DPEU.L Regulatory News (DPEU)

DP Eurasia N.V.

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

Preliminary Results for the Year Ended 31 December 2021

Record online sales performance and resilient outlook

Highlights

Financial Highlights

· Group revenue up 46.9% and system sales up 51.5%, driven by like-for-like growth and store openings

o Turkish systems sales growth of 59.4%

o Russian system sales growth of 33.5% (7.8% based on RUB)

· Adjusted EBITDA up 58.5% to TRY 208.4 million (2020: TRY 131.5 million)

· Adjusted net income of TRY 23.9 million versus an adjusted net loss of TRY 94.0 million in 2020

· Strong liquidity position - TRY 200 million of cash on hand, including the promissory note in Sberbank, and additional available bank lines of TRY 186 million as at 31 December 2021

Operational Highlights

· 38 net store openings in the year for the Company and a record year in Turkey since 2014, with 39 openings

· Online delivery system sales(6) as a share of delivery system sales reached 80% (2020: 75%), reflecting our strong online offering and positioning

· Group online system sales(7) growth of 66.9%

o Turkish online system sales(7) growth of 84.2%

o Russian online system sales(7) growth of 37.6% (11.0% based on RUB)

· Product innovation and focused offering continues to attract a diverse and growing customer base

· Launch of new coffee-related brand in Turkey, COFFY, represents important growth opportunity in the long term

Current Trading

System sales growth and like-for-like growth for the twelve weeks ended 27 March 2022 compared to the same period in 2021 were as follows:

2022 Outlook

Turkey has been experiencing high inflation over the last three years; however, the Group has consistently performed above the inflation rate during this period. Owing to management's experience in navigating through periods of high inflation, the Group expects to manage the situation to deliver long-term sustainable growth. The Group is tackling inflation via frequent price increases on its sales to consumers and franchisees whilst remaining mindful of keeping its best value for money consumer proposition and franchisee profitability.

At this stage there has been no material disruption to the Group's operations in Russia from the ongoing situation in Ukraine. Trading from the Group's 188 stores in Russia continues and the Group remains dedicated to the communities it serves. The Board has, however, determined it prudent to limit any further investment into its operations in Russia and will keep this under review going forward in light of the geopolitical situation. Furthermore, the Group has suspended royalty payments from its Russian operations until further notice.

Given the ongoing uncertainty around the geopolitical tensions regarding Russia and the high inflationary environment in Turkey, the Group is not able to provide meaningful guidance on the likely financial and operating results for the current year at this stage.

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

"On behalf of the Board, I am pleased to report another set of strong results for 2021. We increased our Group system sales and adjusted EBITDA by 51.5% and 58.5%, respectively.

"The Turkish business continues to build on its very strong performance since the second half of 2020 with a like-for-like growth rate exceeding 50% in 2021, and 2022 has started strongly as well, achieving a like-for-like growth rate of 50.3% for the twelve weeks ended 27 March 2022.

"In Russia, 2021 was a strong recovery year in which we alleviated the negative developments of the previous year. We returned to a positive like-for-like growth rate of almost 10% and increased our adjusted EBITDA. Although 2022 started somewhat sluggishly with a like-for-like growth rate of -4.7% for the twelve weeks ended 27 March 2022, it is important to note that early 2021 trading was especially strong and the corresponding period in 2022 also saw a spike in COVID-19 Omicron cases. Our Russian like-for-like growth rate for the twelve weeks ended 27 March 2022 compared to pre-COVID 2020 was 7.6%. Both markets continued to benefit from the COVID-19 inspired shift to home delivery in 2021.

"Post-year end, we have been shocked and saddened to witness the unfolding conflict involving Russia and Ukraine and the effect it has had on all of the innocent civilians across the region. The safety and welfare of all of the Group's employees and customers remains our primary priority at this time and we continue to monitor the situation closely.

