S E R V I C E
R A N G E
F R E S H N E S S
P R I C E
Ocado Group plc
ANNUAL REPORT & ACCOUNTS
for the 52 weeks ended 30 November 2014
www.ocadogroup.com
Stock code: OCDO
23698-04 29-01-2015 PROOF 9 Ocado Group plc
Annual Report and Accounts for the 52 weeks ended 30 November 2014
OUR PURPOSE
To deliver the best platform for online grocery and
improve the customer shopping experience, with
the clear objectives of driving strong growth and
delivering long-term shareholder value.
WHO?
We are the world’s largest dedicated online
grocery retailer, operating our own grocery and
general merchandise retail businesses in the
UK under the Ocado.com and other specialist
shop banners. We also utilise our technology
and platform to operate the online business of
Morrisons and intend to further use our platform to
help international partners.
HOW?
We have developed a unique end-to-end
operating solution for online retail based on
proprietary technology and IP, suitable for
operating our own businesses and those of our
commercial partners.
WHY?
The world is changing fast, driven by different
shopping habits and ever more advanced
technology for the consumer. Grocery is the
largest of all retail segments and is moving
online. Moreover, the rapid growth of shopping
using mobile devices adds new challenges to
traditional retailers. We are well positioned to
take advantage of these long-term structural trends
for the benefit of our customers, partners and
shareholders.
UK ONLINE GROCERY MARKET SIZE
(£bn)
20
16
12
8
4
0
2012
2013
2014
2015
2016
2017
2018
2019
Source: IGD
OUR VISION
To continually develop innovative proprietary
technology and IP enabling a world leading
commercial and fulfilment platform for our own
grocery and general merchandise businesses,
and those of our commercial partners.
View more information about why
people invest in us on page 5
View more information online at
www.ocadogroup.com
Hear Tim Steiner, Chief Executive
Officer, at www.ocadogroup.com
Scan the QR code with your smart
device to watch Tim Steiner online
23698-04 29-01-2015 PROOF 9 OUR RETAIL BRANDS
We operate our retail businesses under the
following brands.
Both our corporate identity and our core
grocery brand used for our shop and
own-label products.
Our dedicated pet store.
Our dedicated kitchen and dining store.
OUR BRAND VALUES
GOING THE EXTRA MILE FOR THE CUSTOMER
“Our service is industry leading and leaves a smile on your face,
with minimal substitutions, product life guarantees, delivered to
your kitchen with clean feet and a smile – even if you are six floors
up. Our technologies that enable us to provide this service are
second to none, and constantly evolving. We will never rest on our
laurels, nor accept ‘good enough’.”
DO THE RIGHT THING
“We are not a faceless corporate online – we pride ourselves
on the personal touch. We have an honest relationship with our
customers, suppliers, investors, staff and the community. We want
to exceed their expectations and deliver on our own.”
BE BETTER TOMORROW THAN WE ARE TODAY
“We have a culture of continuous innovation, leading the way with
online grocery shopping: the first grocery shopping mobile apps, one
hour delivery slots, smart packing technologies and green deliveries.
We are ambitious, dedicated to progress and born to deliver. This is
only possible by having some of the most dedicated people at every
level and area within the business, all with one purpose – to continue
to make things better than they were yesterday.”
CONTENTS
STRATEGIC REPORT
04
05
06
08
10
12
14
16
18
20
22
26
30
32
36
42
49
50
56
Our Progress in 2014
Why People Invest in Us
Chairman’s Statement
Chief Executive’s Interview
How We Generate and Preserve Value
Disrupting the UK Grocery Marketplace
Our Marketplace
Our Wider Market Opportunities
Our Strategy
Driving Growth
Maximising Efficiency
Utilising Proprietary Knowledge
Our Key Performance Indicators
How We Manage Our Risks
Chief Executive Officer’s Review
Chief Financial Officer’s Review
Awards
Corporate Responsibility
Our People
OUR GOVERNANCE
62
64
66
74
80
82
Board of Directors
Chairman’s Overview
Statement of Corporate Governance
Audit Committee Report
Nomination Committee Report
Directors’ Report
DIRECTORS’ REMUNERATION REPORT
92
94
96
111
127
Annual Statement from the Remuneration Committee Chairman
Description of the Remuneration Committee
Remuneration Policy Report
Annual Report on Remuneration — 2014
Annual Report on Remuneration — Implementation of Policy for 2015
OUR FINANCIALS
132
139
140
141
142
143
144
188
190
191
192
193
Independent Auditors’ Report (Group)
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
Independent Auditors’ Report
Company Balance Sheet
Company Statement of Cash Flows
Company Statement of Changes in Equity
Notes to the Company Financial Statements
SHAREHOLDER INFORMATION
206
208
209
209
Glossary
Five Year Summary
Financial Calendar
Company Information
01
Stock Code: OCDOwww.ocadogroup.comStrategic Report23698-04 29-01-2015 PROOF 9 D E L I V E R I N G
THE BEST
ONLINE
PLATFORM FOR
GROCERY
“We have developed a
unique end-to-end operating
solution for online retail
based on proprietary
technology and IP, suitable
for operating our own
businesses and those of
our commercial partners.”
02
23698-04 29-01-2015 PROOF 9 STRATEGIC REPORT
How We Generate and Preserve Value
Disrupting the UK Grocery Marketplace
Our Wider Market Opportunities
Chief Executive’s Interview
Our Strategy
Our Marketplace
Our Progress in 2014
Chairman’s Statement
04
05 Why People Invest in Us
06
08
10
12
14
16
18
20
22
26
30
32
36
42
49
50
56
Maximising Efficiency
Corporate Responsibility
Driving Growth
Our People
Awards
Utilising Proprietary Knowledge
Our Key Performance Indicators
How We Manage Our Risks
Chief Executive Officer’s Review
Chief Financial Officer’s Review
View more information about
our strategy on pages 4 to 59
View more information online at
www.ocadogroup.com
03
23698-04 29-01-2015 PROOF 9 OUR PROGRESS IN 2014
ON TIME OR EARLY (%)
95.3%
2013: 95.2%
95.2
95.3
92.3
92.7
ORDER ACCURACY (%)
99.3%
2013: 99.0%
99.0
99.3
98.3
98.0
CFC EFFICIENCY1 (UPH)
145 UPH
2013: 135 UPH
145
135
121
111
SERVICE DELIVERY (DPV/WK)
163 DPV/WEEK
2013: 160 DPV/WEEK
152
145
160
163
2011
2012
2013
2014
2011
2012
2013
2014
2011
2012
2013
2014
2011
2012
2013
2014
GROUP SALES (£M)
1,026.5
2013: 852.4
RETAIL SALES (£M)
972.4
2013: 843.0
EBITDA (£M)
71.6
2013: 45.8
1,026.5
972.4
71.6
NET ASSETS (£M)
218.2
2013: 202.4
205.7
202.4
218.2
852.4
719.0
843.0
719.0
642.8
642.8
172.9
45.8
34.5
27.9
2011
2012
2013
2014
2011
2012
2013
2014
2011
2012
2013
2014
2011
2012
2013
2014
STRATEGIC AND OPERATIONAL
HIGHLIGHTS
FINANCIAL HIGHLIGHTS
• Morrisons.com successfully launched on 10 January 2014
• Gross sales (Group) up 20.4% to £1,026.5m
• Rolled out Fetch and launched Sizzle, our first dedicated
• Gross sales (Retail) up 15.3% to £972.4m
destination sites in pet and kitchen categories, with over 8,000
and 12,000 SKUs respectively
• Revenue up 19.8% to £948.9m
• EBITDA up 56.3% to £71.6m
• Developed new IP, with multiple patents filed
• Industry leading service levels improved further with on time
deliveries 95.3% and order accuracy 99.3%
• Range at Ocado.com extended to over 43,000 SKUs
• Active customers increased to over 453,000
• Average order size2 declined 1.1% to £112.25
• Mature CFC efficiency1 improved to 145 units per hour (“UPH”)
• Delivery performance improved to 163 deliveries per van per
week (“DPV”)
• Profit before tax and exceptional items of £7.5m
(2013: loss of £5.1m)
• Net assets have grown by 7.8% to £218.2m.
1. Mature CFC operations (CFC is considered mature if it had been open 12 months by the start of the half year reporting period).
2. Average retail value of goods a customer receives (including VAT, delivery charge and standalone orders) per order.
04
23698-04 29-01-2015 PROOF 9Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 2014 WHY PEOPLE INVEST IN US
1.
LARGEST DEDICATED
ONLINE GROCERY
SUPERMARKET
IN THE WORLD
2.
SIGNIFICANT
MARKET
OPPORTUNITY
IN GROCERY, THE
LARGEST RETAIL
SEGMENT
3.
IDEALLY
POSITIONED TO
BENEFIT FROM
CONTINUING
CHANNEL SHIFT
TO ONLINE
View more information
about our wider market
opportunities on pages
16 & 17
View more information about
our marketplace on pages
14 & 15
View more information about
disrupting the UK grocery
marketplace on pages
12 & 13
4.
PROPRIETARY
INTELLECTUAL
PROPERTY CREATING
SIGNIFICANT BARRIERS
TO ENTRY
5.
SUPERIOR
CUSTOMER OFFER
WITH LEADING
SERVICE, RANGE AND
PRICE PROPOSITION
View more information
about utilising proprietary
knowledge on pages
26 & 27
View more information about
driving growth on pages
20 & 21
6.
OPERATING MODEL
GIVES STRUCTURAL
ADVANTAGES AND
SUPPORTS A VIRTUOUS
CYCLE OF GROWTH
AND INVESTMENT
7.
CONSIDERABLE
OPERATIONAL
LEVERAGE
EXPANDING
MARGINS
View more information
about how we generate and
perserve value on pages
10 & 11
View more information about
our KPIs on pages 30 & 31
8.
COMMERCIALISING
INTELLECTUAL
PROPERTY OFFERING
SIGNIFICANT VALUE
CREATION FROM
PLATFORM
BUSINESS
9.
PROVEN
MANAGEMENT
TEAM DRIVING
STRATEGY
AND
EXECUTION
View more information about
Ocado Smart Platform on
pages 28 & 29
View more information about
our management on pages
62 & 63
05
23698-04 29-01-2015 PROOF 9Stock Code: OCDOwww.ocadogroup.comStrategic Report
CHAIRMAN’S STATEMENT
Lord Rose
Chairman
GROWTH
CUSTOMERS AND SUPPLIERS
“Ocado is one of the
small group of grocery
retailers that continues
to grow.”
View more information about
driving growth on pages 20 & 21
View more information online at
www.ocadogroup.com
The UK retail market experienced
significant change over the year. We
continue to see an increase in the number
of customers choosing to shop online for
their groceries, which was reflected in an
increase in our active customers of over
453,000. However, the grocery market
has become increasingly competitive, with
margins being placed under pressure from
price discounting by grocery retailers.
Despite these difficulties, Ocado is one
of the small group of grocery retailers
that continues to grow, with Group gross
sales increasing by 20.4% and EBITDA
increasing by 56.3%.
It was a strong year for our non-food
offering, with the launch of Sizzle, our
new kitchenware store, and the continued
success of our pet store, Fetch, with product
ranges of over 12,000 and 8,000
products respectively. In addition, we
are continuing to ensure a greater choice
for our Ocado.com customers through
an increase in our product range to over
43,000 products, including an increase
in Ocado own-label products. We are
also providing more opportunities for our
suppliers, and hosted the “Britain’s Next
Top Supplier” competition, to help support
upcoming, small suppliers.
EFFICIENCY
During the year, our efficiency has
continued to improve, notably in Dordon,
where the milestone of 100,000 deliveries
per week was achieved, and after year
end, the further milestone of 200,000
Ocado.com deliveries per week across
both CFCs. We also started building work
on a new CFC in Andover, Hampshire
and have announced that we exchanged
contracts on a site in Erith in the London
Borough of Bexley for CFC4. We intend
to install our next generation infrastructure
solution in these new CFCs, which we
expect to be cheaper and more efficient to
run than our current CFCs.
06
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 “We continue to invest
in the innovation and
development of our
intellectual property
and technology.”
“The Group is fostering
an environment of
innovation and progress
in a framework of strong
governance and risk
management.”
BOARD CHANGES
Jason Gissing, co-founder of Ocado
and Commercial Director, retired from
the Board at the Group’s annual general
meeting in May 2014. On behalf of the
Board, I would like to thank Jason for his
contribution to the Group, and wish him
every success in the future.
THE OCADO FAMILY
We are fortunate enough to have
exceptionally talented and dedicated
employees. On behalf of the Board,
I would like to thank all members of
the Ocado family for their contribution
throughout the year.
Lord Rose
Chairman
Ocado Group plc
INTELLECTUAL PROPERTY AND
INTERNATIONAL
We have successfully utilised our expertise,
infrastructure and technology to provide
services to our first strategic customer,
Morrisons. We continue to invest in
the innovation and development of our
intellectual property and technology, in
preparation for future international growth.
The Board remains committed to finding
further strategic customers, monetising
our intellectual property and supporting
and overseeing the executive team in the
creation of greater long-term shareholder
value in our business.
CORPORATE GOVERNANCE
One of the Board’s responsibilities
is ensuring that the Group applies
good governance to facilitate effective
management of a rapidly growing
business. As the Company’s Chairman I am
pleased to note that the Group is fostering
an environment of innovation and progress
in a framework of strong governance
and risk management, evidenced by
the Group’s recent award for corporate
governance at the Building Public Trust
Awards 2014 in respect of the Group’s
2013 annual report. A detailed statement
on corporate governance for 2014 can be
found on pages 62 to 89.
SHARE PRICE CHART
Share price for London (Ocado): 30 Nov 2013 to 18 Jan 2015
)
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(
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700.00
600.00
500.00
400.00
300.00
200.00
Dec ‘13
Jan ‘14
Feb ‘14
Mar ‘15
Apr ‘14
May ‘14
Jun ‘14
Jul ‘14
Aug ‘14
Sep ‘14
Oct ‘14
Nov ‘14
Dec ‘14
Jan ‘15
07
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CHIEF EXECUTIVE’S INTERVIEW
Tim Steiner
Chief Executive Officer
“In building our
retail business using
proprietary knowledge
and technology solutions,
we have developed an
entire end-to-end platform
for operating grocery
retail online”
View more information about
Ocado Smart Platform on pages 28 & 29
View more information online at
www.ocadogroup.com
To hear more from Tim Steiner visit
www.ocadogroup.com
Scan the QR code with your smart
device to watch Tim Steiner online
SUPERIOR ECONOMIC MODEL
PRICE ACTIVITY
Q Why do you believe that you have
a superior economic model for
online grocery retailing than your
competitors?
Q There has been a lot of recent
commentary about price wars in the
UK food retail sector. What is your
view and how does it affect Ocado?
A Grocers have always strived to
operate at the lowest level of cost,
given the low margin nature of the
industry. For online our centralised
model allows us to reduce the cost
of our supply chain, to aggregate
scale, and to justify investment in
automation and technology solutions,
which drive down the unit cost of
fulfilling orders. Our peers’ use of
existing assets (shops) or smaller
warehouse facilities (so called dark
stores) does not afford them the same
benefits.
At the same time, our model allows
us to provide to our customers the
best quality service in the industry,
together with wider ranges and
with scale, at ever more competitive
prices.
A Price is one of the key elements
which persuade customers to
shop with a retailer, and a recent
focus has been how some of the
mainstream supermarkets demonstrate
their price competitiveness against
the discount players.
As a price follower (our price
comparison currently matches against
the largest player, Tesco) there may
be some impact of this activity on
Ocado. However, given our wider
range than other competitors, the
overlap of products impacted by
price activity is likely to be more
limited. We continue to grow sales
volumes and improve operational
cost efficiencies so that helps protect
us from significant margin impact.
It is important to note that consumers
who wish to shop online also pay
great attention to product quality,
freshness, availability, range and the
reliability of the service provided –
all of which we continue to focus on
delivering to the highest standard.
08
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9
CFC3 AND CFC4
Q You announced plans for your next
two CFCs. What are the details and
why are they needed?
A Our third CFC will be located in
an existing building in Andover, in
the south of England and is due
to open at the end of 2015. Our
fourth CFC will be located in a new
development in Erith in the London
Borough of Bexley. This will be in
a brand new building – work will
commence on site in 2015 and it is
due to open in 2017. With growing
customer demand, it is important we
plan for future capacity carefully to
avoid having to constrain the growth
of our business.
The new CFCs will house the first
installations of our next generation
infrastructure solution. We own the
design and IP rights for this solution
and control the manufacturing,
and we expect to have lowered
the capital cost for fulfilment when
viewed against CFC2 in Dordon.
It should also be more efficient to
operate.
The Andover CFC will be smaller
than previous CFCs, capable of
generating around 65,000 orders
per week, or approximately £350
million in annual sales whilst the
Erith CFC will be larger, capable of
generating in excess of 200,000
orders per week or approximately
£1.2 billion in annual sales. This
demonstrates the modularity of this
infrastructure. It is also scalable (it
can be built in stages) and is fast to
deploy (in both sites, less than 18
months from securing the building).
All of these attributes add significant
flexibility to capacity planning for
our retail business and for our future
partners.
INTERNATIONAL OPPORTUNITIES
Q Can you tell us more about your
plans outside the UK?
A In building our retail business
using proprietary knowledge and
technology solutions, we have
developed an entire end-to-end
platform for operating grocery
retail online. We entered into our
first agreement with Morrisons to
utilise this platform for their business,
and believe there are significant
opportunities to use our platform
to power multiple online retail
businesses internationally.
We intend to partner with retailers,
who will own and use their existing
customer and supplier relationships,
and we will provide the operating
and infrastructure platform (we call
this Ocado Smart Platform) for them
to rapidly launch and build scalable,
profitable online businesses, with
the capability to provide attractive
propositions to their customers.
09
Stock Code: OCDOwww.ocadogroup.comStrategic Report23698-04 29-01-2015 PROOF 9
HOW WE GENERATE AND PRESERVE VALUE
OCADO IS A PURE-PLAY ONLINE OPERATOR
Ocado is entirely focused on online activities. We are not burdened by a legacy estate of existing supermarket outlets, which are facing
declining sales volumes, margin pressure and less flexibility to invest in the proposition to the customer.
Since formation we have developed a unique end-to-end platform solution for online retailing. Our know-how and expertise allows us to provide
a best in class proposition to the customer, delivering continuing growth in the UK market and monetisation opportunities overseas.
MANAGING OUR RELATIONSHIPS
MANAGING OUR RELATIONSHIPS
We have three principal types of relationships we are constantly managing – our customers, our
product suppliers and our commercial partners to whom we are a supplier of IP and services.
Our objective is continually to improve each element of the proposition to our customers, and
to ensure we communicate how our service is evolving for their benefit. We constantly seek to
improve how we engage with customers, removing the inertia for them to shop with us, and to
encourage them to shop repeatedly with us through providing a better offer to them.
