE MARKET On completion of the Offer and the listing of the Company, the Shares may trade on ASX at higher or lower prices than the Offer Price. Investors who decide to sell their Shares after listing may not receive the amount of their original investment. There can be no guarantee that the price of the Shares will increase after listing. The price at which the Shares trade on ASX may be affected by the financial performance of the Company and by external factors over which the Directors and the Company have no control. These factors include movements on international share markets, local interest rates and exchange rates, domestic and international economic conditions, government taxation, market supply and demand and other legal, regulatory or policy changes. LIQUIDITY AND REALISATION RISK There can be no guarantee that an active market in the Shares will develop. There may be relatively few, or many potential buyers or sellers of the Shares on the ASX at any given time. This may increase the volatility of the market price of the Shares. It may also affect the prevailing market price at which shareholders are able to sell their Shares. This may result in shareholders receiving a market price for their Shares that is less or more than the price that shareholders paid. DEPENDENCE ON GENERAL ECONOMIC CONDITIONS The operating and financial performance of the Company is influenced by a variety of general economic and business conditions, including levels of consumer spending, inflation, interest rates and exchange rates, access to debt and capital markets, government fiscal, monetary and regulatory policies. A prolonged deterioration in general economic conditions, including an increase in interest rates or a decrease in consumer and business demand, could be expected to have a material adverse impact on the Company’s business or financial condition. Changes to laws and regulations or accounting standards which apply to the Company from time to time could adversely impact on the Company’s earnings and financial performance. TAX RISK Any change to the rate of company income tax in jurisdictions in which the Company operates will impact on shareholder returns, as will any change to the rates of income tax applying to individuals or trusts. Any change to the tax arrangements between Australia and other jurisdictions could have an adverse impact on future earnings and the level of dividend franking. LEGISLATIVE AND REGULATORY CHANGES Legislative or regulatory changes, including property or environmental regulations or regulatory changes in relation to product sold by the Company, could have an adverse impact on the Company.
83 84 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER SECTION 8 INVESTIGATING ACCOUNTANTS’ REPORT ______
85 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Deloitte Touche Tohmatsu A.B.N. 74 490 121 060 Riverside Centre Level 26 123 Eagle Street Brisbane QLD 4000 Australia Tel: +61 (0) 7 3308 7000 Fax: +61 (0) 7 3308 7004 www.deloitte.com.au The Directors Domino’s Pizza Australia New Zealand Limited Level 8 TAB Building 240 Sandgate Road Albion QLD 4010 13 April 2005 Dear Sirs
DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED – INVESTIGATING ACCOUNTANTS’ REPORT INTRODUCTION We have prepared this Investigating Accountants’ Report for inclusion in a Prospectus to be dated on or about 13 April 2005 regarding the initial public offering (“Offer”) of up to 34,090,909 shares in Domino’s Pizza Australia New Zealand Limited (“Domino’s Pizza”), a company which will be listed on the Australian Stock Exchange. The net proceeds raised pursuant to the Offer will be used for a number of purposes, including paying down existing shareholders, retirement of existing financing facilities and for working capital purposes. References to Domino’s Pizza and other terminology used in this report have the same meaning as defined in the Glossary of the Prospectus in which this report appears. BACKGROUND The Company holds the Master Franchise Agreement for Domino’s Pizza in Australia and New Zealand. The first Domino’s Pizza store opened in Queensland on 27 December 1983. Domino’s Pizza is now represented in all major metropolitan, and in many regional, areas of Australia. Domino’s Pizza has also recently expanded into New Zealand. Our report refers to certain financial information disclosed in the Prospectus, as follows: • Section 6.4 of the Prospectus sets out the Pro Forma Adjusted Historical Financial Information of Domino’s Pizza for the years ended 30 June 2001, 2002, 2003 and 2004. This Section of the Prospectus also includes certain forecast financial and other information (“Excluded Information”) that does not form part of our report and, accordingly, we express no opinion or statement on the Excluded Information in this report. • Section 6.14 of the Prospectus sets out certain pro forma adjustments which have been applied to the audited historical financial earnings before interest, tax, depreciation and amortisation (EBITDA) of Domino’s Pizza group for the years ended 30 June 2001, 2002, 2003 and 2004 and the reviewed historical financial trading performance of Domino’s Pizza group for the half year ended 31 December 2004 to determine the Pro Forma Adjusted Historical Financial Information of Domino’s Pizza referred to above. These pro forma adjustments present the historical financial information on a basis consistent with the ongoing business to be conducted by Domino’s Pizza. • Section 6.10 of the Prospectus sets out the Statement of Financial Position of Domino’s Pizza as at 31 December 2004 with proposed pro forma transactions reflected to present a Pro Forma Adjusted Statement of Financial Position of Domino’s Pizza as at 31 December 2004 assuming completion of all the proposed transactions as at that date.
86 The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants’ Scheme under the Professional Standards Act 1994 (NSW). DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
• Section 6.11 of the Prospectus sets out certain Pro Forma Adjustments which have been applied to the reviewed historical Statement of Financial Position of Domino’s Pizza as at 31 December 2004 to determine the Pro Forma Adjusted Statement of Financial Position of Domino’s Pizza referred to above. These Pro Forma adjustments present the Statement of Financial Position of Domino’s Pizza as at 31 December 2004 assuming completion of all the proposed transactions as at that date. • Appendix A to the Prospectus contains Historical Financial Information comprising an Actual and Pro Forma Adjusted Consolidated Statement of Financial Performance for the half-year ended 31 December 2004, an Actual and Pro Forma Adjusted Statement of Financial Position as at 31 December 2004, an Actual and Pro Forma Adjusted Statement of Cash Flows for the half-year ended 31 December 2004 and notes to the Historical Financial Information (together referred to as the “Historical Financial Information”). • Note 1 of Appendix A to the Prospectus sets out the Summary of Accounting Policies of Domino’s Pizza used in the preparation of all of the financial information disclosed in the Prospectus including but not limited to the financial information which is the subject of this report. • Section 6.15 of the Prospectus sets out an analysis of Domino’s Pizza’s impact of transitioning to Australian Equivalents to International Financing Reporting Standards (“A-IFRS”) for the financial years beginning on or after 1 January 2005. Included in this Section is discussion and financial analysis of the areas where there is likely to be significant financial impact for Domino’s Pizza. SCOPE You have requested that Deloitte Touche Tohmatsu prepare an Investigating Accountants’ Report reviewing the following financial information prepared in accordance with the Accounting Policies set out in Note 1 of Appendix A to the Prospectus: (a) The Pro Forma Adjusted Historical Financial Information of Domino’s Pizza for the four years ended 30 June 2004 as set out in Section 6.4 of the Prospectus after adjustment for the non-recurring items disclosed in Section 6.14 of the Prospectus, including the disclosures in relation to Domino’s Pizza transitioning to A-IFRS for financial years beginning on or after 1 January 2005 as set out in Section 6.15 of the Prospectus; and (b) The Pro Forma Adjusted Statement of Financial Position of Domino’s Pizza as at 31 December 2004 as set out in Section 6.10 of the Prospectus which assumes completion of the proposed pro forma transactions as at that date disclosed in Section 6.11 of the Prospectus, including the disclosures in relation to Domino’s Pizza transitioning to A-IFRS for financial years beginning on or after 1 January 2005 as set out in Section 6.15 of the Prospectus. (c) The Historical Financial Information for the half-year ended 31 December 2004 as contained in Appendix A. Together we refer to the above hereafter as the “Pro Forma Historical Financial Information”. Deloitte Touche Tohmatsu is the auditor of Domino’s Pizza. The Pro Forma Adjusted Historical Financial Information of Domino’s Pizza for the years ended 30 June 2001, 2002, 2003 and 2004 as set out in Section 6.4 of the Prospectus and the Pro Forma Adjusted Statement of Financial Position of Domino’s Pizza as at 31 December 2004 set out in Section 6.10 of the Prospectus have been extracted from the audited financial statements of Domino’s Pizza for the years ended 30 June 2001, 2002, 2003 and 2004, which was audited by Deloitte Touche Tohmatsu. The Historical Financial Information included in Appendix A to the Prospectus is based on the financial statements of Domino’s Pizza for the six months ended 31 December 2004, which was reviewed by Deloitte Touche Tohmatsu. Deloitte Touche Tohmatsu’s audit reports on Domino’s Pizza financial statements for the years ended 30 June 2001, 2002, 2003 and 2004 were unqualified. Deloitte Touche Tohmatsu’s review statement for the six months ended 31 December 2004 was also unqualified. The Directors of Domino’s Pizza are responsible for the preparation of the Pro Forma Historical Financial Information, which has been prepared in accordance with the recognition and measurement principles in Accounting Standards, other mandatory professional reporting requirements in Australia and the accounting policies set out in Note 1 of Appendix A of the Prospectus. The Directors of Domino’s Pizza have also determined the impact of transitioning to A-IFRS. The disclosures set out in Section 6.15 of the Prospectus reflect the elections the Directors have made in considering first time adoption of A-IFRS. The Directors may, at any time until completion of the Domino’s Pizza group’s first A-IFRS compliant financial report, elect to revisit, and where considered necessary, revise the accounting policies to be applied arising from the voluntary exemptions contained in AASB 1. Accordingly, Domino’s Pizza’s first A-IFRS compliant financial report may differ from the disclosures set out in Sections 6.15 and 6.16 of the Prospectus. 87 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
In our role as Investigating Accountants, we have reviewed the Pro Forma Historical Financial Information in order to state whether, on the basis of the procedures described, anything has come to our attention which would indicate that the Pro Forma Historical Financial Information is not presented fairly in accordance with the recognition and measurement principles in Accounting Standards, other mandatory professional reporting requirements in Australia and the accounting policies set out in Note 1 of Appendix A of the Prospectus. Our review of the Pro Forma Historical Financial Information has been conducted in accordance with Australian Auditing Standard AUS 902 “Review of Financial Reports”. We made such enquiries and performed such procedures as we, in our professional judgement, considered reasonable in the circumstances including: • Analytical procedures applied to the financial performance of Domino’s Pizza for the relevant historical period; • Review of work papers, accounting records and other documents; • A review of the pro forma transactions reflected in the Pro Forma Adjusted Statement of Financial Position of Domino’s Pizza set out in Section 6.10 of the Prospectus; • A review of the pro forma adjustments reflected in the Pro Forma Adjusted Historical Financial Information of Domino’s Pizza set out in Section 6.14 of the Prospectus; • A comparison of consistency in the application of the recognition and measurement principles in Accounting Standards, other mandatory professional reporting requirements and the accounting policies adopted by Domino’s Pizza and set out in Note 1 of Appendix A of the Prospectus; and • Interviews with and enquiries of the management of Domino’s Pizza, the Directors of Domino’s Pizza and its advisers. These procedures do not provide all of the evidence that would be required in an audit and thus the level of assurance is less than given in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion. STATEMENT Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that: • the Pro Forma Adjusted Historical Financial Information as set out in Section 6.4 of the Prospectus after adjustment for the non-recurring items disclosed in Section 6.14 of the Prospectus, including the disclosures in relation to the Domino’s Pizza group transitioning to A-IFRS for financial years beginning on or after 1 January 2005 as set out in Section 6.15 of the Prospectus does not present fairly the Pro Forma Adjusted Historical Financial Performance of Domino’s Pizza for the four years ended 30 June 2001, 2002, 2003 and 2004 and six months ended 31 December 2004; • the Pro Forma Adjusted Statement of Financial Position as set out in Section 6.10, including the disclosures in relation to the Domino’s Pizza group transitioning to A-IFRS for financial years beginning on or after 1 January 2005 as set out in Section 6.15 of the Prospectus does not present fairly the pro forma financial position of the Domino’s Pizza group as at 31 December 2004 assuming completion of the proposed pro forma transactions as at that date; and • the Historical Financial lnformation as contained in Appendix A to the Prospectus does not present fairly the Actual and Pro Forma Adjusted Financial Position and Actual and Pro Forma Adjusted Financial Performance of Domino’s Pizza for the six months ended 31 December 2004 in accordance with the recognition and measurement principles prescribed in Accounting Standards and other mandatory professional reporting requirements in Australia, and the Summary of Accounting Policies adopted by Domino’s Pizza and as described in Note 1 of Appendix A of the Prospectus.
88 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
SUBSEQUENT EVENTS Apart from the matters dealt with in this Report, and having regard to the scope of our Report, to the best of our knowledge and belief no material transactions or events outside of the ordinary course of business of Domino’s Pizza have come to our attention that would require comment on, or adjustment to, the information in our Report or that would cause such information to be misleading or deceptive. Yours faithfully
DELOITTE TOUCHE TOHMATSU
M G SHEERIN Partner
89 90 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER SECTION 9 REVIEW OF DIRECTORS’ FORECAST FINANCIAL INFORMATION______
91 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Deloitte Corporate Finance Pty Limited A.B.N. 19 003 833 127 AFSL 241457 Riverside Centre Level 26 123 Eagle Street Brisbane QLD 4000 GPO Box 1463 Brisbane QLD 4001 Australia DX 115 Tel: +61 (0) 7 3308 7000 Fax: +61 (0) 7 3308 7082 www.deloitte.com.au
REPORT ON REVIEW OF DIRECTORS’ FORECAST FINANCIAL INFORMATION Note: This report consists of both a Financial Services Guide and a Review of Directors’ Forecast Financial Information.
PART 1: FINANCIAL SERVICES GUIDE 13 April 2005 WHAT IS A FINANCIAL SERVICES GUIDE? This Financial Services Guide ("FSG") is an important document the purpose of which is to assist you in deciding whether to use any of the general financial product advice provided by Deloitte Corporate Finance Pty Limited (ABN 19 003 833 127). The use of "we", "us" or "our" is a reference to Deloitte Corporate Finance Pty Limited as the holder of Australian Financial Services Licence ("AFSL") No. 241457. The contents of this FSG include: • who we are and how we can be contacted • what services we are authorised to provide under our AFSL • how we (and any other relevant parties) are remunerated in relation to any general financial product advice we may provide • details of any potential conflicts of interest • details of our internal and external dispute resolution systems and how you can access them. INFORMATION ABOUT US We have been engaged by the Directors of Domino's Pizza Australia New Zealand Limited ("Domino's Pizza") to give general financial product advice in the form of a report to be provided to you in connection with a review of Directors' Forecast Financial Information. A copy of this report is included in a prospectus prepared by Domino's Pizza. You are not the party or parties who engaged us to prepare this report. We are not acting for any person other than the party or parties who engaged us. We are required to give you an FSG by law because our report is being provided to you. You may contact us using the details located on the first page of this FSG. Deloitte Corporate Finance Pty Limited is ultimately owned by the Australian partnership of Deloitte Touche Tohmatsu. The Australian partnership of Deloitte Touche Tohmatsu and its related entities provide services primarily in the areas of audit, tax, consulting and financial advisory services. Our directors may be partners in the Australian partnership of Deloitte Touch Tohmatsu. The Australian partnership of Deloitte Touche Tohmatsu is a member firm of the Deloitte Touche Tohmatsu Verein. As the Deloitte Touche Tohmatsu Verein is a Swiss Verein (association), neither it nor any of its member firms has any liability for each other's acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names “Deloitte,” “Deloitte & Touche,” “Deloitte Touche Tohmatsu,” or other related names. The financial product advice in our report is provided by Deloitte Corporate Finance Pty Limited and not by the Australian partnership of Deloitte Touche Tohmatsu, its related entities, or the Deloitte Touche Tohmatsu Verein.