"Product innovation continued in both markets. In Turkey, we introduced new pizzas, like Ocakbaşı that we mentioned in our latest trading update, as well as new side offerings, such as the extension of the oven-baked sandwich line, new chicken offerings and Döner (chawarma) products ranges. In Russia, new product launches included the pear-and-blue cheese pizza, half-and-half pizza, and a range of breads.

"Once again 2021 saw online delivery system sales increase as a percentage of total delivery system sales and both markets reached all-time high figures with 76.5% in Turkey and 92.9% in Russia. The steady increase of this mix is beneficial for us as we get to know our customers and tailor our approach with better-focused offerings.

"I am also very excited to announce the launch of our new coffee shop and product brand, COFFY, which has opened eleven stores in Turkey. I believe COFFY will be an important contributor to our growth in the Turkish market over the coming years.

"Whilst the pandemic seems to have lost momentum in recent months, we expect general inflationary pressures and recent geopolitical developments in the region to create headwinds in 2022. Whilst the Board is cognisant of these facts, it expects a resilient performance for 2022."

Enquiries

A meeting for analysts will be held at 9.30am (GMT) on 5 April 2022 at the offices of Buchanan, 107 Cheapside, London, EC2V 6DN. If you would like to attend, please contact Buchanan via dp@buchanan.uk.com. A conference call dial-in will also be available via the details below.:

DP Eurasia N.V.'s preliminary 2021 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 809 stores (607 in Turkey, 188 in Russia, ten in Azerbaijan and four in Georgia as at 31 December 2021), and operates through its owned corporate stores (24%) and franchised stores (76%). 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 increased its net store count by 38 in 2021, primarily through Turkey. The Group increased its system sales by 51.5% year-on-year, driven by the strong like-for-like sales growth in Turkey and with like-for-like sales growth returning to positive territory in Russia.

The Turkish operations' system sales, representing 72% of Group system sales, increased by 59.4%. Despite the macroeconomic volatility, especially in the last quarter of the year, the Turkish business recorded very strong like-for-like growth rate throughout the year. The creative marketing campaigns stressing value-for-money, Euroleague brand sponsorship and new product launches were key to the very strong top line performance. As a result, the Turkish operations posted a like-for-like growth rate of 50.4% for the year, even though the temporary VAT reduction ended at the end of the third quarter. The Turkish store count increased by 39, the Group's best year in terms of store openings in Turkey since 2014 on the back of robust franchisee demand. Active management and optimisation of the Turkish estate, which is ordinary course of business for the Group, continued in 2021. Six stores were transferred from corporate to franchisee ownership.

The Russian operations' system sales, representing 26% of Group system sales, increased by 33.5% (7.8% based on RUB). The Russian operations had like-for-like sales growth of 9.6% for the year. The improved management team under the newly appointed CEO started to bear fruit by improving the top line. Although the like-for-like store sales did not quite reach pre-COVID levels, the Russian business encouragingly posted a positive like-for-like growth rate for the period covering the last four months of the year compared to the same period in 2019. New product launches and more focused marketing were the main drivers in the recovery in sales. The Group focused on optimising the existing store coverage areas, which resulted in a decrease of two stores for the year. 17 stores were transferred from corporate to franchisee ownership, and four stores were transferred in the opposite direction. Russian franchised store count reached 94, representing 50% of the Russian store portfolio, for the first time.

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 79.6% for the year, which represents a 4.3 percentage point increase on a year-on-year basis.

In Turkey, online system sales like-for-like growth for the period was 60.3%, as a result of which online delivery system sales as a share of delivery system sales reached 76.5% for the period, a 6.3 percentage point increase from a year ago, aided also by introducing two new aggregators to the system.

In Russia, online system sales like-for-like growth for the period was 12.4%, as a result of which online delivery system sales as a share of delivery system sales reached 92.9% for the period, a 3.2 percentage point increase from a year ago, aided also by an increase in volumes through the aggregator.

