The Vital Role of Corporate Reporting in the Business World

Corporate reporting has multiple functions, which makes it an essential practice for businesses everywhere. Financial information remains the core of corporate information disclosures, but now non-financial information is also considered equally relevant to stakeholders. The report provides a detailed overview of how a company is run, presents a fuller and clearer picture of companies’ policies, practices and activities and whether or not it complies with the Code of Corporate Governance. It has become a way protecting investors, financial reporting and accounting by companies that wish to provide substantial information to lenders, investors and other stakeholders.

The development of these requirements has improved the regulation of financial accounting and reporting as well as the range of information publicly available, which works out perfectly with the societal demands for increased disclosures, offering transparency which will also be in favour of the company’s reputation and the trust they are aiming to establish with the public. The need to integrate the information on the activities of companies has been recognized at the international level. The report can also be used to disclose information on the environment, employees, social, community, human rights issues and gender diversity, which enhances accountability for the broad base of capitals (financial, manufactured, intellectual, human, social and relationship, and natural) and promote understanding of their interdependencies. This improves the quality of information available to providers of financial capital to enable a more efficient and productive allocation of capital and support integrated thinking, decision-making and actions that focus on the creation of value over the short, medium and long term.

As the 2018 study Financial Reporting and Corporate Governance: Bridging the Divide by Ong, A states “The report communicates the full range of factors that materially affect the ability of an organization to create value over time, including the main trends and factors that are likely to affect the future development, principal risks and uncertainties, performance and position of the company’s business.” In addition, the Financial Reporting Council (FRC) is urging companies to provide better information on how companies have fulfilled their duty to improve accountability to shareholders and other stakeholders. An integrated report is far broader that the present financial statements. It contains details of how an organization’s strategy, governance, performance and prospects lead to the creation of value over the short, medium and long term. Integrated reports are aimed at the providers of financial capital but contain information of interest to a wide range of stakeholders. With such aspects of information covered, the report can be used to evaluate the business and its performance as well.

The spread of international accounting has introduced other cultures and values into business relationships. It is the move from considering only the needs and interests of shareholders to meeting the needs and interests of all stakeholders. The adoption of international accounting standards, the greater flow of goods and services through borders of nations, and the wider dispersion of corporate practices are assisting in bridging the divide between financial reporting and corporate governance. The content of the report typically includes the Chairman’s and CEO’s statement, management discussion and analysis, corporate governance report, director’s report, auditor’s report, financial statements and sustainability report.

In conclusion, the report presents information that is beneficial to shareholders, other stakeholders and the business itself.

Introduction to Domino’s Pizza Group

Plc Domino's Pizza Group plc, a well-known name in the fast food industry, is originally a United Kingdom-based pizza delivery company. The pizza company holds the exclusive rights to own, operate and franchise branches of the chain in multiple countries from Europe, including the United Kingdom, Ireland, Germany, Switzerland, Liechtenstein and Luxembourg. The company has also made its presence known and received significant attention in Iceland, Norway and Sweden. The firm’s shares are listed on the London Stock Exchange, as a constituent of the The Financial Times Stock Exchange (FTSE) 250 Index. The widely recognized brand has successfully established its brand image and identity by communicating consisting messages and creative designs. The franchise operates over 1,000 stores across its markets and has approximately 950 stores in the United Kingdom, approximately 40 stores in the Republic of Ireland and over 10 stores in Switzerland. The first UK store opened in Luton in 1985 and the first Irish store opened in 1991. The company has experienced steady growth since its inception and continues to make profit presently and holding the title of world’s leading pizza Delivery Company.

In-depth evaluation of financial and non-financial information

The annual report of Domino's Pizza Group plc presented a range of financial and non-financial information. The 2017 Annual Report & Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. The company experienced a lot of growth in the years 2016 and 2017. Almost all of the growth was driven by strong like-for-like performance from existing stores, supported by increased penetration of online ordering. The two biggest cost drivers in the broader restaurant market are labour and food. For the Domino franchisees, these costs typically account for nearly 60% of revenue. Total collection sales were up 12.6% and represented 21.4% of system sales. For new and immature stores, collection represented 31% of sales. Total system sales outside the UK amounted to £136.4m.