92 The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants’ Scheme under the Professional Standards Act 1994 (NSW). DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
We do not have any formal associations or relationships with any entities that are issuers or sellers of financial products. However, you should note that we and the Australian partnership of Deloitte Touche Tohmatsu (and its related bodies corporate) may from time to time provide professional services to financial product issuers or sellers in the ordinary course of business. WHAT FINANCIAL SERVICES ARE WE LICENSED TO PROVIDE? The AFSL we hold authorises us to provide the following financial services to both retail and wholesale clients: • to provide financial product advice in respect of securities, debentures, stocks or bonds issued or proposed to be issued by the government and interests in managed investment schemes including investor directed portfolio services • to deal in a financial product by arranging for another person to apply for, acquire, vary or dispose of financial products in respect of securities, debentures, stocks or bonds issued or proposed to be issued by the government and interests in managed investment schemes including investor directed portfolio services. INFORMATION ABOUT THE GENERAL FINANCIAL PRODUCT ADVICE WE PROVIDE The financial product advice provided in our report is known as "general advice" because it does not take into account your personal objectives, financial situation or needs. You should consider whether the general advice contained in our report is appropriate for you, having regard to your own personal objectives, financial situation or needs. If our advice is being provided to you in connection with the acquisition or potential acquisition of a financial product issued or sold by another party, we recommend you obtain and read carefully the relevant offer document provided by the issuer or seller of the financial product. The purpose of the offer document is to help you make an informed decision about the acquisition of a financial product. The contents of the offer document will include details such as the risks, benefits and costs of acquiring the particular financial product. HOW ARE WE AND OUR EMPLOYEES REMUNERATED? Our fees are usually determined on an hourly basis; however they may be a fixed amount or derived using another basis. We may also seek reimbursement of any out-of-pocket expenses incurred in providing the services. Fee arrangements are agreed with the party or parties who actually engage us, and we confirm our remuneration in a written letter of engagement to the party or parties who actually engage us. Neither Deloitte Corporate Finance Pty Limited nor its directors and officers, nor any related bodies corporate or associates and their directors and officers, receives any commissions or other benefits, except for the fees for services rendered to the party or parties who actually engage us. Our fee is not expected to exceed $137,000 and will also be disclosed in the relevant offer document prepared by the issuer or seller of the financial product. All of our employees receive a salary. Our employees are eligible for annual salary increases and bonuses based on overall performance but do not receive any commissions or other benefits arising directly from services provided to you. The remuneration paid to our directors reflects their individual contribution to the company and covers all aspects of performance. Our directors do not receive any commissions or other benefits in connection with our advice. We do not pay commissions or provide other benefits to other parties for referring prospective clients to us. RESPONSIBILITY The liability of Deloitte Corporate Finance Pty Limited is limited to the contents of this FSG and the report referred to in this FSG.
93 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
WHAT SHOULD YOU DO IF YOU HAVE A COMPLAINT? If you have any concerns regarding our report, you may wish to advise us. Our internal complaint handling process is designed to respond to your concerns promptly and equitably. Please address your complaint in writing to: The Complaints Officer Practice Protection Group PO Box N250 Grosvenor Place Sydney NSW 1220 If you are not satisfied with the steps we have taken to resolve your complaint, you may contact the Financial Industry Complaints Service ("FICS"). FICS provides free advice and assistance to consumers to help them resolve complaints relating to members of the financial services industry. Complaints may be submitted to FICS at: Financial Industry Complaints Service PO Box 579 Collins Street West Melbourne VIC 8007 Telephone: 1300 780 808 Fax: +61 3 9621 2291 Internet: http://www.fics.asn.au If your complaint relates to the professional conduct of a person who is a Chartered Accountant, you may wish to lodge a complaint in writing with the Institute of Chartered Accountants in Australia ("ICAA"). The ICAA is the professional body responsible for setting and upholding the professional, ethical and technical standards of Chartered Accountants and can be contacted at: The Institute of Chartered Accountants GPO Box 3921 Sydney NSW 2001 Telephone: +61 2 9290 1344 Fax: +61 2 9262 1512 Specific contact details for lodging a compliant with the ICAA can be obtained from their website at http://www.icaa.org.au/about/index.cfm The Australian Securities and Investments Commission ("ASIC") regulates Australian companies, financial markets, financial services organisations and professionals who deal and advise in investments, superannuation, insurance, deposit taking and credit. Their website contains information on lodging complaints about companies and individual persons and sets out the types of complaints handled by ASIC. You may contact ASIC as follows: Info line: 1 300 300 630 Email: [email protected] Internet: http://www.asic.gov.au/asic/asic.nsf
94 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Deloitte Corporate Finance Pty Limited A.B.N. 19 003 833 127 AFSL 241457 Riverside Centre Level 26 123 Eagle Street Brisbane QLD 4000 GPO Box 1463 Brisbane QLD 4001 Australia DX 115 Tel: +61 (0) 7 3308 7000 Fax: +61 (0) 7 3308 7082 www.deloitte.com.au The Directors Domino’s Pizza Australia New Zealand Limited Level 8, TAB Building 240 Sandgate Road ALBION QLD 4010 13 April 2005 Dear Sirs
PART 2: REVIEW OF DIRECTORS’ FORECAST FINANCIAL INFORMATION INTRODUCTION This report has been prepared at the request of the Directors of Domino’s Pizza Australia New Zealand Limited (“the Company” or “Domino’s Pizza”) for inclusion in a Prospectus to be issued by the Company on, or around, 13 April 2005. Deloitte Corporate Finance Pty Limited is wholly owned by Deloitte Touche Tohmatsu and holds the appropriate Australian Financial Services licence for the issue of this report. References to Domino’s Pizza and other terminology used in this report have the same meaning as defined in the Glossary. SCOPE OF REPORT You have requested Deloitte Corporate Finance Pty Ltd to prepare a report on the Forecast Financial Information contained in the Prospectus: • The Directors’ Pro Forma Forecast Financial Information for the year ending 30 June 2005 presented in accordance with the Accounting Policies (“Pro Forma 2005 Forecast”); and • The Directors’ Forecast Statement of Financial Performance and Statement of Cash Flows for the year ending 30 June 2006 presented in accordance with the Accounting Policies (“2006 Forecast”) and A-IFRS (“2006 A-IFRS Forecast”). (together, the Forecast Financial Information as set out in Tables 6.2 and 6.9 of the Prospectus). This report has been prepared having regard to the guidance set out in AGS 1062 “Reporting in Connection with Proposed Fundraisings”, AUS 902 “Review of Financial Reports” applicable to review engagements, PS 170 “Prospective Financial Information” and AUS 804 “The Audit of Prospective Financial Information”. We have reviewed the Forecast Financial Information together with the assumptions on which the Forecast Financial Information are based as set out in Section 6.8 of the Prospectus in order to give a statement thereon to the Directors of the Company. Our review consisted primarily of enquiry, comparison, and analytical review procedures including discussions with management and Directors of the Company of the factors considered in determining their assumptions. Our procedures included examination, on a test basis, of evidence supporting the assumptions, amounts and other disclosures in the Forecast Financial Information and the evaluation of accounting policies used in the Forecast Financial Information. The Directors are solely responsible for the preparation and presentation of the Forecast Financial Information as set out in Section 6 of the Prospectus and the information contained therein, including the assumptions on which they are based.
The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, 95 the Accountants’ Scheme under the Professional Standards Act 1994 (NSW). DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
These procedures have been undertaken in order to state whether anything has come to our attention, which causes us to believe that: (i) the Directors’ best-estimate assumptions do not provide reasonable grounds for the preparation of the Forecast Financial Information; (ii) in all material respects, the Forecast Financial Information is not properly compiled on the basis of the Directors’ best-estimate assumptions, consistent with Accounting Standards and other mandatory professional reporting requirements in Australia, A-IFRS and the Accounting Policies adopted and used by Domino’s Pizza; and (iii) the Forecast Financial Information is not based on reasonable grounds. Our review is substantially less in scope than an audit examination conducted in accordance with Australian Auditing Standards and provides less assurance than an audit. In addition, prospective financial information, such as the Forecast Financial Information, relates to events and actions that have not yet occurred and may not occur. While evidence may be available to support the assumptions on which the Forecast Financial Information is based, those assumptions are generally future-orientated and therefore speculative in nature. Accordingly, actual financial performance may vary from the prospective financial information presented in the Prospectus and such variations may be material. DIRECTORS’ FORECAST FINANCIAL INFORMATION The Forecast Financial Information has been prepared by management and adopted by the Directors in order to provide prospective investors with a guide to the potential financial performance of Domino’s Pizza for the two years ending 30 June 2006. There is a considerable degree of subjective judgement involved in preparing forecasts. The underlying assumptions are also subject to uncertainties and contingencies which are often outside the control of Domino’s Pizza. The Directors’ Forecast Financial Information has been prepared using assumptions summarised in the Prospectus which are based on best-estimate assumptions relating to future events that management expect to occur and actions that management expect to take. The sensitivity analysis set out in Section 6.9 of the Prospectus demonstrates the impacts on the forecast financial performance of changes in key assumptions. The Forecast Financial Information is therefore only indicative of the financial performance which may be achievable. Prospective investors should be aware of the material risks and uncertainties relating to an investment in Domino’s Pizza, which are detailed in the Prospectus, and the inherent uncertainty relating to the Forecast Financial Information. STATEMENT Based on our review of the Forecast Financial Information, nothing has come to our attention which causes us to believe that: (i) the Directors’ best-estimate assumptions, as set out in the Prospectus, do not provide reasonable grounds for the preparation of the Forecast Financial Information; (ii) the Forecast Financial Information is not properly compiled on the basis of the Directors’ best-estimate assumptions, consistent with Accounting Standards and other mandatory professional reporting requirements in Australia, A-IFRS and the Accounting Policies adopted and used by Domino’s Pizza; and (iii) the Forecast Financial Information is not based on reasonable grounds. Actual financial performance is likely to be different from the Forecast Financial Information since anticipated events frequently do not occur as expected and the variations may be material. Accordingly, we express no opinion as to whether the Forecast Financial Information will be achieved. We disclaim any responsibility for any reliance on this statement or on the Forecast Financial Information to which it relates for any other purpose than that for which it was prepared. Yours faithfully DELOITTE CORPORATE FINANCE PTY LIMITED
ANDREW ANNAND Director 96 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
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97 98 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER SECTION 10
MATERIAL CONTRACTS______
99 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
10. MATERIAL CONTRACTS______
10.1 MASTER FRANCHISE AGREEMENT The Company is a party to a Master Franchise Agreement (MFA) with Domino’s Pizza International Inc, a company incorporated in Delaware, United States (DPII) dated 25 May 1993. There have been six amendments to the MFA since 1993. The Company has been granted the exclusive right in Australia and New Zealand to establish and operate pizza stores using the Domino’s network and trade marks and to grant sub-franchises to permit Franchisees to operate pizza stores using the Domino’s network and trade marks. The initial term of the MFA expires on 1 February 2018. On expiry of the initial term, there is an option to renew for a further 10 years subject to the Company having substantially complied with the MFA during the term, having satisfied all monetary obligations owed by the Company to DPII and its related corporations as at the date of exercise of the option and there being an agreement on the growth targets of the Company for the renewal period. The Company must pay DPII a service fee based on sales from Domino’s stores. The Company is subject to periodical financial and other reporting obligations to DPII. The Company has agreed to have 333 Domino’s stores (Corporate or Franchise Stores) open and operating by the end of 2004 and to open an additional 25 stores in each of years 2005, 2006 and 2007, an additional 15 stores in each of years 2008-2011 (inclusive), an additional 10 stores in each of years 2012 and 2013, additional five stores in each of years 2014-2017 inclusive. The MFA contains other commercial terms and conditions relating to matters such as the manner of granting sub-franchises to Franchisees, matters requiring DPII approval, rights of inspection by DPII to ensure compliance with the MFA, reporting obligations, training, use of the Domino’s intellectual property and the rights and obligations on termination which are customarily found in master franchise agreements. The MFA may be terminated by DPII upon the happening of various insolvency related events in respect of the Company. In addition, DPII may also terminate if the Company: • on three or more occasions within any one year fails to provide the required reports or fails to make payments due to DPII or its related corporations; • is convicted of any offence or crime or engages in any conduct which DPII believes may substantially impair the goodwill associated with the Domino’s marks; • intentionally under reports sales for any period or if an audit by DPII discloses an understatement of sales and the Company fails to pay the applicable fees to DPII together with interest due within 21 days of the final audit report; • is in breach of its obligations in relation to DPII’s intellectual property or assigns the agreement without DPII’s consent; • fails to properly execute any documents required by the MFA or in connection with the operation of any store and fails to correct that failure within 30 days after a request; • directly or indirectly contests the validity of the Domino’s trade marks or DPII’s ownership of the trade marks or its right to use or licence others to use the trade marks; and • does not achieve its agreed growth targets during the term. If DPII is entitled to terminate the MFA, it may instead require the Company to assign its rights under all of its sub-franchise agreements to DPII. The MFA is fully assignable by DPII without the consent of the Company. The Company, however, may not assign the MFA without the consent of DPII, which may not be unreasonably withheld. DPII has consented to the change of control of the Company that will occur on the completion of the Offer and to the Company, through its wholly owned New Zealand subsidiary continuing to operate the Pizza Haven network in New Zealand and providing support to ongoing Pizza Haven franchisees in accordance with the Pizza Haven franchise agreement and the subsidiary’s legal obligations.