We have good relationships with our suppliers, including the global consumer product companies
supplying branded ranges, food producers supplying private label selections, and smaller niche,
international and speciality suppliers. Part of our supply arrangements involve Waitrose, with
whom we have a sourcing arrangement combining our respective volumes to receive better supply
terms, and also allowing us to sell Waitrose branded products.
In July 2013, we entered a 25 year agreement to provide the technology infrastructure and
operating services to launch and run Morrisons.com, the online business of Wm Morrison
Supermarkets PLC. Morrisons.com successfully launched on 10 January 2014. This is the
first of our so-called “platform” relationships, and we anticipate opportunities to develop
arrangements with international commercial partners in the future.
WHAT DIFFERENTIATES US?
Throughout our history, our focus has been on developing the best platform for online grocery
retailing. This single-minded focus has enabled us to develop market leading logistics and
physical infrastructure solutions, driven by proprietary technology and innovation. We have
often been the benchmark for the online grocery industry constantly looking to improve
industry standards, from providing one hour delivery slots to being the first to launch a fully
transactional app for the iPhone in 2009. Underpinning all of this are our people, their
commitment, knowledge, expertise and unity in working with a common goal.
MORRISONS
WAITROSE
WHOLESALE
SUPPLIERS
PROPRIETARY KNOWLEDGE AND IP
View more information on our IP
on pages 22 to 29
WHAT DIFFERENTIATES US?
TECHNOLOGY
INNOVATION
LOGISTICS
PEOPLE
DELIVERING SUSTAINABILITY TO OUR CUSTOMERS
DELIVERING SUSTAINABILITY TO OUR CUSTOMERS
The advantages our operating model brings ensure that we can offer a consistent, sustainable
and reliable service to customers. Better stock predictability enables better fulfilment and
freshness of product. The economic benefits of our model will enable future investment into the
proposition driving a virtuous and sustainable cycle of growth.
Our model generates less waste than physical retailers for the same sales of fresh product,
uses less land, requires less buildings, and wastes less energy (with as an example, no
open chiller cabinets in centrally heated store environments), and for every delivery route
we save up to 20 customers having to drive to the store.
View more information about
corporate responsibility on pages 50 & 55
LESS WASTE
PLASTIC RECYCLING
LESS PROPERTY
LESS ENERGY
EATING WELL
LOWER CO2
10
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 OUR MODEL
Our objective is to operate a high quality service at the lowest
possible cost and to create a virtuous cycle between growth,
efficiency and investment. We achieve this through combining
three key elements – the aggregation of scale into single facilities,
the automation of many processes and the application of
proprietary knowledge – to remove significant costs commonly
incurred by physical retailers.
Our centralised approach allows us to aggregate greater scale
into single locations, and to invest in automation to replace many
of the manual tasks in the retail supply chain. We utilise our
proprietary end-to-end technology platform to optimise our entire
operations from the user interfaces, the stock and order processing
systems and through to the final delivery to the customers’ homes.
Our model enables us to invest in the proposition to customers in the
form of wider ranges at competitive prices and a market leading
service. Our improving proposition enables us to grow faster,
and with increasing scale we benefit from improved efficiencies
and expanding margins, which can be used to further invest into
the proposition to encourage more growth. As we get bigger
our relative purchasing position also improves. The efficiencies
inherent in our model will increasingly outweigh any purchasing
disadvantage due to our relative small scale today.
LOWER PRICES, WIDER
RANGE GENERATES
FASTER GROWTH
GROCERY
REVENUES
COST BASE
ERODES
VIRTUOUS CYCLE
GROWTH ALLOWS
FURTHER INVESTMENT
INTO CUSTOMER
PROPOSITION
INCOME
FROM IP
AT SCALE LOGISTICS
COST BENEFIT
OUTWEIGHS BUYING
POWER DISADVANTAGE
GROWTH FURTHER
ERODES BUYING
POWER DISADVANTAGE
11
Stock Code: OCDOwww.ocadogroup.comStrategic Report23698-04 29-01-2015 PROOF 9
DISRUPTING THE UK GROCERY MARKETPLACE
EVOLVING WITH CHANGING
CUSTOMER BEHAVIOUR
The grocery market has seen enormous
change since the days of numerous
small independent shops selling to their
immediate local street catchment areas.
In particular, the way that people shop
and the format of retail operations have
changed significantly. Changing formats
have reflected “channel shift” in the market.
Customers are encouraged to change the
way they shop by perceived improvements
to the shopping proposition offered to
them. This might be in the form of lower
prices, wider ranges, more convenience,
fresher products or better service levels.
“We have developed
a different way of
operating . . . more suited
for online shopping”
View more information about
maximising efficiency on pages 22 & 23
View more information online at
www.ocadogroup.com
REMOVING SIGNIFICANT COSTS THROUGH THE SUPPLY CHAIN
OUR CENTRAL FULFILMENT CENTRES
Other social and economic changes have
contributed to changing shopping patterns,
for example wider car ownership, that has
supported the growth of larger out of town
stores. Today, the biggest social change is the
advancements in technology and how these
have impacted on daily life. Wider internet
access through personal computers, and more
significantly, mobile devices harnessed with
increasingly faster broadband speeds, enable
people to live their lives using technology more
than ever before.
This is reflected in ever increasing numbers
of consumers shopping for groceries
online. Customers are attracted by the
convenience that online can bring enabled
by the advancements in technology. As
the UK’s largest dedicated online grocery
retailer, we have been able to place our
focus on improving the proposition we
offer to our customers. We believe this has
encouraged others in the industry to improve
their own service offerings to compete,
which encourages growth in the number of
customers shopping online.
SIGNIFICANTLY REDUCE
PRODUCT WASTE
REMOVE COSTS
OF SEPARATE
DISTRIBUTION CENTRES
SIGNIFICANTLY REDUCE
PROPERTY AND
OCCUPATION COSTS
AUTOMATE STOCK
PUT-AWAY PROCESSES
NO PHYSICAL
CHECKOUT PROCESS
CONVENIENCE OF
ORDERING ONLINE
MORE EXTENSIVE
RANGE
HIGHER PREDICTABILITY
OF STOCK
FASTER TURNING
STOCK AND
FRESHER PRODUCTS
COST SAVINGS
KEY
Driving Business Benefits
Driving Customer Benefits
12
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9
REMOVING SIGNIFICANT COSTS THROUGH THE SUPPLY CHAIN
OUR CENTRAL FULFILMENT CENTRES
WHY THE OCADO APPROACH
IS DIFFERENT
We have two primary considerations –
improving the quality of our proposition for
our customers while delivering best in class
service at the lowest economic cost.
We have developed a different way of
operating to the traditional store approach,
and one that we believe is more suited for
online shopping, fulfilment and delivery.
We have no physical stores, instead using
large CFCs where all stock is received and
held, and all customer orders are picked.
We have automated many of the tasks that
are manual in store-based retailing to drive
down the operating costs in our operations.
We apply proprietary technology, software
and algorithms, to optimise our end-to-
end operations, from the front end user
interfaces, through the entire warehouse
operations to the sophisticated routing
software making over 3 million calculations
a second to optimise van routes. The
combination of these elements allows us to
lower or eliminate many of the costs which
are incurred in traditional grocery retail
operations.
INCREASING EFFICIENCIES
Our operating model enables us to remove
several layers of cost. We remove the
requirement and cost of separate (regional)
distribution centres to receive stock from
suppliers, re-palletise and redistribute to
stores or dark stores, as we receive the
majority of our stock directly from suppliers.
We automate the “put away” process
reducing operating costs. We have no
physical checkout process, because we
have no stores, further reducing labour costs.
Our significantly faster stock turn and
advanced picking systems reduces product
waste, representing both a cost saving
and a more sustainable food supply chain.
Our property occupation costs are low, for
example through the use of relatively cheap
real estate (warehouse space), lower
energy usage, and better economies of
management and scale.
THE VALUE OF OUR OPERATING
MODEL TO CUSTOMERS
The predictability and precision with which
we operate our fulfilment enables us to
provide what we believe to be the leading
service to customers, in terms of accuracy of
pick and delivering on time (in a one hour
time slot). Our model is very conducive to
a large product range, as our infrastructure
allows for dense storage and our stock has to
be held in only a limited number of locations.
We have higher predictability of stock,
which improves our ability to fulfil
customers’ orders accurately and with
minimal substitutions. With a supply chain
that is generally shorter and the scale
of facilities much larger than stores, our
stock turn is much faster often enabling
us to deliver fresher products; in fact we
guarantee life of our fresh products. The
cost savings generated as a result of our
operating model allows for investment into
the offer, giving the customer good value at
competitive prices.
THE OCADO WAY
ELNNAHC ENILNO DESUCOF YLELOS
OUR CENTRAL FULFILMENT CENTRES
SIGNIFICANTLY REDUCE
PRODUCT WASTE
REMOVE COSTS
OF SEPARATE
DISTRIBUTION CENTRES
SIGNIFICANTLY REDUCE
PROPERTY AND
OCCUPATION COSTS
AUTOMATE STOCK
PUT-AWAY PROCESSES
NO PHYSICAL
CHECKOUT PROCESS
CONVENIENCE OF
ORDERING ONLINE
MORE EXTENSIVE
HIGHER PREDICTABILITY
RANGE
OF STOCK
FASTER TURNING
STOCK AND
FRESHER PRODUCTS
COST SAVINGS
KEY
Driving Business Benefits
Driving Customer Benefits
OUR CUSTOMERS HOMES
13
Stock Code: OCDOwww.ocadogroup.comStrategic Report23698-04 29-01-2015 PROOF 9
OUR MARKETPLACE
CHANNELS THAT MAKE UP
THE UK GROCERY MARKET
(2014 SALES)
OTHER
RETAILERS
£9.4bn
ONLINE
£7.7bn
DISCOUNTERS
£10.8bn
CONVENIENCE
STORES
£37.4bn
HYPER-
MARKETS AND
SUPERSTORES
£73.7bn
SUPERMARKETS
£35.5bn
Source: IGD
UK MOBILE RETAIL SALES
n
b
£
30
25
20
15
10
5
0
2012
2013
2014
2015
2016
2017
Year
Tablet
Smartphone
Total
Source: Adactus
UK RETAIL
The grocery market in the UK is substantial.
IGD estimates that in the year to April
2014, UK grocery sales reached almost
£175 billion, representing almost 55% of
all retail spending.
While still accounting for over 60% (IGD)
of all grocery sales, the so called “big
box stores” (supermarkets, superstores and
hypermarkets), have been reporting slowing,
or no, sales growth, and in many cases
absolute declines.
Growth in grocery retail has traditionally
been driven by the opening of new store
space, either through the opening of
new stores or extension of existing shops,
creating a “space race” model for growth.
This has been dependent on growing
customer footfall to fill the expensive real
estate. However, the grocery retail industry
is undergoing significant change, with new
store formats, notably hard discount and
convenience stores, growing much faster
than traditional supermarkets. These formats
have been able to drive an advantage in
a particular element of the proposition to
customers, be it price or convenience.
Moreover, there has been continued
significant growth in online grocery
shopping. This shift in channel, away
from physical shops, is arguably the
most significant. With online, there is the
opportunity to improve every element of
the proposition for the customer, giving
the benefits of more service and greater
usability, wider choice of products and
better value for money. With each element
of the proposition improving, and enabled
by ever improving technology advances,
more customers are encouraged to adopt
the new retail channel.
THE CONTINUING CHANNEL SHIFT
Evidence suggests that customers are
shopping online for their groceries in ever
increasing numbers with IGD estimating
that 4.4% of UK grocery shopping is now
online at £7.7 billion, and anticipates
that this will nearly double to over 8.3%
of the market by 2019. More recent data
suggests mobile devices are increasingly
used for online shopping with mobile now
the fastest segment of online growth.
We have seen other segments of retail
migrate online with very significant impact.
We have built our business to be at the
forefront of, and to benefit from, this next
channel shift in the grocery industry.
Channel shift is driven by improvements
in the overall quality of the proposition
presented to the customer. We explore on
the next page the key proposition drivers
and how online, and in particular Ocado,
improves these supporting the continuing
growth of the channel.
SIZE OF THE UK GROCERY MARKET
200
180
160
140
120
n
b
£
100
80
60
40
20
0
152.2
157.3
146.0
169.7
174.5
163.2
124.6
128.7
120.0
133.6
139.2
3.6%
3.8%
3.3%
3.8%
4.2%
4.9%
4.3%
3.8%
3.7%
3.3%
2.8%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: IGD. Data is year to April. UK Grocery: Market and channel forecasts 2014–2019
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
)
%
(
t
h
w
o
r
G
Y
O
Y
14
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9
Key proposition drivers
How we’re responding
Service
• Reliability
• Ease and convenience
• Personalisation
Range
• Extensive range offering more choice of
quality, relevant products
• Ease of navigation
Price
• Offering good value
• No more expensive than the store
• Acceptable service charges trending down
We provide industry leading service in terms of timeliness and order accuracy. Our
technology also enables us to make the shopping interfaces increasingly simple to use
and personalise the shopping experience for each customer.
Online shopping returns time, service and convenience to the customer, with the retailer
performing the tasks the customer does in a physical store (driving to the store, walking
the aisles and picking items, packing product at the checkout, loading the vehicle (car)
and delivering to home).
Our centralised fulfilment model enables us to carry a greater range than stores, giving
the customer the ease of shopping from a greater product selection from the comfort of
their own home. We have now introduced additional dedicated “department stores” for
certain product categories.
Product prices online today (in the UK) are broadly the same as in the store, with a
modest delivery fee. Our model will enable us in the future to drive prices down as we
scale our business and return the benefit to our customers.
PRICE COMPETITION
CANNIBALISATION
Recent attention has been placed on price
competition in the UK grocery market.
The continued growth of the hard discount
format – smaller format stores offering
limited ranges, mostly private label, at
relatively competitive prices – has driven
an increased focus on price, or rather price
perception, from the larger players.
The key areas for much of the recent price
activity has been in private label fresh
produce items, key value items in dairy,
fruit and vegetables, with some meat and
fish categories. There has been less price
focus on branded products, with some
promotional activity reducing.
While we have less range overlap with the
hard discount retailers, we offer competitive
prices on the quality products we sell,
with price commitments to match the
market leader on comparable baskets and
identical items.
Our continuing growth enables us to
generate further efficiencies through
improved operational leverage in our
business, which supports our ability to
invest in all elements of the proposition to
customers, including prices.
Each of the leading grocery retailers has its
own online operations today, mostly using
its existing physical stores to fulfil online
orders. Some have started to build so called
“dark stores”, stores without customers or in
effect smaller warehouses with no or limited
automated processes. The one exception
is Morrisons, which uses our technology
platform and fulfilment knowledge and
services to run Morrisons.com.
The one challenge common to all incumbent
physical retailers as they move online is
the cannibalisation of their existing store
businesses. With footfall declining in stores
as customers migrate to online shopping,
each store operator will cannibalise the
sales in a store, either that of a competitor
or its own. If most major store operators are
growing online, together with our pure-play
online model, the store channel will continue
to suffer significant cannibalisation of sales
in the future.
View more information about
Morrisons.com on page 26
“Online shopping
returns time, service
and convenience to the
customer.”
“We have built our
business to be at the
forefront of . . . this next
channel shift [to online] in
the grocery industry.”
15
Stock Code: OCDOwww.ocadogroup.comStrategic Report23698-04 29-01-2015 PROOF 9 OUR WIDER MARKET OPPORTUNITIES
INTERNATIONAL CHARACTERISTICS
INTERNATIONAL GROWTH ONLINE
Online grocery shopping has been
slower to develop outside the UK. We
believe the attractions of shopping online
should appeal as much to consumers
internationally as those in the UK. However,
online requires similar pricing and high
levels of service to be attractive. If
customers are not offered a fast, reliable
and accurate service, then few are likely to
adopt the online channel.
In the UK, where the proposition online
has become increasingly attractive versus
the existing store channels, adoption has
gathered pace. We believe the quality of
our proposition, including the quality of our
interfaces and our one hour delivery slots,
has meant that others who have entered
the online market in the UK have also had
to offer improved services, usability, and
interfaces, which in turn drives market growth.
Grocery is not only a significant business
in the UK. Grocery shopping represents
around half of all retail spend in most
developed countries and significantly more
in developing markets. This makes for a
huge underlying market opportunity on a
global basis.
WORLD’S BIGGEST GROCERY MARKETS
However, there are great differences in
what and how food is purchased across
the world. Grocery retailing is in so many
ways a “local” business. While product
brands can be global in nature, customer
preferences, retail brand recognition
and loyalty are driven locally. Equally as
important is product-sourcing capability,
which tends to be managed through
local account managers, and the value
of sourcing produce and protein ranges
locally speaks for itself.
LESSONS LEARNED FROM
INTERNATIONAL EXPANSION
The world’s largest grocery retailer operates
in a fraction of the world’s countries, with
most food retailers having mixed success
expanding internationally.
When expanding outside their home
markets, grocery retailers’ main assets lie
in real estate which is not portable. While
each may have retail skills, generally
retailers do not possess any of the key
local attributes – brand recognition, local
customer preference or loyalty, or sourcing
capabilities – critical for building a
successful local grocery business. Gaining
traction as a new entrant to a market
can take time and may prove to be very
expensive in terms of costs and resources.
ONLINE RETAIL SALES EUROPE (£bn)
2014–2015: +18%
2013–2014: +18%
154
131
111
2013
2014
2015
Source: Centre for Retail Research
ONLINE RETAIL SALES US (£bn)
2014–2015: +13%
2013–2014: +15%
214
189
165
2013
2014
2015
Source: Centre for Retail Research
“The attractions of
shopping online
should appeal as much
to consumers internationally
as those in the UK.”
16
Automation inside our CFCs
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 Ocado Smart Platform offers to partners
a faster, flexible and more cost-efficient
way of entering or relaunching the online
grocery market. By offering the only fully
integrated end-to-end platform available,
we are uniquely positioned to take
advantage of the growing global trend of
online food shopping.
“Grocery shopping
represents around half
of all retail spend in
most developed
countries.”
UNIQUELY POSITIONED TO
TAKE ADVANTAGE
Ocado has developed an entire end-to-
end solution for operating online in the
grocery market, vertically integrated across
software and hardware solutions. This
enables us to replicate these capabilities for
partners in other markets for a significantly
lower cost than the alternative options
available for them. We intend to use
our Ocado Smart Platform with partners
internationally, harnessing the capabilities
of our platform with partners’ local retailing
skills and attributes, enabling them to build
sustainable, scalable and profitable online
grocery businesses in their own markets.
“[with] Ocado Smart
Platform . . . we are
uniquely positioned
to take advantage of
the growing global
trend of online food
shopping.”
View more information about
Ocado Smart Platform on
pages 28 & 29
View more information online at
www.ocadogroup.com
17
Stock Code: OCDOwww.ocadogroup.comStrategic Report23698-04 29-01-2015 PROOF 9 OUR STRATEGY
We drive shareholder value by continually developing an innovative world leading
platform for our own grocery and general merchandise businesses, and those of
our commercial partners. We develop our strategic objectives through a number of
complementary actions applicable to each objective.
