LEI: 213800Q6ZKHAOV48JL75

21 March 2022

DOMINO'S PIZZA GROUP PLC

ANNUAL FINANCIAL REPORT & NOTICE OF ANNUAL GENERAL MEETING

Further to the announcement of its preliminary results on 8 March 2022 (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 26 December 2021 (the "Annual Report and Accounts")

·    Circular relating to the Annual General Meeting to be held on 5 May 2022

·    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.

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 and the Republic of Ireland, 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 continues to identify, evaluate and monitor material risks facing the Group. We made satisfying progress in 2021 against cyber security and franchisee relationships, challenges to our supply chain remain.

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 emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. The following tables summarise these principal risks and how they are being managed or mitigated.

The disclosed risks 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 19. We consider that the principal risks and uncertainties include all known material risks which represent a threat to the achievement of our strategic objectives.

We update our view of emerging risks on a quarterly basis via the Executive Risk Committee, the results of which are reported periodically to relevant Board Committees. Our latest horizon scanning has identified no further strategic uncertainties that are not included within these principal risks. We do, however, face a number of short-term challenges, which we are closely monitoring and will consider within our planning and re-forecasting processes. These relate to: uncertainties in Ukraine, which is a leading global exporter of grain and oilseeds; a general risk of food commodity price inflation; and potential consequences on consumer behaviour resulting from a reduction in discretionary income due to cost-of-living increases.

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. The risks disclosed in the 2020 annual report relating to Brexit and Covid-19 are no longer being separately disclosed; where still present, these risk factors are now discussed under the supply chain disruption and people-related risks.

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 current and emerging 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.

See our Strategy on page 18

PRINCIPAL RISKS & UNCERTAINTIES

COMPETITIVE PRESSURES

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.

Whereas in the recent past, the lack of national advertising and promotions may have allowed our competition to target customers with aggressive pricing strategies, the franchisee resolution now enables us to better deliver our commercial strategy and offer a co-ordinated defence against national competitors. Given this development, alongside a backdrop of stable market share, this risk is deemed to remain High but stable.

Risk mitigations in place and planned

Management keeps consumers' purchasing preferences under continual review and adjusts menus in response to these. We have implemented a calendar of new product innovations to target core customers.

We work together with our franchisees 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

Linkage to strategy

Uphold our industry-leading economics

We aim to work collaboratively with franchisees and deliver best in class profitability across the system.

We set ourselves ambitious targets for store growth and like-for-like order count growth.

Description of risk factors

Having experienced a number of years of challenges in our relationship, we have been pleased to announce a resolution with franchisees. The resolution unlocks significant latent potential which we believe will lead to greater long-term growth, enhanced innovation and service for customers, and enhanced value creation for all stakeholders in the Domino's system.

The 2020 year-end principal risk disclosures described the key risks from these relationship challenges as relating to a failure to optimise growth opportunities; failing to counter aggressive competitor pricing through a lack of national deals; and a failure to incentivise investment (from all parties) through insufficiently attractive franchise economics. These issues, as noted across, are expected to be addressed by the resolution and the risk has consequently been reduced to a Medium risk from its rating of High last year.

Risk mitigations in place and planned

The resolution with franchisees delivers a mutually beneficial agreement to deliver enhanced long-term growth and strengthened innovation and service for customers.

In the resolution, Domino's has committed to make strategic investments in the system, including digital acceleration, ecommerce development, and in-store technology. Marketing investment will be increased, and a food rebate mechanism will encourage order growth. In return, franchisees have committed to an expanded schedule of store openings, participation in national deals, and support for enabling new technologies and product innovation.

Relationships with franchisees continue to be managed by the Chief Executive Officer, Chief Financial Officer, and wider Executive Leadership team of the Group. These relationships will continue to receive a high level of attention to avoid a recurrence of past difficulties, both during the term of this 3-year resolution and beyond.

SUPPLY CHAIN DISRUPTION

Linkage to strategy

Nobody delivers like Domino's

We seek to build resilience throughout our supply chain, ensuring the freshest ingredients are available and delivered to all stores on time.

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.