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10.2 SUB-FRANCHISE AGREEMENTS The Company has entered into sub-franchise agreements with each of its Franchisees. The sub-franchise agreements contain terms and conditions which are customarily found in operating franchise agreements of this size and type including the following: • the grant to a Franchisee of a non-exclusive fixed 10 year term franchise to operate a Domino’s store using the Domino’s network in a specific area; • a right to renew for a further 10 year term provided the Franchisee is not in default under the agreement or any other agreement with the Company, its creditors, suppliers or DPII; • an obligation for the Franchisee to pay to the Company a sub-franchise fee, royalties based on gross revenue of the store, a marketing contribution and assignment fees; • any lease of the store either to be approved by the Company or contain certain standard terms that the Company requires in all leases taken by Franchisees; • provisions imposing obligations and responsibilities on the franchisee for initial development and construction, store refurbishment, training, operating standards, advertising and promotion, records and book keeping, reporting, insurance and intellectual property protection; • a right of termination by the Company in the event of insolvency related events with respect to a Franchisee and unremedied breaches by the Franchisee; • restrictions on a Franchisee during the term carrying on any other business or dealing with a franchise interest without the consent of the Company; • a first right of refusal in favour of the Company to buy the store assets; • restrictions on a Franchisee having a pizza business for three years after the agreement; • an option in favour of the Company to purchase the assets of the franchised store for a price calculated by reference to the gross sales of the store in the 12 month period before the expiry or termination of the agreement and exercisable within 30 days after the termination or expiry; and • an obligation on the directors and shareholders of the Franchisee to sign a guarantee and indemnity in favour of the Company.
10.3 UNDERWRITING AGREEMENT The Company, the Vendor Shareholders and the Lead Manager have entered into the Underwriting Agreement under which the Company and the Vendor Shareholders appointed the Lead Manager as the manager and the underwriter of the Offer. The Lead Manager agrees, subject to certain conditions and termination events (see below), to provide the Company and the Vendor Shareholders with underwriting support in relation to the allocation of the Offer Shares. The Lead Manager may at any time appoint sub- underwriters to sub-underwrite any part of the Offer. The material terms of the Underwriting Agreement are summarised below. FEES AND EXPENSES The Lead Manager will be paid the following fees (exclusive of GST, if any): • an underwriting fee of 2.5% (exclusive of GST); and • a management fee of 0.5% (exclusive of GST), of the Offer Price per share on all of the Offer Shares. The Company may also pay the Lead Manager a discretionary incentive fee of up to 0.75% of the Offer Price multiplied by the number of Offer Shares. This incentive fee is payable at the absolute discretion of the Company in consultation with its financial adviser. EXPENSE AND INDEMNITY The Company and the Vendor Shareholders are responsible for the reasonable costs (including reasonable legal costs incurred by the Underwriter up to a maximum of $40,000) incurred by the Lead Manager during the course of the Offer (unless otherwise agreed). A proportion of these expenses will also be paid by certain Existing Shareholders. Subject to certain exclusions relating to, among other things, fraud, recklessness, wilful misconduct and gross negligence, the Company has undertaken that the Lead Manager and certain indemnified parties 101 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
(Indemnified Parties) will be indemnified from loss suffered in connection with the Offer. The Company and the Vendor Shareholders have also provided certain warranties in favour of the Lead Manager in relation to the Offer Shares. TERMINATION EVENTS The Lead Manager may terminate its obligations under the Underwriting Agreement by notice to the Company and the Vendor Shareholders at any time after the occurrence of any of the following events (these events are briefly summarised below): (a) a material statement contained in the Prospectus is misleading or deceptive, or a material matter is omitted from the Prospectus; (b) any information supplied on behalf of the Company or the Vendor Shareholders to the Lead Manager in relation to Domino’s Pizza or the Offer is misleading or deceptive in a material respect; (c) any adverse change occurs in the assets, liabilities, financial position or performance, profits, losses or prospects of Domino’s Pizza, including any adverse change in the assets, liabilities, financial position or performance, profits, losses or prospects of Domino’s Pizza from those disclosed in the Prospectus or to the public; (d) a new circumstance in relation to the Company, the Vendor Shareholders or any entity in Domino’s Pizza has occurred since the Prospectus was lodged that would have been required to be included in the Prospectus if it had arisen before the Prospectus was lodged; (e) commencement of, or escalation in existing, hostilities occurs involving any one or more of Australia, the United Kingdom, the United States of America, New Zealand, a member state of the European Union, Japan, Russia, Korea, Pakistan, Indonesia or the People’s Republic of China or a major terrorist attack is perpetrated anywhere in the world; (f) the S&P/ASX 200 Index falls by 10% or more of the level as at the close of trading on the date of the Underwriting Agreement and is at or below that level at the close of trading for three consecutive Business Days (if that fall occurs on a day that is less than three Business Days before allotment of all the Offer Shares, the number of consecutive days is reduced); (g) there is a new law or policy, or proposal for a new law or policy which does or is likely to prohibit or materially and adversely regulate the Offer, capital issues, stock markets or the taxation treatment of the Offer Shares; (h) there is a change in management or the Board of Directors of the Company or a director of the Company or the Vendor Shareholders (where relevant) is charged with an indictable offence; (i) the Company a Vendor Shareholder (where relevant) or any entity in Domino’s Pizza contravenes the Corporations Act, its constitution or the Listing Rules; (j) the Prospectus or any other aspect of the Offer does not comply with the Corporations Act, the Listing Rules or any other applicable laws or regulation in a material way; (k) approval is refused or not granted (other than subject to customary listing conditions) to the Company is admission to the official list of ASX or the official quotation of all of the Offer Shares on ASX on or before the Listing Approval Date, or if granted, the approval is subsequently withdrawn, qualified or withheld; (l) an adverse notification is made under the Corporations Act in relation to the Prospectus; (m) the Company or any Vendor Shareholder withdraws the Prospectus or the Offer or fails to proceed with the Offer; (n) there is a default by the Company or any Vendor Shareholder in the performance of any of its obligations under the Underwriting Agreement; (o) a representation or warranty contained in the Underwriting Agreement on the part of the Company or any Vendor Shareholder is not true or correct or is misleading or deceptive; (p) an insolvency event occurs in relation to the Company, any Vendor Shareholder or a member of Domino’s Pizza; (q) there is a general moratorium on commercial banking activities in Australia, the United States of America or the United Kingdom or material disruption in commercial banking or security settlement or clearance services in any of those countries, or trading in all securities quoted or listed on ASX, the London Stock Exchange or the New York Stock Exchange is suspended or limited in a material respect 102 for one Business Day on which that exchange is open for trading the effect of which, in the reasonable DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
judgement of the Lead Manager, makes it impracticable to market the Offer or to enforce contracts to subscribe for or purchase the Offer Shares; (r) the Company, a Vendor Shareholder (where relevant) or any of their directors or officers engage in any fraudulent activity, whether or not in connection with the Offer; (s) a crisis or any change in financial, political or economic conditions or currency exchange rates or controls in Australia, New Zealand, Singapore, Hong Kong, the United States of America, the United Kingdom or elsewhere occurs; (t) a certificate from the Company or any Vendor Shareholder to the Lead Manager in respect of its compliance with its obligations under the Underwriting Agreement and under the Offer, and the status of representations and warranties and termination events, is false or misleading; or (u) an event specified in the timetable for the Offer is delayed for more than three Business Days. If an event referred to in paragraphs (c), (d), (e), (h), (n), (o), (s), (t) or (u) occurs, the Lead Manager may not terminate unless it has reasonable and bona fide grounds to believe and does believe that the event: • has or is likely to have a materially adverse effect on the outcome, success or settlement of the Offer; • could give rise to a liability of the Lead Manager; and • has or is likely to have a materially adverse effect on the price at which Offer Shares may trade on ASX in the first week after allotment of all the Offer Shares or on the willingness of institutional investors to pay the Offer Price.
10.4 EXECUTIVE CONTRACTS Each member of the Senior Management Team (including Don Meij as managing director) has entered into an executive service contract with the Company on substantially similar terms. Don Meij's contract provides that for the first 3 years commencing on the listing date, the Company is not entitled to terminate the agreement except for misconduct or non-performance. After that period, the Company may terminate the employment by giving 12 months notice or paying 12 months remuneration. Except in the case of default by the Company or a change of Board direction in the circumstances below, he is not entitled to terminate within the first 12 months after listing. After that time, he may resign by giving not less than 12 months notice to the Company. The other executive contracts provide that for the first 3 years commencing on the listing date, the Company is not entitled to terminate the agreements except for misconduct or non-performance. After that period, the Company may terminate the employment by giving 6 months notice or paying 6 months remuneration. Except in the case of default by the Company the Executive is not entitled to terminate within the first 3 years after listing. After that time, the Executive may resign by giving not less than 6 months notice to the Company. The Directors believe that the remuneration of each executive is appropriate for the duties allocated to them, the size of the Company’s business and the industry in which the Company operates. Remuneration will be reviewed annually. Each executive has agreed that during the employment and for a period of up to six months afterwards, the executive will not engage in any business or activitiy in the pizza industry which is the same as or substaintially similar to the Company’s business, canvass, solicit, induce or encourage any person who is or was an employee of the Company at any time during the employment period to leave the Company or interfere in any way with the relationship between the Company and its clients, customers, employees, consultants or suppliers. Mr Meij’s contract provides that he may terminate the agreement by giving three months written notice if for any reason, including a Change in Control of the Company, he forms the reasonable opinion that there has been material changes to the policies, strategies or future plans of the Board and as a result, he will not be able to implement his strategy or plans for the development of the Company. If Mr Meij terminates the agreement for this reason, then in recognition of his past service to the Company, on the date of termination, in addition to any payment made to him during the notice period or by the Company in lieu of notice, the Company must pay him an amount equal to the salary component and superannuation that would have been paid to him in the 12 months after the date of termination. A “Change in Control” occurs when any shareholder (either alone or together with its associates) having a relevant interest in less than 50% of the issued shares in the Company acquires a relevant interest in 50% or more of the shares on issue at any time in the capital of the Company or the composition of a majority of the Board as at the date of this Prospectus changes for a reason other than retirement in the normal course of business or death. 103 104 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER SECTION 11
ADDITIONAL INFORMATION ______
105 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
11. ADDITIONAL INFORMATION______
11.1 INCORPORATION AND RESTRUCTURE The Company was incorporated as a proprietary company on 30 December 1983. On 1 April 2005, the Company converted to a public company and on 4 April 2005 adopted its present name.
11.2 COMPANY BALANCE DATE The statutory accounts for Domino’s Pizza are prepared for the period ending 30 June annually.
11.3 CONSTITUTION GENERAL The rights and liabilities attaching to the Shares are set out in the Company’s Constitution, and are regulated by the Corporations Act, Listing Rules, the ASTC Settlement Rules and the general law. Set out below is a summary of the principal rights and liabilities attaching to the Shares. This summary is not exhaustive and is not a definitive statement of the rights and liabilities of the shareholders of the Company. VOTING RIGHTS Subject to any rights or restrictions for the time being attached to any class or classes of Shares, at a general meeting, every shareholder present in person or by proxy, representative or attorney has one vote on a show of hands and on a poll, one vote for each fully paid Share. The holder of partly paid Shares has a vote in respect of the Share on a poll which has the same proportionate value as the proportion that the amount paid (excluding any amount paid or credited as paid in advance of a call) on the Shares bears to the total issue price of the share. A shareholder is not entitled to vote at a general meeting unless all calls and other sums presently payable by the member in respect of a Share have been paid. Where a Share is jointly held, only one of the joint holders may vote. GENERAL MEETING AND NOTICES Each holder of Shares will be entitled to receive notice of, and to attend and vote at the Company’s general meetings and to receive all notices, accounts and other documents required to be sent to shareholders under the Constitution, the Corporations Act or the Listing Rules. DIVIDENDS Subject to the Corporations Act and the rights of persons (if any) entitled to Shares with special rights to dividends, the Company’s profits which the directors determine to distribute by way of dividends are divisible amongst the holders of Shares in proportion to the amounts paid (excluding any amount paid or credited as paid in advance of a call) on the Shares. VARIATION OF CLASS RIGHTS At present, the Company only has ordinary Shares on offer and has no current plans to create further classes of Shares. The rights and restrictions attaching to a class of the Company’s Shares can only be altered with the consent of a special resolution passed at a separate meeting of the holders of that class of shares by 75% of those holders, who being entitled to do so, vote at that meeting or with the written consent of members with at least 75% of votes in the class. FURTHER ISSUES OF SHARES AND OPTIONS The Directors may, subject to the Corporations Act, the Listing Rules or any special rights conferred on the holders of any Share or class of Shares, issue or dispose of Shares or grant options over Shares to any person at any time and on any terms and conditions as they think fit. PRE-EMPTIVE RIGHTS Holders of Shares do not have any pre-emptive rights under the Constitution. Under the Listing Rules, certain restrictions apply to a listed company offering its Shares otherwise than pro rata among shareholders. WINDING UP Subject to the rights of holders of Shares issued on special terms and conditions, on a winding up of the Company, the liquidator may, with the sanction of a special resolution of the company, divide among the 106 shareholders in kind the whole or any part of the Company’s property The liquidator may set such value as it deems fair on any property to be so divided and may determine how the division is to be carried out as between shareholders or different classes of shareholders. DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
SMALL HOLDINGS Subject to the Listing Rules and ASTC Settlement Rules, the Company may sell the Shares of a shareholder who holds less than a marketable parcel of shares. BUY BACKS Subject to applicable laws, in particular the Corporations Act and the Listing Rules, the Company may buy back Shares on such terms and conditions as the Board may determine from time to time. TRANSFER OF SHARES Subject to the Listing Rules and the Constitution, the Shares are transferable in accordance with CHESS (for CHESS Approved Securities), by instrument in writing in any usual or common form or in any other form that the Directors approve. The Directors may, subject to the requirements of the Listing Rules, request ASTC to apply a holding lock to prevent a transfer of Shares in the Company. FORFEITURE AFTER FAILURE TO PAY CALLS ON PARTLY PAID SHARES If a shareholder fails to pay a call or another amount that is payable on the Shares on the due date, then after notification, and before payment, the Directors may resolve that the shareholder has forfeited those Shares. A forfeited Share shall be deemed to be the property of the Company, and subject to the Listing Rules and the ASTC Settlement Rules, may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit. HOLDING STATEMENTS The Company will not issue share certificates to shareholders. As outlined in Section 2.14, the Company will apply to participate in CHESS in accordance with the Listing Rules and the ASTC Settlement Rules. On admission to CHESS, the Company’s Shares will be maintained on an electronic issuer sponsored subregister and an electronic CHESS subregister. These two subregisters together will make up the register of Shares of the Company. Following the transfer of the offer Shares to successful Applicants, shareholders will be sent an initial statement of holding (similar to a bank account statement) that sets out the number of Shares which have been allocated to them in the Offer. This statement will also provide details of a shareholder’s holder identification number (HlN) in the case of a holding on the CHESS sub register, or security holder reference (SRN) in the case of holding on the issuer-sponsored subregister. Shareholders will be required to quote their HIN or SRN, as applicable in all dealings with a stockbroker or the share registry. An updated holding statement will be sent to a shareholder at the end of each month where the balance of the investor’s holding of Shares changes. DIRECTORS The minimum number of directors is three and the maximum seven. The Board may appoint new directors subject to the number of Directors not being more than the permitted maximum of seven. The Directors may not reduce the number below the number of Directors in office at the time of the reduction. At each of the Company’s annual general meetings, one-third of the Directors (or if the number of Directors is not a multiple of three, then the number nearest one-third) and any other Director who has held office for three years or more must retire from office. The Managing Director is exempted from retirement by rotation. A retiring director is eligible for re-election. INDEMNITIES AND INSURANCE The Company must to the extent permitted by law and subject to the Corporations Act, indemnify current and past Directors, secretaries and executive officers of the Company and of any subsidiary of the Company against a liability incurred by the person acting in that capacity and against all legal costs incurred in connection with proceedings in which the person becomes involved because of that capacity. The Company may pay the premium on a policy of insurance in respect of a person who is or has been an officer of the Company to the full extent permitted by the Corporations Act. PROPORTIONAL TAKEOVER PROVISIONS The Company is prohibited from registering a transfer giving effect to a contract resulting from the acceptance of an offer made under a proportional takeover bid (being an off-market bid for a specific proportion of a class of shares) unless and until an ordinary resolution approving the proportional takeover bid is passed by the holders of the bid class shares. In accordance with the Corporations Act, the proportional takeover provisions will automatically cease to have effect on the third anniversary of the date of the adoption of the Constitution or as of the most recent renewal term, but can be renewed by the Company in general meeting. 107 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
AMENDMENT OF THE CONSTITUTION The Corporations Act provides that the constitution of a company may be modified or repealed by a special resolution passed by the members of the Company The Company’s Constitution does not impose any further requirements to be complied with to effect a modification of the Constitution, or to repeal it.