OUR OBJECTIVES
DRIVE
GROWTH
MAXIMISE
EFFICIENCY
UTILISE
PROPRIETARY
KNOWLEDGE
OUR ACTIONS
DEVELOP
EVER MORE
CAPITAL AND
OPERATIONALLY
EFFICIENT
INFRASTRUCTURE
SOLUTIONS
ENHANCE
END-TO-END
TECHNOLOGY
SYSTEMS
ENABLE
MORRISIONS
AND FUTURE
PARTNERS’ ONLINE
BUSINESSES
CONSTANTLY
IMPROVE
PROPOSITION TO
CUSTOMERS
STRENGTHEN
CONSUMER
BRANDS
View more on pages 20 to 27
OUR KEY PERFORMANCE INDICATORS
DRIVING GROWTH
•
Active customer base
Average orders per week
•
• Average order size
• SKU count
MAXIMISING EFFICIENCY
AND UTILISING PROPRIETARY
KNOWLEDGE
• On time
•
Order accuracy
•
UPH
•
DPV/Week
• Product waste
View our Key Performance Indicators on pages 30 & 31
18
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 ONLINE WILL BE THE FASTEST GROWING CHANNEL IN GROCERY OVER THE NEXT FIVE YEARS
UK Grocery Market
had sales of
£174.5
billion*
in the year to
April 2014
The grocery
market’s share
accounts for
54.5p in
*
every £1
of UK retail
spending
As of April 2014
online grocery
represented
4.4%
*
of sales
Online grocery
will grow to
account for
8.3%*
of sales
by 2019
* Source: IGD. IGD channel forecast figures are for year to April
STRATEGY ALIGNED TO TAKE ADVANTAGE
With IGD predicting that the online grocery retail segment will
almost double to 8.3% of total UK grocery sales over the next five
years, we believe we have a strategy aligned with this market
opportunity. Our strategic objectives are designed to enable us
to continue to innovate to improve the quality of our offer to our
customers and the efficiency of our operations, adding to the value
in our IP platform.
HOW WE HAVE PROGRESSED WITH OUR STRATEGY THIS YEAR
We have continued to make good progress with our strategic
objectives during 2014. Our growth has continued, with Group
gross sales up 20.4%, against a difficult market backdrop. The
efficiency of our existing operations has continued to improve, and
we announced plans for more capital and operational efficient
fulfilment facilities in the future. We continued to develop and
use our IP throughout our business to drive growth and efficiency.
Moreover, we supported the start of operations for Morrisons.com,
our first commercial platform partner.
DRIVING
GROWTH
MAXIMISING
EFFICIENCY
UTILISING
PROPRIETARY
KNOWLEDGE
View more information about
driving growth on pages 20 & 21
View more information about
maximising efficiency on pages 22 & 23
View more information about utilising
proprietary knowledge on pages 26 & 27
19
Stock Code: OCDOwww.ocadogroup.comStrategic Report23698-04 29-01-2015 PROOF 9 DRIVING GROWTH
AVERAGE ORDERS PER WEEK
167,000
2013: 143,000
167,000
143,000
123,000
110,000
OUR RETAIL BUSINESSES
The highest delivery standards
We drive growth in our retail operations by
improving the proposition to our customers
– the quality of the service we offer, the
selection of quality products we sell, and our
ability to sell products at competitive prices,
thereby strengthening our consumer brands.
Our customers expect, and deserve, the
highest level of service delivery. We seek
to maintain the highest level of customer
service, delivered by our own Customer
Service Team Members in our own fleet of
vans.
This is enabled and supported by our
development of both more capital efficient
and operationally efficient infrastructure
solutions, and further enhancement to our
end-to-end technology platform.
Customers adopt new ways of shopping
if they consider it more attractive to do so.
There are two primary points of interaction
with our customers – at the time of ordering
on the customer interface and at the point
of delivery. We seek to provide the best
possible experience for our customers at
both of these points
Making it easier to shop
Convenience is a major driver to shopping
online. Being able to order “anytime,
anywhere” using intuitive and easy-to-use
interfaces is very important.
Our in-house software development
allows for the rapid introduction of
new functionality, be it new website
developments or the latest mobile apps.
Customers shopping with mobile devices
have continued to grow significantly, with
48% of our sales now transacted using
mobile devices. This reflects the steady
advancement of technology which has
continued to change the way people live,
with some customers today not owning or
using wired devices in their homes.
We have continued to improve our
shopping interfaces making it easier for
our first time customers to start shopping
with us, and increasing the level of
personalisation.
Consistent order reliability is essential for
customers. Our operating model, combined
with our proprietary optimisation software,
leads to what we believe to be unrivalled
reliability with 95.3% on time and 99.3%
order accuracy.
Customers expect high stock availability
and minimal substitutions within a short
time frame. Our deliveries are available
next day, with same day available in some
postcodes. We offer one-hour time slots
seven days a week, and the largest number
of slots available in the market, from 6 am
until 11.30 pm.
Proprietary integrated systems control our
product flow which, when combined with
the scale of our CFCs, leads to higher
product availability. This reduces the
chances of products being unavailable and
minimises substitutions.
Our expanding range
Customers want a wide selection of products,
and will be more inclined to shop where
choice, and freshness, is greater. Offering
more of the groceries a customer desires in
one store reduces the requirement to visit
elsewhere to complete the weekly shop.
Our current range of over 43,000 SKUs
gives Ocado.com the most extensive
supermarket range today. We intend to
continue to increase the range of products
we sell. Our operating model and facilities
allow us to expand range relatively
easily with limited stockholding exposure,
enabling us to stock many specialist and
niche lines as well as everyday favourites.
We have extended our selection into many
general merchandise categories – for
example pets, kitchenware, babies, the
home, health and beauty products and gift
items – giving customers the opportunity to
purchase some of these items together with
their grocery shop.
2011
2012
2013
2014
“Our product life
guarantee gives
confidence to customers
that their groceries
have a stated minimum
remaining life when
delivered.”
ACTIVE CUSTOMERS
453,000
2013: 385,000
453,000
385,000
355,000
298,000
2011
2012
2013
2014
20
23698-04 29-01-2015 PROOF 9Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 2014 With the freshest products
Our price commitments
As well as convenience, customers want
the freshest products. We guarantee the
product life of our fresh food.
Our operating model removes one stage
of the grocery supply chain, as our stock
is typically delivered directly to us by our
suppliers or wholesalers, which when
combined with rapid stock turn means
we often deliver product to customers the
same day or next day following receipt into
our CFCs. This can be quicker than other
supermarkets can get most of their products
into their own stores.
Our product life guarantee gives confidence
to customers that their groceries have
a stated minimum remaining life when
delivered.
Dedicated stores
We have launched additional online
shops dedicated to specific product
categories, which represent the next stage
of development of our general merchandise
strategy of having separate destination sites
for key categories.
The first of these is Fetch, our dedicated
pet store that carries more than 8,000
pet products including the premium pet
food ranges that are not typically sold in
supermarkets including James Wellbeloved,
Hill’s and Frontline. The most recent shop
is Sizzle, a kitchen and dining store with
over 12,000 products including Villeroy
& Boch, Global, Kenwood and LSA. We
plan to launch additional destination sites
in the future to further extend our offer to
customers, and announced in 2015 our
intention to launch a beauty business with
Marie Claire.
Fetch.co.uk
Sizzle.co.uk
Shoppers want to feel that they receive
good value and can even save money
by shopping online. The automation and
aggregation of our operating model strips
out costs and increases efficiency. These
cost savings allow us to offer products at
competitive prices.
We introduced the UK’s first grocery market
price matching initiative in 2008, and
continue to use price-matching commitments
to give consumers confidence about the
cost competitiveness of their basket of
shopping when bought at Ocado. We
work hard with our suppliers to provide to
our customers market leading promotions.
Our strategy of range extension, offering
shoppers a greater choice of products in
the same category at different price points,
particularly driven by the growth of the
Ocado own-label, continues to be popular
with customers.
OUR PLATFORM BUSINESS
In building our retail businesses, we
have gained significant knowledge
and know-how, and have developed
extensive proprietary systems, software and
optimisation engines. In effect we have
developed an entire end-to-end proprietary
platform for operating online business in
grocery and other retail segments.
We believe there are significant
opportunities to create economic value
using this platform. The first example of this
is our agreement with Morrisons to launch
and operate Morrisons.com.
We consider this significant validation of
our operating model and important as we
explore new opportunities to monetise our
proprietary platform internationally in the
future.
The underlying technology which enables
our strong proposition to customers to drive
growth, supports Morrisons.com and will
be available to retailers in the future using
Ocado Smart Platform.
21
23698-04 29-01-2015 PROOF 9Stock Code: OCDOwww.ocadogroup.comStrategic Report
MAXIMISING EFFICIENCY
“We combine the
aggregation of scale . . .
with the use of automation
and optimisation
technology to drive the
overall efficiency
of our business.”
“The in-house nature
of our software
development allows
for rapid solutions.”
LOWERING COSTS
Our goal is to provide the best way for our
customers to make their regular grocery
shop at the lowest cost. We believe in a
centralised approach to fulfilment, which
gives a number of significant service and
efficiency benefits.
We combine the aggregation of scale into
large facilities with the use of automation
and optimisation technology to drive the
overall efficiency of our business.
OUR CFCS
We have developed unique fulfilment
capabilities automating many manual
tasks and applying technology solutions
and optimisations to operate at the lowest
possible cost. This involves optimisations
throughout the operation – from receiving,
putting away and managing stock, picking
and organising orders, to the order
dispatch, and efficiently routing delivery
vehicles to customers’ homes.
This enables us to operate with high
accuracy and availability, both critical to
providing customers with consistent and
timely service.
2
3
6
1
2
4
5
3
7
1
5
12
11
10
14
13
8
9
4
CFC SITES
1. CFC 1 - HATFIELD
2. CFC 2 - DORDON
3. CFC 3 - ANDOVER
4. CFC 4 - ERITH
5. NFDC - WELWYN GARDEN CITY
SPOKE SITES
1. LEEDS
2. KNOWSLEY
3. MANCHESTER
4. SHEFFIELD
5. OXFORD
6. BRISTOL
7. SOUTHAMPTON
8. WEYBRIDGE
9. WIMBLEDON
10. PARK ROYAL
11. RUISLIP
12. ENFIELD
13. DARTFORD
14. DAGENHAM
22
22
Ocado’s UK fulfilment and delivery locations (including announced)
Critical to our operations is the software
that controls it. This is largely developed
in-house, and cannot be bought “off the
shelf” on the open market. The in-house
nature of our software development allows
for rapid solutions as efficiency improvement
opportunities are identified. This proprietary
technology protects our business, differentiating
it, and makes it more difficult to replicate.
We now operate the world’s two largest and
most sophisticated single pick grocery stores,
our CFCs in Hatfield and Dordon. Our CFCs
form a critical part of the unique end-to-end
solution we have developed for online grocery
retail. The Dordon CFC, which opened in
2013, has the capacity to generate over
180,000 orders per week, equivalent to
around £1 billion in annualised sales.
We typically pick and pack for individual
customers up to 1 million items of groceries
per day in a single CFC. Our CFCs are
designed and built to handle the unique
challenges that exist in picking groceries
with speed, accuracy and efficiency. This
complexity exists when you consider we
pick a basket of multiple items (typically over
50) across three different temperature zones
and having a customer’s order ready to go
on the delivery vehicles in the same short
time window as the other multiple orders
going on the same vehicle.
FUTURE CFCS – CFC3 AND CFC4
In July 2014, we announced plans for our
next CFC, located in Andover in the south of
England. Significantly, Andover CFC will be
smaller than our existing CFCs (capable of
65,000 orders per week or approximately
£350 million in annual sales value), but
critically will be more capital efficient (using
capital expenditure to sales capacity).
We will achieve this improved capital
optimisation through the use of our own
proprietary physical infrastructure solution,
which we have been developing over the
last few years. With control over the IP and
the manufacturing and installation process,
we plan to drive the costs down further.
This infrastructure is modular in nature and
can be built almost any size. It is also
scalable (it can be built in stages), and is
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 faster to deploy than our previous solutions
(we plan to open Andover by the end of
2015).
Each of these attributes is attractive in
adding flexibility to our fulfilment capacity
planning for our UK retail businesses, and
for our platform business, including for
Morrisons.com, offering to future partners
the opportunity to start with a smaller initial
capacity.
In January 2015, we announced plans for
our next location, CFC4, located in Erith
in South East London inside the M25. The
landlord will start construction on this site in
2015, and we will take occupation during
2016, with this CFC expected to deliver
its first orders in 2017. Like CFC3, this will
use our proprietary infrastructure, and so
will be built in stages but will be capable
of handling in excess of 200,000 OPW.
HUB AND SPOKE DELIVERY SYSTEM
We operate a hub and spoke system
for our deliveries. All stock is stored and
picked in our CFCs (the hubs) and non-food
distribution centre. Delivery is made direct
to customers’ homes from hubs to local
catchment customers, with the remainder of
orders being “trunked” to spoke sites, from
where local delivery takes place.
We forecast future delivery capacity
requirements for our retail business and
that of our partner, Morrisons, developing
our spoke network with additional sites.
During the year we opened spokes in
Ruislip, Enfield, Sheffield and Knowsley.
After the period end, we opened a spoke
in Dagenham, and in February 2015 we
are due to open a spoke in Park Royal to
replace our smaller White City spoke.
We have acquired additional sites and
expect to add further spokes in 2015
to satisfy the increasing demand for our
business and our partner’s business.
PRODUCT WASTE LOW AND REDUCING
Our centralised model enables us to
carry low inventory levels, and despite
our relatively high proportion of sales of
fresh and chilled products (over 40%), we
believe we operate with the lowest product
waste in the industry (at significantly less
than 1% of sales). This reflects the freshness
of the products we deliver to our customers
and underlines the relative environmental
benefits of our operating model.
CFC EFFICIENCY
145 UPH1
2013: 135 UPH
145
135
121
111
2011
2012
2013
2014
SERVICE DELIVERY EFFICIENCY
163 DPV/WEEK
2013: 160 DPV/WEEK
160
163
152
145
1. Mature CFC operations (CFC is considered mature
if it had been open 12 months by the start of the
half year reporting period).
2011
2012
2013
2014
We optimise the delivery to customers using our own van fleet and technology
23
23
Stock Code: OCDOwww.ocadogroup.comStrategic Report23698-04 29-01-2015 PROOF 9 WE HAVE DEVELOPED
A WORLD LEADING
TECHNOLOGY SOLUTION
THAT POWERS OUR
OPERATING BUSINESS
MODEL FOR ONLINE
GROCERY RETAIL
24
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 OCADO SOFTWARE SYSTEM REPLATFORMING
KEY ELEMENTS TO
REPLATFORMING
• Modularising our software and services to:
• Allow parallel development, deployment and faster
experimentation
• Reduce maintenance costs
• Facilitate integration with third party products/services
• Facilitate internationalisation
• Transforming the technology stacks to deliver:
• Improved developer productivity through access to the latest
development tools
• Improved reliability
• Faster rollout of new software
• Migrating systems to the cloud to:
• Reduce costs and timescales for international deployments
• Deliver better integration with partners
• Deliver access to third party cloud-based SaaS products
• Reduce/remove the need to build more data centres.
BACKGROUND – WHAT IS IT?
We have developed a world leading technology solution that
powers our operating business model for online grocery retail;
recently we have used this technology to build our non-food
destination stores. Although we developed this solution to power
the Ocado retail business, it was always our intention that one
day we would make this technology available to other retailers.
The deal we signed with Morrisons in 2013 to put their grocery
business online was an important step on that journey.
To remain at the forefront of change in the grocery industry
it is important that our technology solutions are able to take
advantage of the latest developments in using cloud and next-
generation software tools.
Therefore, before we make our solution available to multiple
retailers in multiple countries, we have chosen to undertake a
major replatforming exercise, using the expertise of the Ocado
technology team. This involves migrating our solution to the cloud
and in the process, transforming our technology stacks.
WHAT ARE THE BENEFITS?
Replatforming will enable us to evolve our customer offer
with much greater speed and reliability for our existing retail
businesses and for those of our existing and future partners,
as well as facilitate international expansion through faster
replication, improved business agility and scalability and reduced
maintenance overheads.
TIMELINES
The replatforming project commenced in 2014 , with the first
phase due to be completed during 2015. The project is a
continuous process where discrete elements can be utilised as
they are completed, with the entire replatformed systems being
introduced over the time of the project.
View more information about
Ocado Smart Platform on pages 28 & 29
View more information online at
www.ocadogroup.com
2525
Strategic ReportStock Code: OCDOwww.ocadogroup.com23698-04 29-01-2015 PROOF 9 UTILISING PROPRIETARY KNOWLEDGE
OUR KNOWLEDGE AND INTELLECTUAL
PROPERTY
In building our retail business we have over
many years been focused on developing
optimal solutions solely for online retail
operations, specifically centred on the
grocery industry.
The learnings we have, together with the
solutions we have developed from our
intellectual property, cover the end-to-end
process of the “retail mission”, moving a
product from a supplier into a customer’s
home. We develop proprietary processes,
systems and software to improve efficiency
and operations, and to provide market
leading user interfaces and applications for
our customers.
Our software and other technology
solutions are developed in-house by a
development team of currently over 550
people. Our in-house team enables rapid
development and implementation of new
solutions for our business, and facilitates
regular updates without the need to involve
expensive change processes from multiple
software providers.
As we have become more vertically
integrated in the design and engineering
of physical equipment componentry and
solutions, we recognise the value of
adding more protection for some of our
developments through the use of patents.
During the year, we filed for multiple
patents covering several of our current or
potential developments.
WORLD LEADING INFRASTRUCTURE
SOLUTIONS
Our knowledge extends beyond software
development, with many years of extensive
experience of physical mechanical
handling infrastructure equipment solutions.
Our focus has been to drive efficiency from
both a capital expenditure and operating
cost perspective, and we have built and
now operate the world’s two largest and
most efficient single pick facilities.
Our next generation fulfilment centres will
use our latest hardware assets, which are
entirely proprietary – we own the design,
the operating systems and control the
manufacturing process. This fulfilment asset
solution has many important attributes,
making it even more efficient and resilient
than our existing CFCs. It is modular (can be
built almost any size), scalable (can be built
in multiple phases) and faster to deploy (with
shorter build and commissioning lead times).
In addition, compared to our existing CFCs,
we expect it will achieve higher operational
efficiency, to be more capital efficient, to
require less cubic space and yet still hold a
large range of products.
Our solution combines extremely dense
storage, rapid retrieval and fast picking
of single items. This system incorporates
a number of technological advances
including a highly sophisticated proprietary
communications technology capable of
interacting inside a building with thousands
of devices, multiple times a second,
significantly in excess of any technology
currently available commercially.
Our infrastructure knowledge and solutions,
combined with our end-to-end technology
systems, provides an entire platform
for operating online retail businesses,
capable of handling the complexities and
requirements of grocery retailing as well as
general merchandise categories.
