DPEU.L Regulatory News (DPEU)

DP Eurasia N.V.

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

Results for the Year Ended 31 December 2019

Significant online growth drives resilient performance

Highlights

Financial Highlights

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

o Turkish systems sales growth of 14.9%

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

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

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

Operational Highlights

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

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

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

o Turkish online system sales(7) growth of 33.5%

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

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

Current Trading

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

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

Outlook

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

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

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

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

The Russia Plan

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

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

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

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

iv. launching new products at entry level pricing;

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

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

vii. cost cutting measures.

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

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

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

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

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

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

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

Enquiries

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

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

Notes

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

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

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

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

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

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

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

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

Notes to Editors

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

Performance Review

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

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

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

Delivery Channel Mix and Online like-for-like growth

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

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

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

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

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

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

Financial Review

Revenue

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

Adjusted EBITDA

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

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

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

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

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

Adjusted Net Income

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

Capital expenditure and Cash conversion

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

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

Adjusted net debt and Leverage

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

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

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

Amsterdam, 26 March 2020

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

Peter Williams*

Aslan Saranga, Chief Executive Officer

Frederieke Slot, Company Secretary

Seymur Tarı*

Izzet Talu*

Aksel Şahin*

Thomas Singer*

* Non-Executive Directors

Forward looking statements

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

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

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

Appendices

Exchange Rates

Delivery - Take away / Eat in mix

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 

FOR THE YEAR ENDED 31 DECEMBER 2019 AND 2018

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

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

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

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 31 DECEMBER 2019

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

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

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

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 

FOR THE YEAR ENDED 31 DECEMBER 2019

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

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

CONSOLIDATED STATEMENT OF CASH FLOWS 

FOR THE YEAR ENDED 31 DECEMBER 2019

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

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS AT 31 DECEMBER 2019

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

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

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

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

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

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

• At a glance

• Highlights

• Key financial figures

• Message from CEO

• Strategic review

• Remuneration report

• Corporate governance report

• How we manage risk

• Consolidated financial statements: Note 3 - Segment Reporting

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

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

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

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

Subsidiaries

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

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

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

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

NOTE 2 - BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

2.1 Principles of consolidation

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

Basis of Consolidation

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

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

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

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

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

Consolidation of foreign subsidiaries

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

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

31 December 2019 31 December 2018

Period Period Period Period

Euros 6.6506 6.3484 6.0280 5.6751

Russian Roubles 0.0955 0.0872 0.0753 0.0760

2.2 Functional and presentation currency

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

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

NOTE 3 - SEGMENT REPORTING

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

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

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

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

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

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

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

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

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

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

The average headcount for the Group is as follows:

NOTE 4 - REVENUE AND COST OF SALES

Revenue recognised in relation to contract liabilities

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

Unsatisfied long-term franchisee contracts

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

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

NOTE 5 - EXPENSES BY NATURE

NOTE 6 - OTHER OPERATING INCOME AND EXPENSES

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

NOTE 7 - FINANCIAL INCOME AND EXPENSES

NOTE 8 - EARNINGS/(LOSS) PER SHARE

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

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

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

NOTE 9 - PROPERTY AND EQUIPMENT

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