11.4 SELECTIVE REDUCTION OF CAPITAL On 11 April 2005, a selective reduction of capital was approved by the Existing Shareholders in accordance with section 256B of the Corporations Act to cancel, subject to the successful completion of the Offer and with effect from the date of transfer of the Sale Shares and allotment of the New Shares, 6,426,848 Shares and 255,516 Shares held by Somad Holdings Pty Ltd and Tiggerbell Enterprises Pty Ltd respectively in consideration for the payment of a fully franked dividend of $14,139,066 and $562,135 respectively. Part of the funds raised under the Offer will be applied towards payment of that consideration.
11.5 OPTIONS The Company will on completion of the Offer, grant the following options to the Senior Management Team:
Exercise Options price Exercise period Exercise Conditions Don Meij 345,000 $2.20 Allotment Date up to and Nil including 31 May 2007 345,000 $2.20 31 August 2006 up to and Company achieves prospectus including 31 August 2008 forecast EPS for the year ending 30 June 2006 345,000 $2.20 31 August 2007 up to and Company achieves EPS growth including 31 August 2009 pre-amortisation over the financial year to 30 June 2007 of at least 10% 345,000 $2.20 31 August 2008 up to and Company achieves EPS growth including 31 August 2010 pre-amortisation over the financial year to 30 June 2008 of at least 10% Andrew 112,500 $2.20 Allotment Date up to and Nil Rennie including 31 May 2007 112,500 $2.20 31 August 2006 up to and Company achieves prospectus including 31 August 2008 forecast EPS for the year ending 30 June 2006 112,500 $2.20 31 August 2007 up to and Company achieves EPS growth including 31 August 2009 pre-amortisation over the financial year to 30 June 2007 of at least 10% 112,500 $2.20 31 August 2008 up to and Company achieves EPS growth including 31 August 2010 pre-amortisation over the financial year to 30 June 2008 of at least 10% Other Senior 390,000 $2.20 31 August 2006 up to and Company achieves prospectus Executives including 31 August 2008 forecast EPS for the year ending 30 June 2006 390,000 $2.20 31 August 2007 up to and Company achieves EPS growth including 31 August 2009 pre-amortisation over the financial year to 30 June 2007 of at least 10% 390,000 $2.20 31 August 2008 up to and Company achieves EPS growth including 31 August 2010 pre-amortisation over the financial year to 30 June 2008 of at least 10%
Options issued to Don Meij and Grant Bourke are Excluded Shares and will not be issued under the Directors and Executive Share and Option Plan, but the terms and conditions of the grant will be substaintially similar to options granted under that Plan. 108 All other options to be granted will be granted under the Domino’s Pizza Director and Executive Share and Option Plan (see Section 11.11). DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Excluded Shares include shares issued to people outside Australia and shares issued under others which do not require disclosure under Section 708 of the Corporations Act or offer made under a prospectus. In addition to the Senior Management Team options, the Company will on completion of the Offer, grant 50,000 options to each of the non-executive directors with exception of the options to be granted to Grant Bourke, these options will be granted under the Director and Executive Share and Option Plan (see Sections 11.11 and 11.13 for details). If the options to be granted to the Senior Management Team and non-executive directors were all fully exercised, the Shares issued would represent approximately 5.33% of the issued share capital as at the completion of the Offer. It is the present intention of the Board not to grant any further options if the exercise of them, when taken together with the shares capable of being issued under any other options on completion, would result in the issue of more than 10% of the issued share capital of the Company.
11.6 KEY DEBT FACILITIES The Company has access to the following facilities with Westpac Banking Corporation Limited:
Facility Amount Term and type Commercial bill line facility Up to A$5m This facility is interest only at a variable rate to fund purchase of new available on 30 to 180 day bills and expires on pizza stores 31 July 2005 Commercial bill line facility Up to A$10m The facility is a continuation of an existing facility for 30 to 180 day bills and expires 30 June 2009. It is interest only at a variable rate until 31 May 2005 and then principal repayments will commence at $625,000 per quarter Commercial bill line facility Up to A$1.95m The facility is for 30 to 180 day bills expiring on 31 January 2009. It is interest only at a variable rate until 31 July 2004 and then principal repayments will commence at $150,000 per quarter Overdraft Up to A$2.0m Repayable on demand and subject to annual review Banker’s undertaking – Up to A$0.8m Repayable on demand revolving limit Commercial bill facilities to fund Up to A$3.6m Three commercial bill line facilities: Shear Pizza Pty Ltd • Facility A – $1.98 million with one year term • Facility B – $590,000 to expire 22 December 2005 • Facility C – $1.02 million 18 month term to expire 2 June 2006 Commercial Bill line facility Up to A$2.93m Multi option Credit Line A$2.93 million with expiry (New Zealand) 31 December 2009, renewable annually New Zealand facility A$155,000 Third party Guarantee/Indemnity Facility Facilities to Reel (NT) Pty Ltd, Up to A$241,000 Six month finance term with expiry on 31 July 2005 Business Development Loan
The debt facility agreements contain terms and conditions which are customary for facilities of this size and type and are secured by charges over the Company and its subsidiaries. Financial covenants are provided by the Company in relation to interest cover and a net debt to equity ratio.
11.7 LEGAL PROCEEDINGS Except as set out in this Prospectus, to the knowledge of the Directors, there is no litigation of a material nature pending or threatened which may significantly affect Domino’s Pizza.
109 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
11.8 ESCROW AGREEMENTS Each of the Continuing Shareholders have agreed to a voluntary escrow arrangement with the Company under which they will be restricted from disposing of any Shares held by them until the date on which the Company releases to ASX its preliminary final report for the year ending 30 June 2006. The total number of Shares to be held by the Continuing Shareholders that are to be subject to this escrow arrangement is approximately 25,909,091 Shares, representing approximately 43.2% of the issued capital of the Company following the Offer and Capital Reduction. The restrictions will only cease to apply in the event that: • a takeover bid is made for all Shares and the bid has been accepted by the holders of such a number of Shares which when taken together with all of the Shares subject to similar voluntary escrow restrictions comprise not less than 90%; • a scheme of arrangement relating to Shares becomes effective; • the transferee of the Shares is an associate or related body corporate of the Continuing Shareholder, provided the transferee enters into similar escrow arrangements prior to any transfer; or • in the case of Mr Don Meij, Mr Grant Bourke and Mr Andrew Rennie and their related entities – if they either die or suffer a permanent disability which prevents them from undertaking their duties performed for the Company as at the date of entering into the escrow arrangements for more than three months.
11.9 EXEMPT EMPLOYEE SHARE PLAN The Domino’s Pizza Exempt Employee Share Plan (“Plan”) is a general employee share plan pursuant to which the Exempt Employee Plan Offer will be made to Eligible Employees. Further details of the Exempt Employee Plan Offer are described in Section 2.7. Solely at the discretion of the Board, similar offers may be made in future years to Eligible Employees as determined by the Board. In accordance with current Australian tax legislation, Shares acquired under the Plan must be held for a minimum of three years (or earlier cessation of employment), during which time the Shares are subject to a disposal restriction such that the participant cannot deal in (i.e. sell or transfer) the Shares. A summary of the terms and conditions of the Plan is set out below: ELIGIBILITY The Board may at any time invite Eligible Employees to participate in the Plan, by specifying the total number of Shares being made available to the Eligible Employee or the method for calculating that number, the closing date for applications and the last date for acceptances by the Company, the issue price payable on acceptance of the application by the Company and issue of the Shares and any other specific terms and conditions of issue of the Shares. The Board has the discretion to determine the specific terms and conditions applying to each offer, and has the right to reject any application by an Eligible Employee without having to give reasons. MAXIMUM SHARES WHICH MAY BE ISSUED AND HELD The Company must not issue any Shares under the Plan if the total number of Shares issued during the preceding five years under the Plan and any other Domino’s Pizza employee incentive scheme (such as the Directors and Executive Share and Option Plan described in Section 11.11 below) but disregarding the Excluded Shares, would exceed 5% of the total number of Shares on issue at the time of the proposed issue. Excluded Shares include shares issued to people outside Australia and shares issued under offers which do not require disclosure under section 708 of the Corporations Act (such as the options to be granted to the Senior Management Team and the non-executive directors) or offers made under a prospectus (such as the shares to be issued under the Exempt Employee Offer). RANKING OF SHARES Shares issued under the Plan will rank equally with all Shares. RESTRICTIONS ON TRANSFERS Unless otherwise determined by the Board, Participants who receive Shares under the Plan will not be entitled to sell, transfer, assign, encumber, dispose of or otherwise deal with in any way those Shares until the earlier of the end of three years from the date of acquisition of the Shares or the time at which that person ceases to be an employee of Domino’s Pizza. The Company will implement such arrangements as it 110 determines are necessary to enforce this restriction. DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
ADMINISTRATION The Plan is administered by the Board, who must operate the plan and on a non-discriminatory basis. AMENDMENT The rules governing the operation of the Plan may be amended, or the application of any rules in relation to any Participant waived or modified, at any time by resolution of the Board provided there is no reduction of rights of Participants in respect of Shares, dividends or other money issued under the Plan. If an amendment reduces the rights of employees, it requires written consent of three-quarters of affected Participants. TERMINATION The Plan may be terminated or suspended at any time by a resolution of the Board, provided the termination or suspension does not materially adversely affect the rights of persons holding Shares issued under the Plan (“Participants”) at that time. Termination will not affect the rights under the Plan of Participants in respect of applications to participate which have been accepted by the Company and notified to the Participant.
11.10 FURTHER DETAILS REGARDING THE PRIORITY OFFER TO ELIGIBLE EMPLOYEES SALARY SACRIFICE By electing to participate in the Exempt Employee Plan Offer, the Applicant agrees to salary sacrifice the Applicant’s gross remuneration by $1,000 and receive this amount worth of Shares. The Shares will form part of the Applicant’s current remuneration package or wage and, accordingly, the Applicant’s pre-tax cash salary or wages will be reduced by $1,000, paid by instalments over a 12 month period from July 2005 to July 2006. More specifically, the Applicant’s pre-tax cash salary or wages will be reduced by A$19.23 per week. If the Applicant leaves Domino’s Pizza before the end of the 12 month period referred to above or if the Applicant takes unpaid leave (so that the total reduction of the Applicant’s pre-tax salary or wages is less than $1,000), then any termination payment entitlement (or any future salary or wages to which the Applicant may be or become entitled) will be decreased by the amount then unpaid by the Applicant in respect of the participation in the Plan. If, because of rounding, the Applicant receives less than $1,000 worth of Shares, the Applicant will still be required to reduce the Applicant’s pre-tax salary or wages by $1,000. The difference in the amounts (which will be less than the value of one Share for tax purposes) will be donated by Domino’s Pizza to charity. Where no allocation of Shares is made, there will be no reduction in salary or wages. TAXATION INFORMATION The allocation of $1,000 in Shares is tax-free, provided the Applicant completes a valid tax election form for the financial year ending 30 June 2005. Domino’s Pizza will post a “tax election” form to the Applicant at the end of the financial year. The Applicant needs to make a “tax election” at the same time as or before lodging an income tax return for the year ending 30 June 2005. The “tax election” does not have to be sent to the ATO with the tax return, but should be retained as part of the Applicant’s income tax records. Capital Gains Tax (“CGT”) payable by the Applicant on any capital growth on the Applicant’s investment is triggered when the Applicant’s Shares are sold. The Exempt Employee Share Plan has been established taking into account Australia’s current taxation laws. Tax law is subject to change, and the concessional treatment currently afforded to employee share plans may be withdrawn, although Domino’s Pizza does not expect this to occur. This taxation summary is not intended to be an authoritative or complete statement of the law applicable. As the precise tax consequences of participation in the Exempt Employee Plan Offer will be affected by a participant’s personal circumstances, it is recommended that participants obtain independent professional advice before participating. RESTRICTIONS ON SALE There are restrictions on when the Applicant can sell the Shares issued under the Exempt Employee Share Plan. Under the restriction, the Applicant is not able to sell, transfer or otherwise dispose of the Applicant’s shares until the earlier of the date on which the Applicant leaves Domino’s Pizza or three years after the allocation of Shares. Under the Plan rules, the Company is entitled to implement such arrangements as it determines are necessary to enforce this restriction including placing a holding lock on the issued Shares.
111 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
RIGHTS ATTACHING TO SHARES The Shares allocated under the Exempt Employee Plan Offer will rank equally with all other Shares on issue. The Shares carry the right to receive dividends, participate in rights and bonus issues and to vote at any meeting of members of the Company. The Shares are not liable to be forfeited under the Plan.