LEVERAGING VALUE FROM OUR
PLATFORM – MORRISONS.COM
The exploitation of our IP and knowledge
platform has continued through our 25 year
agreement with Morrisons to launch and
operate their online business. Morrisons.com
was launched on 10 January 2014 operating
from Dordon CFC (on a shared basis with our
own business), and utilising our technology
platform from the user interface through to
optimising the delivery and routing schedules
to the customer.
This long-term agreement includes a
series of fees, royalties and cost sharing
arrangements paid to Ocado. The
attraction for Morrisons was the speed
with which the service could be launched,
the scalability of their operation and
“The commercialisation
of our IP and knowledge
platform has already
started with our 25
year agreement with
Morrisons.”
“With our platform,
international partners
can make full use of
their localised expertise
in branding, customer
relationships and
sourcing.”
26
26
Technology development in action
23698-04 29-01-2015 PROOF 9Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 2014 Morrisons.com has continued to grow.
As part of their interim results presentation
in September 2014 Morrisons confirmed
their “target of annualised year-end sales
of £200 million”, a significant ramp up
for a new business stream, and operating
with industry leading service KPIs (joint with
Ocado.com).
Our IT systems replatforming programme
is continuing according to plan. This
exercise involves a redesign of our existing
software which will allow us to move to a
new IT architecture, placing software into
the cloud, and create smaller code bases
to allow faster and simultaneous future
development. These changes are to enable
faster development for future partners’
online businesses, and significantly lower
ongoing maintenance costs.
We have announced our plans for our
next CFC, the first using our new fulfilment
solution which, with a significant period
built in for testing, is due to be operational
at the end of 2015. We expect to be able
to go live for a new partner after this date.
In the meantime, we continue to develop
our relationships with grocery retailers
from across the world. There is significant
interest in the development of online, and
particularly mobile grocery shopping,
and how that might impact on incumbent
operators and their ability to compete. We
believe this is encouraging for the future
prospects of delivering more future long-
term customer relationships for the Group.
View more information about
maximising efficiency on pages
22 & 23
market leading quality of the proposition
Morrisons.com could offer to their
customers, supported by our platform.
INTERNATIONAL EXPANSION
Online shopping is not restricted to the UK.
Growth in online grocery shopping has been
slower in many countries than in the UK,
largely, we believe, due to the low quality
of the proposition offered to the customer in
terms of service, range and price.
Nevertheless, incumbent bricks and mortar
retailers are increasingly focused on the
impact online shopping is having and
potentially could have in the future. The
fundamental challenge that faces grocery
retailers in the UK also faces grocery
retailers across the globe — how to offer
online services in a profitable, sustainable
way. The capabilities our platform provides
in offering a compelling proposition to
customers, with the efficiency to build a
scalable profitable online business, should
be attractive to support significant growth in
online grocery shopping in multiple markets.
With our platform, international partners
can make full use of their localised
expertise in branding, customer
relationships and sourcing.
We believe there are significant
opportunities to leverage our platform with
international partners to operate in their
local markets.
PREPARING THE WAY FOR FUTURE
AGREEMENTS
We have set out three critical areas of
focus to facilitate future agreements:
• operating our first long-term contract to
the continued satisfaction of our partner,
Morrisons;
• the replatforming of our IT systems to
enable faster replication, roll-out and
lower maintenance costs in the future;
and
• to first use our new proprietary
infrastructure solution in our own facility
prior to any live operation for a new
partner.
27
23698-04 29-01-2015 PROOF 9Stock Code: OCDOwww.ocadogroup.comStrategic Report OUR SYSTEMS,
PROCESSES AND
HARDWARE HAVE
EVOLVED OVER MANY
ITERATIONS IN A
LIVE RETAIL
ENVIRONMENT
28
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 OCADO SMART PLATFORM EXPLAINED
BACKGROUND — WHAT IS IT?
Our platform offer, Ocado Smart Platform, is our proprietary
solution for operating online retail businesses. It comprises our
end-to end software and technology systems together with our
physical fulfilment asset solution, both of which are proprietary.
WHAT IS AN END-TO-END
TECHNOLOGY SOLUTION?...
The technology solution enables partners to operate the entire
shopping process for their customers using integrated software
systems. These include the interfaces with their customers
(website, apps), management systems for supply and inventory,
management and control systems for the fulfilment centres, and
software to optimise delivery routes and to operate contact
centres. These systems have been developed in-house over
many years for the sole purpose of running and optimising the
efficiency of online retail businesses.
…AND WHAT IS SPECIAL
ABOUT OUR FULFILMENT ASSET
SOLUTION?
We have spent our first 12 years of business life utilising
equipment purchased from mechanical handling equipment
providers, and over time have increasingly asked for or developed
more enhancements to improve throughput and efficiency. We
believe this experience now allows us to make significant further
improvements. We have set about designing our own assets and
using our knowledge base to develop proprietary physical asset
solutions. Our fulfilment asset solution is modular (can be built
almost any size) and scaleable (can be built in multiple phases).
It requires less space than the assets we currently use, but is very
range friendly. It is fast to deploy and even more efficient in terms
of both capital and operating costs.
The first instance of our new fulfilment asset solution will be installed
in our next CFC, which we are currently building in Andover. We
plan to start operating from this CFC by the end of 2015.
WHAT IS THE BUSINESS MODEL
FOR OCADO SMART PLATFORM?
We plan to sell the entire platform as a fully integrated service,
not just physical assets and some technology. In return for a
fee structure based on committed capacity, we would provide a
partner with the benefits from physical assets sufficient to fulfil a
targeted level of sales, together with all of the software systems
required to launch and operate their entire online business.
WHY COULD OCADO SMART
PLATFORM BE INTERESTING TO
INTERNATIONAL PARTNERS?
We believe Ocado Smart Platform offers partners a low risk,
fast to market approach for launching or relaunching their
online business, with limited capital commitment. Ocado Smart
Platform allows a partner to scale their business as sales grow,
with attractive economics and the capability to provide a superior
customer proposition.
Each element of what comprises Ocado Smart Platform has been
developed and is used, or intended to be used, in our own retail
operations. Unlike third party providers of products, services and
software, we are a primary retailer, and our systems, processes
and hardware have evolved over many iterations in a live retail
environment.
While primarily designed to cope with the additional rigours
and challenges presented in operating grocery businesses
online, Ocado Smart Platform can equally be applied to general
merchandise product areas.
IS ANYONE USING OCADO
SMART PLATFORM TODAY?
While not signed under the Ocado Smart Platform banner,
Morrisons became the first customer of our broader platform,
utilising our technology solution and existing infrastructure
facilities to launch and operate Morrisons.com. Morrisons.com
was launched in very quick time (seven months from signing
unconditional agreements) with attractive cost economics and best
in class service metrics (alongside Ocado.com).
TIME FRAME FOR OCADO SMART
PLATFORM DEALS?
We have set out important work streams for preparing our
platform for Ocado Smart Platform deals internationally. Our
intention is to position our capabilities to sign multiple deals in
future years. In order to facilitate rapid replication and multiple
instances of our software in the future we are replatforming our
IT systems, a process that will continue into 2015. We also intend
to operate our new infrastructure asset solution in Ocado.com
before using it in a partner’s live operation. The earliest date
that we could launch live operations for a partner would be in
2016, with an agreement signed at least a year prior to the live
operation.
2929
Strategic ReportStock Code: OCDOwww.ocadogroup.com23698-04 29-01-2015 PROOF 9 Ocado Group Plc
Annual Report and Accounts for the 52 Weeks ended 30 November 2014
OUR KEY PERFORMANCE INDICATORS
We measure the achievements of our strategic objectives through the use of
qualitative assessments and monitoring the performance of quantitative key
performance indicators (“KPIs”). Each KPI links to one or more of our strategic
objectives set out on page 18 (using the strategic link icons shown).
AVERAGE ORDERS PER WEEK2
AVERAGE ORDER SIZE (£)2
WHY WE USE THIS MEASURE
167,000
WHY WE USE THIS MEASURE
113.5
Measures order growth in our
retail businesses
143,000
123,000
110,000
Measures aggregate impact on
average shopping basket
112.2
112.1
112.3
2014 PERFORMANCE
+16.8% V 2013
2014 PERFORMANCE
(1.1)% V 2013
STRATEGIC LINK
2011
2012
2013
2014
STRATEGIC LINK
2011
2012
2013
2014
CFC EFFICIENCY (UPH)3
AVERAGE DELIVERIES PER VAN PER WEEK (DPV/WEEK)
WHY WE USE THIS MEASURE
145
WHY WE USE THIS MEASURE
135
Measures CFC operational
efficiency
121
111
Measures efficiency of our
service delivery operation
152
145
160
163
2014 PERFORMANCE
+7.4% V 2013
2014 PERFORMANCE
+1.9% V 2013
STRATEGIC LINK
2011
2012
2013
2014
STRATEGIC LINK
2011
2012
2013
2014
PRODUCT WASTE (%)
ITEMS DELIVERED EXACTLY AS ORDERED (%)
WHY WE USE THIS MEASURE
1.0
WHY WE USE THIS MEASURE
99.0
99.3
Measures efficiency of our
operations in terms of waste
minimisation, the lower the better
0.7
0.7
0.8
Measures order accuracy
(pre substitution)
98.3
98.0
2014 PERFORMANCE
(0.2)% V 2013
2014 PERFORMANCE
+0.3% V 2013
STRATEGIC LINK
2011
2012
2013
2014
STRATEGIC LINK
2011
2012
2013
2014
1. 2012 figures are on 52 week basis.
2. Refers to Ocado.com orders and includes standalone orders for Fetch.co.uk and Sizzle.co.uk
3. Mature CFC operations (CFC is considered mature if it had been open 12 months by the start of the reporting period).
4. 2014 hypermarket SKU count is a snapshot taken from the Ocado website on 09/12/2014.
30
23698-04 29-01-2015 PROOF 9Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 2014 Stock Code: Ocdo
www.ocadogroup.com
Strategic Report
DELIVERIES ON TIME OR EARLY (%)
WHY WE USE THIS MEASURE
95.2
95.3
Measures timeliness of our
delivery operations
92.3
92.7
2014 PERFORMANCE
+0.1% V 2013
STRATEGIC LINK
2011
2012
2013
2014
ACTIVE CUSTOMER BASE
WHY WE USE THIS MEASURE
453,000
Measures growth in our core
customers, counted as customers
who shopped in the last 12
weeks
298,000
385,000
355,000
2014 PERFORMANCE
+17.7% V 2013
STRATEGIC LINK
2011
2012
2013
2014
SKU COUNT (HYPERMARKET)4
WHY WE USE THIS MEASURE
43,000
Measures growth in range
offered at Ocado.com, not
including standalone sites
34,000
28,000
20,000
2014 PERFORMANCE
+26.5% V 2013
STRATEGIC LINK
2011
2012
2013
2014
31
31
23698-04 29-01-2015 PROOF 9Stock Code: OCDOwww.ocadogroup.comStrategic Report HOW WE MANAGE OUR RISKS
THE RISK MANAGEMENT FRAMEWORK
Ocado’s risk management process is
designed to improve the likelihood of
delivering our business objectives, to
protect the interests of our key stakeholders,
to enhance the quality of our decision
making, and to assist in the safeguarding
of our assets, including people, finances,
property and reputation.
The Board is responsible for the
identification of Ocado’s key strategic
and emerging risks, and for the review
and approval of the risk management
framework. The Audit Committee,
delegated by the Board, is responsible for
the independent review of the effectiveness
of risk management, the system of internal
control, and the monitoring of the quality
of financial statements and consideration
of any findings reported by the auditors,
PricewaterhouseCoopers (“PwC”), in
relation to Ocado’s control environment
and its financial reporting procedures.
The key features of our system of internal
control and risk management, including
those relating to the financial reporting
process, are:
• an organisational structure with clear
segregation of duties, control and
authority, and a framework of policies
covering all key areas;
• a system of financial reporting, business
planning and forecasting processes;
• a capital approval policy that controls
Ocado’s capital expenditure and a post-
completion review process for significant
projects;
• monitoring the progress of major
projects by management, the Executive
Directors and by the Board;
• a Risk Committee which monitors
Ocado’s risk control processes;
• an Information Security Committee
which monitors Ocado’s information
security;
• an Internal Audit & Risk function that
provides independent assurance on key
programmes and controls;
• a treasury policy overseen by the
Treasury Committee that manages
Ocado’s cash and deposits, investments,
foreign exchange and interest rates,
so as to ensure liquidity and minimise
financial risk;
• a food and product technology
department, responsible for designing
and monitoring compliance with
Ocado’s processes for the procurement
and handling of foods and other goods
for resale;
• other control measures outlined
elsewhere in this Annual Report
including legal and regulatory
compliance and health and safety.
SET STRATEGY
1
REVIEW
4
RISK MANAGEMENT
EVALUATE RISKS
2
IMPLEMENT MITIGATIONS
3
32
1 Our strategy informs the setting of
objectives across the business and is
widely communicated.
2 Executive Directors evaluate the most
significant strategic risks for the Group.
In addition, each divisional Director
prepares a risk register for their
respective division, highlighting their
significant risks. The Risk Committee,
whose members are senior executives,
reports to the Audit Committee. The
Risk Committee oversees risk control
processes and risk analysis from each
part of the business, reviews these top
down and bottom up representations
to ensure that no significant risks have
been omitted.
3 Divisional directors identify how they
will manage or mitigate their
significant risks. These mitigation
actions are then summarised into a
description of the Group-wide
mitigation process for each risk.
4 Group-wide risks and mitigation
processes are regularly reviewed by
the Risk Committee and by the Audit
Committee.
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9
WHAT WE ADDRESSED IN 2014
The process described on page 32 for
identifying, evaluating and managing
the principal risks faced by the Group
operated during the period and up to the
date of this Annual Report. Such a system
can only provide reasonable, and not
absolute, assurance, as it is designed to
manage rather than eliminate the risk of
failure to achieve business objectives.
Following a review by KPMG LLP of the
effectiveness of the Group’s governance
framework against market practice for
listed companies, management is in
the process of implementing the key
recommendations. These included
enhancing our risk management capability
through establishing an Internal Audit & Risk
function in July 2014 and consolidating
in a common area and format the existing
and revised key policies and procedures.
The Audit Committee, on behalf of the
Board, undertook an annual review of
the effectiveness of risk management and
the system of internal control, covering
all material controls including financial,
operational, compliance controls, and risk
management systems.
For further information on the review of
financial reporting refer to page 75 of the
Audit Committee report. For a description
of the Company’s externally facilitated
control and governance review see page
78 of the Audit Committee report.
WHAT WE WILL BE LOOKING
AT IN 2015
Activities to improve our strategic,
programme and operational risk
management capabilities, including
business continuity and information security,
will continue in 2015. Our trading strategy
is reviewed and amended as necessary to
reflect the increasingly competitive grocery
trading environment.
2015 will also see us begin to integrate
our environmental, social and governance
(ESG) risks across the business. Our long-
term aim is for integrated reporting, and
we see the greater integration of ESG
risks throughout the business, along with
transparent stakeholder dialogue, as key
drivers of this.
The new Internal Audit & Risk function
will provide independent and objective
assurance and advisory services designed
to add value and improve the operations
of the business. Its scope will encompass,
but not be limited to, the examination
and evaluation of the adequacy and
effectiveness of Ocado’s governance, risk
management and internal control processes.
33
Stock Code: OCDOwww.ocadogroup.comStrategic Report23698-04 29-01-2015 PROOF 9 HOW WE MANAGE OUR RISKS continued
RISKS
We have identified 12 principal risks and uncertainties facing Ocado. These are
considered by the Board to be material to the development, performance, position
or future prospects of Ocado. These risks, mitigations and changes during the year
are summarised in the table below. They are not set out in priority order.
Objective
Risks
Mitigation Action/Control
Change During The Year
Failure to maintain
competitive pricing position
• Continuation of our LPP basket matching price
comparison
DRIVING GROWTH
• Maintaining a competitive number of promotional
offers and increased availability of free delivery slots
for price sensitive customers
Due to increased
competition in the market
• Creation of a choice of tiered price points within
each category
A risk of decline in high
service levels
• Weekly monitoring of the key indicators and the
underlying drivers against published targets
• Installation of additional capacity to reduce the
pressure on the business and resiliency work in
CFC1
Failure to maintain a
compelling product range
• Growth of the Ocado own label range alongside
continued provision of the Waitrose range
• Growth of branded ranges and expansion of
supplier base
• Alternative sourcing scenarios planned in the event
that the Waitrose sourcing relationship terminates
• Continuation of investment and optimisation of the
marketing channels to acquire new customers
Failure to continue to recruit
increasing numbers of new
customers and retain existing
customers
A risk of delays in the
implementation of new
capacity for both Ocado and
Morrisons
• Dedication of resources to the modularisation of
technology and logistics systems to enable faster
replication
• Preparation of plans for new capacity at CFC3
and CFC4
Failure to develop a
competitive model for further
commercialisation
• Engagement with a wide number of international
grocers to understand market needs
• Experienced teams in place who understand
the current solutions and are aware of global
alternatives used in other industries
Successful increase in
operations of CFC2
means that both CFCs
are operating with
sufficient capacity
headroom
Range and supply base
have increased during
the year
Active customers grew
and retention rates
improved during the year
Future new capacity
is reliant on new,
unproven, technology
Significant progress
in developing the
commercial offer but
higher risks remain until
first OSP deal is signed
MAXIMISING
EFFICIENCY
UTILISING
KNOWLEDGE
34
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 Objective
Risks
Mitigation Action/Control
Change During The Year
MONETISING
PROPRIETARY
KNOWLEDGE
OPERATIONAL
Failure to protect current
technology and process and
failure to ensure that our
technology can be freely
operated without infringing a
third party’s IP
• Processes are operating to identify patentable
inventions and to apply for patents
• Conducting extensive “freedom to operate” searches
on selected technologies
A risk of a food or product
safety incident
• Experienced legal, food technology and health and
safety professionals monitor compliance against
policies and procedures
• Supplier approval and certification process
• Health and safety policies with appropriate
operational procedures
A risk of changes in
regulations impacting our
business operations
• Regular monitoring of regulatory developments to
ensure that changes are identified
• Monitoring operational performance to minimise
environmental impact
Failure of technology or data
loss
• IT systems are structured to operate reliably and
securely
Multiple patents
now filed but the value
of IP has increased so
increasing the value to
others
Supplier and product
numbers have increased
and the market has
become more sensitive
to product issues
Business interruption
A risk of unintentional
infringement of competition
legislation
• Denial of service protection service is in place
• The security of our IT systems is regularly tested by
third parties
• No customer payment card data is held on Ocado’s
databases
• Access to customer personal data is restricted to
those who need this information as part of their job
• Dedicated engineering teams on site with daily
maintenance programmes to support the continued
operation of equipment
• Insurers advise on engineering and risk management
in the design and operation of the CFCs
• High level of protection for CFCs and equipment
• Issued a revised competition compliance policy in
2014
• Conducted training of key personnel and deployed
an e-learning tool for all personnel in every
department having access to trading data
• Physical and technical firewalls installed to separate
those teams who need to deal with sensitive
Morrisons’ data, in order to provide the services to
Morrisons, from those running the Ocado offer
Opening of more spokes
reduces reliance on any
one particular spoke
The risk that future efficiency improvements may be limited, previously reported in last year’s annual report, is no longer considered to be
a principal risk because Ocado has reached a level of efficiency sufficient to ensure the viability of the business.
