LEI: 213800Q6ZKHAOV48JL75
22 March 2021
DOMINO'S PIZZA GROUP PLC
ANNUAL FINANCIAL REPORT & NOTICE OF ANNUAL GENERAL MEETING
Further to the announcement of its preliminary results on 9 March 2021 (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 27 December 2020 (the "Annual Report and Accounts")
· Circular relating to the Annual General Meeting to be held on 22 April 2021
· Forms of Proxy for shareholders to vote at the AGM
As required by LR 9.6.1 R, these documents 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 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 unedited full text through a Regulatory Information Service. Cross-references in the appendix refer to the Annual Report and Accounts.
Physical attendance at the AGM
We value the opportunity that the AGM brings to interact with our shareholders, however, the government-issued rules do not enable a wider physical meeting to take place in England. We are therefore proposing to hold the AGM with the minimum attendance required to form a quorum. Shareholders will not be permitted to attend the AGM in person but can be represented by the Chair of the meeting acting as their proxy.
Voting
Shareholders are encouraged to participate in the AGM by voting by proxy ahead of the meeting. If appointing a proxy, shareholders are encouraged to appoint the Chair of the AGM to submit proxy votes at the meeting. Instructions on how to vote by proxy can be found on the Proxy Form enclosed with the Notice of AGM.
Any shareholder that wishes to raise a question in connection with business to be conducted at the meeting, can do so in advance of the AGM by sending it by email to company.secretary@dominos.co.uk.
Enquiries:
Adrian Bushnell, Company Secretary
Domino's Pizza Group plc
01908 580000
About Domino's Pizza Group:
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, Sweden and Iceland, and have associate investments in Germany and Luxembourg.
Appendix
Note: All references to page numbers and notes as shown in this appendix refer to the Annual Report & Accounts
Risk management
The Board has continued to 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.
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 Group, 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 24. 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 Group 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 Group'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 Executive 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.
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.
Principal Risks & Uncertainties
Competitive pressures
| Risk Summary Risk profile: | |||
| Change in risk severity from 2019: | Risk ownership: | Residual risk: | |
| This risk was considered in assessing long-term viability. | |||
| Linkage to strategy Nobody delivers like Domino's Turbo-charge our collection business Amplify our product quality & value Domino's market leading delivery times are recognised by customers as clear differentiation to aggregators - which our new advertising campaign We Got This aims to reinforce. We will deliver better perceived value to our customers whilst maintaining system profitability. | |||
| Description of risk factors The business faces strong competition from a range of competitors, including those exploiting emerging technologies, food options, delivery models, or innovative locations and formats. Failure to stay relevant in the face of competition, through a lack of new products or inappropriate new products, may lead to the loss of customer and franchisee confidence. Additional risks may arise from the potential inflexibility of the existing operational platform to offer an enhanced product range. We may fail, through ineffective promotion or lack of personalised and tailored messaging, to communicate to customers the value from available deals and offers. Local pricing decisions may not offer a co-ordinated defence against national competitors. Our competition may consequently be able to target our core customers with aggressive pricing strategies. Given the LFL growth achieved by aggregators and direct sector competitors, this risk is considered to be increasing. | Risk mitigations in place and planned Management keeps consumers' purchasing preferences under continual review and adjusts menus in response to these. We will implement a calendar of new product innovations to target core customers. We and franchisees work together to constantly change the mix of menu prices and local offers, supplemented by national price-pointed offers. We have developed an offer testing methodology to help determine the optimum national price promotions to maximise appeal and purchase intent. We have developed a peer group framework to enable us to make more tailored recommendations to franchisees to optimise local pricing and promotions. We continue to invest in and deploy new technology to improve our already class-leading delivery service and to maintain advantage over competitors. We have invested in a new CRM technology platform that will enable us to have a more personalised communication with customers to help prevent lapsing. | ||
Franchisee relationships
| Risk Summary Risk profile: | |||
| Change in risk severity from 2019: | Risk ownership: | Residual risk: | |
| This risk was considered in assessing long-term viability. | |||
| Linkage to strategy Uphold our industry-leading economics We set ourselves ambitious targets for store growth and like-for-like order count growth. | |||