11.11 DIRECTOR AND EXECUTIVE SHARE AND OPTION PLAN The Company has established the Domino’s Pizza Director and Executive Share and Option Plan (“ESOP”) to assist in the recruitment, reward, retention and motivation of directors and executives of Domino’s Pizza (“Participants”). ELIGIBILITY Directors of Domino’s Pizza and employees determined by the Board to be in an executive position are eligible to participate in the Plan (“Executives”). MAXIMUM SHARES AND OPTIONS WHICH MAY BE ISSUED AND HELD The Company must not issue any Shares or grant any options under the ESOP if the total number of Shares issued during the preceding five years under the ESOP and any other Domino’s Pizza employee incentive scheme (such as the Exempt Employee Share Plan described in Section 11.9 above) plus the total unissued shares over which options have been granted under the ESOP and any other Domino’s Pizza employee incentive scheme but disregarding the Excluded Shares, would exceed 5% of the total number of Shares on issue at the time of the proposed issue or grant of option. Excluded Shares include shares issued to people outside Australia and shares issued under offers which do not require disclosure under section 708 of the Corporations Act (such as the options to be granted to the Senior Management Team and the non-executive directors) or offers made under a prospectus (such as the shares to be issued under the Exempt Employee Offer). If an issue of Shares or grant of options under the ESOP would result in an individual Participant owning (legally or beneficially) or controlling the exercise of voting power attached to 5% or more of all Shares then on issue, the Company must not issue any Shares to the Participant under the ESOP. SHARE AND OPTION ISSUES The Board may at any time make invitations to Executives to participate in the ESOP specifying the total number of Shares or options being made available or the manner for determining that number, the closing date for applications, in the case of options, the exercise period, exercise price and exercise conditions (if any) and in the case of shares, the issue price and any other specific terms and conditions of issue. OPTIONS Subject to any adjustment in the event of a bonus issue, rights issue or reconstruction of capital, each option is an option to subscribe for one Share. Upon the exercise of an option by a Participant, each Share issued will rank equally with other Shares of the Company. Options issued under the ESOP are personal to the Participant and may not be transferred unless to a legal personal representative or the Board resolves otherwise. The Company will not apply for quotation of the options on ASX. However, the Company must apply to ASX for official quotation of Shares issued on the exercise of the options. A Participant is not entitled to exercise any option if the exercise of that option would require the Company to be in breach of this rule or if to do so could contravene the Constitution, Listing Rules or the Corporations Act. BONUS ISSUES Subject to the Listing Rules, if there is a bonus issue to the holders of Shares (other than an issue in lieu of dividends or by way of dividend reinvestment), the number of Shares over which an option is exercisable will be increased by the number of Shares which the holder of the option would have received if the option had been exercised before the record date for the bonus issue. RIGHTS ISSUES Subject to the Listing Rules, if the Company undertakes a pro rata rights issue of Shares (except a bonus issue), the exercise price of the options will be reduced to reflect the diluting effect of the rights issued. RECONSTRUCTIONS If any reconstruction of the capital of the Company takes place (including consolidation, subdivision, reduction, capital return, buy back or cancellation), the number of options to which each Participant is entitled and/or the exercise price of the options must be reconstructed in accordance with the Listing Rules, in a manner which 112 will not result in any benefits being conferred on Participants which are not conferred on shareholders. DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
TAKEOVERS AND COMPROMISES AND ARRANGEMENTS If a takeover bid or other offer is made to acquire some or all of the issued Shares of the Company, the Board must give written notice to Participants of the takeover bid or takeover bid (“Takeover Notice”) specifying a period of no less than five Business Days during which Options may be exercised. Participants will be entitled in the period referred to in the Takeover Notice, to exercise all or any of their Options and to receive from the offeror the consideration payable on acceptance of the takeover bid or offer. If, under Part 5.1 of the Corporations Act 2001, the Court sanctions a compromise or arrangement proposed for the purpose of, or in connection with, a scheme for the reconstruction of the Company or its amalgamation with any other company or companies which, if implemented, would result in a change in the control of the Company, the Board must give written notice to Participants of the compromise or arrangement (Reconstruction Notice) specifying a period of not less than five Business Days during which Options may be exercised. Participants will be entitled, in the period referred to in the Reconstruction Notice, to exercise all or any of their Options. LAPSE OF OPTIONS Subject to the Board’s discretion, an option not exercised will lapse on the earliest of: • the date specified at the time of grant of the option or, if not specified, 10 years from the date the option was granted or if Special Circumstances have arisen, 12 months after the date those special circumstances arose (the “Last Exercise Date”); • a determination of the Board that the Participant has, in the Board’s opinion, been dismissed or removed from office for a reason which entitles a company in the Group to dismiss the Participant without notice or has committed any act of fraud, defalcation or gross misconduct in relation to the affairs of that company (whether or not charged with an offence); or done any act which brings the Group into disrepute; • the date on which the Participant ceases to be employed by any member of the Group (other than due to the occurrence of a Special Circumstance); and • the receipt by the Company of notice from the Participant (after a Special Circumstance has arisen with respect to the Participant) that the Participant has elected to surrender the option. The Board may in its discretion allow a Participant to exercise all or any of their options, whether or not the exercise conditions have been satisfied and whether or not the options would otherwise have lapsed, provided that no options will be capable of exercise later than the Last Exercise Date. “Special Circumstances” means with respect to a Participant, Total and Permanent Disablement, the death of the Participant, the redundancy of the Participant or such other circumstances as the Board may at any time determine (whether before or after the date of grant). “Total and Permanent Disablement” means, in relation to a Participant, that the Participant has, in the reasonable opinion of the Board, become permanently incapacitated to such an extent as to render the Participant unlikely to engage in the Participant’s usual occupation again. BOARD DISCRETION The Board may make regulations and determine procedures to administer and implement the ESOP and may also terminate or suspend the operation of the ESOP at its discretion. ADMINISTRATION The ESOP is administered by the Board, who must operate the ESOP and on a non-discriminatory basis. AMENDMENT The rules governing the operation of the ESOP may be amended, or the application of any rules in relation to any Participant waived or modified, at any time by resolution of the Board provided there is no reduction of rights of Participants in respect of Shares, dividends or other money issued under the ESOP. If an amendment reduces the rights of employees, it requires written consent of three-quarters of affected Participants. TERMINATION The ESOP may be terminated or suspended at any time by a resolution of the Board, provided the termination or suspension does not materially adversely affect the rights of persons holding Shares issued under the ESOP at that time. Termination will not affect the rights under the ESOP of Participants in respect of applications to participate which have been accepted by the Company and notified to the Participant. OPTIONS TO BE GRANTED UNDER THE ESOP 113 Details of the options to be granted by the Company under the ESOP to the Senior Management Team and to the non-executive Directors are contained in Section 11.5 and Section 11.13 respectively. DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
11.12 DIVIDEND REINVESTMENT PLAN The Directors have adopted but not yet commenced operation of a Dividend Reinvestment Plan (DRP). Once it commences, it will provide shareholders with the choice of reinvesting some or all of their dividends in Shares rather than receiving those dividends in cash. The following is a summary of the main features of the DRP: PARTICIPATION Eligible shareholders under the DRP may elect to reinvest the dividends on some or all of their Shares. The Board may at any time, determine a maximum or minimum number of Shares in relation to which any individual Shareholder may participate in the DRP. A Shareholder may vary or terminate their participation in the DRP by notice to the Company. ELIGIBILITY Any person registered as the holder of Shares in the Company may participate in the DRP, subject to the Board’s discretion. Shareholders may not participate in the DRP if the Board considers and determines that the issue of Shares to them under the DRP would be unlawful, they hold less than a marketable parcel of Shares at the date of their application, or their participation in the DRP would not be in the best interests of the Company. The Board is entitled to make the final determination as to whether any shareholder may participate. OPERATION OF PLAN The Board in its discretion may in respect of any given dividend, either issue new Shares or cause a broker to arrange for the purchase and transfer of existing Shares to a Participant or apply a combination of both options to satisfy the obligations of the Company. ENTITLEMENT The number of Shares to be issued to a participant in the DRP will be determined by dividing the amount available for reinvestment on behalf of that participant by the issue or transfer price and rounding that number rounded to the next whole Share. ISSUE OR TRANSFER PRICE OF SHARES At the sole discretion of the Board, Shares will be issued or transferred under the DRP at either the daily volume weighted average market price of all Shares sold on ASX over the 10 business days commencing on the second business day following the relevant dividend record date (excluding trades otherwise than in the ordinary course of trading), less a percentage discount (if any) determined by the Board from time to time. VARIATION, SUSPENSION AND TERMINATION BY DIRECTORS The DRP may be varied, suspended or terminated by the Board at any time by notification on Domino’s Pizza’s website and by notice to ASX. If the DRP is varied or suspended and reinstated, then subject to a shareholder not having varied their participation in the DRP that shareholder will participate under the reinstated DRP on the same basis as they participated prior to the suspension. COSTS To the extent permitted by law, the Company will pay any brokerage, commission or other transaction costs, including any stamp duty or other duties payable by participants in respect of Shares allocated under the DRP. QUOTATION The Company will apply promptly to ASX for quotation of Shares issued under the DRP. COMMENCEMENT The Directors will consider commencing operation of the Plan at the time it considers the declaration of dividends.
11.13 DISCLOSURE OF DIRECTORS’ INTERESTS Except as disclosed in this Prospectus, no Director: • Holds or has held in the last two years before the lodgement of this Prospectus with the ASIC any interest: – in the formation or promotion of the Company; or – in any property acquired or proposed to be acquired by the Company in connection with its formation or promotion or the Offer under this Prospectus; or 114 – the Offer under this Prospectus, or DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
• Has been paid or has agreed to be paid or has received or has agreed to receive any benefits: – to induce them to become or to qualify as a Director; or – for services rendered by them in connection with the formation or promotion of the Company or the Offer under this Prospectus. SHAREHOLDINGS AND OPTION HOLDINGS OF DIRECTORS The Directors are not required under the Constitution to hold any Shares in Domino’s Pizza. The following table sets out the relevant interests in Shares held by each Director as at the date of this Prospectus, the Shares to be sold into the Offer, and the interest in Shares and options after the Offer, assuming it is successfully completed:
Interest as at Shares to be date of this sold into Shares after Options after Director Prospectus the Offer the Offer the Offer(1) Ross Adler Nil Nil 159,091 50,000 Don Meij(2) 5,342,487 1,215,909 4,126,578 1,380,000 Grant Bourke 5,342,487 1,945,455 3,397,032 50,000 Barry Alty Nil Nil 50,000 50,000 Paul Cave Nil Nil 682,000 50,000
Notes: (1) Excluding Grant Bourke, the Non-Executive Director options have been granted under the Director and Executive Share and Option Plan. They are exercisable at any time up to two years after the Listing Date at an exercise price of $2.20 per Share. (2) The options granted to the Managing Director have exercise prices and exercise periods as set out in Section 11.5.
REMUNERATION OF NON-EXECUTIVE DIRECTORS The constitution of the Company provides that non-executive Directors are entitled to receive remuneration for their services as determined by the Company in a general meeting. The Company has resolved that the maximum aggregate amount of directors’ fees (which does not include remuneration of executive directors and other non-director services provided by directors) is $400,000 per annum. The Directors may divide that remuneration among themselves as they decide. Directors are entitled to be reimbursed for their reasonable expenses incurred in connection with the affairs of the Company. A Director may also be remunerated as determined by the Directors if that Director performs additional or special duties for the Company. A former Director may also receive a retirement benefit of an amount determined by the Directors in recognition of past services, subject to the ASX Listing Rules and the Corporations Act. DIRECTORS’ DEED OF INDEMNITY, INSURANCE AND ACCESS The Company has entered into deeds of indemnity, insurance and access with each Director. To the extent permitted by law and subject to the restrictions in section 199A of the Corporations Act, the Company must continuously indemnify each Director against liability (including liability for costs and expenses) for an act or omission in the capacity of Director. However this does not apply in respect of any of the following: • a liability to the Company or a related body corporate; • a liability to some other person that arises from conduct involving a lack of good faith; • a liability for costs and expenses incurred by the Director in defending civil or criminal proceedings in which judgment is given against the officer or in which the officer is not acquitted; or • a liability for costs and expenses incurred by the Director in connection with an unsuccessful application for relief under the Corporations Act in connection with the proceedings referred to above. The Company has also agreed to insure the Directors and provide to the Directors access to board documents circulated during the Director’s term in office. EXECUTIVE CONTRACTS Under his executive service contract with the Company in calendar years 2005 and 2006 respectively, Don Meij is entitled to remuneration comprising base salary, statutory superannuation entitlements and other benefits having a total cost to the Company of $375,000 and $425,000, performance bonuses of up to 115 $187,500 if the prospectus forecasts are achieved, and of up to a further $60,000 if performance criteria to DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
be agreed for the half year ending 31 December 2006 are achieved, and annual leave loading of 17.5%. The terms of his engagement are summarised in Section 10.
11.14 DISCLOSURE OF INTERESTS OF ADVISERS Except as set out in this Prospectus, no person named in this Prospectus as performing a function in a professional, advisory or other capacity in connection with the preparation or distribution of this Prospectus: • Has any interest, or has had any interest during the last two years, in the formation or promotion of the Company, or in property acquired or proposed to be acquired by the Company in connection with its formation or promotion, or the offer of the Shares; and • No amount has been paid, or agreed to be paid and no benefit has been given, or agreed to be given, to any such person in connection with the services provided by the person in connection with the formation or promotion of the Company, or the offer of the Shares. Philips Fox have acted as legal adviser to the Offer and have generally advised in relation to the Company’s admission to the Official List and performed work in relation to due diligence enquiries and are entitled to receive $120,000 plus outlays and GST in respect of these services. Further amounts may be paid to Philips Fox in accordance with their usual time based charge-out rates. Goldman Sachs JBWere Pty Limited has acted as the underwriter and Lead Manager to the Offer. The Company and Vendor Shareholders have agreed to pay an underwriting fee of 2.5% and a management fee of 0.5% of the gross proceeds from the Offer plus a discretionary incentive fee of up to 0.75% of the gross proceeds. ABN AMRO Morgans Limited has acted as co-manager to the Offer. On successful completion of the Offer, the Lead Manager will pay the co-manager a management fee of $300,000 (including GST) and a fee of 1.5% (including GST) of Broker Firm Applications submitted by the co-manager. The amounts will be paid from the fees payable to the Lead Manager by the Company. Deloitte Touche Tohmatsu and Deloitte Corporate Finance Pty Limited have acted as Investigating Accountants and have prepared the Independent Accountant’s Report and Review of the Forecast Financial Information respectively. The Company has paid, or agreed to pay, approximately $137,000 plus outlays and GST in respect of these services. Further amounts may be paid to Deloitte Touche Tohmatsu and Deloitte Corporate Finance Pty Limited in accordance with their usual time based charge-out rates. CIBC Australia Limited has acted as Financial Adviser to the Company. The Company has agreed to pay approximately $988,000 plus outlays and GST for the above services. The Financial Adviser does not provide any advice or recommendation to investors or any other person in connection with this Offer.