For further information on the financial risks see page 172 of the notes to the financial statements.
35
Stock Code: OCDOwww.ocadogroup.comStrategic Report23698-04 29-01-2015 PROOF 9 CHIEF EXECUTIVE OFFICER’S REVIEW
Tim Steiner
Chief Executive Officer
“We have continued to
make progress in each of
our strategic objectives of
driving growth, maximising
our efficiency, and utilising
our knowledge.”
View more information about
our strategy on pages 18 & 19
View more information online at
www.ocadogroup.com
To hear more from Tim Steiner visit
www.ocadogroup.com
Scan the QR code with your smart
device to watch Tim Steiner online
Over the last 12 months we have seen
continued pressure in the grocery market
with supermarket store volumes declining
and ongoing competitive pricing activity.
At the same time, the number of customers
choosing to shop for their groceries
online has grown as the channel shift to
online progresses. Against this backdrop,
we have continued to make progress in
each of our strategic objectives of driving
growth, maximising our efficiency, and
utilising our knowledge. In particular,
we delivered sales growth ahead of
the broader online grocery market,
successfully launched our first platform
customer, Morrisons.com, and made
significant progress in our plans for the next
generation CFC assets.
STRATEGIC OBJECTIVES SUPPORTED BY
OUR ACTIONS
Our strategic objectives apply to both
our own retail business and our current
and potential platform operations. We
support our objectives through a framework
of actions intended to deliver long term
shareholder value.
The key actions within our framework are
to:
• Constantly improve our proposition to
customers;
• Strengthen our consumer brands;
• Develop ever more capital and
operationally efficient infrastructure
solutions;
• Enhance our end-to-end technology
systems; and
• Enable Morrisons’ and future partners’
online businesses.
CONSTANTLY IMPROVE THE
PROPOSITION TO CUSTOMERS
Central to driving the growth of our retail
business are our efforts to constantly
improve the proposition we offer to
customers – our high quality service, the
broad selection of products available,
and consumers’ confidence in our prices.
We have continued to make progress in
improving each of these key aspects.
Voted the Best Online Grocer 2014 by
Which? Magazine in its members’ Annual
Satisfaction Survey for the fifth successive
year, we have continued to win awards for
our service and the food that we sell. We
believe this reflects our ongoing progress
and the strengthening recognition of our
brand.
We recognise the importance of the
shopping experience, and believe that
increasingly consumers will try online
for their grocery shop if they consider it
more attractive than current store based
shopping. We have continued to focus
36
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 on improving elements and features of the
customer interface to enhance the speed,
convenience and usability of our service.
Features such as Import Your Favourites,
shortened registration processes and
the introduction of payment by PayPal
are proving to be particularly useful in
encouraging customers to shop for the first
time and on subsequent occasions, with
customer retention rates from first to fifth
shop modestly improving over the period.
This is important in building a base of
frequent, loyal customers.
Smart Pass, our bundled customer benefit
membership scheme, continued to be
popular, further driving customer loyalty,
shopping frequency and total spend per
customer. Customers shopping using mobile
devices have remained strong. For the
period, over 48% of all orders delivered
were checked out over a mobile device,
with mobile apps accounting for over
37% of all checkouts. In January 2015
we launched our new mobile website to
complement our mobile apps, which we
anticipate may be particularly attractive to
new customers.
A high quality and reliable delivery service
is critical to our customers. We believe our
customer delivery service continues to be
market leading in order accuracy and on
time performance. Orders delivered on
time or early improved to 95.3% (2013:
95.2%) and order accuracy also improved
to 99.3% (2013: 99.0%) during the
period.
Our range at Ocado.com is now over
43,000 products including everyday
items, our own brand, more non-food and
additional specialist ranges. These include
new ranges such as a Malaysian food
selection and extensions to our Kosher and
Halal shops.
Our non-food sales and range continued to
grow during the period, with sales growing
over 50% and by the end of the period
more than a third of baskets contained
at least one non-food item, reflecting the
OCADO
FETCH
SIZZLE
increased popularity of shopping from
a broader general merchandise product
range while customers make their regular
grocery shop.
In 2H 2014 we launched our second
destination site, Sizzle. This is a specialist
kitchen and dining shop and complements
Fetch, our pet store. Fetch now has over
8,000 SKUs, and Sizzle over 12,000
SKUs, both complementing our
Ocado.com range.
One of our subsidiary companies,
Speciality Stores Ltd, has entered into
an agreement with Marie Claire UK to
launch a new business in the beauty and
wellbeing segment. This business will be
a separately incorporated company and
will operate using the Marie Claire brand.
It will be based in the Marie Claire office
in central London and be led by Amanda
Scott, currently Head of Buying for Beauty
and Accessories at John Lewis. Start-up
costs are estimated at between £2 – £3
million in 2015. We believe that the
high quality of service delivered by our
technology and logistics platform combined
with the awareness and relevance of
the Marie Claire brand will make this
an attractive shopping destination for
customers.
Amidst the current price competitive market
environment, our Low Price Promise basket
matching scheme continues to resonate
well with our customers, reflecting the
competitiveness of our prices and adding
transparency to our pricing strategy. By
the end of the period, when checking for
LPP, over three quarters of our customers’
baskets were already cheaper at Ocado.
The cost of LPP in the form of vouchers used
during the period was lower than the same
period last year, despite the increased
price reductions in the market, reflecting
our competitiveness in prices and sustained
promotional activity.
37
Stock Code: OCDOwww.ocadogroup.comStrategic Report23698-04 29-01-2015 PROOF 9 Ocado Group plc
Annual Report and Accounts for the 52 weeks ended 30 November 2014
CHIEF EXECUTIVE OFFICER’S REVIEW continued
STRENGTHEN CONSUMER BRANDS
We have continued to develop the
awareness and strength of Ocado’s stable
of brands, and reinforce their values.
We have concentrated our modest above
the line marketing spend on initiatives to
build broader brand awareness, focused
around food, such as the sponsorship of
Channel 4’s Daily Brunch, supporting the
launch of ‘Britain’s Next Top Supplier’
competition, an Ocado initiative to support
and nurture small British suppliers, and
supplying food to the BBC Good Food
Shows at Olympia and the NEC. Overall
marketing costs, including voucher spend,
has fallen as a percentage of sales,
reflecting a fall in retention vouchering
and a similar growth rate of new customer
acquisitions.
The Ocado own-label reinforces brand
recognition and continues to grow in
popularity with sales up over 40% against
the equivalent period last year, and the
average basket now containing almost five
Ocado own-label products.
The growth in our customer numbers reflects
the strengthing position of our brand. Our
active customers at the end of the period
stood at 453,000 (2013: 385,000).
Our customers’ average baskets stood
at £112.25 (2013: £113.53) by the
period end, including the impact of
standalone destination site orders from
Fetch and Sizzle.
Fetch has grown strongly in its first year,
gaining in brand awareness despite
limited marketing support during the
period. Increasingly customers recognise
the convenience of buying their pet
requirements online and having them
delivered together with their Ocado
grocery shop, rather than requiring a visit
to the pet shop or veterinary clinic. We
anticipate customer awareness of the Sizzle
brand will build as shoppers discover the
benefits and range available to them in
this category.
DEVELOP EVER MORE CAPITAL
AND OPERATIONALLY EFFICIENT
INFRASTRUCTURE SOLUTIONS
Our capabilities are being significantly
enhanced and broadened with the
ongoing development of our new modular,
scalable physical fulfilment solution. This
system has benefited from our extensive
design and engineering experience which
has enabled us to develop a proprietary
solution with many beneficial attributes
when compared to existing infrastructure
assets or any commercially available
alternatives. Successful development of this
infrastructure solution will vertically integrate
our platform of software, electronic and
mechanical systems required to operate
online retail operations efficiently, enabling
a compelling proposition to the consumer
and our partners.
Our solution combines extremely dense
storage, rapid retrieval and fast picking
of single items. We believe it is the most
capital efficient solution available that
is capable of fulfilling this purpose, and
should significantly exceed the operating
efficiency we have achieved in our
existing CFCs.
The new product storage and retrieval
system incorporates a number of
technological advances including a highly
sophisticated proprietary communications
technology capable of interacting inside a
building with thousands of devices multiple
times per second, significantly in excess
of any technology currently available
commercially.
The constituent elements of this infrastructure
solution are currently undergoing significant
testing and we are confident in their key
performance capabilities. We have filed
for patents across our innovations, driven
by the desire to protect the IP intrinsic to our
infrastructure solution. As more patents are
filed we are building a web of protection
for our valuable IP in the future.
“Our capabilities are
being significantly
enhanced and broadened
with the ongoing
development of our
new modular, scalable
physical fulfilment
solution.”
“Maintaining and
enhancing technology
leadership in systems,
processes and equipment
supports our market-
leading proposition to
customers and drives
operating excellence.”
View more information about
maximising efficiency on pages
22 & 23
View more information online at
www.ocadogroup.com
38
23698-04 29-01-2015 PROOF 9 Stock Code: OCDO
www.ocadogroup.com
Strategic Report
Both our Hatfield Customer Fulfilment
Centre (“CFC1”) and our Dordon Customer
Fulfilment Centre (“CFC2”) continued to
operate to a high level of accuracy and
with improved efficiency. Using the units
per hour efficiency measure (“UPH”), the
average productivity for the period in our
mature CFC operations was 145 UPH
(2013: CFC1 135 UPH), where we
consider a CFC to be mature if it had been
open for 12 months by the start of the half
year reporting period. By the end of the
period, operational efficiency in CFC2
was over 150 UPH.
Ocado order volumes have grown to an
average of over 167,000 orders per week
(“OPW”) (2013: 143,000 OPW) with
the highest number of orders delivered
in a week exceeding 196,000 during
the period. At the end of the period,
approximately 60% of orders were fulfilled
from CFC1 with the balance from CFC2,
in line with our expectations.
We continue to introduce new
developments to our CFCs to improve
efficiency further in a cost effective manner.
Three additional purpose designed
and patent pending bagging machines
commenced operations in CFC1 during
the course of 2H 2014, and we expect to
invest in further bagging machines in both
CFC1 and CFC2 in future years.
The major phase 2 development works
for CFC2 are now complete, and we
believe this has increased capacity to
approximately 180,000 OPW.
During the year we announced our
plans for CFC3 in an existing building
in Andover, Hampshire, where works
commenced in 2H 2014. We plan to
open the site at the end of 2015, following
significant building redevelopment and
extension work and extensive testing of our
new more modular and scalable fulfilment
solution. CFC3 will add 65,000 OPW
capacity to our operation at a capital cost
of £45 million for the MHE.
We have also exchanged contracts for a
30 year lease for a new build site in Erith
in southeast London for CFC4, subject
to planning consent. The developer is
expected to commence work on the site
in the first half of 2015, with our works
starting in 2016 and with a plan to
commence operations during 2017. The
MHE solution in CFC4 will ultimately cost
£135 million and will add over 200,000
OPW. As with CFC3, this CFC will use
our proprietary modular, scalable fulfilment
solution and so the investment will be
phased over a number of years in line with
our capacity requirements. It will also make
this the most capital efficient CFC to be
built to date.
There will be a further £50 million of
building work on items such as fridge
plants, mezzanine floors and additional
dock doors to take the developer’s shell
up to the level of building required.
Ocado has an option from the developer
exercisable by April 2015, to use the site
also for Morrisons.com on improved rental
terms. In this event, the ramp up of capacity
will be completed sooner, and the costs
and capacity of the CFC will be shared
with Morrisons.
Despite worsening road traffic speeds, our
delivery performance continued to improve,
benefiting from increased customer density,
with deliveries per van per week (“DPV”) of
163 (2013: 160 DPV).
We have expanded our delivery capacity
with the opening in the period of additional
spokes in Ruislip, Enfield, Sheffield and
Knowsley, and with a further spoke in
Dagenham opening post the period end.
Another spoke in Park Royal is set to open
in February 2015 to replace our smaller
White City location. The delivery capacity
for some of these spokes is shared with
Morrisons, resulting in improved cost and
capital efficiencies during the ramp up
phase.
39
23698-04 29-01-2015 PROOF 9 CHIEF EXECUTIVE OFFICER’S REVIEW continued
We anticipate that capital expenditure in
2015 will be approximately £150 million,
including the expenditure for CFC3 and
increased costs for further development for
our infrastructure and technology solutions.
ENHANCE OUR END-TO-END
TECHNOLOGY SYSTEMS
Since inception we have utilised
proprietary IP, knowledge and technology
as the foundation of our business.
Maintaining and enhancing technology
leadership in systems, processes and
equipment supports our market-leading
proposition to customers and drives
operating excellence.
Over time we have developed a
proprietary end-to-end solution for
operating grocery online, from the point
of contact with the customer, through the
extensive fulfilment operations, to the
delivery of the basket of products to the
customer’s kitchen. Each stage of the
operation is optimised using our software
and algorithms. Our technology systems
form a key part of this solution.
We are progressing with the replatforming
of our IT systems, investing significantly in
the use of cloud-based infrastructure, to
enable faster replication and roll out of our
technology internationally, and remain on
track with our plans.
We continue to expand our technology
team, and at the end of 2014 employed
over 550 developers and IT professionals.
We plan to increase this team to 700
people during 2015. Our technology
team’s primary focus is on improving
customer interfaces to support our
businesses and those of our partners,
replatforming to improve speed of systems
development and to enable international
expansion, and other projects to drive
efficiency in our operations.
ENABLE MORRISONS’ AND FUTURE
PARTNERS’ ONLINE BUSINESSES
Our leadership in IP and technology
affords us opportunities to generate
significant value for Ocado through the
commercialisation of our IP.
The first commercialisation of this IP was
our agreement with Morrisons which was
completed in July 2013 and we were
pleased that Morrisons.com was launched
as planned with the first orders delivered
on 10 January 2014. Morrisons.com uses
our existing CFC technology and solutions
and has continued to ramp up well in line
with our and Morrisons’ expectations.
We continue to receive interest from a
broad group of potential international
partners to discuss how we might assist
them in introducing or improving online
business in their own markets. We have
now combined our end-to-end technology
platform with our modular infrastructure
solution to form “Ocado Smart Platform”
as a single service offering. We will make
this available to potential partners to power
their online grocery retail businesses.
During the period, we started to engage
in more detailed discussions with several
parties with a view to utilising Ocado
Smart Platform to drive the launch or
growth of their online businesses. We
expect to incur up to £5 million in 2015
in additional administrative costs to enable
us to develop the Ocado Smart Platform
capability further and negotiate platform
service agreements. We are targeting to
sign the first such agreement during 2015
although there is no guarantee we can
meet this timeline.
MARKET BACKDROP
Despite the more positive outlook for
broader economic growth in the UK,
we believe the grocery market remains
subdued.
Moreover, during the period there has been
more emphasis placed on price initiatives
in the market by the major supermarket
groups, particularly to counter the growing
threat from discount operators which is
exacerbating the decline in supermarket
store sales. We have seen prices of certain
key value items, primarily in fresh private
label categories, impacted by these
initiatives, and we will continue to assess
price developments in the market carefully.
“Our leadership in IP
and technology affords
us opportunities to
generate significant value
for Ocado through the
commercialisation
of our IP.”
“Our customers
regularly comment on
the outstanding service
provided by our delivery
team of Customer Service
Team Members.”
View more information about
Ocado Smart Platforms on pages
28 & 29
View more information online at
www.ocadogroup.com
40
23698-04 29-01-2015 PROOF 9Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 2014 We also won a number of awards for our
Ocado own-label products. These included
the Loved by Parents Best Grocery Product
for our Ocado own-label organic juicing
boxes, fruit boxes and vegetable and salad
boxes, as well as for a range of our fresh
fish by Quality Food Awards.
In September, to coincide with the new
academic year, we launched ‘Code for
Life’, an Ocado Technology CR initiative
to encourage and support primary school
teachers to deliver the new Computer
Science curriculum. The initiative has been
supported by BCS Academy of Computing,
Computing at School, the teaching
community and education specialists, and
has already had several hundred schools
sign up. We are thrilled with how this
has been received and look forward to
supporting this important initiative in the
future.
We received recognition of our continuing
efforts in CR winning the PRCA Award for
CSR Campaign of the Year 2014 with our
“Britain’s Next Top Supplier” initiative.
BOARD UPDATE
Jason Gissing, a co-founder of Ocado,
took the decision to retire from the Board
at our annual general meeting on 10 May
2014. I would like to thank Jason for his
valuable contribution over many years, and
wish him well for the future.
Notwithstanding this broader market
activity, online grocery shopping continues
to expand faster than the total market,
although more recently some of our
competitors’ growth appears to have
slowed, evidenced by the online growth
figures reported across the industry. All the
major UK supermarket groups continue to
invest to satisfy this growing online demand
with a general acceptance that online
continues to become a more mainstream
channel for grocery shopping.
Overseas there continues to be more
interest and investment in online services in
many markets as major incumbent grocery
retailers seek to address this channel shift,
and by online retailers such as Amazon
Fresh helping to drive both consumer
interest, and corporate focus, in online
grocery shopping.
PEOPLE, RECOGNITION AND AWARDS
By the end of the period, we employed
over 8,500 people, having created over
1,800 jobs during the year, supporting
the growth of our Ocado retail businesses,
our Morrisons platform business and the
development of Ocado Smart Platform.
We anticipate this number rising by around
2,500 people during 2015.
The energy and commitment of our people
remains central to our success and I
want to acknowledge their tremendous
efforts throughout this very busy period.
Our customers regularly comment on
the outstanding service provided by our
Customer Service Team Members.
We are delighted that the efforts of our
people were recognised with a number
of awards during 2014, including the
Best Online Grocer by Which? Magazine
(Members’ Annual Satisfaction Survey), Best
Online Retailer (Gold) and Supermarket
of the Year (Silver) in the Loved by Parents
Awards, and Best Organic Supermarket in
the Soil Association Organic Awards. We
also received recognition of our extensive
offering in our ‘free from’ range with Best
Large Online Supermarket 2014.
41
23698-04 29-01-2015 PROOF 9Stock Code: OCDOwww.ocadogroup.comStrategic Report CHIEF FINANCIAL OFFICER’S REVIEW
Duncan Tatton-Brown
Chief Financial Officer
“Operating profitability
continued to strengthen
in the period from better
operational efficiency
and the benefits of the
Morrisons agreement.”
For the period to 30 November 2014
Ocado delivered robust growth driven
by an increase in the number of new
customer acquisitions, improvements to the
proposition to customers and an increase
in the frequency of shops from existing
customers. This was complemented by
additional revenues from our first platform
arrangement with Morrisons.
Operating profitability continued to
strengthen in the period from better
operational efficiency and the benefits
of the Morrisons agreement. This was
offset by the annualised impact from the
depreciation and amortisation arising from
CFC2 and additional costs from strategic
initiatives to support future growth in the
business.
