Dominos Regulatory News (DOM)

LEI: 213800Q6ZKHAOV48JL75

28 April 2020

DOMINO'S PIZZA GROUP PLC

ANNUAL FINANCIAL REPORT

Further to the announcement of its preliminary results on 5 March 2020 (the "Results Announcement"), Domino's Pizza Group plc (the "Company") announces that it has today posted its Annual Report and Accounts for the 52 weeks ended 29 December 2019 (the "Annual Report and Accounts") to shareholders and has submitted a copy to the National Storage Mechanism.

The Annual Report and Accounts will shortly be available for inspection on the National Storage Mechanism https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

As required by DTR 6.3.5 R (3), the Company confirms that the Annual Report and Accounts are now available to view or download in pdf format from the Company's corporate website, https://investors.dominos.co.uk.

In light of the ongoing and evolving coronavirus crisis, the Board announced on 27 March 2020 that it has decided to delay convening the 2020 Annual General Meeting (the "AGM") which was due to be held on 23 April 2020. A further announcement with information regarding the AGM will be made in due course. The Board also announced on 27 March 2020 that it had decided to suspend the final dividend payment of 5.56p that was announced as part of our full year results on 5 March 2020.

The appendix to this announcement contains the following additional information which has been extracted from the Annual Report and Accounts for the purposes of compliance with DTR 6.3.5 R and should be read together with the Results Announcement, which can also be downloaded from the Company's corporate website:

· A statement on the principal risks and uncertainties

· A statement on related party transactions

Together these constitute the information required by DTR 6.3.5 R which is required to be communicated to the media in full unedited text through a Regulatory Information Service. Cross- references in the appendix refer to the Annual Report and Accounts.

Enquiries:

Adrian Bushnell, Company Secretary Domino's Pizza Group plc

01908 580000

Notes to Editors:

Domino's Pizza Group plc is the UK's leading pizza brand and a major player in the Irish market. We hold the master franchise agreement to own, operate and franchise Domino's stores in the UK, the Republic of Ireland, Switzerland and Liechtenstein. In addition, we have a controlling stake in the holders of the Domino's master franchise agreements in Iceland, Norway and Sweden, as well as associate investments in Germany and Luxembourg.

APPENDIX

Risk management

Principal risks and uncertainties

The business faces a wide range of risks on a daily basis. The Board has undertaken a robust assessment of what it believes are the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The table overleaf summarises these principal risks and how they are being managed or mitigated.

The risks in this table have been assessed on a residual basis according to our current view of the potential severity (being the combination of impact and probability) and assume that existing controls are effective.

We have linked the risks to the strategic pillars described on page 21. The environment in which we operate continues to evolve: new risks may arise, the potential impact of known risks may increase or decrease and/or our assessment of these risks may change. The risks therefore represent a snapshot of what the Board believes are the principal risks and are not an exhaustive list of all risks the Company faces.

Our approach

All businesses choose to take considered risks in the expectation of earning a return for their shareholders. The Board is clear on the risks it seeks to take (or is prepared to face) within the Company's business model and the adopted strategy, and also the risks it is not prepared to take. The latter are avoided or eliminated, as far as possible, or transferred to insurers.

The Board is responsible for overseeing management's activities in identifying, evaluating and managing the risks facing the Group. Importantly, we treat identifying and managing known and emerging risks as an integral part of managing the business. Principal risks are recorded in the Group's risk register and regularly reviewed and evaluated. Each risk has a business owner, responsible for managing that risk, implementing appropriate controls and mitigating actions and reporting on it to the leadership team. In turn, the principal risks are reported on to the Board.

As a sense-check on management's actions, the Board undertakes its own assessment of principal risks in each year, which is then

integrated into the risk register. These known risks are taken into account in developing the Group's strategy and business plans.