11.15 CONSENTS AND DISCLAIMERS None of the persons named below has authorised or caused the issue of this Prospectus. None of the persons named below have made any statement that is included in this Prospectus, or any statement on which a statement made in this Prospectus is based, except as stated below. Each of the persons named below expressly disclaims and takes no responsibility for any statements or omissions from this Prospectus. This applies to the maximum extent permitted by law and does not apply to any matter to the extent to which consent is given below. CONSENTS TO BE NAMED The following parties have given and have not, prior to the lodgment of this Prospectus with ASIC, withdrawn their written consent to be named in this Prospectus in the form and context in which they are named: • Goldman Sachs JBWere Pty Limited as Lead Manager to the Offer; • Philips Fox to being named as solicitors to the Offer; • CIBC Australia Limited as Financial Adviser to the Company; • Computershare Investor Services Pty Limited as the Share Registry; and • ABN AMRO Morgans Limited as Co-Manager to the Offer. CONSENTS TO BE NAMED AND TO THE INCLUSION OF INFORMATION The following parties have given and have not, prior to the lodgment of this Prospectus with ASIC, withdrawn their written consent to be named in this Prospectus and to the inclusion of the following information in this Prospectus in the form and context in which it is included and to all references in this Prospectus to that 116 information in the form and context in which it appears. DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
• Deloitte Touche Tohmatsu to be named as the Company’s auditor and to the inclusion of its Investigating Accountants’ Report in the form and context in which it is included. • Deloitte Corporate Finance Pty Limited to being named as the Investigating Accountant in relation to the Forecast Financial Information and to the inclusion of its Review of the Forecast Financial Information in the form and context in which it appears. • BIS Shrapnel to the inclusion generally of information from its report, Fast Food and Eating Out in Australia (2003-2005); and Sections 1.1, 3.1 and 3.2 of information from its report, Australian Foodservice, 2005-2008 (and specifically in Sections 1.1, 3.1 and 3.2). • Nielsen Media Research AdEx to the inclusion of information in Section 1 for its estimates on Television Jan-Dec 2004. • Eureka Strategic Research Pty Ltd to the inclusion of information in Section 1.2 from U&A Study, 2003. • Euromonitor to the inclusion of information in Section 3 from Euromonitor Outlook 2004, Fast Food in Australia. • Domino’s Pizza, Inc to the inclusion of store information. • Domino’s Pizza UK and IRL plc to the inclusion of store information. • Alsea, S.A. de C.V. to the inclusion of store information. Copies of the consents will be available for inspection free of charge during business hours after seven days from lodgement of this Prospectus for a period of not less than 12 months after the date of the lodgement of this Prospectus at the registered office of the Company.
11.16 EXPENSES OF THE OFFER The estimated costs of the Offer, including advisory, legal, accounting, tax, listing and administrative fees, as well as printing, advertising and other expenses are currently estimated to be approximately $4.5 million. In addition, payout of the existing Senior Management incentive plan is estimated to be $1.1 million. The Company will pay $3.7 million (comprising $2.5 million in Offer costs, $0.1 million of ancillary costs in preparation for listing on ASX and $1.1 million in payout of the Senior Management incentive plan) and the Vendor Shareholders will pay $1.9 million.
11.17 DOCUMENTS AVAILABLE FOR INSPECTION Copies of the Constitution, the Domino’s Pizza Exempt Employee Share Plan Rules and the Domino’s Pizza Director and Executive Share and Option Plan Rules are available for inspection free of charge between 9.00am and 5.00pm AEST, Monday to Friday, at the Company’s registered office during the Offer Period.
11.18 ASX ADMISSION AND QUOTATION The Company will apply to ASX for admission to the Official List and quotation of the Shares on the exchange operated by ASX within seven days after the date of this Prospectus.
11.19 GOVERNING LAW This Prospectus and the contracts that arise from acceptance of the Applications are governed by the laws of Queensland and each Applicant submits to the exclusive jurisdiction of the courts of Queensland.
11.20 EXPIRY DATE No Shares will be offered on the basis of this Prospectus later than 13 months after the date of this Prospectus.
11.21 CONSENT TO LODGEMENT Each Director, Vendor Shareholder and each director of the Vendor Shareholders, has consented to the lodgment of this Prospectus with ASIC as required by section 720 of the Corporations Act. Dated: 13 April 2005
117 118 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER SECTION 12
GLOSSARY ______
119 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
12. GLOSSARY ______Accounting Policies means the accounting policies in Note 1 of Appendix A to this Prospectus. AEST means Australian Eastern Standard Time. Alsea means ALSEA S.A. de C.V. Applicant means a person who submits a valid Application pursuant to this Prospectus. Application means an application made to purchase a specified Australian dollar amount worth of Shares offered by this Prospectus. Application Amount means the Australian dollar amount accompanying an Application Form submitted by an Applicant. Application Form means an application form attached to or accompanying this Prospectus pursuant to which Applicants may apply for Shares. Application Monies means the monies payable in connection with an Application. ASIC means the Australian Securities & Investments Commission. ASTC means the ASX Settlement and Transfer Corporation Pty Limited (ABN 49 008 504 532). ASTC Settlement Rules means the rules of the ASTC. ASX means Australian Stock Exchange Limited (ABN 98 008 624 691). Australian Store Network means the network of Corporate Stores and Franchised Stores located in Australia. Board or Board of Directors or Directors means the board of directors of the Company. Broker Firm Applicants means Australian resident retail investors who have received a firm allocation of Shares from their broker. Broker Firm Offer means the invitation to Broker Firm Applicants under this Prospectus as described in Section 2.5. Capital Reduction means the selective reduction of capital described in Section 11.4. CHESS means Clearing House Electronic Subregister System, operated in accordance with the Corporations Act. Closing Date means: • for the Priority Offer and Exempt Employee Plan Offer – 12 noon, Tuesday 3 May 2005; and • for the Broker Firm Offer – 12 noon, Friday 6 May 2005, unless the Company, the Vendor Shareholders and the Lead Manager jointly agree to vary either of those dates. Company means Domino’s Pizza Australia New Zealand Limited (ACN 010 489 326). Constitution means the constitution of the Company as amended from time to time. Continuing Shareholders means Somad Holdings Pty Ltd, Don Meij, Esme Meij, Grant Bourke, Sandra Bourke and Success Pizzas Pty Ltd. Corporate Store means a Domino’s pizza store owned and operated by the Company and Corporate Store Network means the network of Corporate Stores. Corporations Act means the Corporations Act 2001 (Cth). Directors means the directors of the Company from time to time. Director and Executive Share and Option Plan or ESOP means the Domino’s Pizza Director and Executive Share and Option Plan summarised in Section 11.11.
120 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Domino’s means the Domino’s Pizza brand and network, owned by Domino’s Pizza, Inc. Domino’s Pizza means the Company and each of its subsidiaries. Domino’s Pizza Stores means Corporate Stores and Franchised Stores. Domino’s Pizza, Inc. includes its subsidiaries. Domino’s Pizza UK means Domino’s Pizza U.K. & IRL plc. Earnings Per Share or EPS means NPAT divided by the total number of Shares on issue. EBIT means earnings before interest and tax. EBITA means earnings before interest, tax and amortisation. EBITDA means earnings before interest, tax, depreciation and amortisation. Eligible Employees means all employees of the Company or its subsidiaries who are resident in Australia as at the date of the Prospectus and remain employed by the Company as at the Closing Date for the Exempt Employee Plan Offer. Eligible Franchisees means all Franchisees who are residents of Australia as at the date of the Prospectus and remain a Franchisee as at the Closing Date for the Priority Offer. Excluded Shares include shares issued to people outside Australia and shares issued under offers which do not require disclosure under section 708 of the Corporations Act or offers made under a prospectus. Exempt Employee Plan Applicant means Eligible Employees who apply for Shares under the Exempt Employee Plan Offer. Exempt Employee Plan Offer means the invitation to Excempt Employee Plan Applicants under this Prospectus, as described in Section 2.7. Exempt Employee Plan Offer Application Form means the application form attached to or accompanying this Prospectus for Eligible Exempt Employee Plan Applicants under the Exempt Employee Plan Offer. Existing Shareholders means the shareholders of the Company as at the date of this Prospectus, being Somad Holdings Pty Ltd, Grant Bourke, Sandra Bourke, Tiggerbell Enterprises Pty Ltd, Pizzabest Pty Limited, Don Meij, Esme Meij and Success Pizzas Pty Ltd. Existing Store Sales Growth means sales growth of stores that have been trading for 54 weeks or more. Exposure Period means the waiting period specified in section 727(3) of the Corporations Act, being a minimum period of seven days after the date of lodgement of this Prospectus with ASIC, during which an Application must not be accepted. ASIC may extend the period to no more than 14 days after the date of lodgement. Financial Adviser means CIBC Australia Limited as financial advisor to the Company. Financial Information means the summary of historical and Forecast Financial Information for the Company set out in Section 6 of this Prospectus. Forecast Financial Information means the pro forma forecast statement of financial performance and statement of cash flows for the years ending 30 June 2005 and 2006. Forecast Period means the period from 1 January 2004 until 30 June 2006. Franchised Store means a pizza store owned and operated by a Franchisee (including stores trading as Pizza Haven NZ) and Franchise Network means the network of Franchised Stores. Franchisees means persons and entities who hold a franchise from the Company to operate a pizza store under the terms of a sub-franchise agreement. Goldman Sachs JBWere mean Goldman Sachs JBWere Pty Limited Institutional Offer means the invitation to institutional investors under this Prospectus, as described in Section 2.8. Lead Manager means Goldman Sachs JBWere Pty Ltd.
121 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Listing Date means the due date on which the Shares first commence trading on ASX, expected to be on or about 16 May 2005. Listing Rules means the Listing Rules of ASX. Master Franchise Agreement or MFA means the agreement described in Section 10.1 of this Prospectus. Major Shareholder means Somad Holdings Pty Ltd. New Shares means 18,046,000 currently unissued Shares which are to be issued under this Prospectus. Network or Domino’s Pizza Network or Network Stores means the network of Corporate Stores and Franchised Stores. Network Sales means the total sales generated by the Network. New Zealand Network means the network of Corporate Stores and Franchised Stores located in New Zealand. Non-Executive Directors mean Ross Adler (non-executive Chairman), Grant Bourke, Barry Alty and Paul Cave. NPAT means net profit after tax. OER means operational evaluation and report. Offer means the invitation to subscribe for the Offer Shares under this Prospectus, comprising the Broker Firm Offer, the Priority Offer, the Exempt Employee Plan Offer and the Institutional Offer. Offer Period means the period during which an Offer is open for receipt of Applications. Offer Shares means the New Shares and the Sale Shares. Partners’ Foundation means the trust established under a trust deed dated 7 December 2001. Priority Offer means the invitation to Eligible Employees and Eligible Franchisees under this Prospectus, as described in Section 2.6. Priority Offer Application Form means the application form attached to or accompanying this Prospectus for Eligible Employees and Eligible Franchisees who apply for Shares under the Priority Offer. Pro Forma Adjusted Historical Financial Information means the pro forma adjusted historical statements of financial performance for the years ended 30 June 2001, 2002, 2003 and 2004. Prospectus means this document (including the electronic form of this Prospectus), and any supplementary or replacement Prospectus in relation to this document. QSR means quick service restaurant, and refers to major chains in fast food sector. Related Bodies Corporate has the meaning given to it by section 50 of the Corporations Act. Registry means Computershare Investor Services Pty Limited. Sale Shares means 16,044,909 Shares to be sold and transferred by the Vendor Shareholders to successful Applicants in accordance with this Prospectus. Same Store Sales Growth means comparable growth in sales across those stores that were in operation at least 12 months prior to the date of the reported period. Senior Management Team or Senior Management means the management team outlined in Section 5.3. Share means any fully paid ordinary share in the capital of the Company. Underwriting Agreement means the agreement entered into by the Lead Manager, the Company and the Vendor Shareholders on the date of this document. US means United States of America. US Persons has the meaning given to the term by Regulations under the US Securities Act. US Securities Act means US Securities Act of 1933 as amended. Vendor Shareholders means Somad Holdings Pty Ltd, Grant Bourke and Don Meij. $ means Australian Dollars unless specified otherwise. References to time are references to Sydney time.
122 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
APPENDIX A - DETAILED FINANCIAL INFORMATION______
123 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
HISTORICAL FINANCIAL INFORMATION______
CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE FOR THE HALF-YEAR ENDED 31 DECEMBER 2004
Pro Forma Note Actual Adjusted A$’000 A$’000 Revenue from ordinary activities 70,555 70,555 Food and paper expense (14,933) (14,933) Employee benefit expense (17,647) (18,747) Plant and equipment costs (12,067) (12,067) Occupancy expense (1,677) (1,677) Marketing expense (5,906) (5,906) Store related expense (3,104) (3,104) Communication expense (1,972) (1,972) Royalty expense (2,971) (2,971) Other expenses from ordinary activities (4,163) (4,263) Profit from ordinary activities before borrowing costs and income tax expense 3 6,115 4,915
The financial statements to be read in conjunction with the accompanying notes.
124 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2004
Pro Forma Note Actual Adjusted A$’000 A$’000 Current assets Cash assets 3,197 6,697 Receivables 4 3,320 3,320 Inventories 5 898 898 Other 6 5,071 5,071 Total current assets 12,486 15,986 Non-current assets Receivables 7 55 55 Investments 8 94 94 Other financial assets 9 3,073 3,073 Property, plant and equipment 10 30,218 30,218 Intangibles 11 17,688 17,688 Deferred tax assets 12 382 382 Total non-current assets 51,510 51,510 Total assets 63,996 67,496 Current liabilities Payables 13 8,730 12,420 Interest-bearing liabilities 14 1,877 1,177 Current tax liabilities 15 1,601 1,241 Provisions 16 1,048 1,048 Other 17 1,582 1,582 Total current liabilities 14,838 17,468 Non-current liabilities Interest-bearing liabilities 18 25,799 6,999 Deferred tax liabilities 19 998 998 Provisions 20 261 261 Other 21 2,000 – Total non-current liabilities 29,058 8,258 Total liabilities 43,896 25,726 Net assets 20,100 41,770 Equity Contributed equity 22 2,065 39,123 Retained profits 18,019 2,631 Foreign currency translation reserve 16 16 Total equity 20,100 41,770
The financial statements to be read in conjunction with the accompanying notes. 125 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE HALF-YEAR ENDED 31 DECEMBER 2004
Pro Forma Actual Adjusted A$’000 A$’000 Cash Flows from Operating Activities Receipts from customers 68,876 68,876 Payments to suppliers and employees (59,918) (59,918) Interest received 311 311 Interest and other costs of finance paid (985) (985) Income tax paid (1,146) (1,146) Net cash provided by operating activities 7,138 7,138 Cash Flows from Investing Activities Loans to/(repaid from) related parties, third parties and franchisees (663) (663) Payment for intangibles (4,540) (4,540) Payment for property, plant and equipment (10,402) (10,402) Cash acquired on acquisition of business 16 16 Proceeds from sale of property, plant and equipment 8,664 8,664 Net cash used in investing activities (6,925) (6,925) Cash Flows from Financing Activities Payment for share buy-back – (14,700) Proceeds from issues of shares – 39,700 Repayments of borrowings (1,667) (23,167) Net cash generated/(provided) by financing activities (1,667) 1,833 Net (Decrease)/Increase in Cash Held (1,454) 2,046 Effects of exchange rate changes on balance of cash held in foreign currencies (4) (4) Cash at Beginning of the Financial Period 4,655 4,655 Cash at the End of the Financial Period 3,197 6,697
The financial statements to be read in conjunction with the accompanying notes.
NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2004 1. SUMMARY OF ACCOUNTING POLICIES Basis of Preparation Domino’s Pizza Australia New Zealand Limited Group financial statements consist of the adjusted consolidated financial statements of Domino’s Pizza Australia New Zealand Limited and its controlled entities (together Domino’s Pizza Australia). These financial statements have been prepared in accordance with the recognition and measurement requirements of Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board and Urgent Issues Group Consensus views (Australian GAAP), except to the extent disclosed in Note 1 below. There have been departures from the disclosure requirements of Australian Accounting Standards where they are not considered to be applicable given the pro forma nature of these financial statements. These 126 departures include presenting the pro forma adjusted consolidated statement of financial performance for Domino’s Pizza Australia to the profit from ordinary activities before borrowing costs and income tax DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
expense level only. In addition, no comparative statement of financial performance or statement of financial position information is presented. These financial statements include pro forma adjusted consolidated statements of financial performance and cash flows for the half-year ended 31 December 2004 and a pro forma adjusted consolidated statement of financial position at 31 December 2004. Basis of Preparation of the Pro Forma Adjusted Consolidated Statement of Financial Position The pro forma adjusted consolidated statement of financial position has been prepared as if the following proposed transactions had taken place at 31 December 2004: • Domino’s Pizza Australia conducts a share split converting 943,333 “A” Class and 572,332 “B” Class ordinary shares to 30,013,304 “A” Class and 18,194,845 “B” class ordinary shares • Domino’s Pizza Australia cancels 191,025 “A” Class and 6,491,339 “B” Class shares by a selective reduction of capital for $14.7 million • “A” and “B” class ordinary shares are reclassified as fully paid ordinary shares • Domino’s Pizza Australia accrued for $1.1 million in respect of its Senior Management incentive plan and a further $0.1 million in ancillary restructuring costs, with a tax effect of $0.4 million • Domino’s Pizza Australia issues 18,046,000 new fully paid ordinary shares of $2.20 each, raising A$39.7 million. Equity raising costs of A$2.5 million have also been accrued • Domino’s Pizza Australia settles debts of $36.2 million inclusive of the selective reduction of capital liability noted above The above transactions reflect the intended use of the proceeds. The balance of debt, acquisition, offer and borrowing costs are based on proposed transactions and accordingly, the amounts included in the pro forma adjusted consolidated statement of financial position are subject to change. Basis of Preparation of the Pro Forma Adjusted Consolidated Statement of Financial Performance and Statement of Cash Flows The pro forma Adjusted Consolidated Statement of Financial Performance for the six month period ended 31 December 2004 reflects costs in respect of its Senior Management Incentive Plan and a further $0.1 million in ancillary restructuring costs. The pro forma adjusted consolidated Statement of Cash Flows for the six month period ended 31 December 2004 reflects the proceeds from the issues of shares, the payment in respect of the selective reduction of capital and the settlement of debt. Significant Accounting Policies Accounting policies are selected and applied in a manner which ensures that the resultant financial information satisfies the concepts of relevance and reliability, thereby, ensuring that the substance of the underlying transactions and other events is reported. The following significant accounting policies have been adopted in the preparation and presentation of the financial report: (a) Depreciation and Amortisation Depreciation is provided on property, plant and equipment, including freehold buildings but excluding land and capital work in progress. Depreciation is calculated on a straight line basis so as to write off the net cost of each asset over its expected useful life. Leasehold improvements are amortised over the period of the lease or estimated useful life, whichever is the shorter, using the straight line method. The following estimated useful lives are used in the calculation of depreciation/amortisation: Plant and Equipment 1 – 15 years Equipment under Finance Lease 3 – 10 years (b) Income Tax Tax effect accounting principles have been adopted whereby income tax expense has been calculated on pre-tax accounting profits after adjustment for permanent differences. The tax effect of timing differences, which occur when items are included or allowed for income tax purposes in a period different to that for accounting, is shown at current taxation rates in provision for deferred tax liabilities and deferred tax assets, as applicable. 127 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
(c) Inventories Inventories are valued at the lower of cost and net realisable value. Costs are assigned to inventory on hand by the method most appropriate to each particular class of inventory, with the majority being valued on a first in first out or average cost basis. (d) Recoverable Amount of Non-Current Assets Non-current assets are written down to recoverable amount where the carrying value of any non-current asset exceeds recoverable amount. In determining the recoverable amount of non-current assets, the expected net cash flows have not been discounted to their present value. (e) Leased Assets Leased assets classified as finance leases are recognised as assets. The amount initially brought to account is the present value of minimum lease payments. A finance lease is one which effectively transfers from the lessor to the lessee substantially all the risks and benefits incidental to ownership of the leased property. Finance leased assets are amortised on a straight line basis over the estimated useful life of the asset. Finance lease payments are allocated between interest expense and reduction of lease liability over the term of the lease. The interest expense is determined by applying the interest rate implicit in the lease to the outstanding lease liability at the beginning of each lease payment period. Operating lease payments are recognised as an expense on a basis which reflects the pattern in which consolidated benefits from the leased asset are consumed.
Surplus Leased Space
In the event that premises leased by the consolidated entity pursuant to a non-cancellable operating lease are identified as surplus to the needs of the consolidated entity, a liability and expense are recognised equal to the present value of the total expected outlay relating to the surplus space as specified under the lease agreement.
Lease Incentives
In the event that lease incentives are received to enter into non-cancellable operating leases, such incentives are recognised as a liability. Lease payments are allocated between rental expense, reduction of the liability and, where appropriate, interest expense over the term of the lease. (f) Goodwill Goodwill, representing the excess of the cost of acquisition over the fair value of the identifiable net assets acquired, is amortised on a straight line basis over a period of 20 years or the period in which the benefits are expected to arise, whichever is the less. (g) Principles of Consolidation The consolidated financial statements have been prepared by combining the financial statements of all the entities that comprise the consolidated entity, being the Company (the chief entity) and its controlled entities as defined in accounting standard AASB 1024 “Consolidated Accounts”. A list of controlled entities appears in Note 26 to the financial statements. Consistent accounting policies have been employed in the preparation and presentation of the consolidated financial statements. The consolidated financial statements include the information and results of each controlled entity from the date on which the Company obtains control and until such time as the Company ceases to control such entity. In preparing the consolidated financial statements, all intercompany balances and transactions, and unrealised profits arising within the consolidated entity are eliminated in full. (h) Employee Entitlements Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably. Provisions made in respect of wages and salaries, annual leave and other employee entitlements expected to be settled within 12 months, are measured at their nominal values using the remuneration 128 rate expected to apply at the time of settlement. DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Provisions made in respect of long service leave which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the consolidated entity in respect of services provided by employees up to the reporting date. (i) Foreign Currency
Foreign Currency Transactions
All foreign currency transactions during the financial half-year are brought to account using the exchange rate in effect at the date of the transaction. Foreign currency monetary items at reporting date are translated at the exchange rate existing at that date. Exchange differences are recognised in net profit or loss in the period in which they arise.
Foreign Operations
Exchange differences relating to foreign currency monetary items forming part of the net investment in a self-sustaining foreign operation are transferred on consolidation to the foreign currency translation reserve. Financial statements of self-sustaining foreign controlled entities are translated at reporting date using the current rate method and exchange difference are taken directly to the foreign currency translation reserve. (j) Receivables Trade receivables and other receivables are recorded at amounts due less any provision for doubtful debts. (k) Accounts payable Trade payables and other accounts payable are recognised when the consolidated entity becomes obliged to make future payments resulting from the purchase of goods and services. (l) Acquisition of Assets Assets acquired are recorded at the cost of acquisition, being the purchase consideration determined as at the date of acquisition plus costs incidental to the acquisition. (m) Revenue Recognition
Sale of Goods and Disposal of Assets
Revenue from the sale of goods and disposal of other assets is recognised when the consolidated entity has passed control of the goods or other assets to the buyer.
Royalties
Royalty revenue is recognised on an accrual basis in accordance with the substance of the relevant agreement.
Rebates
Rebate revenue is recognised on an accrual basis.
Rendering of Services
Service revenue relates primarily to store building services and is recognised upon completion of the related store build. (n) Interest-Bearing Liabilities Bills of exchange are recorded at an amount equal to the net proceeds received. Interest expense is recognised on an effective yield basis. Debentures, bank loans and other loans are recorded at an amount equal to the net proceeds received. Interest expense is recognised on an accrual basis. Ancillary costs incurred in connection with the arrangement of borrowings are deferred and amortised over the period of borrowing. 129 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
(o) Franchise Distribution Network The capitalised cost of the franchise distribution network is being amortised over 50 years. (p) Financial Instruments Issued by the Company
Debt and Equity Instruments
Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement.
Compound Instruments
Compound instruments issued before 1 January 1998 are classified as either liabilities or as equity, whichever is the predominant component part, in accordance with the substance of the contractual arrangement. The component parts of compound instruments issued on or after 1 January 1998 are classified separately as liabilities and equity in accordance with the substance of the contractual arrangement. The liability component initially brought to account is the present value of the future payments of interest and principal. The equity component initially brought to account is determined by deducting the amount of the liability component from the amount of the compound instrument as a whole.
Transaction Costs on the Issue of Equity Instruments
Transactions costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued.
Interest and Dividends
Interest and dividends are classified as expenses or as distributions of profit consistent with the statement financial position classification of the related debt or equity instruments or component parts of compound instruments. (q) Goods and Services Tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: (i) where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of the acquisition of an asset or as part of an item of expense; or (ii) for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the statement of cash flows on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. (r) Joint Ventures Interests in joint venture entities which are partnerships are accounted for under the equity method in the Company and consolidated financial statements. (s) Deferred Formation Expenditure Expenditure has been incurred and capitalised as deferred formation expenses with respect to costs associated with the formation/purchase of new stores. These costs are being amortised over three to 10 years being the period in which the benefits are expected to arise.
130 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
2. PRO FORMA ADJUSTMENTS The following adjustments have been made in arriving at amounts included in the Pro forma Adjusted Consolidated Statement of Financial Performance:
Pro Forma Adjusted A$’000 Actual profit from ordinary activities before borrowing costs and income tax expense for the period ended 31 December 2004 6,115 Senior management incentive plan costs (1,100) Ancillary restructuring costs (100) Pro forma adjusted profit from ordinary activities before borrowing costs and income tax expense for the period ended 31 December 2004 4,915
The following adjustments have been made in arriving at amounts included in the Pro forma Adjusted Consolidated Statement of Financial Position:
Pro Forma Adjusted A$’000 Actual net assets as at 31 December 2004 20,100 Selective reduction of capital (14,700) Senior management incentive plan costs (1,100) Ancillary restructuring costs (100) Current tax liabilities 360 Proceeds from issue of new shares 39,700 Equity raising costs (2,490) Pro forma adjusted net assets as at 31 December 2004 41,770
The following adjustments have been made in arriving at amounts included in the Pro forma Adjusted Consolidated Statement of Cash Flow:
Pro Forma Adjusted A$’000 Actual cash outflows from financing activities for the period ended 31 December 2004 (1,667) Proceeds from issue of shares 39,700 Deduct: – Payments in respect of selective reduction of capital (14,700) – Payment of current interest-bearing liabilities: other loans (700) – Payment of non-current interest-bearing liabilities: other parties (7,104) – Payment of non-current interest-bearing liabilities: commercial bills (11,696) – Payment of non-current non-interest-bearing liabilities: other parties (2,000) Pro forma adjusted cash inflows from financing activities for the period ended 31 December 2004 1,833
131 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Pro Forma Actual Adjusted A$’000 A$’000 3. PROFIT FROM ORDINARY ACTIVITIES BEFORE BORROWING COSTS AND INCOME TAX Profit from ordinary activities before borrowing costs and income tax includes the following items of revenue and expense: (a) Operating Revenue Sales revenue: Sale of goods 45,816 45,816 Rendering of services: – Controlled entities – – – Other entities 518 518 46,334 46,334 Store asset rental revenue 183 183 Interest revenue: Franchises 268 268 Other 43 43 311 311 Sale of store builds 3,149 3,149 Royalties: – Other entities 6,668 6,668 Other 5,246 5,246 61,891 61,891 (b) Non-Operating Revenue Proceeds from the sale of business: Non-current – property, plant and equipment and intangibles 8,664 8,664 Revenue from ordinary activities 70,555 70,555 (c) Expenses Cost of goods sold: 27,231 27,231 Equipment write offs (58) (58) Depreciation of non-current assets – property, plant and equipment 2,327 2,327 Amortisation of non-current assets Leased assets 291 291 Goodwill 308 308 Franchise distribution network 4 4 603 603 Royalties 2,971 2,971 Operating lease rental expenses 1,839 1,839
132 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Pro Forma Actual Adjusted A$’000 A$’000 4. CURRENT RECEIVABLES Trade receivables 3,363 3,363 Allowance for doubtful debts (43) (43) 3,320 3,320 5. CURRENT INVENTORIES Raw materials at cost 599 599 Finished goods at cost 299 299 898 898 6. OTHER CURRENT ASSETS Prepayments 1,347 1,347 Work in progress – stores 2,441 2,441 Other 1,283 1,283 5,071 5,071 7. NON-CURRENT RECEIVABLES Non interest-bearing loan advanced to – associates and joint venture entities 55 55 55 55 8. INVESTMENTS Equity accounted investment in partnerships 94 94 94 94 9. OTHER NON-CURRENT FINANCIAL ASSETS Interest-bearing loans advanced to – franchisees 3,073 3,073
133 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
10. PROPERTY, PLANT AND EQUIPMENT
Actual and Pro Forma Adjusted A$’000 Plant and Leased Gross Carrying Amount Equipment Equipment Total Balance as at 30 June 2004 – at cost 35,403 3,890 39,293 Additions 10,353 904 11,257 Disposals (7,078) (242) (7,230) Balance as at 31 December 2004 38,678 4,552 43,230 Accumulated Depreciation/Amortisation Balance as at 30 June 2004 (9,637) (1,320) (10,957) Disposals 495 68 563 Depreciation expenses (2,327) (291) (2,618) Balance as at 31 December 2004 (11,469) (1,543) (13,012) Net Book Value As at 30 June 2004 25,766 2,570 28,336 As at 31 December 2004 27,209 3,009 30,218
Pro Forma Actual Adjusted A$’000 A$’000 11. INTANGIBLES Franchise distribution network – at cost 430 430 Less: Accumulated amortisation (56) (56) 374 374 Goodwill at cost 19,119 19,119 Less: Accumulated amortisation (1,805) (1,805) 17,314 17,314 Total intangibles 17,688 17,688
Aggregate amortisation allocated during the year is recognised as an expense and disclosed in Note 2 to the financial statements.