| Description of risk factors The current relationship with franchisees is challenging, a situation dating back several years. Our ability to grow depends on the attractiveness of Domino's as a long-term investment opportunity to both new and existing franchisees. Strong sustainable profitability at maturity, attractive investment economics, and targeted new store incentives all being key in encouraging franchisee investment decisions. Without a collaborative and mutually beneficial franchise framework, the Group may be unable to persuade our franchisees to invest or to implement our preferred growth strategies. The Group has 68 franchisees in the UK & Ireland with the largest three franchisees accounting for 42% of our 1,201 stores. | Risk mitigations in place and planned Relationships with franchisees are managed by the CEO, CFO and wider Executive Leadership team of the Group. This team are in detailed discussions with franchisee representatives to realign our relationship and re-establish a mutually acceptable balance of commercial risk and reward. Our franchisee discussions aim to demonstrate that a sustainable best-in-class return can be achieved from our stores and show that there is an excellent opportunity to invest in profitable system growth. As well as franchisee commitments to investment and growth, we would expect to make capital investments in technology and supply chain operations to support growth, together with investment to upgrade some of our internal capabilities. | ||
Brexit and Covid-19 related risks
| Risk Summary Risk profile: | |||
| Change in risk severity from 2019: | Risk ownership: | Residual risk: | |
| This risk was considered in assessing long-term viability. | |||
| Linkage to strategy Nobody Delivers Like Domino's Model excellence as a franchisor | |||
| Description of risk factors Brexit Aside from potential supply chain disruption, we consider that Brexit may have consequences for us on the availability of store labour, employee settlement and residency, and data protection requirements, and vehicle fleet licensing. Coronavirus (Covid-19) | Risk mitigations in place and planned We continue to engage with external advisers to monitor the outcome of the post transition period and associated risks to our business activities. Our Brexit Steering Group has been working with specialists to map our supply chain, assess the impact of identified risks, plan mitigations, monitor delivery of actions, and report progress to the Board. Whilst the UK and EU have agreed a trade deal, uncertainty remains over the precise nature of the detail. We will continue to evaluate the situation and address any risks as they crystallise. The Group continues to operate a series of tactical contingency measures to reduce the impact of Brexit-related supply chain disruption in Q1 2021. The Group has worked tirelessly to adapt to the changing requirements of the Covid-19 restrictions, and has thankfully kept operational throughout. Operational practices and systems of work have been modified to facilitate contact-free deliveries and we and our franchisees have invested in PPE and store adaptations to protect the safety of employees and customers. Our online platforms have handled significantly higher web and App order volumes, with additional capacity introduced to preserve resilience. We have strengthened cyber security for remote workers, including ensuring device security measures, patching, and multi-factor authentication are in place. Further details on our response to Covid-19 are more fully disclosed on pages 8 and 9. | ||
Supply chain disruption
| Risk Summary Risk profile: Loss of Supply Chain Centre ('SCC') capacity - if prolonged, potentially significant impact on financial performance and resilience. | |||
| Change in risk severity from 2019: | Risk ownership: | Residual risk: | |
| This risk was considered in assessing long-term viability. | |||
| Linkage to strategy Nobody Delivers Like Domino's | |||
| Description of risk factors Failure of a key raw material or equipment supplier to maintain deliveries leading to cessation of dough production or shortage of key ingredients. The business relies on a number of third-party suppliers, some of whom represent the sole source of an ingredient. The Group would be vulnerable if a supplier decided to cease trading, suffered a major cyber security incident, had 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. Catastrophic failure of one or more of the Domino's UK SCCs leading to disruption to dough production. We distribute both the pre-proved dough we manufacture ourselves and third-party pizza sauce, cheese, toppings, sides and boxes to our stores as well as other equipment and supplies. A loss of more than one dough production line or loss of an SCC, for example through a cyber security or major IT/OT incident, would require urgent contingency arrangements to be made wherever possible. This risk is reducing due to the practical completion of the SCC in Scotland. | Risk mitigations in place and planned We aim to dual source our key ingredients and, for the small number where this is not practicable, mitigate risk by moving to multiple supply sites. Suppliers are selected through competitive tendering and appropriate due diligence processes. The economics and cyber security posture of their businesses are kept under regular review to identify adverse changes to supplier vulnerability. We audit supply chain resilience and supplier compliance with agreed standards, and hold buffer stock, where possible, in the supply chain to mitigate potential fluctuations in product availability and lead times. Domino's currently operates two, soon to be three, UK SCCs and one in Ireland. Each SCC operates efficiently, but at utilisation levels that provide capacity for the loss or unavailability of any single production line. Deliveries of ingredients, usually distributed to stores via our SCCs, would, in the event of loss of one or more SCC, require use of third-party cold storage facilities. Residual risk will be reduced in 2021 by the full commissioning of the new SCC in Cambuslang, and further initiatives to increase dual sourcing or multi-site production of critical ingredients. | ||