View more information about
our financials on pages 131 to 203
View more information online at
www.ocadogroup.com
Revenue1
Gross profit
EBITDA2
Operating profit before share of result from
JV and exceptional items
Share of result from JV
Profit/(loss)before tax before exceptional
items
Exceptional items3
Profit/(loss)before tax
FY 2014
£m
948.9
312.9
71.6
14.2
2.4
7.5
(0.3)
7.2
FY 2013
£m
792.1
247.5
45.8
1.0
0.9
(5.1)
(7.4)
(12.5)
Variance
19.8%
26.4%
56.3%
247.1%
(95.9)%
157.6%
1. Revenue is online sales (net of returns) including charges for delivery but excluding relevant vouchers/offers
and value added tax. The recharge of costs to Morrisons and fees charged to Morrisons are also included in
Revenue
2. Excluding exceptional items and share based management incentive payments EBITDA was £76.6 million
(2013: £48.3 million)
3. FY 2013 exceptional items include exceptional finance costs
REVENUE
Retail
Morrisons recharges1
Morrisons fees2
Total revenue
FY 2014
£m
903.8
27.8
17.3
948.9
FY 2013
£m
784.2
2.4
5.5
792.1
Variance
15.3%
1058.3%
214.5%
19.8%
42
1. Morrisons recharge income is derived from the charging of distribution costs and administrative expenses
2. Morrisons fees related to annual licence fees, technology support, research and development and management fees
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 GROSS PROFIT
Retail
Morrison recharges1
Morrisons fees2
Total gross profit
FY 2014
£m
267.8
27.8
17.3
312.9
FY 2013
£m
239.6
2.4
5.5
247.5
Variance
11.8%
1058.3%
214.5%
26.4%
1. Morrisons recharge income is derived from the charging of distribution costs and administrative expenses
2. Morrisons fees related to annual licence fees, technology support, research and development and management fees
Revenue increased by 19.8% to £948.9
million for the period. Revenue from retail
related activities was £903.8 million, an
increase of 15.3%, which we believe to
be ahead of the online grocery market.
Revenue growth was driven by an increase
in average orders per week to 167,000,
up from 143,000 in 2013, offset by a
modest reduction in average order size,
down from £113.53 in 2013 to £112.25
in 2014.
We continued to expand our non-food
offering in the period and revenue from it
increased by 51.9% year-on-year.
The Morrisons agreement contributed £45.1
million of revenue in 2014 (2013: £7.9
million). This comprised annual licence fees
for services, technology support, research
and development, management fees and
a recharge of relevant operational variable
and fixed costs.
Gross profit rose by 26.4% year-on-year to
£312.9 million (2013: £247.5 million).
Gross margin was 33.0% of revenue
(2013: 31.2%), ahead of 2013 due to
additional gross profit attributable to the
Morrisons arrangement in the period.
Retail gross margin reduced by (1.0)%
to 29.6% (2013: 30.6%) as a result of
increased price competition, but offset
by lower average product wastage.
Average product wastage reduced to 0.8%
of retail revenue (2013: 1.0%) mainly
caused by improvements at CFC2 as
volumes increased. Gross profit from our
arrangement with Morrisons was £45.1
million, an increase from £7.9 million
in 2013, driven by the growth in the
Morrisons.com business and the full year
effect from the Morrisons fees.
Other income increased to £39.4 million,
a 70.6% increase on 2013 (2013: £23.1
million). Media income of £25.5 million
was 2.8% of retail revenue (2013: 2.4%).
Income from website related activities
continued to grow ahead of the rate of
increase in revenue because of increased
demand from our suppliers, the benefits of
scale and a wider product range. Other
income also included £8.9 million (2013:
£3.0 million) of income arising from the
leasing arrangements with Morrisons for
MHE assets and £2.5 million (2013: £0.9
million) of rental income relating to the
lease of CFC2. This income, for the MHE
assets, is generated from charging MHE
lease costs to Morrisons and equates to the
additional depreciation and lease interest
costs that we incur for the share of the MHE
assets effectively owned by Morrisons.
Other income also included a payment of
£1.2 million for the surrender of the lease
at our existing White City spoke whose
operations are being transferred to a new
build site nearby at Park Royal.
OPERATING PROFIT
Operating profit before the share of the
result from the joint venture and exceptional
items for the period was £14.2 million,
compared with £1.0 million in 2013.
Distribution costs and administrative
expenses included costs for both the
Ocado and Morrisons picking and delivery
operations. The costs relating to the
Morrisons operations are recharged and
included in revenue. Total distribution costs
and administrative expenses including costs
recharged to Morrisons grew by 25.4%
year-on-year. Excluding Morrisons, costs
grew by 16.1%, in line with the growth in
the retail average orders per week.
Distribution costs1
Administrative expenses1
Costs recharged to Morrisons2
Depreciation and amortisation3
Total distribution costs and administrative expense
1. Excluding chargeable Morrisons costs, depreciation, amortisation and impairment charges
2. Morrisons costs include both distribution and administrative costs
3.
Included within depreciation and amortisation is a £2.6 million impairment charge in the period
FY 2014
£m
193.2
62.1
27.8
55.0
338.1
FY 2013
£m
168.6
54.7
2.4
43.9
269.6
Variance
14.6%
13.5%
1058.3%
25.3%
25.4%
43
Stock Code: OCDOwww.ocadogroup.comStrategic Report23698-04 29-01-2015 PROOF 9 CHIEF FINANCIAL OFFICER’S REVIEW continued
At £193.2 million, distribution costs
increased by 14.6% compared to 2013,
lower than the growth in retail sales of
15.3%. Operational efficiency improved
at both CFC1 and CFC2. Overall mature
CFC UPH in the second half was 147 in
2014 (for CFC1 and CFC2 combined)
compared with 135 in 2013 (for CFC1
only). The improvement in mature CFC UPH
was driven mainly by CFC2 productivity
which was over 150 UPH by the end of
the period. Deliveries per van per week
have risen to 163 (2013: 160) as customer
density improved as a result of the increase
in orders with only a modest growth in
geographic delivery areas, offset by a
reduction in road speeds due to increased
congestion and an investment to improve
on time delivery in a number of locations
(deliveries on time or early improved from
95.2% in 2013 to 95.3% in 2014). During
the period we opened a four new spokes
in Ruislip, Enfield, Sheffield and Knowsley
to increase our distribution capacity rather
than to grow our geographic coverage. As
a result, spoke fixed costs as a percentage
of sales increased, but will reduce as our
business scales and the capacity is more
fully utilised.
Total administrative expenses excluding
depreciation, amortisation and costs
recharged to Morrisons increased to
£62.1 million, a 13.5% increase from
2013 and 6.9% as a percentage of retail
revenue (2013: 7.0%). Some of the cost
increases are due to additional technology
costs to operate the Morrisons services
which are not recharged to Morrisons but
for which the Group earns fees, additional
payroll costs in technology and non-food
and greater share based management
incentive costs. Marketing costs excluding
voucher spend were £10.0 million (2013:
Central costs – other1
Central costs – share based management
incentives
Marketing costs (excluding vouchers)
Total administrative expenses
£10.1 million), 1.1% percent of revenue
(2013: 1.3%). Despite lower marketing
spend, there was an increase in new
customer acquisitions.
Total depreciation and amortisation costs
were £55.0 million (2013: £43.9 million),
an increase of 25.3% year-on-year. This
increase includes an impairment charge
of £2.6 million (2013: £1.3 million) and
higher depreciation and amortisation
arising from the increased investment
required for the development of CFC1 and
CFC2 and includes depreciation on assets
effectively owned partially by Morrisons.
The impairment charges are due to the write
off of certain assets at the White City spoke
which is being relocated to Park Royal and
due to improvement projects at CFC1 and
changes to systems or fulfilment assets to
enable the Morrisons operations at CFC2
which result in impairment to existing assets.
SHARE OF RESULT FROM JOINT
VENTURE
MHE JVCo Limited (“MHE JV Co”) was
incorporated in 2013 on the completion
of the Morrisons agreement, with Ocado
owning a 50% equity interest in this entity.
MHE JV Co holds CFC2 assets, which
Ocado uses to service its and Morrisons’
businesses. During the period the Group
sold £23.4 million (2013: £129.2 million)
of CFC2 related assets to MHE JV Co,
£31.0 million (2013: £113.1 million)
of assets were leased back to the Group
under a finance transaction. The Group
share of MHE JV Co profit after tax in the
period amounted to £2.4 million (2013:
£0.9 million).
EXCEPTIONAL ITEMS
Exceptional items of £0.3 million (2013:
£4.6 million) were incurred in relation to a
group restructuring of corporate entities.
FY 2014
£m
47.1
5.0
10.0
62.1
FY 2013
£m
42.1
2.5
10.1
54.7
Variance
11.9%
98.1%
(1.0)%
13.5%
1. Excluding chargeable Morrisons costs, depreciation, amortisation and impairment
“The improvement in
mature CFC UPH was
driven mainly by CFC2
productivity which now
exceeds CFC1.”
“In July 2014, Ocado
announced plans for
our next CFC located in
Andover, in the south
of England.”
View more information about
maximising efficiency on pages
22 & 23
View more information online at
www.ocadogroup.com
44
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 EBITDA (£m)
71.6
2013: 45.8
34.5
27.9
71.6
45.8
2011
2012
2013
2014
PROFIT/(LOSS) BEFORE TAX (£m)
7.2
2013: (12.5)
7.2
(12.2)
(2.4)
(0.6)
(12.5)
2010
2011
2012
2013
2014
NET FINANCE COSTS
EARNINGS/(LOSS) PER SHARE
Net finance costs were £9.1 million (2013:
£7.0 million excluding exceptional finance
costs of £2.8 million). This increase was
attributable to £3.5 million of additional
interest from the sale and leaseback
arrangements with MHE JV Co, offset by a
reduction of £1.9 million of interest costs
in 2013 on loans in connection with the
construction and fit out of CFC2, which
were not incurred in 2014.
PROFIT BEFORE TAX
Profit before tax and exceptional items for
the period was £7.5 million (2013: loss
of £(5.1) million). Profit before tax for the
period was £7.2 million (2013: loss of
£(12.5) million).
TAXATION
Due to the availability of capital
allowances and Group loss relief, the
Group did not pay corporation tax
during the year. In the period, the Group
has made a claim for energy saving
technologies within its existing CFCs under
the enhanced capital allowances scheme,
resulting in an amount due from HMRC of
£0.1 million. No net deferred tax credit
was recognised in the period. Ocado has
approximately £285.3 million of unutilised
carried forward tax losses at the end of
the period. During 2014 Ocado paid
£29.1 million in a range of taxes including
fuel duty, PAYE and Employers’ National
Insurance, business rates and VAT.
Basic earnings per share was 1.24p and
diluted earnings per share was 1.18p.
CAPITAL EXPENDITURE AND
CASH FLOW
Capital expenditure for the period was
£86.4 million (2013: £76.3 million) and
comprised of the following:
Investment in CFC1 capital expenditure
was £9.2 million on resiliency projects
(e.g. additional cranes and refurbished
zone pick aisles) and improvement projects
(e.g. bagging machines). This is at a
higher rate compared with 2013 as the
switch of some volume to CFC2 during
2014 provided a temporary period of
lower utilisation of the CFC1 which gave
an opportunity to undertake these capital
projects.
In the period a further £1.7 million capital
expenditure was incurred for the completion
of Phase 1 works and various minor
projects in CFC2.
In July 2014, we announced plans for our
next CFC located in Andover, Hampshire in
the south of England. Andover CFC will be
smaller than our existing CFCs (expected
capacity of 65,000 OPW), and will
include the first example of our proprietary
picking system which is designed in the
long term to be faster to install and more
cost and capital efficient than the system at
the current CFCs.
CFC1
CFC2
CFC3
Delivery
Technology
Other
Total capital expenditure1,2 (excluding share of MHE JV Co)
Total capital expenditure3 (including share of MHE JV Co)
FY 2014
£m
FY 2013
£m
9.2
1.7
16.5
22.1
16.8
20.1
86.4
98.1
5.9
38.0
–
10.8
14.1
7.5
76.3
132.3
1. Capital expenditure includes tangible and intangible assets
2. Capital expenditure excludes assets leased from MHE JV Co under finance lease arrangements
3. Capital expenditure includes Ocado share of the MHE JV Co capex in 2014 of £11.7 million and in 2013 of
£56.0 million
45
Stock Code: OCDOwww.ocadogroup.comStrategic Report23698-04 29-01-2015 PROOF 9 CHIEF FINANCIAL OFFICER’S REVIEW continued
Other capital expenditure includes £16.3
million of investment in developing our
next generation fulfilment solution, £1.8
million for the second phase of the NFDC
to provide further capacity to support our
non-food business growth and a further
investment of £1.3 million to support the
growth of our non-food destination sites
and webshop.
At 30 November 2014, capital
commitments contracted, but not provided
for by the Group, amounted to £22.9
million (1 December 2013: £28.8 million).
We expect capital expenditure in 2015
to be approximately £150.0 million,
to be invested in the next generation of
fulfilment solutions, roll out of our new
CFCs and additional investment in new
vehicles to support business growth and the
replacement of vehicles coming to the end
of their five year financing contracts.
During the year the Group generated
improved operating cash flow after finance
costs of £74.3 million, an increase of
23.0% year-on-year, up from £60.4 million
in 2013, as detailed below:
Investment in new vehicles, which are
typically on five year financing contracts,
was £12.5 million which is higher than the
prior year (2013: £9.0 million) to support
the business growth. Delivery capital
expenditure also included investments for
new spokes of £8.5 million, including
the purchase of the freehold of a site in
Dagenham which opened, after the period
end, in January 2015.
Ocado continued to develop its own
proprietary software and £14.1 million
(2013: £10.4 million) of internal
development costs were capitalised as
intangible assets in the period, with a
further £2.7 million (2013: £3.7 million)
spent on computer hardware and software.
Our technology headcount grew to 550
staff at the end of the period (2013: 400
staff) as increased investments were made
to support our strategic initiatives, including
the commencing of a major replatforming
exercise of Ocado’s technology and
migration of most of its systems to run on
a public or private cloud. This will allow
Ocado to achieve greater technical
agility and enable the technology to
support possible international expansion
opportunities. In addition, we have
invested internal technology resources as
part of developing the following capital
projects: CFC2 Phase 2; next generation
of fulfilment solutions; development of the
Morrisons proposition; and launch of new
destination websites.
EBITDA
Working capital movement1
Exceptional items
Other non-cash items2
Finance costs paid1
Operating cash flow
Capital investment1
(Decrease)/Increase in debt/finance obligations3
Proceeds from share issues net of transaction costs
(Decrease)/Increase in cash and cash equivalents
FY 2014
£m
FY 2013
£m
71.6
8.7
(0.3)
4.0
(9.7)
74.3
(78.8)
(33.4)
3.7
(34.2)
45.8
23.5
(4.6)
2.8
(7.1)
60.4
(77.5)
34.2
3.8
20.9
1. FY 2013 capital investment was adjusted for capitalised borrowing costs attributable to an adjustment in
working capital and finance costs paid
2. Other non-cash items include movements in provisions, share of income from MHE JV Co and share based
payment charges
3. FY 2013 includes sale and leaseback of MHE assets to MHE JV Co
“Our technology
headcount grew to
550 staff at the end
of the period.”
“We continue to reinvest
our cash for our future
growth plans.”
View more information about
independent auditors’ report on pages
132 to 138
View more information online at
www.ocadogroup.com
46
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 The operating cash flow increased by
£13.9 million during the year primarily as
a result of an increase in EBITDA of £25.8
million. This was offset by a reduction in
positive movement in working capital of
£14.8 million driven by a reduction in
trade and other payables due to timing
of payments for capital projects and
the amortisation of a one off payment
received in 2013 as part of the Morrisons
agreement. In addition trade and other
receivables reduced by £6.5 million arising
from a capital contribution into MHE JV Co
to finance the acquisition of CFC2 fixed
assets. Additional funds to finance these
CFC MHE fixed assets is received from
the payment by Ocado of finance lease
obligations owing to MHE JV Co.
We continue to reinvest our cash for future
growth and as a result the cash outflow
due to capital investment increased to
£78.8 million comprising investments in
CFC3, development of our next generation
fulfilment solution and spend on spoke sites.
In the period £33.4 million of cash was
utilised for the repayment of debt and
financing obligations. The prior year
included the proceeds from the MHE sales
and leaseback arrangement entered into as
part of the Morrisons agreement.
KEY PERFORMANCE INDICATORS
BALANCE SHEET
The Group had cash and cash equivalents
of £76.3 million at the period end (2013:
£110.5 million) the decrease mainly
owing to a net cash outflow from investing
activities and repayments of finance leases
in the period.
Gross debt at the period end was £175.7
million (2013: £161.4 million). Gross debt
has increased by £14.3 million reflecting
an increase in obligations payable to
MHE JV Co of £18.1 million offset by a
reduction of £3.8m in property mortgages
and asset finance obligations.
External gross debt at the period end,
excluding the finance leases payable to
MHE JV Co, was £44.9 million (2013:
£48.7 million).
INCREASING FINANCING FLEXIBILITY
In the period, we put in place a 3 year
£100 million unsecured revolving credit
facility. The participating banks are Barclays,
HSBC, RBS and Santander. We believe this
new facility enhances our flexibility to exploit
the increasing growth opportunities open to
us in the future. The facility remained undrawn
throughout the period.
The following table sets out a summary of selected unaudited operating information for
2014 and 2013:
Average orders per week
Average order size (£)1
Mature CFC efficiency (units per hour)2
Average deliveries per van per week
(DPV/week)
Average product wastage (% of revenue)3
Items delivered exactly as ordered (%)4
Deliveries on time or early (%)
FY 2014
(unaudited)
167,000
112.25
145
FY 2013
(unaudited)
143,000
113.53
135
163
0.8
99.3
95.3
160
1.0
99.0
95.2
Variance
%
16.8%
(1.1)%
7.4%
1.9%
(0.2)%
0.3%
0.1%
Source: the information in the table above is derived from information extracted from
internal financial and operating reporting systems and is unaudited.
1. Average retail value of goods a customer receives (including VAT and delivery charge and including standalone
orders) per order
2. Measured as units dispatched from the CFC per variable hour worked by CFC1 and CFC2 operational
personnel in 2014. We consider a CFC to be mature if it had been open 12 months by the start of the half
year reporting period
3. Value of products purged for having passed Ocado’s “use by” life guarantee divided by retail revenue
4. Percentage of all items delivered exactly as ordered, i.e. the percentage of items neither missing nor substituted
47
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Annual Report and Accounts for the 52 weeks ended 30 November 2014
Which?