We source approximately 40% of our ingredients from overseas, mostly from the EU but also some products from the Far East. From 1 January 2022, the post-Brexit transitional concessions on customs procedures ceased, and full customs controls now apply. During 2022, various additional pre-notifications, checks and controls will be required for imports of regulated plant products, and meat products & dairy products from the EU. Additional administration can add friction to cross-border goods movements and impact lead times and/or supplier delivery performance.

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.

Linkage to strategy

Nobody delivers like Domino's

We seek to build resilience throughout our supply chain, ensuring the freshest ingredients are available and delivered to all stores on time.

Description of risk factors

Catastrophic failure of one or more of the Domino's 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. The full commissioning of the Cambuslang SCC in early 2021 has helped mitigate this risk somewhat.

General risks associated with our supply chain operation

In common with many companies, we have experienced severe challenges in our supply chain during 2021. Imbalances in global sea freight capacity and demand has not only increased the costs of importing products, but also reduced certainty over supply. This risk of disruption is expected to persist in 2022.

As noted below in the discussion of people risk, the pandemic continues to place pressure on our supply chain operations due to the unavailability of colleagues to maintain our warehouse and transport activities when required to self-isolate. Further pressures have been experienced, widely reported across many sectors, due to the shortages of qualified large goods vehicle drivers. Despite these challenges, we have been able to maintain delivery performance to franchisee stores at pre-pandemic levels, albeit at a cost.

Risk mitigations in place and planned

Domino's currently operates 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 in the very short-term. 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.

During the year, we have tactically increased stock holdings of critical products, where product shelf-life and availability has allowed, in a similar manner to the mitigating measures previously put in place for Brexit transition. We will continue to periodically evaluate the costs vs. the risk mitigation of this elevated stock holding.

FOOD SAFETY

Linkage to strategy

Amplify our product quality & value

We strive to ensure the highest of operational standards are met consistently across the supply chain and in Domino's stores.

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 DPI. 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 increased the frequency and coverage of assurance over food safety management systems in the supply chain and in stores during 2021 and intend to maintain this level of testing in 2022.

ECOMMERCE AND MOBILE PLATFORM

Description of risk factors

Approximately 90% of system 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. Whilst we are not complacent about the inevitable emergence of advanced, novel cyber attacks, we have increasing confidence that investment in our security controls framework has delivered enhanced and maturing threat preparedness. Consequently, the severity of this risk is now assessed as Medium/High, down from High last year.

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

Linkage to strategy

Model excellence as a franchisor

We aim to implement and maintain world-class cyber security, internal control, and risk management frameworks.

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 noted the case of Lloyd v Google in late 2021 and have reconsidered the financial impact of a potential loss of control of customer data leading to a privacy class action. In itself, the judgement in that case appears to limit the courts' willingness to accept awards for loss of control of data unless evidence of loss can be demonstrated, especially where damages suffered by claimants are individualised and are not uniform. Nevertheless, the risk of financial penalty for a data breach remains significant whether imposed by the regulator or awarded by the courts.

Despite the impact of Lloyd vs. Google, and the benefits of enhanced data governance and other mitigations noted across, we consider the net risk severity remains high given the backdrop of increasing cyber threat activity.

We do not hold customer payment card details 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 64 of this report. We have assessed the net risk severity of a cyber breach affecting availability of our online systems and have rated this as Medium/High, reducing slightly from the prior year rating of High. These improvements in threat preparedness should also reduce the likelihood of a data breach affecting other corporate systems and associated data.

We have a robust compliance programme in place for GDPR and have launched refreshed training for employees in the year. Further actions have been taken to review data retention and document storage policies. We have re-confirmed the processes in place to regularly cleanse key customer and corporate data sets, to ensure ongoing compliance with these retention policies, and with any commitments made in our customer privacy notices. Franchisees are trained in their obligations in respect of personal data and are required to train their staff appropriately.

CLIMATE CHANGE

Linkage to strategy

Model excellence as a franchisor

We aim to improve our performance on climate change to exceed customer, franchisee and investor expectations.

We aim to meet all mandatory requirements for ethical and climate reporting.