Food safety
| Risk Summary Risk profile: | |||
| Change in risk severity from 2019: | Risk ownership: | Residual risk: | |
| This risk was considered in assessing long-term viability. | |||
| Linkage to strategy Amplify our product quality & value | |||
| Description of risk factors There is the risk of contamination in either the pre-proved dough we produce at the Group's SCCs, or in the pizza toppings and other ingredients we distribute to our stores. Any failures may impact the brand and our customers in the UK & Ireland. A decline in store standards leading to reduced food quality and customer satisfaction. | Risk mitigations in place and planned The business has an established and rigorous regime of standards and food safety checks, with each of the SCCs accredited to the internationally recognised food safety standard FSSC 22000. Adherence to our constantly evolving standards, codes of practice, and food safety management systems in our SCCs is regularly audited by our technical team. Compliance with Domino's global standards is audited annually by Domino's Pizza International. Early warning systems are in place across the supply chain to log, review, investigate, and act upon issues which may impact food safety or quality. Stores operate to clearly defined standards and policies, periodically verified by operational evaluation processes and third-party food safety evaluations to audit areas such as food storage and handling, product quality, safety, and store condition. Franchisees are financially incentivised to maintain a minimum score on evaluations. We plan to further increase the frequency and coverage of assurance over food safety management systems in the supply chain and in stores during 2021. | ||
eCommerce and mobile platform
| Risk Summary Risk profile: | |||
| Change in risk severity from 2019: | Risk ownership: | Residual risk: | |
| This risk was considered in assessing long-term viability. | |||
| Linkage to strategy Model excellence as a franchisor Nobody Delivers Like Domino's This technology supports fast and efficient customer ordering to complement our class-leading delivery time performance. | |||
| Description of risk factors Approximately 95% of delivered sales are now placed online through the website or mobile App. There is significant reliance on third-party data centres and IT teams for hosting the platform, and on both internal and third-party development resource for our applications. Loss of platform or application availability or integrity would result in a short-term impact on commercial performance, including potential loss of customer confidence in the platform and/or mobile App. This loss of customer goodwill and revenue could have longer-term consequences for customer confidence in the Domino's brand. It may also negatively impact franchisee relationships if they lose confidence in the resilience and security of the platform. Alongside third-party risks, application development, and infrastructure availability risks, there also exists a significant cyber security risk. As we become increasingly reliant on internet trade we also find ourselves operating in an ever increasing and sophisticated cyber threat landscape, where ransomware, data breaches and targeted advanced cyber attacks are becoming more commonplace. | Risk mitigations in place and planned Strong controls at an IT level are in place to protect the platform availability, through data centre replication, clustering and other IT-reliant architecture methods. IT resilience is well developed and mature. There exists a good level of controls with respect to PCI Data Security Standards, against which we have been compliant since 2015, however we are constantly reviewing the effectiveness of our controls and improving them wherever gaps are identified. We are building a strategic, risk-based security management framework and will continue to invest appropriately in the further development of security controls to better protect the platform from both known and unknown threats. We continue to invest in and deploy new technology to improve our already class-leading delivery service and to maintain this advantage over competitors. Cyber-risk appears regularly on the Board and Audit Committee agendas and management reviews the performance of IT infrastructure on a continual basis. | ||
Loss of personal data relating to customers, employees or others; loss of corporate data
| Risk Summary Risk profile: | |||
| Change in risk severity from 2019: | Risk ownership: | Residual risk: | |
| This risk was considered in assessing long-term viability. | |||
| Linkage to strategy Model excellence as a franchisor | |||
| Description of risk factors For ease of use, our online ordering systems hold some customer data, the loss of which (whether accidental or as a result of unauthorised intrusion) would cause disruption and cost to the Group. In addition, the Group's own data on employees, partners and suppliers is exposed to the same risks of loss. We do not hold customer credit card data on our systems. | Risk mitigations in place and planned Cyber security, a key mitigation against data risk, appears on the Board and Audit Committee agendas on a regular basis and management keep the security of data under its ownership or control under continual review. The technical mitigations in place to protect our Group's systems from malicious attack are also relevant to this risk. A description of mitigations in place against that risk is included on page 62 of this report. We have a robust compliance programme in place for GDPR. Franchisees are trained in their obligations in respect of personal data and are required to train their staff appropriately. Residual risk is to be addressed through further investment in our cyber security measures, and specific assurance by internal audit and external specialists over Data Protection compliance which is to be performed in 2021. | ||