The Republic of Ireland and Switzerland grew system sales by 11.3% and 17.1% respectively, after adjusting for foreign currency effects. Revenue for the year rose 31.6% to £474.6m on a 53 week basis. In terms of organic investment, in the year 2017 the company completed their single biggest ever capital project, the new supply chain centre in Warrington, with a total budget of nearly £40m. On a 52 week basis system sales were up 8.6%, driven by growth from order volume of 6.5% and 1.9% on average order value. Like-for-like sales growth (excluding effect of splitting territories) was 4.8%. And £20.1m invested in international growth markets; £81m of annualized sales. Domino's Pizza Group plc also made progress in the digital front as 75% of UK sales were ordered online. The company continued to support their above the line presence with the sponsorship of TV shows such as The Voice and Hollyoaks, targeting key audiences and family home entertainment events. The Group is highly cash generative and has many opportunities to invest for growth, while also returning excess cash to shareholders in a regular and structured way. During the year, they also took the opportunity to revise their target capital structure, giving them a more efficient balance sheet through increased debt funding.

In 2017 the franchise continued to generate very strong net cash flow from operating activities, rising 65.4% to £104.2m year-on-year. This was supported by a strong working capital performance, with a net inflow of £18.7m compared to an outflow of £10.7m in 2016. The Board is of sufficient size that the requirements of the business and good governance can be met and normal succession challenges managed. The rapid growth over the last few years and their future plans has led to their single biggest ever investments they have ever experienced, with the development of a new supply chain centre in Warrington. The total cash investment in 2017 was £26.7m and on completion the programme will have cost £37m–£39m. Online sales were up 28.8% year-on-year in local currency, and now represent 56.9% of total sales.2.3 Critical Analysis of Domino’s performanceThe delivered food market has been booming, stimulated by the growth in home entertainment, the increased choice of cuisines and the rise of digital ordering. Pizza remains the most popular choice, offering great tasting food, speed, convenience and value for money. The UK delivered food market is worth £6.2 billion and was estimated to grow at 11% in 2016–2017, and grew at a compound rate of 14% between 2014 and 2016. The main drivers of this growth have been technology, convenience and choice.

As a result, Domino's Pizza Group plc continued strong growth despite a tougher environment for our customers. The UK remains one of the leading franchises across the Domino’s network worldwide. The company’s UK network grew by a record 95 outlets and at the end of 2017, Domino traded from 1,045 stores in the UK. They also took the opportunity to acquire a majority stake in the largest franchisee in the London area. This can potentially be a platform for more rapid growth in the currently under-developed London market, and for the development of innovation in technology, pricing and menus. Outside the home market, the progress has been encouraging. In the Republic of Ireland, Domino opened their first stores for six years in response to the strong economic recovery in that market. The franchise is experiencing acceleration in growth in Switzerland, driven by changes to menu pricing and a very strong performance in online platforms. Domino’s business model is with its strong cash generation. With a rigorous approach to capital allocation, the company makes sure that existing businesses are invested in to maintain and grow competitive advantage, appraise new growth opportunities, and return cash to shareholders, all within a fit and consistent capital structure. However, there has been a rise in competition from new business models which provide customers with increased choices and alternative ways to order delivered food. In the short term, their outlets are also experiencing cost pressures from inflation in labor and food.

Finally, the broader economic environment is also putting pressure on customers’ spending power. Labor costs have experienced significant inflation over the last two years with increases to the UK National Living Wage. In 2015 the hourly rate for someone aged 25 was £6.70, since when it has increased by 12% to £7.50. They have also seen a tighter labor market created by high levels of employment and increased demand for delivery drivers. Obesity and related health problems are quite rightly a major factor in public policy. The franchise took this opportunity to introduce a Italiano pizza range in 2016, with thinner crust and more exclusive toppings, which have fewer calories overall than the equivalent traditional Domino’s pizza. The low fat mozzarella cheese has 33% less fat than the brand’s regular mozzarella. Using the trend of healthy eating to their advantage, they have also begun to offer gluten-free bases and a range of chicken sides and salads, to appeal to those customers who want a higher protein or lower carbohydrate option.

In September Domino's Pizza Group plc launched a national campaign focusing on the price of an individual pizza with our ‘Dine for £9.99’ offer, which happened to be their most successful campaign of the year in terms of sales. Additionally, they had sought to push their value message harder in their collection business. In the Spring, the company launched their ‘Walk in Wins’ campaign, which consisted of a ‘Buy One Get One Free’ offer on collected pizza and has been running permanently since then. In September 2017 they also launched their new brand campaign, “The Official Food of Everything”, which was an attempt to clearly position Domino as an established category leader – a timely evolution from their previous challenger brand positioning. The impact of the campaign in brand recall had been very strong, with recognition of the positioning running at three times the level of previous campaigns, and unprompted awareness at 84% – their highest ever. Early in 2017, their Winter Survival deal failed to perform as successfully as the previous years due to a less compelling value proposition since many customers are still left with the false perception of high menu prices. When it comes to customer experience, the franchise proceeded to introduce new food options to keep the menu up to date and to cater different people and their varying tastes.