Best Online Grocer 2014
Members Annual Satisfaction Survey
Best Online Grocer 2013
Members Annual Satisfaction Survey
Loved By Parents
Best Online Retailer 2014
Best Grocery Product 2014
Best Child’s Snack 2014
Website of the Year
Best Shopping Website
Soil Association
Best Organic Supermarket 2014
Health and Fitness, and Women’s Fitness
Best Retailer 2015 — Gold
Healthy Snack Boxes 2015, Ocado
Organic Fruit Box — Gold
Organic Food 2015, Ocado Organic
Small Veg Box — Gold
Foods You Can
Best Large Online Supermarket 2014
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Strategic Report
OUR AWARDS 2014
CONSUMER AWARDS 2014
During 2014 we were delighted to be recognised for our
achievements, a number of which are highlighted below.
Ocado was voted Best Online Grocer by Which? Magazine
(Members Annual Satisfaction Survey) and Best Online Retailer
(Gold). We also received recognition as Best Large Online
Supermarket 2014 in the Foods You Can, Free From People’s
Choice Golden Apple Awards, for our extensive offering in our
Free From Range.
We were also voted by more than 11,000 consumers as the Best
Organic Supermarket 2014 in the 28th annual Soil Association
Awards. Our webshop offers over 2,800 organic products
available for delivery to customers in the UK. Our rapidly
growing range of organic groceries, toiletries, beauty and baby
products, pet food and household goods are available at the
touch of a button at Ocado.com/organic.
We also won a number of awards for our Ocado own-label
products. These included the Loved by Parents Best Grocery
Product for our Ocado own-label organic juicing boxes, fruit
boxes and vegetable and salad boxes, as well as for a range of
our fresh fish by Quality Food Awards.
The annual Britain’s Next Top Supplier campaign was acclaimed
in the PRCA Awards, which showcase the best in the PR industry
as judged by leaders in the field. We also secured the Corporate
Social Responsibility accolade, which recognises work that
promotes an organisation’s CSR programme, via either a one-off
campaign or ongoing work.
BRAKE FLEET SAFETY AWARDS
2014
Ocado fleet trainers and Service Delivery Team were awarded the
Company Driver Safety Award (medium fleet) for fleet safety by
BRAKE. This highly regarded award, recognises the high standards
delivered each day by our fleet of drivers.
Neil Shaw, Head of Training and Development — Service
Delivery, was also recognised as Road Risk Manager of the
Year for his commitment to delivering a programme which has
enabled Ocado to lead the way in fleet safety amongst our peers.
2014 BUILDING PUBLIC TRUST
AWARDS
Ocado won the award for “Corporate Governance Reporting
in the FTSE 250” at the 2014 Building Public Trust Awards, in
respect of the Annual Report for 2013. This award highlights the
Group’s efforts in developing a strong framework of governance
and risk management and continued excellence in its reporting to
shareholders.
APPRENTICE OF THE YEAR 2014
Ryan Scales was voted Apprentice of the Year by the ‘3aaa
Academy’ beating 12,000 apprentices to take the title. Ryan was
one of 25 people to be nominated, put forward by employers
and staff from the 3aaa Academies across England, for their
hard work and dedication throughout the year.
View more information about the
Apprentice of the Year on page 56
View more information online at
www.ocadogroup.com
49
23698-04 29-01-2015 PROOF 9
Ocado Group plc
Annual Report and Accounts for the 52 weeks ended 30 November 2014
CORPORATE RESPONSIBILITY
“As online pioneers,
we’ve already helped
to change the way
people shop for
groceries; now we want
to change the world too,
a little bit at a time.”
View more information online at
www.ocadogroup.com
Corporate responsibility has undergone
some major developments during the period
of this report, the details of which follow
below.
• For every employee to be engaged
with our CR strategy, aspirations and
intentions
• Ensure we are a well-run, responsible,
THE OCADO WAY
sustainable business
From the beginning, Ocado has been
passionate about minimising environmental
impacts, and as our activities and
responsibilities have grown, we have
responded with our strategy.
Our new 2020 Vision “The Ocado Way”
is underpinned by three guiding principles
that we aspire to:
• Where we believe there is an opportunity
to use our position and expertise for
good, to step up and take it.
Building on work undertaken to date, our
new 2020 vision “The Ocado Way”
has four strategic pillars: Education,
Entrepreneurship, Environment and Eating
Well, focusing on areas where we can
make a meaningful difference.
THE OCADO WAY
STRATEGIC PILLARS
EDUCATION
ENTREPRENEURSHIP
ENVIRONMENT
EATING WELL
EDUCATION
ENTREPRENEURSHIP
ENVIRONMENT
EATING WELL
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Strategic Report
EDUCATION
ENTREPRENEURSHIP
Ocado began life 15 years ago as a
small start up with an entrepreneurial spirit,
passion and enthusiasm. While we have
significantly grown in the last 15 years, a
great deal of “the early days” still stays with
us — and we are keen to use our example
and our influence as a platform for change
— inspiring the next generation of students,
entrepreneurs and small British businesses.
BRITAIN’S NEXT TOP SUPPLIER
Building on our proud entrepreneurial history,
“Britain’s Next Top Supplier” supports new,
up and coming suppliers by running an
annual competition aimed at suppliers and
producers looking to take the next step
towards commercialising their product.
In 2015 our Chairman, Lord Rose, and
Chef Tom Kerridge, will again both sit
on the judging panel for the competition
alongside Ocado buyers – aimed at
finding that “next new product”.
The 2014 winner, Hiver Beers, won the
opportunity to be stocked at Ocado as well as
a £10,000 marketing package to promote
the product – and sales are going well for the
small, niche brewery following this opportunity.
blog.ocado.com/2014/01/06/bnts/
Ocado’s success stems from cutting edge
technology. We see a significant opportunity
with Code for Life to play a role in promoting
technology, and our Road Safety programme
aims to raise awareness of large vehicles
with children and young people.
CODE FOR LIFE
Ocado.com is the world’s largest online-only
grocery retailer. Customers use our award-
winning mobile applications and website
to place their orders, which are packed in
our world-class automated warehouses, and
delivered in one-hour time slots.
Under the surface is a dynamic technology
business, Ocado Technology, that has
the look, feel and culture of an innovative
software start-up — developing all the
software that powers the Ocado.com and
Morrisons.com retail businesses.
We believe the ability for children to code
will in future years become as important
as literacy and maths are today. With that
in mind, we developed Code for Life, an
initiative to help support primary school
teachers deliver the new computer science
curriculum. We are keen to lend our
support to a programme that will enable
every child in the country to flourish in an
increasingly digital world, armed with
“coding survival skills”.
Our Road Safety programme is in the early
stages of implementation, and we look
forward to sharing more in future years.
CASE STUDY:
EDUCATION & CODE
FOR LIFE
September saw the launch of Ocado
Technology’s Code for Life initiative, which
sets out to provide primary school children
with the ability to write code. Aimed
at primary school teachers in England,
the free teaching resource called Rapid
Router will complement the Key Stage in
Computing.
Rapid Router offers a number of coding
tools including games, detailed lesson
plans for pupils learning Key Stage 1
(children aged 5–7 years) and lower
Key Stage 2 (children aged 7–9),
unplugged educational activity and coding
videos including Ocado Technology
programmers.
In less than 4 months, Code for Life has
been adopted by more than 13,500 users
and over 300 schools are using the tools!
www.codeforlife.education/
Britain’s Next Top Supplier, 2014
51
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Annual Report and Accounts for the 52 weeks ended 30 November 2014
CORPORATE RESPONSIBILITY continued
“We aim to be the UK’s
greenest, most innovative
and best value grocery
retailer by providing a
more environmentally
efficient alternative to
traditional supermarkets.”
“Our leading edge,
in-house routing system
makes over 3 million
routing calculations per
second, finding the most
efficient delivery routes.”
Over the period, our emissions increased
compared to the previous year, as set out
in the table below. During 2013/14,
the Group has significantly increased the
volume of orders for both Ocado.com and
Morrisons.com, an increase of 26.7%
compared to the previous year. We continue
to make efficiency gains from the increasing
orders at our CFCs and the opening of
additional spokes which result in shorter
van journeys, combined with continuous
improvements in technology.
PricewaterhouseCoopers LLP has carried
out a limited assurance engagement in
accordance with International Standard
on Assurance Engagements 3410
“Assurance engagements on greenhouse
gas statements” (ISAE 3410), issued by
the International Auditing and Assurance
Standards Board. A copy of the limited
assurance report is available in the “Our
Responsibilities” section of the Company’s
corporate website.
View more information online at
www.ocadogroup.com
ENVIRONMENT
During the period, we partnered with The
Carbon Trust to help us re-evaluate our
strategic direction for carbon and waste.
A revised, more targeted strategy is being
drafted, taking into account our rapidly
growing business and ever changing
industry.
GREENHOUSE GAS EMISSIONS
We have measured our greenhouse gas
emissions for many years, but it was in the
previous period, 2 December 2012 to
1 December 2013, that we formally
reported a baseline against which we now
track our reductions and efficiencies.
The Group’s reported emissions have been
prepared and calculated with reference
to environmental reporting guidelines
(2014), issued by Defra and using
conversion factors published by DECC/
Defra May 2014. Further details regarding
our data and preparation can be found on
our website.
View more information online at
www.ocadogroup.com
GHG EMISSIONS — CO2e
TONNES
GHG EMISSIONS (TONNES CO2E)
Scope 1 — Direct
Scope 2 — Indirect
Total Emissions
Intensity measures:
Tonnes CO2e/ 1,000 orders
2012/13
2013/14
39,530
21,613
61,143
50,198
26,493
76,691
8.23
8.15
The baseline for last year has been slightly adjusted upwards from the data in last year’s report, due to actuals
replacing estimates.
ELECTRICITY
26,494
GAS
613
REFRIGERANTS
801
DRY ICE
3,744
DIESEL
45,039
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Strategic Report
Our largest carbon contributions still
come from the fuel used in the vehicles
used to transport orders and the electricity
consumption used at our CFC’s and spokes.
The reporting period covered by the
emissions data is the same as the financial
year, being the 52 weeks ended
30 November 2014.
Recycling and reuse of carrier bags is well
understood by customers, who work with
us and other retailers to help reduce the
environmental impact of carrier bag use.
We believe we remain the only retailer
to take both our own, and other retailers’
carrier bags, and recycle them back into
carrier bags.
GREEN VAN SLOTS
We offer further carbon reductions through
the “green van” slots on our time slot
booking page. The idea is simple – if we
are delivering in an area at a particular
time, we can advise at the time of booking,
enabling customers to choose an adjacent
time slot – thereby minimising drive time
and fuel use for deliveries.
WASTE
Our waste volumes remain at low levels
(compared to the industry) and where
possible we find ways to re-use any food.
Food close to its “use by date” goes to our
food bank partners, some to Company
Shop Limited, and in turn on to Community
Shop, and finally to a number of animal
parks we also support.
Our third generation delivery van continues
to operate on the premise of maximising
the potential payload whilst having the
lowest environmental impact possible.
We reduce the environmental impact of the
vans by (1) increasing fuel efficiency, (2)
improving routing and reducing distance
travelled, and (3) increasing deliveries per
van route. Our leading edge, in-house
routing system enables us to minimise road
mileage and take full advantage of the
payload available by making over 3 million
routing calculations per second, finding
the most efficient delivery routes. Working
with our body constructor Paneltex for many
years, we have increased the payload of our
3.5 tonnes sprinter van fleet by 41%. We
also operate FleetBoard in all our trunking
fleet, a driver management tool optimising
fuel efficiency. We are exploring equivalent
options in the van fleet.
CLOSED LOOP RECYCLING
Ocado collects both our own and other
retailers’ carrier bags from our customers. On
average, customers return more than 65%
of all carrier bags and we then recycle them
back into carrier bags to be used again.
This all takes place within the UK, rather than
being sent overseas — minimising carbon
emissions from transportation.
“On average, customers
return more than 65% of
all carrier bags and we
then recycle them back
into carrier bags to be
used again.”
“Our waste volumes
remain at low levels
(compared to the
industry) and where
possible we find ways to
re-use any food.”
Donate Food with Ocado – Ocado’s virtual food bank allowing online customers to donate food to charitable causes
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Annual Report and Accounts for the 52 weeks ended 30 November 2014
CORPORATE RESPONSIBILITY continued
EATING WELL
Key to our Eating Well pillar, is a plan
to support the role of food in health and
nutrition and help reduce food poverty in
the UK.
We believe that by offering the biggest
range of nutritional choices, including the
largest selection of nutritionally “free from”
products in the UK, and ensuring there
are always at least 100 fresh fruit and
vegetables on promotion at any one time,
we can contribute to the broader agenda
of healthy eating and sound nutritional
choices. This is about informed choices
and offering the widest possible selection
to facilitate those choices, combined
with recipes, and dietary and nutritional
information.
We are also working hard to play our part
in reducing food poverty in the UK.
This year, we launched a “Donate Food with
Ocado” option for customers — they select
a donation while doing their shop, and
we match the contribution with groceries.
This idea was based on feedback from our
customers. Southend Vineyard, as our long-
standing food bank partner (see case study),
is the primary recipient for the time being,
but we expect to broaden this to other food
banks across the UK.
CASE STUDY: EATING
WELL AND REDUCING
FOOD WASTE
SOUTHEND VINEYARD STOREHOUSE
Ocado has a well-established and
long-standing partnership with Southend
Vineyard Storehouse, a busy centre which
helps thousands of poor, homeless and
vulnerable people each year, issuing 500
food parcels to people in crisis every week.
For five years, volunteers from The
Storehouse, have collected food still within
“use by” date for their food bank and
community café.
The food bank sees on average 150
people every day and the café can feed
anywhere in the region of 200 each day
it opens its doors, showing people with
very difficult lives some warmth, kindness
and respect as they receive food which
they could not otherwise afford.
“The relationship we have with Ocado is
hugely important to us at The Storehouse.
Weekly collections from Ocado underpin
our food programme, helping us to feed
thousands of disadvantaged people
affected by the recession as well as
many homeless and vulnerable people.
It is no exaggeration to say that without
Ocado we would not be able to provide
food for the 90 families and over 500
individuals who depend on our service
every week. Ocado is truly our partner in
“Reaching Out and Changing Lives”, and
the Storehouse team is indebted to every
Ocado team member who helps make the
partnership happen. Thank you on behalf
of every Storehouse volunteer and every
single person who has ever received an
emergency food parcel.” John Williams,
The Storehouse, Southend Vineyard
View more information online at
www.ocadogroup.com
54
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www.ocadogroup.com
Strategic Report
TWYCROSS ZOO
In more recent years, since the opening
of CFC2 in Dordon, we have grown our
relationship with Twycross Zoo.
More than 1,200 kg of fruit and
vegetables are donated to Twycross Zoo
weekly, feeding the animals with food unfit
for human consumption — but still perfectly
edible for the residents of the zoo.
We plan to continue both this and other
partnerships in our efforts to avoid sending
food waste to landfill.
COMMUNITY AND CHARITABLE GIVING
During the period, our employees voted
for Macmillan as “Charity of the Year” for
the fourth year. Fundraising throughout the
year has included a summer ball, football
tournament, cake bakes and a host of
sponsored activities across the country. This
year, employees have raised more than
£65,000, bringing the total to date to
£190,000.
“Since our partnership began four
years ago staff have thrown themselves
into running, cycling, holding coffee
mornings, quizzes, balls, barbeques,
football matches and much more. From
this company-wide effort we’re thrilled that
to date our partnership has raised nearly
£200,000 and is raising vital awareness
of Macmillan.
“The Ocado staff are incredible and
we can’t thank them enough for their
continued support and for helping us to
ensure no one has to face cancer alone.”
Claire Singlehurst, Director of Regional
Fundraising, Macmillan
We get approached by many charities,
schools, sports and community groups
throughout the year asking for charitable
support. Whilst we are unable to assist
every request, we try where we can – and
during the period have donated almost
£25,000 to small, often local, events and
activities.
Twycross Zoo
“PEAS ONE DAY”
Ocado has been a supporter of the
organisation Peace One Day for a number
of years. Unlike in previous years, this year
we chose to involve our customers and
during the period leading up to the annual
Peace Day (21 Sept), 20p from every pack
of frozen peas was donated to the charity.
We were delighted to raise £13,350 for
Peace One Day’s campaign.
Through our continued partnership with
Waitrose, we made donations to the
Waitrose Foundation, totalling £53,000
during the Waitrose financial year
2013/14. This was from sales of fruit and
vegetables; and also in the same period,
we made a donation of over £159,000
to the Prince of Wales’s Charitable
Foundation, through sales of Duchy
branded products.
No political donations were made by the
Group to any political party, organisation
or candidate during the period (2013: nil).
Ocado is committed to the upholding and
respect of human rights. We expect our
suppliers to operate in a fair and honest
way towards their employees and with
whom they do business.
Give PEAS a Chance
55
23698-04 29-01-2015 PROOF 9 OUR PEOPLE
encourage candidates to apply directly for
roles with Ocado, rather than relying on
third party agencies. Keeping this process
in-house enables us to bring like-minded
people into the Ocado team, is cost-
effective and lets us reinvest these savings
back into our learning and development
programmes.
Our focus remains on attracting those
with a can-do attitude who share our
entrepreneurial spirit and determination to
succeed.
We take pride in being recognised as one
of the top graduate recruiters, providing us
with the opportunity to pick the best young
professionals at the start of their career.
one of 25 people to be nominated
by employers and staff from the 3aaa
Academies across England for their
hard work and dedication throughout
the year.
Our Values
• We’re in it together
• Value each person
• Love what we do
• We can be even better
ALL EMPLOYEES*
8,589
6,709
5,536
5,490
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2011
2012
2013
2014
* Number of employees as at period end.
56
WE VALUE OUR PEOPLE
We are a business that values our people.
Our employer brand is paramount to our
ability to attract the best talent at the rate
we need to match our pace of growth. Our
values are at the heart of our culture and
they reflect our entrepreneurial spirit and
drive, preferring the excitement of change
to the risks of standing still.
WE RECRUIT TALENTED PEOPLE
Our business is built on innovation, on
finding solutions, and on delivering world-
class service. Our recruitment team has
been effective in meeting the significant
challenge of recruiting the employees
needed for our continuous growth, with
total employee numbers growing by
over 29% in the period. We attract and
CASE STUDY:
APPRENTICE OF THE
YEAR
RYAN SCALES
One such successful appointment was of
Technology Helpdesk Technician Ryan
Scales. In December 2014 he was voted
Apprentice of the Year by the “3aaa
Academy”, beating 12,000 apprentices
to take the title. Ryan, 21, has been part
of team Ocado for 16 months, and was
announced the winner at a ceremony
held at the House of Lords. Ryan was
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 DIVERSITY
ENGAGING OUR PEOPLE
ALL EMPLOYEES1
We value diversity and through our equal
opportunities policy we are dedicated
to creating an environment that is free
from discrimination, harassment and
victimisation. Everyone at Ocado is
treated equally regardless of age, colour,
disability, race, gender, sexual orientation,
marital status, political views or religious
belief. Applications for employment
by people with disability are always
fully considered, bearing in mind the
respective aptitudes and abilities of the
applicant concerned and our ability to
make reasonable adjustments to the role
and the work environment. In the event of
existing employees becoming disabled
all reasonable effort is made to ensure
that their employment within the Group
continues. Training, career development
and promotion of a disabled person is, as
far as possible, identical to that of an able
bodied person.
