Dominos Regulatory News (DOM)

LEI: 213800Q6ZKHAOV48JL75

18 March 2019

DOMINO'S PIZZA GROUP PLC

ANNUAL FINANCIAL REPORT

Further to the announcement of its preliminary results on 12 March 2018 (the "Results Announcement"), Domino's Pizza Group plc (the "Company") announces that it has today posted to shareholders and has submitted to the National Storage Mechanism, copies of the following documents:

· Annual Report and Accounts for the 52 weeks ended 30 December 2018 (the "Annual Report and Accounts")

· Circular relating to the Annual General Meeting to be held on 18 April 2019

· Forms of Proxy for shareholders to vote at the AGM

These documents will shortly be available for inspection on the National Storage Mechanism

www.morningstar.co.uk/uk/nsm.

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

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

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 22. The environment in which we operate is constantly evolving: 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.

The Board has considered the risk posed by Brexit 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 carries the increased risk of disruption to raw material supplies into the UK. The Company has implemented a series of contingency measures to minimise the impact of supply chain disruption.

Strategic risks

People-related risks

Link to strategic pillars

1 4 6 8

Risk

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

Potential impact

Medium

Probability

Medium

Mitigation

The Board considers succession planning on a regular basis and has set the CEO a personal objective of developing multiple potential successors in key roles. Contingency plans are in place which could be implemented on a short-term basis should we suddenly lose a key Executive

Nature of threat

These risks could have some impact on future performance, for a limited time

Change from 2017

Decrease

Commentary

There has been considerable work undertaken this year to improve the HR operating model to establish more robust processes for talent management and succession planning. People planning sessions are being held at all levels within the organisation to utilise better the skills pool, drive performance and identify and develop successors for key roles

Failure to respond to and overcome competitive pressures

Link to Strategic pillars1 2 6 7 8

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

Potential impact

High

Probability

Medium

Mitigation

Management keeps the competitive landscape under continual 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 the business model

Change from 2017

Increase

Commentary

Online channels that provide access to diverse cuisine options are becoming an increasing force in the market place. The Group is investing in its eCommerce channels to enhance the customer experience and maintain a highly competitive offering. Additionally, trials are ongoing to assess whether these/other online channels can also be used for profitable incremental customer acquisition

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

Link to Strategic pillars5 6 7 

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

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 the business model

Change from 2017

No change

Commentary

The Group is continually reviewing its products and ingredients to ensure they meet governmental guidelines whilst delivering the best possible taste for our customers. We anticipate that during H1 2019 the UK Government will publish recommendations on tackling childhood obesity. The Group keeps its products under regular review and some products may undergo reformulation to reduce sugar, salt and fat levels as required

Failure to achieve growth through new store openings

Link to Strategic pillars

2 6 7 8

Risk

Failure to meet store growth targets would be a breach of our Master Franchise Agreements ('MFA's'). Our ability to open new stores depends on our ability to lease or buy suitable premises in target territories, obtain the necessary planning approvals and identify a suitable franchisee to run the store

Potential impact

High

Probability

Low

Mitigation

Board approval is needed for the targets contained within the MFAs, and the Board monitors the pipeline of proposed store openings on a continual basis. Franchisee development programmes operate as required and we employ surveyors to identify and secure appropriate premises

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 2017

No change

Commentary

The overall risk remains broadly similar to the prior year. For the UK and Ireland, the MFA targets have been agreed for a 10 year period starting in 2016 requiring 350 additional stores over the period (on a net basis). The Group is on schedule to meet the growth targets in its other territories

Commercial leverage of large franchisees

Link to Strategic pillars1 2 6 7 8 

Risk

The Group has a number of franchisees whose businesses run large numbers of stores, and so enjoy some commercial leverage. The Group may be unable to persuade these franchisees to implement our preferred strategies, or to pass on cost increases in full or in part

Potential impact

High

Probability

Medium

Mitigation

Open and transparent relationships with multi-site franchisees are managed at senior levels of the Group. We regularly explain and emphasise the profit-sharing model to all franchisees, so that they understand that success is mutual. Our focus is on support and development for smaller franchisees

Nature of threat

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

Change from 2017

Increase

Commentary

The actual risk has not changed materially during the year but there has been increased public debate on the perceived pressure on franchisee store profitability. There is regular, open and frank dialogue with the franchisee community throughout the year to mitigate this risk

Operational risks

Food safety

Link to Strategic pillars3 5 6 7 8

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 franchisees' stores. Where we operate corporate stores, and are responsible for finished products, this risk is exacerbated

Potential impact

Medium

Probability

Medium

Mitigation

The business has implemented a rigorous regime of standards and food safety checks, with the Supply Chain Centres accredited to the internationally recognized food safety standard FSC 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 and, in an extreme case, threaten the business model

Change from 2017

Decrease

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. During the year we have strengthened compliance with our supplier assurance programme with demonstrable improvements in supplier standards. The third-party assurance provided by FSC 22000 ensures robust operational controls are in place

Interruption of raw material supplies

Link to Strategic pillars1 3 5 6 7 8

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 breach of such severity that the Group would no longer trade with them

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 2017

Decrease

Commentary

An ongoing programme is underway to reduce supplier dependency and improve security of supplies through dual sourcing. Our supply risk relating to single-source supplies has been reduced through increasing capability across providers with multiple supply sites

Supply Chain Centres are unable to supply the stores

Link to Strategic pillars

1 3 5 6 7

Risk

We distribute both the pre-proved dough we produce and third-party pizza toppings to our franchisees' stores. In the event of physical damage to, or loss of, a Supply Chain Centre we would need to make urgent contingency arrangements wherever possible. However, the space required to hold dough whilst proving forms a critical constraint to our business

Potential impact

High

Probability

Medium

Mitigation

In the event of the loss of a Supply Chain Centre, third-party ingredients could be delivered to stores direct, at an additional cost. Loss of our dough production facilities would be more difficult to overcome, but contract production of dough would be possible, at an additional cost

Nature of threat

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

Change from 2017

Decrease

Commentary

The level of risk has reduced. The current supply chain configuration provides a degree of over capacity to manage short to medium supply issues from the loss of dough production capacity. This situation is regularly reviewed to take account of growth in the system

Failure of online ordering systems for a prolonged or critical period

Link to Strategic pillars1 2 5 6 7 8

Risk

Over 85% of delivered sales are now placed online, around half of which are using apps for mobile devices. 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

Potential impact

High

Probability

Medium

Mitigation

Cyber-risk appears on the Board agenda and Audit Committee agenda on a regular basis and management reviews the performance of its IT infrastructure on a continual basis. 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, for a limited time

Change from 2017

No change

Commentary

On the whole the level of risk has remained constant, but we remain vigilant to the risk posed by third parties 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

Link to Strategic pillars2 5 6 7 8

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

Potential impact

High

Probability

Medium

Mitigation

Cyber-risk appears on the Board agenda and Audit Committee agenda on a regular basis and management keeps 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 2017

Increase

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. We have appointed a dedicated Chief Information Security Officer who is responsible for driving continual improvement in data governance and protection

Strategic Pillars Key

1 - Balanced network

2 - Innovative technology

3 - Efficient manufacturing

4 - Engaged colleagues

5 - Capital management

6 - Favourite brand

7 - Store convenience

8 - Best customer experience

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.