Description of risk factors

Climate change poses commercial and operational risks which include possible impacts on the cost or availability of some of our ingredients which are high intensity in terms of land or water usage, or carbon footprint. Where sourced from geographic regions most vulnerable to chronic or acute climate effects, yield, productivity, or even crop viability may affect the availability of essential ingredients. We recognise that consumer preference may move increasingly away from meat and dairy products towards plant-based alternatives, both due to ethical and sustainability concerns from our customers. Operationally, the design of distribution networks and types of transport modes used by Domino's and our suppliers will need to adapt to lower carbon technologies expected to be mandated in the medium term by new regulatory requirements.

Opportunities arising from climate change include self-help initiatives to reduce our scope 1 and 2 emissions through energy efficiency, lower carbon energy mix, and micro-generation at our locations. We also see opportunities in our ability to adapt our core products to include meat-free alternatives, as demonstrated by the popular range of vegetarian and vegan menu choices already available to our customers.

Full disclosure of our response to climate challenges and our progress against TCFD reporting requirements is provided in the Sustainability section of the Strategic Report, on pages 45 to 46.

Risk mitigations in place and planned

We have established a climate risks and opportunities register which is embedded into our enterprise risk management processes and reviewed on a quarterly basis. These risk processes are regularly reviewed by the Audit Committee. Ownership of the mitigation and management of climate risks rests with the Board, overseen by the newly established Sustainability Committee, which will consider and review a range of climate change and other sustainability topics. A Sustainability Steering Group is chaired by the Chief Executive Officer, who retains day-to-day responsibility for managing climate issues.

Further progress is planned for 2022 and beyond to establish climate metrics, targets, and scenario modelling, as well as further integrating climate risks and opportunities into the Group's strategic planning.

PUBLIC HEALTH DEBATE

Linkage to strategy

Amplify our product quality & value

We will aim to reinvigorate our food innovation to improve customer satisfaction and experience and exceed customer, franchisee and investor expectations, addressing the need for healthier and free-from choices.

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, guidelines, or disclosures on nutritional content 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.

Following last year's consultation on restrictions to the online advertising of foods high in fat, salt, and sugar (HFSS), legislation to enact the outcomes of that consultation, The Health and Care Bill, is now at the Report stage in the House of Lords. As anticipated from the consultation, the Bill outlines that all paid-for online advertising will not be allowed to show HFSS products. In addition, there will also be a 9pm TV watershed for advertising featuring HFSS products. Paid-for advertising and marketing of brands that do not feature HFSS products are currently permitted in the draft Bill.

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.

We are actively engaging with Lords and civil servants to propose a delay to the enforcement timetable, and to request that the brand exemption is specifically referenced in the Bill to ensure it cannot be removed in the future without appropriate Parliamentary process. Regardless of the outcome of these discussions, we are confident we can effectively market Domino's brands and products to our customers whilst remaining fully compliant with the requirements of the Bill, once passed into legislation. We will continue to invest in brand marketing, which has been successful to date. Given these factors, we consider that the severity of this risk remains Medium.

PEOPLE-RELATED RISKS

Linkage to strategy

Model excellence as a franchisor

We aim to make the Domino's Group a great place to work for all colleagues, enhancing our ability to attract and retain the right talent.

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.

A range of factors have contributed to labour challenges during 2021 and are expected to persist in the short-term. These include the migration of labour from the UK due to Brexit consequences; specific shortages in key roles and skills, such as qualified large goods vehicle drivers, but also specialist IT and digital marketing skills; and a general increase in competition for skilled labour from direct competitors, other sector participants, or online retailers. These effects have an impact upon both the Group and our franchisees, with some labour availability issues particularly affecting supply chain employees, in-store colleagues, and store delivery drivers. Absences arising from employees and store colleagues self-isolating due to Covid infection has exacerbated these challenges. Continuation of these effects will put further pressure on labour usage costs and wage rate inflation in 2022.

Despite the operational challenges noted above, 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 86 to 87.

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.

We continue to work hard, both for ourselves and our franchisees, to promote Domino's as a great place to work and have enhanced recruitment advertising through all available channels. We continue to offer attractive reward packages to employees including, where necessary, specific retention incentives for individually critical employees. We offer a range of opportunities for colleagues to share in the success of the company through share ownership.

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:

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.