Strategy Key

Emerging risks

Brexit

Risk

The Board has considered the risk posed by the continued delay of Brexit/transition period and does not consider that it presents a principal risk to the business model. As reported previously, there are potential Brexit-related risks associated with increases in raw material and labour cost increases for our franchisees. A 'no deal' Brexit still carries an increased risk of disruption to raw material supplies into the UK and between our Dublin based supply chain centre and our franchise stores in Northern Ireland. The Company has implemented a series of contingency measures to minimise the impact of supply chain disruption.

Minimum wage and labour pool

Risk

Future labour-cost increases may impact the profitability of our corporate stores and the wider franchisee system. The principal drivers of such increases are projections for future increases in the national living wage and national minimum wage coupled with the potential for a tightening of labour supply. We keep this risk under review and an assessment of the impact is included within our current forecasting processes and the risks around wider system profitability.

Coronavirus (COVID-19)

Risk

The Group is monitoring the risk posed by the spread of the coronavirus (COVID-19). At the date of this report, there is no imminent risk to the system but the situation is evolving quickly and we are modelling risk scenarios to assess the potential disruption to stores and supply chain operations and developing appropriate contingency plans.

Strategic risks

People-related risks

Risk

The business is overly dependent on key individuals (either at Board or Executive level or in relation to specialist skills), possibly exacerbated by a failure to attract or retain the skilled and experienced people it needs.

Link to Strategic pillars

7

Potential impact

High

Probability

High

Mitigation

One of the four key priorities of the Board is the recruitment of a new Chair, CEO and CFO. Robust interim measures are in place as we look to recruit the above roles.

Across management roles the company continues to have robust processes for talent planning and succession.

Nature of threat

These risks could have some impact on future performance, colleague retention in the wider business and strategic development.

Change from 2018

Up

Commentary

2020 will be a year of change in the composition of our Board and Executive Team. The Board is focused on recruitment at the Board and Executive level and colleague retention and engagement. The probability of the risk has increased given the changes in senior positions during the year.

Failure to respond to and overcome competitive pressures

Risk

The business faces strong competition from a range of players, including those exploiting emerging technologies or new food options and new entrants into the UK market.

Link to Strategic pillars

1, 2, 3, 4, 6, 8

Potential impact

High

Probability

Medium

Mitigation

Management keeps the competitive landscape under review and the Board also monitors the markets in which it operates, as well as KPI data on the current business. Strategy is reviewed and developed by the Board on at least an annual basis.

Nature of threat

These risks have the potential to compromise our future performance or, in an extreme scenario, even threaten the business model itself.

Change from 2018

Same

Commentary

Online channels that provide access to diverse cuisine options for delivery are becoming an increasing force in the quick service restaurant space. The Group continues to invest in its eCommerce channels to enhance the customer experience and maintain a highly competitive offering.

Inability to react to changes in the health debate and public desire for healthier food

Risk

As society's expectations evolve, and governments act on public health concerns, we may need to change the products we offer and our approach to marketing.

Link to Strategic pillars 1, 2

Potential impact

Medium

Probability

Low

Mitigation

Management keeps consumers' purchasing preferences under continual review and adjusts menus in response to these. We also engage, appropriately, with the government on the public health debate to ensure that our views are understood by policy makers and influencers.

Nature of threat

These risks have the potential to compromise our future performance or, in an extreme scenario, even threaten the business model itself.

Change from 2018

Same

Commentary

Following political uncertainty throughout 2019 and a new Government, it is unclear whether the proposals published by the previous administration aimed at tackling childhood obesity are still likely to be implemented. We are awaiting responses to a number of consultations which came out of the Government's Childhood Obesity Plans, including the proposed 9pm watershed on HFSS advertising, to understand whether these proposals are a priority for the new Government.

Failure to achieve growth through new store openings

Risk

This risk specifically relates to our failure to meet the store growth targets of our UK & Ireland Master Franchise Agreement ('MFA'). Our ability to open new stores depends on our ability to lease suitable premises in target areas, ideally with the necessary planning consents in place, and identify a suitable franchisee to open and operate the store.

Link to Strategic pillars

1, 2, 6

Potential impact

High

Probability

Low

Mitigation

The Executive management monitor the new store pipeline regularly. We have a range of new store incentives in place, to encourage new store growth at the right time and in the right location. We have area development agreements in place with many franchisees, laying out new store plans, and we could choose to reallocate a territory if a franchisee were to breach their agreement.

