Domino’s Pizza International Franchising Inc. (‘DPIF’) is the owner of the Domino’s brand across the globe. We have two Master Franchise Agreements in place with DPIF, which gives us exclusive rights to the markets in the UK, the Republic of Ireland, Switzerland, Luxembourg and Liechtenstein.

In addition, we have associate investments in Germany, Iceland, Norway and Sweden. Our aim is to be the number one pizza company in every neighbourhood in which we operate.

We do this by making, selling and delivering pizzas and other products to our customers.

This is either through our own corporate stores or through stores operated by our franchisees. In addition, we buy the products and make the fresh dough used in our pizzas and where we have franchisee stores we sell these products to the franchisee who then makes, sells and delivers the products.

Franchisee relationships

In our franchisee-operated stores we have an integrated operating model:

• we choose our franchisees carefully for their commitment and entrepreneurial approach, which drives the growth of the business. Each franchisee signs up to a Standard Franchise Agreement (‘SFA’) for each store;
• we work with the franchisees to choose the right store sites. We enter into the head leases and sub-let to the franchisee. This means we can grow our network of pizza stores without committing significant amounts of capital and if the franchisee chooses to leave the system, we still control the site;
• we sell them dough and other food and non-food products at a margin from which they then make the end products that they then sell to customers (‘the System Sales’);
• we charge them a royalty fee of 5.5% of their system sales and we pass on 2.7% of the system sales to DPIF as a royalty cost;
• we invest in our digital customer ordering platforms, which makes ordering easier for our customers, which drives higher loyalty, frequency of order and increased order values. We pass this cost on to our franchisees; and
• all our franchisees contribute to a national advertising fund which we co-ordinate and recommend a range of advertising and promotional activity to drive store sales.

In summary

• System sales increased by 14.5% to £1,004.2m (2015: £877.2m).
  Underlying profit before tax of £85.7m, up 17.1% (2015: £73.2m).
  Underlying earnings per share of 13.8p, up 15.6% (2015: 11.9p).
  International investment in the Nordics and Germany of £46.8m.
  New five-year credit facility of £175m.
  Distribution of surplus cash to shareholders via buyback and dividends.
  Investment in two new SCC facilities (forecast £50–£60m).

Discussion points
1. When a customer pays for a pizza to be delivered, how is the profit shared between the franchisee and the Domino companies?
2. How does Domino Pizza Group invest in non-current assets that help the business to grow?