Climate change
| Risk Summary Risk profile: | |||
| Change in risk severity from 2019: | Risk ownership: | Residual risk: | |
| This risk was considered in assessing long-term viability. | |||
| Linkage to strategy Model excellence as a franchisor We aim to meet all mandatory requirements for ethical and climate reporting. | |||
| Description of risk factors The effect of climate change on the business will change over time and the Group will need to consider its risk profile and mitigation in the medium and longer-term. Climate change poses commercial risks which may include possible changes in consumer demand, increased cost and/or reduced availability of ingredients and increased costs associated with our distribution network. In addition, we expect a tightening of the regulatory environment in which we operate with the potential to increase operating costs and additional external reporting. | Risk mitigations in place and planned The Group is enhancing its environmental management systems and will be establishing science-based environmental targets during 2021. The Group is developing a road map to achieve full alignment with TCFD reporting and to comply with requirements of the UKLA's Listing Rules introduced in January 2021. | ||
Public health debate
| Risk Summary Risk profile: | |||
| Change in risk severity from 2019: | Risk ownership: | Residual risk: | |
| This risk was considered in assessing long-term viability. | |||
| Linkage to strategy Amplify our product quality & value | |||
| Description of risk factors Inability to react to changes in the health debate and public desire for healthier food. 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. Whilst we comply with existing transparency requirements to provide nutritional information and suggested serving sizes for over 1000 pizza and sides options, there is a risk that targets and guidelines on sugar and salt content reduction could become more stringent or mandated. We have been working with suppliers to develop new products, and modifications to existing recipes, to respond to changing requirements. There is also a risk that the UK & Irish levies on sugar in soft drinks could be extended to apply to other products. The risk severity has increased from 2019 due to further consultation and potential restrictions over the promotion and advertising of foods deemed high in fat, sugar and salt. | Risk mitigations in place and planned Management keeps consumers' purchasing preferences under continual review and adjusts menus in response to these, as illustrated by our growing range of vegan pizzas and sides. We also engage, appropriately, with the government on the public health debate to ensure that our views are understood by policy makers and influencers. We also work with suppliers to ensure new and existing product development is in line with new targets around fat, salt and sugar content, and are developing an updated food philosophy document which will be used to provide strategic direction on new and existing product development. | ||
People-related risks
| Risk Summary Risk profile: | |||
| Change in risk severity from 2019: | Risk ownership: | Residual risk: | |
| This risk was considered in assessing long-term viability. | |||
| Linkage to strategy Model excellence as a franchisor | |||
| Description of risk factors The business is dependent on key individuals (either at Executive level or in relation to specialist skills or volume of roles required), possibly exacerbated by a failure to always retain the skills and experienced people it needs. As noted above, Brexit is expected to have an adverse impact on the availability of store labour and supply chain labour and will introduce requirements on EU & EEA workers, both employed by the Group and by franchisees, to apply for settled status. Despite Brexit, risk at an Executive level is reducing as disruption to the continuity and composition of the Board and executives experienced in 2019 and early 2020 has now been addressed through the appointment of new Executive and non-executive Directors. These appointments are fully described on pages 88 and 89. | Risk mitigations in place and planned 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 being developed which could be implemented on a short-term basis should we suddenly lose a key Executive. There continues to be considerable work undertaken to improve the HR operating model to establish more robust processes for talent management and succession planning. People planning sessions are held at all levels within the organisation to utilise better the skills pool, drive performance and identify and develop successors for key roles. Brexit mitigation communication has been issued to our own employees and to franchisees to inform, support, and encourage application for settled status by any affected EU workers. | ||
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 18. Transactions entered into, and trading balances outstanding with related parties, are as follows:
| Related party | Sales to £m | Amounts owed £m |
| Associates and joint ventures | | |
| 27 December 2020 | 27.2 | 0.6 |
| 29 December 2019 | 43.6 | 1.2 |
Sales to associates and joint ventures have fallen significantly during the year due to the impact of IFRS 16 with rental income now being repayment of lease receivables, see note 2 for further details.
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.
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