Nature of threat

These risks could have an impact on future performance. In an extreme case an unremedied breach of the UK & Ireland MFA could threaten the

Company's business model and liquidity.

Change from 2018

Same

Commentary

The overall risk remains broadly similar to 2017 and 2018 as we have continued to open new stores in the UK & Ireland. In 2019 we opened 29 franchise stores with 23 franchise partners and opened three corporate stores. Our MFA with DPI for the UK & Ireland sets out a requirement to have a minimum number of stores each year from 2017 to 2026. Over this ten-year period we are required to open a net 349 stores. As at 29 December 2019 we had more stores open than required by the MFA at this stage.

Commercial leverage of large franchisees

Risk

The Group has 70 franchisees in the UK & Ireland with the largest three franchisees accounting for 42% of our 1,184 stores. The Group may be unable to persuade these franchisees to implement our preferred strategies, or to pass on cost increases in full or part.

Link to Strategic pillars

6

Potential impact

High

Probability

Medium

Mitigation

Relationships with large franchisees are managed by the Senior Leadership Team of the Group. We regularly explain and emphasise the profit- sharing model to all franchisees, so that they understand that success is mutual.

Nature of threat

These risks have the potential to compromise our future performance for a prolonged period of time.

Change from 2018

Same

Commentary

Resolving our franchisee dispute is crucial for the long-term growth of the system, and this is a key priority of the Board. Given the status of the relationship, the risk clearly remains relevant, however the risk of a significant impact remains unchanged. The current level of return achieved from our stores show that there is still a good opportunity for the system to open new franchise stores.

Operational risks

Food safety

Risk

There is the risk of contamination in either the pre-proved dough we produce at the Group's Supply Chain Centres, or in the pizza topping ingredients we distribute to our stores. Food safety is of paramount importance to us and any failures may impact the Brand and our customers in the UK & Ireland.

Link to Strategic pillars

5

Potential impact

Medium

Probability

Medium

Mitigation

The business has implemented a rigorous regime of standards and food safety checks, with each of the Supply Chain Centres accredited to the internationally recognised food safety standard FSSC 22000.

Nature of threat

If this risk materialised, it could have a significant impact on future performance and potentially liquidity, for a limited time. The reputational impact could have a longer-term effect on performance.

Change from 2018

Same

Commentary

The risk continues to be monitored on a regular basis by a qualified in-house resource. The Board routinely receives reports on 'food safety' risk controls. The third-party assurance provided by FSSC 22000 ensures robust operational controls are in place. In 2020 a dedicated Supplier Assurance Team will be recruited to further increase our focus on the quality of our incoming ingredients.

Interruption of raw material supplies

Risk

The business relies on a number of third-party suppliers, some of whom provide the sole source of an ingredient. These suppliers must make a commercial return to stay in business and reinvest in their operations. The Group would be vulnerable if a supplier decided to cease trading, suffered a major interruption or food safety incident, or was responsible for an ethical or compliance breach of such severity that the Group would no longer trade with them.

Link to Strategic pillars 5

Potential impact

High

Probability

Low

Mitigation

Suppliers are selected through competitive tendering and appropriate due diligence processes. The economics of their businesses are kept under review and their performance against their obligations monitored. We assess their compliance with acceptable business standards.

Nature of threat

These risks have the potential to compromise our future performance for a limited time.

Change from 2018

Same

Commentary

An ongoing programme is in place to reduce supplier dependency and improve security of supplies through dual sourcing. Our supply risk relating to single-source supplies has been mitigated on key items by moving to either multiple supply sites from single suppliers or achieving dual supply.

Supply Chain Centres are unable to supply the stores

Risk

We distribute both the pre-proved dough we produce and third-party pizza sauce, cheese, toppings and boxes to our stores as well as other equipment and supplies. A loss of one or more dough production lines or loss of a Supply Chain Centre would require urgent contingency arrangements to be made wherever possible.