134 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Pro Forma Note Actual Adjusted A$’000 A$’000 12. DEFERRED TAX ASSETS Future income tax benefit: Timing differences 382 382 13. CURRENT PAYABLES Trade creditors and accruals 8,730 12,420 14. CURRENT INTEREST-BEARING LIABILITIES Unsecured: Other loans 700 – Secured: Finance lease liability(i) 23 1,177 1,177 1,877 1,177
Note: (i) Secured by the assets leased, the current market value of which exceeds the value of the finance lease liability.
Pro Forma Note Actual Adjusted A$’000 A$’000 15. CURRENT TAX LIABILITIES Income tax payable 1,601 1,241 16. CURRENT PROVISIONS Employee entitlements 24 1,048 1,048 17. OTHER CURRENT LIABILITIES Owing to previous director – share buy-back 1,399 1,399 Franchisee store deposits 183 183 1,582 1,582 18. NON-CURRENT INTEREST-BEARING LIABILITIES Unsecured: Amount owing to other parties 6,677 12 Secured: Finance lease liability(i) 23 1,262 1,262 Amount owing to other parties(ii) 439 – Commercial bills(ii) 17,421 5,725 25,799 6,999
Notes: (i) Secured by the assets leased, the current market value of which exceeds the value of the finance lease liability. (ii) Secured over the assets and undertakings of the consolidated Domino’s Pizza Australia New Zealand Ltd Group.
135 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Pro Forma Note Actual Adjusted A$’000 A$’000 19. DEFERRED TAX LIABILITIES Deferred income tax 998 998 20. NON-CURRENT PROVISIONS Employee entitlements 24 261 261 21. OTHER NON-CURRENT LIABILITIES Non-interest bearing: Amount owing to other parties 2,000 – 2,000 – 22. CONTRIBUTED EQUITY Contributed equity Actual 943,333 (pro forma adjusted) fully paid “A” Class ordinary shares 152 – Actual 571,873 (pro forma adjusted) fully paid “B” Class ordinary shares 1,913 – Actual (pro forma adjusted 59,571,785) fully paid ordinary shares – 39,123
2,065 39,123
No ’000 A$’000 “A” Class fully paid ordinary shares Actual at 31 December 2004 943 152 Share split 29,070 – Selective reduction (191) (1) Transfer to fully paid ordinary shares 29,822 151 Pro forma adjusted at 31 December 2004 – – “B” Class fully paid ordinary shares Actual at 31 December 2004 572 1,913 Share split 17,623 – Selective reduction (6,491) (151) Transfer to fully paid ordinary shares (11,704) (1,762) Pro forma adjusted at 31 December 2004 – – Fully paid ordinary shares Actual at 31 December 2004 – – Transferred from “A” Class ordinary shares 29,822 151 Transferred from “B” Class ordinary shares 11,704 1,762 New shares issued 18,046 37,210 Pro forma adjusted at 31 December 2004 59,572 39,123
136 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Pro Forma Note Actual Adjusted A$’000 A$’000 23. FINANCE LEASE LIABILITIES Leasing arrangements Finance leases relate to plant and equipment with lease terms between three and 10 years, and motor vehicles with lease terms between three and five years. The consolidated entity has options to purchase the leased assets for a nominal amount at the completion of the lease arrangements. Finance lease commitments: No longer than one year 1,305 1,305 Longer than one year and not longer than five years 1,357 1,357 Longer than five years – – Minimum lease payments 2,662 2,662 Less future finance charges (223) (223) Present value of minimum lease payments 2,439 2,439 Included in the financial statements as: Interest-bearing liabilities: – Current 14 1,177 1,177 – Non-current 18 1,262 1,262 2,439 2,439 24. EMPLOYEE ENTITLEMENTS The aggregate employee entitlement Provision for employee entitlements: Current 16 1,048 1,048 Non-current 20 261 261 1,309 1,309 25. CONTINGENT LIABILITIES Franchisee loan guarantees 9,604 9,604 Likely recovery (9,604) (9,604)
Guarantees are provided on franchisee loans to Westpac Banking Corporation and GE Commercial Finance. The amount disclosed as a contingent liability represents the amounts guaranteed in respect of franchisees who would, without the guarantee, not have been granted the loans. The Directors believe that if the guarantees are ever called on, the consolidated entity will be able to recover the amounts paid from the franchisees.
137 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
Consolidated Entity’s Country of Percentage Incorporation Ownership 31 December 2004 26. CONTROLLED ENTITIES Parent Entity: Domino’s Pizza Australia New Zealand Limited Australia Controlled Entities: Hot Cell Pty Ltd Australia 100% Domino’s Development Fund Pty Ltd Australia 100% Ashbourke Pty Ltd Australia 100% Twenty/Twenty Pizza Pty Ltd Australia 100% MFT – DPA J.V. Nominee Pty Ltd Australia 100% Silvio’s Dial-a-Pizza Pty Ltd Australia 100% Domino Pizza New Zealand Limited New Zealand 100% Shear Pizza Pty Ltd Australia 100%
138 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
LOCATION OF STORES______
139 DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
LOCATION OF STORES ______Domino’s Pizza Store Network as at 31 December 2004
A Coffs Harbour, NSW I Narre Warren, VIC Sunshine West, VIC Aberfoyle, SA Conder, ACT Ingleburn, NSW Nedlands, WA Swansea, NSW Adamstown, NSW Coogee, NSW Inglewood, WA Nerang, QLD Airlie Beach, QLD Coolum, QLD Ipswich, QLD Neutral Bay, NSW T Aitkenvale, QLD Corinda, QLD New Farm, QLD Tamworth, NSW Albany, WA Croydon, VIC J Newcastle City, NSW Taree, NSW Albany Creek, QLD Currimundi, QLD Johnsonville, NZ Newmarket, QLD Taringa, QLD Albury, NSW Joondalup, WA Newton, SA Tauranga, NZ D Nightcliff, NT Tecoma, VIC Alexander Heights, WA K Dandenong, VIC Noarlunga, SA Terrace End, NZ Altona, VIC Kalgoorlie, WA Dapto, NSW Noble Park, VIC The Entrance, NSW Arana Hills, QLD Kallungur, QLD Deception Bay, QLD Noosa, QLD The Gap, QLD Armadale, WA Kangaroo Flat, VIC Dee Why, NSW North Mackay, QLD Thornleigh, NSW Armidale, NSW Kedron, QLD Devonport, TAS North Rockhampton, Thornleigh, WA Ashmore, QLD Kenmore, QLD Dickson, ACT QLD Thornton, NSW Auburn, NSW Kiama, NSW Doubleview, WA North Strathfield, NSW Toormina, NSW Kincumber, NSW B Dubbo, NSW Northbridge, WA Toronto, NSW Kings Meadows, TAS Balcatta, WA Duncraig, WA Northlands, NZ Tranmere, SA Kingswood, NSW Ballarat, VIC Nowra, NSW Tweed Heads, NSW Ballina, NSW E Kirwan, QLD Balmain, NSW East Fremantle, WA Kurri Kurri, NSW O U Bankstown, NSW East Toowoomba, QLD Kwinana, WA Orange, NSW Ulverstone, TAS Eaton, WA Upper Hutt, NZ Bass Hill, NSW L Batemans Bay, NSW Edensor Park, NSW P Upper Mt Gravatt, QLD Elizabeth South, SA Labrador, QLD Palm Beach, QLD Bathurst, NSW Lake Haven, NSW V Baulkham Hills, NSW Elizabeth St, NSW Palmerston, NT Emerton, NSW Lakemba, NSW Paraparaumu, NZ Vermont, VIC Bayswater North, VIC Lane Cove, NSW Victoria Park, WA Beenleigh, QLD Emu Plains, NSW Parramatta, NSW Engadine, NSW Langwarrin, VIC Pasadena, SA Victoria Point, QLD Beerwah, QLD Largs Bay, SA Villawood, NSW Belconnen, ACT Enmore, NSW Penshurst, NSW Epping, NSW Launceston, TAS Petone, NZ Belden, WA Lavington, NSW W Bellerive, TAS Erina, NSW Pioneer Highway, NZ Wagga Wagga, NSW Erindale, ACT Lismore, NSW Plympton, SA Belmont, NSW Liverpool, NSW Waikiki, WA Belmont, WA Erskine, WA Porirua, NZ Wainuiomata, NZ Logan Central, QLD Port Macquarie, NSW Bendigo, VIC F Lower Hutt, NZ Wallsend, NSW Bentleigh, VIC Preston, VIC Wanganui, NZ Fairfield Heights, NSW Lower Plenty, VIC Pymble, NSW Bentley, WA Fairy Meadow, NSW Warrawong, NSW Bexley, NSW Figtree, NSW M Q Warwick, QLD Birkdale, QLD Five Dock, NSW Maitland, NSW Quakers Hill, NSW Wembley, WA Blacktown, NSW Flemington, VIC Malua Bay, NSW Queanbeyan, ACT Wendouree, VIC Bondi, NSW Forrestfield, WA Malvern, SA Wentworthwille, NSW Bowral, NSW Forster, NSW Mandurah, WA R West End, QLD Bracken Ridge, QLD Four Ways, QLD Manly Vale, NSW Raymond Terrace, NSW West Lakes, SA Brassall, QLD Frankston, VIC Manunda, QLD Redcliffe, QLD West Ryde, NSW Bribie Island, QLD Fulham, SA Maroochydore, QLD Redfern, NSW Weston, ACT Browns Plains, QLD Maroubra, NSW Revesby, NSW West Ridge, QLD Buderim, QLD G Marsden, QLD Reynella, SA Willetton, WA Bunbury, WA Geraldton, WA Maryborough, QLD Richlands, QLD Willoughby, NSW Bundaberg, QLD Gilles Plains, SA Mascot, NSW Riverwood, NSW Windsor, NSW Bundamba, QLD Gisborne, NZ Mawson, ACT Robina, QLD Winnellie, NT Bundoora, VIC Gladesville, NSW Mayfield, NSW Rockdale, NSW Woodvale, WA Burnie, TAS Gladstone, QLD Melton, VIC Rockingham, WA Woodville Park, SA Burpengary, QLD Glebe, NSW Menai, NSW Rooty Hill, NSW Woolloongabba, QLD Burwood, NSW Glendale, NSW Mermaid Beach, QLD Rose Bay, NSW Woy Woy, NSW Busselton, WA Glenmore, QLD Merrylands, NSW Rosny, TAS Wyalla, QLD Glenorchy, TAS Midland, WA Rouse Hill, NSW Wynnum, QLD C Golden Grove, SA Mildura, VIC Rutherford, NSW Wyoming, NSW Caboolture, QLD Goodna, QLD Mindarie, WA Wyong, NSW Cairns City, QLD Gosnells, WA Mingara, NSW S Calamvale, QLD Goulburn, NSW Mooloolaba, QLD Salamander Bay, NSW Y Caloundra, QLD Grafton, NSW Moranbah, QLD Seaford, VIC Yamanto, QLD Cambridge Terrace, NZ Gungahlin, ACT Morisset, NSW Shailer Park, QLD Yeppon, QLD Campbelltown, NSW Gymea, NSW Morley, WA Shell Harbour, NSW Yeronga, QLD Cannon Hill, QLD Shepparton, VIC Gympie, QLD Mount Colah, NSW Z Capalaba, QLD Singleton, NSW Mount Gambier, SA Zillmere, QLD Carindale, QLD H Mount Isa, QLD Smithfield, QLD Caringbah, NSW Hastings, NZ Mount Ommaney, QLD Somerville, VIC Carlingford, NSW Helensvale, QLD Mount Sheridan, QLD South Canberra, ACT Carlton, NSW Hermit Park, QLD Mowbray, TAS South Lakes, WA Carlton, VIC Hervey Bay, QLD Murray Bridge, SA Spearwood, WA Castle Hill, NSW Hobart, TAS Myaree, WA Springfield, QLD Casuarina, NT Holland Park, QLD Springwood, QLD Caulfield, VIC Hollywood Plaza, SA N Springwood, NSW Cessnock, NSW Hoppers Crossing, VIC Nailsworth, SA St Albans, VIC Charlestown, NSW Horsham, VIC Nambour, QLD St Marys, NSW Chelsea Heights, VIC Hove, SA Napier, NZ Strathfield, NSW Clayfield, QLD Hoxton Park, NSW Narellan, NSW Strathpine, QLD 140 Cleveland, QLD Hurlstone Park, NSW Narrabeen, NSW Sunny Bank, QLD DOMINO’S PIZZA AUSTRALIA NEW ZEALAND LIMITED SHARE OFFER
DIRECTORY ______
DIRECTORS Ross Adler, Non-Executive Chairman; Don Meij, Managing Director and Chief Executive Officer; Grant Bourke, Non-Executive Director; Barry Alty, Non-Executive Director; Paul Cave, Non-Executive Director
COMPANY SECRETARY Ken Lewis
REGISTERED OFFICE Level 8 TAB Building, 240 Sandgate Road, Albion Qld 4010
FINANCIAL ADVISER CIBC Australia Limited Level 40, Governor Phillip Tower, 1 Farrer Place, Sydney NSW 2000
LEAD MANAGER Goldman Sachs JBWere Pty Ltd Level 48, Governor Phillip Tower, 1 Farrer Place, Sydney NSW 2000
CO-MANAGER ABN AMRO Morgans Limited, Level 29. Riverside Centre, 123 Eagle Street, Brisbane Qld 4000
AUDITOR Deloitte Touche Tohmatsu Level 26, Riverside Centre, 123 Eagle Street, Brisbane Qld 4000
INVESTIGATING ACCOUNTANT Deloitte Corporate Finance Pty Limited Level 26, Riverside Centre, 123 Eagle Street, Brisbane Qld 4000
SOLICITORS TO THE OFFER Phillips Fox, Level 29, Waterfront Place, 1 Eagle Street, Brisbane Qld 4000
SHARE REGISTRY Computershare Investor Services Pty Limited Level 3, 60 Carrington Street, Sydney NSW 2000 Domino’s Pizza www.dominos.com.au