Online system sales continued to outpace the overall system sales growth at 66.9% for the Group. Turkish online system sales grew by 84.2%, while Russian online system sales grew by 37.6% (11.0% based on RUB).

New brand launch: COFFY

During the year, the Group launched a new coffee shop brand, COFFY, in the Turkish market. There are currently a total of eleven stores in Istanbul and Ankara with six of the stores being franchises. The brand's concept is to introduce reasonably priced high-quality coffee to consumers at three different prices depending on the size of the product, including the food products.

Financial Review

Revenue

Group revenue grew by 46.9% to TRY 1,496.9 million. In the Group's Turkish segment, which includes the Azerbaijani and Georgian businesses, revenue grew by 53.2% to TRY 1,031.6 million, whilst Russian segment revenue increased by 34.6% to TRY 465.3 million.

Adjusted EBITDA

The Group's adjusted EBITDA increased by 58.5% to TRY 208.4 million. Adjusted EBITDA for the Turkish segment was TRY 202.4 million, a year-on-year increase of 43.6%, and adjusted EBITDA for the Russian segment was TRY 23.2 million, a significant increase from the almost breakeven level of TRY 2.3 million a year ago. Additionally, costs relating to our Dutch corporate expenses reduced adjusted EBITDA by TRY 17.3 million in 2021. The comparable adverse effect of this item was TRY 11.7 million in 2020, with the increase in 2021 primarily due to the devaluation of the TRY against the EUR and the GBP.

In 2021, the Group's adjusted EBITDA margin as a percentage of system sales was 8.8% compared to 8.4% in 2020. The main reason for the slight increase was the improved performance in Russia.

Adjusted EBITDA margin as a percentage of system sales for the Turkish segment recorded a decrease to 11.6% from 12.8%, primarily due to increased marketing and inflationary pressure in supply costs.

The Russian segment margin increased to 3.7% from 0.5%. The main reason for the increase is the operating leverage created on the fixed costs through increase in sales. The Board continues to remain confident in the medium and long-term potential of the Russian market for DP Eurasia subject to the resolution of the conflict in Ukraine.

Adjusted net income

For the year ended 31 December 2021, adjusted net income turned positive at TRY 23.9 million. The main reasons for the improvement were the improved adjusted EBITDA performance as explained previously, the switch to a foreign exchange gain in 2021 from a foreign exchange loss in 2020 and an increase in financial income. The Group does not have any hard currency denominated bank borrowings; however, the Group recorded a foreign exchange gain of TRY 82.2 million due to the intragroup loans made between different jurisdictions versus a foreign exchange loss of TRY 16.4 million in the previous year.

Capital expenditure and Cash conversion

The Group invested TRY 55.5 million of capital expenditure in 2021. The Turkish segment capital expenditure was TRY 39.8 million and the Russian segment capital expenditure amounted to TRY 15.7 million (RUB 132 million).

Cash conversion (defined as (adjusted EBITDA (excluding IFRS 16) - capital expenditure)/adjusted EBITDA (excluding IFRS 16))) for the period was 58.6% (2020: 39.2%) for the Group as a result of prudent capital expenditure management and improved adjusted EBITDA performance and 77.7% (2020: 75.8%) for the Turkish segment as a result of its strong performance. The Russian segment had negative cash conversion due to its negative adjusted EBITDA.

Adjusted net debt and Leverage

The Group's adjusted net debt at 31 December 2021 was TRY 622.3 million, representing an increase of 50.0% from 31 December 2020. The Group's bank borrowings continue to be denominated in its operational currencies of TRY and RUB. As at 31 December 2021, 61% of the Group's bank borrowings were denominated in TRY while the remainder is denominated in RUB.

The Group continues its prudent and conservative approach to debt management. Its leverage ratio (defined as adjusted net debt / adjusted EBITDA) was 3.0x as at 31 December 2021 (2020: 3.2x). Whilst the Group's leverage ratio had decreased to 2.5x as at 30 June 2021, the increase in the second half of the year was primarily due to the appreciation of the RUB against the TRY and increased inventory and advance levels to limit the upward pressure in supply prices.