Link to Strategic pillars 3, 5, 8

Potential impact

High

Probability

Medium

Mitigation

In the event of the loss of a dough production line, production could be moved to another site with capacity. If additional capacity was not available, third- party dough production facilities are available, at an additional cost. In terms of delivery of third-party ingredients, our options would be to either collect from suppliers and deliver direct to stores or to use third party sites to storage facilities to house the items before delivering them to store. In 2019 we used a number of third-party sites to store stock as part of our Brexit stock planning.

Nature of threat

These risks could have a significant impact on future performance and potentially liquidity, for a period of time.

Change from 2018

Same

Commentary

The current supply chain configuration provides a degree of additional over capacity to manage short term supply issues from the loss of dough production capacity. This situation is regularly reviewed to take account of growth in the system. In 2020, the Warrington and West Ashland production facilities are well balanced to deliver peak demand at 85% utilisation. In order to meet demand beyond 2020 the Board has approved the installation of additional capacity in Scotland.

Failure of online ordering systems for a prolonged or critical period

Risk

Over 91% of delivered sales are now placed online. As well as the reliance on data centres and our own software developed in house, there is also a risk from systems implementation and design failures, and from malicious denial of service attacks.

Link to Strategic pillars 4

Potential impact

High

Probability

Medium

Mitigation

Cyber-risk appears on the Board agenda and Audit Committee agenda on a regular basis and management review the performance of IT infrastructure on a continual basis. We have established constant monitoring processes over our online platform which enable us to respond quickly to developing issues.

Our systems are hosted by third-party specialists, with parallel processing across multiple sites and real-time replication and appropriate protection from malicious attempts to disrupt the availability of our sites.

Nature of threat

These risks could have some impact on future performance during the downtime period and could cause wider brand perception issues.

Change from 2018

Same

Commentary

As we continue to see an increase in online ordering, the potential impact of the failure of our online ordering system remains high. On the whole the level of risk of a prolonged outage remains unchanged, but we remain vigilant to the risk posed in terms of potential system disruption and online fraud. The Group has maintained its compliance with PCI level 1 and continues to enhance its systems control environment technical capability and systems resilience.

Loss of personal data relating to customers, employees or others; loss of corporate data

Risk

For ease of use, our online ordering systems hold some customer data, the loss of which (whether accidental or following hacking) would cause disruption and cost to the Group. In addition, the Group's own data on employees and suppliers is exposed to the same risks of loss.

Link to Strategic pillars

4

Potential impact

High

Probability

Medium

Mitigation

Cyber-risk appears on the Board agenda and Audit Committee agenda on a regular basis and management keep the security of data under its ownership or control under continual review. We have a robust compliance programme for GDPR. Franchisees are trained in their obligations in respect of personal data and are required to train their staff appropriately. Appropriate IT security is in place and kept under continual review. We do not hold customer credit card data on our systems.

Nature of threat

These risks have the potential to compromise our future performance. In an extreme scenario, the reputational damage could possibly threaten the business model if we suffered a total loss of consumer confidence.

Change from 2018

Same

Commentary

Cyber-risk remains a major and increasing threat. The Group's cyber-security maturity is regularly reviewed by the Group's management and external advisers. Data security is critical and continues to be a focus for our Board to strengthen our people and systems to mitigate the probability of a data breach. The Board are committed in ensuring that we have an effective information security function to support our business and the Domino's system.

The Board identify, evaluate and monitor risks facing the Group and, during the year under review, a particular focus has been placed on assessing the likely impact that each identified risk could have on the business.

Related party transactions

During the period the Group entered into transactions, in the ordinary course of business, with related parties. For details of loan balances due from associates please refer to note 16. Transactions entered into, and trading balances outstanding with related parties, are as follows:

Terms and conditions of transactions with related parties

Sales and purchases between related parties are made at normal market prices. Outstanding balances with entities are unsecured and interest free and cash settlement is expected within seven days of invoice. The Group has not provided for or benefited from any guarantees for any related party receivables or payables.