Annual Financial Report

RNS Number : 3491S

Domino's Pizza Group PLC

16 March 2016

 

 16 March 2016

ANNUAL FINANCIAL REPORT

Further to the announcement of its preliminary results on 3 March 2016 (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 2015 (the "Annual Report and Accounts")

·      Circular relating to the Annual General Meeting to be held on 20 April 2016

·      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, 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.

ENDS

Enquiries:

Rob Bellhouse, Company Secretary

Domino's Pizza Group plc

01908 580000

Notes to Editors:

Domino's Pizza Group plc is the leading player in the fast-growing pizza market holding the exclusive master franchise to own, operate and franchise Domino's Pizza stores in the UK, Republic of Ireland, Switzerland, Liechtenstein and Luxembourg. Additionally it owns a strategic stake in the largest pizza delivery business in Germany. The first UK store opened in Luton in 1985 and the first Irish store opened in 1991.

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. 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. We have linked the risks to the strategic pillars described on pages 14 and 15. 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.

STRATEGIC RISKS

People-related risks

Link to strategic pillars 1 and 2 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. Contingency plans are in place which could be implemented on a short-term basis should we suddenly lose a key executive. The business is considering whether to open a site away from Milton Keynes to assist in the recruitment and retention of specialist IT developers Nature of threat These risks could have some impact on future performance, for a limited time Change from 2014 é Commentary This risk has increased in significance temporarily, following the loss of the CFO during the year

Failure to respond to and overcome competitive pressures

Link to strategic pillars 1, 2 and 3 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 Low 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 2014 è Commentary This risk has not changed materially during the year

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

Link to strategic pillars 1 and 3 Risk As society's expectations evolve, and governmental acts on public health concerns, we may need to change the products we offer and our approach to marketing Potential impact Medium Probability High Mitigation Management keeps consumers' purchasing preferences under continual review and adjusts menus in response to these. We also engage, appropriately, with 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 2014 é Commentary We are monitoring the Government's Childhood Obesity Strategy due to be published in early 2016. It is likely that this will have an impact on several areas of our business

Failure to achieve UK growth through new store openings

Link to strategic pillars 1 and 3 Risk Failure to meet store growth targets would be a breach of our Master Franchise Agreements. Our ability to open new stores depends on our ability to lease or buy suitable premises, 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 are run 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 MFA could threaten the Company's business model and liquidity Change from 2014 ê Commentary The growth achieved in 2015 demonstrates that we are able to meet challenging store opening targets. Despite the larger estate, we remain confident of our ability to continue opening new stores and believe that this risk has reduced in significance over the year

Commercial leverage of large franchisees

Link to strategic pillars 1 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 also explain the profit-sharing model to all franchisees, so that they understand that success is mutual. Numbers of stores managed by the large franchisees are monitored Nature of threat These risks have the potential to compromise our future performance for a period of time Change from 2014 è Commentary This risk has not changed materially during the year

OPERATIONAL RISKS

Food safety

Link to strategic pillars 1, 3 and 4 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. In Switzerland, we operate corporate stores, and are responsible for finished products, which exacerbates this risk Potential impact High Probability Medium Mitigation The business has implemented a rigorous regime of standards and food safety checks, working with the appropriate Government regulator 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 2014 è Commentary Although the Group has grown in scale during the year, this risk has not changed materially since 2014

Interruption of raw material supplies

Link to strategic pillars 1, 3 and 4 Risk The business relies on a number of third-party suppliers for pizza toppings, 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 who are selected through competitive tendering and appropriate due diligence processes, supply the Group under long-term contracts. 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 2014 è Commentary Although the Group has grown in scale during the year, this risk has not changed materially since 2014

Supply Chain Centres are unable to supply the stores

Link to strategic pillars 1, 3 and 4 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. The Group is considering developing additional dough proving facilities, which would mitigate this risk significantly. 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 2014 é Commentary The growth in scale of the Group during the year means that we are nearing our current capacity for proving dough, so the potential impact of this risk has increased since 2014

Failure of online ordering systems for a prolonged or critical period

Link to strategic pillars 1,2 3 and 4 Risk Over 75% 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 malicious denial of service attacks Potential impact High Probability Medium Mitigation Cyber-risk appears on the Board agenda on at least an annual 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. The business is considering whether to open a site away from Milton Keynes to assist in the recruitment and retention of specialist IT developers Nature of threat These risks could have some impact on future performance, for a limited time Change from 2014 é Commentary Since a greater proportion of pizza ordering is now online, this risk has increased in significance during the year

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

Link to strategic pillars 2 and 3 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 on at least an annual basis and management keeps the security of data under its ownership or control under continual review. We do not hold customer credit card data on our systems. 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 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 2014 è Commentary This risk has not changed materially during the year

Implementation of enterprise resource planning ('ERP') system

Link to strategic pillars 1 and 4 Risk The Group intends to implement an ERP system during 2016. While this is expected to improve the internal control environment, the transition from, and eventual removal of, legacy IT systems creates continuity risks. In addition, the design and implementation of new operating practices and culture needed to bring the ERP system into full effect creates further risk to the Group's business Potential impact High Probability Medium Mitigation The business has been planning the implementation of ERP for 2½ years and has selected a product with a good track record on ease of installation and an experienced consultancy to support the implementation. Company-side education sessions have already begun and those employees affected are being familiarised with the new software and operating practices Nature of threat These risks have the potential to compromise our future performance, for a limited time Change from 2014 è Commentary This risk has not changed since 2014, but will increase in significance as we implement the ERP system during 2016

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:

	Sales to related party £000	Amounts owed by related party £000
Related party
Associates and joint ventures
27 December 2015	24,390	845
28 December 2014	19,157	1,445

 

END

 

 

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