The Group continues to have a strong liquidity position, having access to cash at hand and additional borrowing capacity available from its Turkish banks. As at 31 December 2021, the Group had TRY 200 million of cash on hand, including the promissory note in Sberbank, and additional available bank lines of TRY 186 million.

The Group's sufficient liquidity position enables it to prepay its bank borrowings in Russia, despite the recent devaluation of TRY, if required, and still maintain a strong liquidity position. The Group obtained a waiver from Sberbank with respect to its covenants for all four quarters of 2022 and is in negotiations to reset the covenants or repay the remaining loan. The principal outstanding under the Sberbank loan currently amounts to RUB 0.9 billion, of which RUB 0.2 billion is supported by a cash collateral deposit.

Shareholder update

Jubilant FoodWorks Limited ("JFL"), through its wholly-owned subsidiary Jubilant FoodWorks Netherlands B.V., increased its shareholding to 41.3% from their initial purchase of 32.8% on 9 March 2021 via a reverse bookbuild process and open market purchases.

Board composition

The Board has decided to appoint two additional independent non-executive directors and is in advanced stages of appointing the first. During this process and following the 2022 AGM, JFL has agreed to reduce their representation from three board directors to two.

Takeover protection for minority shareholders

As a temporary measure, the Company has entered into an amendment to the existing relationship agreement between it and its major shareholder, Fides Food Systems Coöperatief U.A. ("Fides") (an indirect subsidiary of JFL) (the "Relationship Agreement"). Under the Relationship Agreement, Fides or a nominee in its group must (subject to certain exceptions) launch a takeover offer for all of the issued share capital of the Company if it, its affiliates or such persons acting in concert with it, own shares resulting in their aggregate holding being 50% or more of the Company's issued share capital.

As a longer-term measure, the Company has agreed to convene an EGM on 13 April 2022 at which it will propose that such shareholder protection is embedded in the articles of association of the Company. Fides has agreed that it and its related parties shall vote in favour of such a resolution. If approved at the EGM, the requirement to launch a mandatory offer will be applicable to any investor (and not only Fides) which acquires 50% or more of the Company's issued share capital.

Amsterdam, 4 April 2022

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

Shyam S. Bhartia*

Hari S. Bhartia*

Pratik R. Pota*

David Adams*

* 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

Convenience Translation of Key Figures into GBP*

* System sales, Revenue, Adjusted EBITDA and Adjusted income are converted at the period average GBP/TRY exchange rates of 12.116, 8.983, and 7.227 for 2021, 2020 and 2019, respectively. Adjusted net debt is converted at the period end GBP/TRY exchange rates of 17.453, 9.944, and 7.777 for 2021, 2020 and 2019, respectively.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the years ended 31 December 2021 and 2020

(1) Amounts represent the basic and diluted earnings per share.

The accompanying notes form an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2021

The accompanying notes form an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2021

The accompanying notes form an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2021

The accompanying notes form an integral part of these consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2021

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:

· Overview: At a glance, Highlights and Key financial figures;

· Management report: Chairman's statement, Competitive advantages, Vision and strategy, Message from the CEO, Key events, Business model, People, Product, Digital, Strategic review, Group structure and Markets, Remuneration report, Directors' remuneration policy, Annual remuneration report, Board, Leadership team, Board attendance and composition, Corporate governance report, How we manage risk, Board declaration and Shares and shareholders;

· Group financial statements: Consolidated statement of comprehensive income, Consolidated statement of financial position, Consolidated statement of changes in equity, Consolidated statement of cash flows and Notes to the consolidated financial statements;

· Company financial statements: Company income statement, Company balance sheet and Notes to the Company financial statements; and

· Additional information: Independent auditor's report, Contacts and Glossary.