Impression management

Organizations undertake impression management activities to positively shape public perception of who they are, what services they provide, how well they provide them (particularly in contrast to competing companies). Rosenfeld, Giacalone, and Riordan (1995) define impression management as a fundamental process where people strategically undertake certain communication activities in order to influence the way other people perceive them and create a certain impression that will help them achieve a specific goal, such as being well-liked. Gioia and Thomas (1996) also assert that identity management is possible through communication activities. Since animal welfare has become an important issue to the customers and the society in general, in 2017 Domino's Pizza Group plc published their first Annual Welfare Policy relating to their supply chain base in the UK and Republic of Ireland. It was a strategic move, impression management by exemplification, as they followed the ongoing public debate on healthy eating closely to create an impression of moral worthiness. The organization wants to be perceived as caring. The franchise now offers a reduced fat mozzarella option. Since the beginning of 2012, they have removed over 40 tonnes of salt from their pizzas and reduced fat content in ingredients such as pepperoni and beef. This impression management strategy appear if they are willing to suffer for a cause

The company also claims to maintain an active dialogue with our shareholders and potential investors, which they say is based on a mutual understanding of objectives. The CEO and CFO are said to routinely engage with analysts, institutional and retail shareholders and potential investors, through results presentations, road shows and one-off meetings. This was a form of self-promotion; another strategy of impression management. According to Jones and Pittman’s (1982) taxonomy of impression management strategies, actors use self-promotion to call attention to their abilities or accomplishments because they want audiences to see them as competent. Self-promoters make claims to persuade others to see them as competent: users of this impression management strategy will give positive performance accounts of themselves, brag, and/or name-drop. However Jones (1990) warns that there are inherent dangers with this tactic because actors who self-promote may become less likeable.

Recommendation

As multiple researchers have discovered that presently millennials are more interested in pizza than other fast-food items such as burgers, the company should take advantage of this popularity growth of pizza effectively. With their current business model, which is direct, capital-light, and recession-proof in nature, the franchise should focus on performing better internationally. Keeping in mind that the shares of Domino’s drastically fell by 11 percent early in 2018 despite an 8 percent rise in the UK sales, it appears that the company is struggling with their international expansion when it comes to handling costs, such as high labor costs in several countries. CEO David Wild said “Whilst our international businesses continue to make good progress with customers and sales, it has taken us some time to refine the operating model and cost base at store level, particularly in Norway,” While the company claims to have refined the situation, Hargreaves Lansdown, a renowned financial service company based in England, stated that Domino’s performance at the UK is continuing to cover up the weak execution internationally. A fund manager at Hargreaves Lansdown concluded that “The core UK business is a gem, with a hugely cash generative franchise model that gives the group tremendous financial strength. Domino’s challenge is now to replicate their success at home internationally and for now, the jury is still out.”

So, to sum it up, Domino’s Pizza Group plc should be improving their cost-revenue structure in their international stores.

Bibliography:

1. Ong, A. (2018). Financial Reporting and Corporate Governance: Bridging the Divide. Journal Of Management Research (09725814), 18(1), 37-43.
2. Teryl A. McLane. (2012). From The Top: Impression Management Strategies And Organizational Identity In Executive-authored Weblogs. Impression Management, 14-23
3. Bolino, M. C., & Turnley, W. H. (1999). Measuring impression management in organizations: A scale development based on the Jones and Pittman taxonomy. Organizational Research Methods, 2, 187–206. doi: 10.1177/109442819922005
4. Bolino, M. C., & Turnley, W. H. (2003). More than one way to make an impression: Exploring profiles of impression management. Journal of Management, 29(2), 141-160.Lillqvist, Ella & Louhiala-Salminen, Leena. (2013). Facing Facebook: Impression Management Strategies in Company-Consumer Interactions. Journal of Business and Technical Communication. 28. 3-30. 10.1177/1050651913502359.Domino’s. (2017). Domino Pizza Group plc Annual Report & Account 2017 Retrieved September 5, 2018, from https://investors.dominos.co.uk8