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

As at 31 December 2021, the Group holds franchise operating and sub-franchising rights in 809 stores (615 franchised stores, 194 corporate-owned stores) (31 December 2020: 771 stores (550 franchised stores, 221 corporate-owned stores)).

The consolidated financial statements as at and for the period ended 31 December 2021 have been approved and authorised for issue on 4 April 2022 by authorisation of the Board. The financial statements are subject to adoption by the Annual General Meeting.

On 19 February 2021, Jubilant FoodWorks Limited, the largest company in India, and Fides Food Systems Coöperatief U.A. announced that Jubilant FoodWorks Limited and its wholly owned subsidiary, Jubilant FoodWorks Netherlands B.V., had entered into a purchase agreement with Turkish Private Equity Fund II L.P. to fully acquire Fides Food Systems Coöperatief U.A., which holds 32.81% of the ordinary share capital of DP Eurasia, for a price of approximately GBP 24.80 million. The transaction was closed on 9 March 2021.

Subsidiaries

The Company has a total of four fully owned subsidiaries. These entities and the nature of their businesses are as follows:

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.

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 for the 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 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 31 December 2021. 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 the 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 can 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 at 31 December 2021 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:

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"), see Note 2.5 for the accounting of foreign currency transactions.

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 at 31 December 2021 and 2020 comprise the performance and the management of its Turkish and Russian operations and headquarters.

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 economic conditions and geographical positions in terms of risks and returns.

The segment analysis for the periods ended 31 December 2021 and 2020 is as follows:

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 EBITDA for 2021 and 2020 is as follows:

1. 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 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.

2. The reason for the significant increase in one-off non-trading costs is mainly related to impairment expenses of the tangible and intangible assets and consultancy expenses due to cost reduction program.

The reconciliation of adjusted net income/(loss) as at 31 December 2021 and 2020 is as follows:

(1) 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.

(2) As at 31 December 2021, the one-off expenses include TRY 20,576 impairment expense of tangible and intangible assets and TRY 1,501 severance payment expenses.

The average headcount for the Group is as follows:

Note 4 - Revenue and cost of sales

 (1) Other revenue mainly includes handover income, IT income and other income from franchisee.

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 2021 and 2020 are as follows:

Unsatisfied long-term franchisee contracts

The amount of performance obligations relating to ongoing contracts of the Group that will be recognised in the future is TRY 65,551 (31 December 2020: TRY 43,983). The Group expects that this amount will be recorded as revenue within 10 to 15 years.

Note 5 - Expenses by nature

(1) These expenses are accounted for cost of sales, general administration expenses and marketing expenses.

Note 6 - Other operating income and expenses

(1) Impairment expenses includes write-offs related to long-term assets of low-performing stores.

Note 7 - Financial income and expenses

Note 8 -Loss per share

The reconciliation of adjusted earnings per share as at 31 December 2021 and 2020 is as follows:

1. 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 Group management, comprise 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

As at 31 December 2021, disposals include an impairment charge of TRY 6,575 (31 December 2020: TRY 5,109).

Depreciation expense of TRY 37,145 has been charged in cost of sales and TRY 9,248 has been charged in general administrative expenses.

Amortisation expense of TRY 37,079 has been charged in cost of sales and TRY 8,253 has been charged in general administrative expenses.

Note 10 - Intangible assets

As at 31 December 2021, disposals include an impairment charge of TRY 14,001 (31 December 2020: TRY 6,009).

Amortisation expense of TRY 16,001 has been charged in cost of sales and TRY 18,806 has been charged in general administrative expenses.

Amortisation expense of TRY 14,520 has been charged in cost of sales and TRY 14,717 has been charged in general administrative expenses.

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

Franchise contracts

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

Note 11 - Right-of-use assets

Details of right-of-use assets as at 31 December 2021 and 2020 are as follows:

Details of lease receivables as at 31 December 2021 and 2020 are as follows:

Details of lease liabilities as at 31 December 2021 and 2020 are as follows:

Movement of right-of-use assets