Gender diversity is encouraged but is not
always easy to implement. Women are
under-represented in engineering and
computer science university courses, and
the gap is widening. Men constitute 83%
of engineering graduates and 81% of
computer science graduates (HESA data
2006-2012), and to add to the problem
the total number of UK computer science
graduates has decreased during this
period. Our answer to this is to reach out
to them early – our Code for Life initiative
provides a fun and effective tool for
primary school children to gain the ability
to write code (further details on page
51). We hope that developing this skill
in girls when they are still very young will
encourage more young women to continue
with high school and university courses in
computer science.
The charts on the right show a breakdown
of the number of people who were on the
Board, Senior Managers and employees of
the Group at the end of the period.
1. Number of employees as at period end (including
employees in Poland).
2. Senior Managers means the Management
Committee excluding Executive Directors.
Every one of our employees plays a part in
the Ocado story; from running our automated
warehouses, to buying our product range,
managing our accounts, answering customer
calls, and picking and delivering shopping to
our customers’ doors. In return we work hard
to engage our employees in our vision.
This extends beyond keeping colleagues
informed of the Company’s performance
and issues that affect them day to day.
Through communications channels such
as face to face briefings, rolling plasma
screens in communal spaces, our intranet
(The Grapevine) and our in-house
magazine (Juice), we deliver a variety of
messages on a diverse range of stories in a
tone of voice that’s relevant to our people.
We also encourage formal two-way
communication through our annual employee
survey and our employee representative
body, the Ocado Council, both of which
help us identify areas where we can improve
as an employer and encourage participation
and consultation in the decisions we make.
Ocado maintains a voluntary union
recognition agreement with USDAW,
which is integrated with our Ocado
Council, to voice the views of our hourly
paid employees.
The Ocado Council works constructively on
behalf of all our employees. It has regular
interaction with Ocado’s senior leadership
team, and is divided into business areas to
give every single employee representation
through an elected committee. A small number
are then elected to a National Council, which
deals with matters relevant across the Group. It
is chaired by a Non-Executive Director, giving
employees at all levels of the Group direct
access to the Board.
ACAS trained Council representatives
are consulted on matters that affect all
employees, such as new ways of working,
benefits at work, new equipment, and
training and development.
We have a diverse range of employee
engagement activities - from charitable
events to sporting activities, and some of
which unashamedly have no purpose other
than to have fun.
FEMALE
16%
(1,338)
SENIOR MANAGERS2
FEMALE
11%
(1)
DIRECTORS
FEMALE
18%
(2)
MALE
84%
(7,251)
MALE
89%
(8)
MALE
82%
(9)
57
Stock Code: OCDOwww.ocadogroup.comStrategic Report23698-04 29-01-2015 PROOF 9 DEVELOPING AN IOSH-ACCREDITED
HEALTH AND SAFETY TRAINING
PROGRAMME
Historically Ocado outsourced Health and
Safety training but found it was increasingly
failing to match our organisation’s specific
requirements.
This year we developed and designed
a custom-made training health & safety
management training programme. It gained
IOSH (Institution of Occupational Safety
and Health) accreditation in March 2014
and IOSH now use part of this material in
its own marketing and publications.
RETAINING OUR PEOPLE
Retaining our people is as important to
us as developing them, particularly on
the operational side. Warehousing as an
industry has a high labour turnover rate, but
we are working hard to manage this across
our CFCs. Initiatives range from incentive
and retention schemes to healthy eating
programmes and subsidised cafes.
Our ten-year service award recognises
those who have contributed to the Ocado
story and marks a milestone in their career.
In 2015 we will be celebrating 15 years’
service with all those who have been with
Ocado from the start.
Ocado Group plc
Annual Report and Accounts for the 52 weeks ended 30 November 2014
OUR PEOPLE continued
WE DEVELOP OUR PEOPLE
Training and developing employees is a
vital part of enabling them to forge their
career with Ocado.
Using talent matrix mapping we identify
potential successors for every middle and
senior management role, placing strong
emphasis on developing our talent across
the business and further embedding
appraisals as a development tool. We now
have an in-house management training
curriculum including more than 300
e-learning modules and over 30 different
workshops, team building days, a learning
library and individual coaching.
Developing people is exciting, but also a
challenge when growing a business as
fast as we are. The biggest increase in
employees of more than 30%, was in our
delivery driver team. We call them our
Customer Service Team Members, and their
job title describes how they are essential
to the success of Ocado. Our proprietary
programme for recruiting, training and
developing CSTMs was created by our HR
department and is managed entirely in-house.
OCADO DELIVERS AWARD WINNING
DRIVER TRAINING
Our comprehensive eight-day training
programme is mandatory for all new
CSTMs and refreshed at regular intervals.
It covers:
• Health and Safety
• Food Safety
• Manual Handling
• Eco Safe Driving – theory and practical
• Customer Service
• Use of On-the-Job Systems
Its success was recognised when Neil
Shaw, our Head of Service Delivery
Training and Development won Road Risk
Manager of the Year at the 2014 Brake
Fleet Safety Awards.
Ocado also won the Company Driver
Safety award in our size category for
our sharp focus on fleet safety through
continuous training, communication and
recognition.
CASE STUDY:
MEET ANNE MARIE
NEATHAM
CHIEF OPERATING OFFICER (OCADO
TECHNOLOGY)
I grew up in Ireland and took a BSc in
Computer Science in University College Cork.
I started my career in Dublin as a software
engineer with a small development
company. I moved to Boston in the US where
I worked as a software developer rolling
applications out to companies that had been
acquired in the UK, Germany and Portugal.
Since 2001 I have been head of different
technical development departments in
Technology at Ocado. It has been exciting
to be part of something that has grown
and changed from nothing to the success
story it is today.
In 2012 I became Head of Ocado
Technology Poland. It was a fantastic role,
combining the setting up of a business from
scratch in another country with managing
technical development. In Krakow we
introduced the Ocado Technology brand
so that it would be clear that we were a
serious technical proposition in the city.
We are viewed as a premium employer
of choice because of the solutions we
develop to challenging technical issues.
Our technical team in Krakow are talented,
enthusiastic and hardworking, which
complements the excellence of the teams in
the UK.
At the beginning of this year I returned
to the UK as Chief Operating Officer –
Ocado Technology. My remit includes
our Polish office, Infrastructure and Ops,
our organisational development and
general management. It is an exciting
time as Ocado looks to commercialise its
technology and operating knowledge.
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Strategic Report
Ocado van wraps — going the extra mile to recruit the best
In addition to significantly increasing the number of employees at our existing sites, during
2014 we also opened four new spokes with between 90 and 160 new employees at each.
RECOGNITION AND REWARD
To make Ocado an employer of choice our
comprehensive employee benefits package
includes a choice of pension schemes with
employer contribution, life assurance, private
medical insurance, critical illness cover and
an employee assistance programme. There
is also a range of traditional benefits and
industry-leading 15% employee discount on
all shopping with Ocado.
We have a commitment to ensuring that all
employees share in the Group’s success.
Employees are able to buy Ocado shares
with pre-tax income, and we have a Save
As You Earn scheme that allows employees
to save up to buy Ocado shares at a pre-
set price.
In 2014 we replaced our historical
programme of granting share options to all
employees with a programme to give free
shares equivalent to 1% of basic pay to all
employees with six months or more service.
Our intention is for this to repeat annually.
STRATEGIC REPORT
The Company’s Strategic report is set out
on pages 2 to 59.
Approved by the Board and signed on its
behalf by
Neill Abrams
Legal & Business Affairs Director and
Company Secretary
Ocado Group plc
3 February 2015
CASE STUDY: MEET
MATT ROBSON
A SENIOR DEMAND MANAGER WHO
HAS BEEN PART OF OCADO FOR 11
YEARS . . .
I joined Ocado in 2003 as a part-time
CSTM whilst studying for an Automotive
Engineering degree.
When I finished university I decided to
stay with Ocado and move into a full-time
CSTM position delivering groceries. I was
employee number 738 in Ocado’s history.
I spent two years as a CSTM; being out
on my own in the van taught me to be
organised. From there, I moved to the
Contact Centre, where there were lots
of opportunities to develop and I soon
moved into a supervisory role. Many of
my colleagues from that time remain in the
business today.
I was promoted again to Supply Chain
– where I still work today as a Senior
Demand Manager, heading up a large
team maintaining the availability of
thousands of grocery products, whilst
continuing to keep our wastage at
incredibly low levels. We look after the
inbound service for our entire supply base
– over 1,000 suppliers and growing –
maintaining close links with our retail and
operational teams.
View more information online at
www.ocadogroup.com
59
23698-04 29-01-2015 PROOF 9 G R E A T
SERVICE
“We provide industry
leading service in terms
of timeliness and order
accuracy...our customers
regularly commented on
the outstanding service
provided by our Customer
Service Team Members.”
60
23698-04 29-01-2015 PROOF 9 OUR GOVERNANCE
62
64
66
74
80
82
Board of Directors
Chairman’s Overview
Statement of Corporate Governance
Audit Committee Report
Nomination Committee Report
Directors’ Report
View our Chairman’s Statement
on page 6
View more information online at
www.ocadogroup.com
61
23698-04 29-01-2015 PROOF 9 BOARD OF DIRECTORS
LORD ROSE, CHAIRMAN
TIM STEINER, CHIEF EXECUTIVE OFFICER
Age 66
Age 45
DUNCAN TATTON-BROWN, CHIEF FINANCIAL
OFFICER
APPOINTMENT TO THE BOARD
APPOINTMENT TO THE BOARD
11 March 2013
13 April 2000
COMMITTEE MEMBERSHIP
RELEVANT EXPERIENCE
Tim is the founding Chief Executive Officer of Ocado.
Prior to Ocado, he spent eight years as a banker at
Goldman Sachs, during which time he was based in
London, Hong Kong and New York in the Fixed Income
division. Tim graduated from Manchester University in
1992 with an honours degree in Economics, Finance
and Accountancy.
Nomination
EXTERNAL APPOINTMENTS
• Chairman of Fat Face Group Limited
• Chairman of Oasis Healthcare Limited
• Chairman of Stylemania Limited (Dressipi)
• Non-Executive Director of Woolworths Holdings
Limited, listed in South Africa
RELEVANT EXPERIENCE
Lord Rose has worked in retail for over 40 years. He
has held Chief Executive Officer positions at Argos plc,
Booker plc, Arcadia Group plc and Marks and Spencer
plc. He was Chairman of Marks and Spencer plc
from 2008 to 2011. Lord Rose was a Non-Executive
Director at Land Securities Group plc until January
2014. Lord Rose was knighted in 2008 for services to
the retail industry and corporate social responsibility,
and granted a life peerage in August 2014.
Age 49
APPOINTMENT TO THE BOARD
1 September 2012
EXTERNAL APPOINTMENTS
• Senior Independent Director and Audit Committee
Chairman of Zoopla Property Group plc
RELEVANT EXPERIENCE
Prior to joining Ocado, Duncan was Chief Financial
Officer of Fitness First plc, and previously Group
Finance Director of Kingfisher plc, one of the world’s
largest home improvement retailers. He has also been
Finance Director of B&Q plc, Chief Financial Officer
of Virgin Entertainment Group and held various senior
finance positions at Burton Group Plc. Duncan holds
a master’s degree in Engineering from King’s College,
Cambridge. He is also a member of the Chartered
Institute of Management Accountants.
MARK RICHARDSON, OPERATIONS DIRECTOR
Age 50
APPOINTMENT TO THE BOARD
3 February 2012
EXTERNAL APPOINTMENTS
• Non-Executive Director at Paneltex Limited
RELEVANT EXPERIENCE
Mark was Head of Technology at Ocado from 2001
until he joined the Board in 2012. He is responsible
for the day-to-day running of the Ocado operation,
including CFCs, logistics developments, business
planning, engineering and technology. Mark is a
Director of Paneltex Limited, a company in which the
Group holds a 25% shareholding. Prior to joining
Ocado, Mark held a number of IT positions at the John
Lewis Partnership, including Head of Selling Systems
at Waitrose. He graduated from University College,
London with a degree in Physics.
62
NEILL ABRAMS, LEGAL & BUSINESS AFFAIRS
DIRECTOR AND COMPANY SECRETARY
DAVID GRIGSON, NON-EXECUTIVE DIRECTOR AND
SENIOR INDEPENDENT DIRECTOR
Age 50
APPOINTMENT TO THE BOARD
8 September 2000
Age 60
APPOINTMENT TO THE BOARD
9 March 2010
EXTERNAL APPOINTMENTS
• Non-Executive Director of Mr Price Group Limited,
COMMITTEE MEMBERSHIP
Audit, Remuneration, Nomination
listed in South Africa
RELEVANT EXPERIENCE
Neill has been a Director since 2000, having advised
Ocado since its founding. He has Board responsibility
for legal, insurance, risk management, human resources
and CR. Prior to Ocado, he was a barrister in practice at
One Essex Court and an Executive Director and Counsel
at Goldman Sachs in London. Neill graduated with BA
and LLB degrees from the University of the Witwatersrand
in Johannesburg and obtained a master’s degree in
Law from Sidney Sussex College, Cambridge. He is
a member of the New York Bar and a South Africa
Advocate.
EXTERNAL APPOINTMENTS
• Chairman of Trinity Mirror plc
• Chairman of Investis Limited
• Non-Executive Director and Audit Committee
Chairman of Standard Life plc
• Director/Trustee of the Dolma Development Fund
RELEVANT EXPERIENCE
David has held a number of posts, including Chief
Financial Officer at Reuters Group Plc, Group Finance
Director at Emap plc, Chairman of EMAP Digital
Limited, Chairman of Creston plc and Non-Executive
Director of Carphone Warehouse plc. He graduated
from the University of Manchester with a degree in
Economics, and is also a member of the Institute of
Chartered Accountants of England and Wales.
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 RUTH ANDERSON, NON-EXECUTIVE DIRECTOR
DOUGLAS McCALLUM, NON-EXECUTIVE DIRECTOR
ALEX MAHON, NON-EXECUTIVE DIRECTOR
Age 61
Age 48
APPOINTMENT TO THE BOARD
APPOINTMENT TO THE BOARD
9 March 2010
COMMITTEE MEMBERSHIP
Audit, Remuneration, Nomination
3 October 2011
COMMITTEE MEMBERSHIP
Remuneration, Nomination
EXTERNAL APPOINTMENTS
• Non-Executive Director of Travis Perkins plc
• Non-Executive Director of Coats plc
• Non-Executive Director of Guinness Peat Group plc
• Non-Executive Director of The Royal Parks, an
executive agency of the Department of Culture,
Media and Sport
RELEVANT EXPERIENCE
Ruth was a Vice-Chairman of KPMG in the UK from
2005 to 2009, having been a member of the KPMG
UK board from 1998 to 2004. At KPMG she worked
extensively as an adviser with UK and international
businesses. Ruth graduated from Bradford University
with an honours degree in French and Spanish. She
is a fellow of the Institute of Chartered Accountants of
England and Wales and a member of the Chartered
Institute of Taxation.
EXTERNAL APPOINTMENTS
• Chairman of Trainline Investment Holdings Limited
• Cabinet Office Digital Advisory Board
• President of eBay for Charity
RELEVANT EXPERIENCE
Douglas has been a pioneer of the internet industry
for a number of years, having been at eBay Inc. from
2001 to 2014, where he led the UK business and
then turned around the pan-European business. Prior to
joining eBay Inc. he was founder and general manager
of a number of businesses in the internet, broadcasting,
software and hardware industries. Douglas read
Politics, Philosophy and Economics at the University
of Oxford, and has an MBA from Harvard Business
School.
Age 41
APPOINTMENT TO THE BOARD
1 June 2012
COMMITTEE MEMBERSHIP
Audit, Nomination
EXTERNAL APPOINTMENTS
• Chief Executive Officer of Shine Group
• Non-Executive Director of the Edinburgh TV Festival
RELEVANT EXPERIENCE
Before Shine Group and 21st Century Fox, Alex
spent seven years in the television industry at
talkbackTHAMES, FremantleMedia and RTL Group.
Previously she worked in the internet sector as a
consultant. She holds a Physics degree from Imperial
College, London and a Physics PhD from Imperial
College and the Institute of Cancer Research.
JÖRN RAUSING, NON-EXECUTIVE DIRECTOR
ROBERT GORRIE, NON-EXECUTIVE DIRECTOR
Age 55
Age 55
APPOINTMENT TO THE BOARD
APPOINTMENT TO THE BOARD
13 March 2003
1 April 2000
COMMITTEE MEMBERSHIP
COMMITTEE MEMBERSHIP
Nomination
Nomination
EXTERNAL APPOINTMENTS
• Member of Tetra Laval Group Board, and Chairman
EXTERNAL APPOINTMENTS
• Chairman of Tyres on the Drive Ltd
of its Remuneration Committee
• Member of the Board of Alfa Laval AB
• Member of the Board of DeLaval Holdings AB
RELEVANT EXPERIENCE
Jörn has over 20 years’ experience in corporate
development and international mergers and
acquisitions. Jörn holds a degree in Business
Administration from Lund University, Sweden.
RELEVANT EXPERIENCE
Robert originally joined the Board in 2000 as Logistics
Director, before becoming a Non-Executive Director in
2006. He was previously Group Director of Information
Technology at Transport Development Group plc, where
he spent ten years in a variety of commercial and
operational roles. Prior to that Robert spent ten years
in North America with the logistics service business
Christian Salvesen PLC, where he reached the position
of Director of Business Development. Robert graduated
from Corpus Christi College, Oxford with an honours
degree in Modern History and Economics.
63
Our GovernanceStock Code: OCDOwww.ocadogroup.com23698-04 29-01-2015 PROOF 9 CHAIRMAN’S OVERVIEW
Lord Rose
Chairman
“We embrace the
challenge of continuing
to improve our corporate
governance reporting
to shareholders.”
View more information about
corporate governance on pages
66 to 73
View more information online at
www.ocadogroup.com
64
DEAR SHAREHOLDER,
I am pleased to present the Company’s
Statement of corporate governance on
behalf of the Board.
I wrote in last year’s annual report of the
Board’s obligation to provide assurance
“that strategy is set, risks are evaluated and
operations are carried out knowledgeably,
transparently and with accountability”.
That remains as true today. The Board has
always taken seriously its obligation to
provide entrepreneurial leadership, and
articulate its pioneering online retail strategy
openly and determinedly. That strategy
requires an ability and willingness to assess
the risks faced by the Group and by the
industry. In this context the Board welcomes
the recognition by the FRC that “effective
development and delivery of a company’s
strategic objectives, its ability to seize new
opportunities and to ensure its longer term
survival depend upon its identification,
understanding of, and response to, the
risks it faces”. (FRC’s Guidance on Risk
Management, Internal Control and Related
Financial and Business Reporting).
This Statement of corporate governance
sets out how we manage the Company
to achieve the Board’s strategic objectives
and optimise shareholder value. The Board
recognises the increasing importance of
governance to the Group, in the context
of both the changing responsibilities
under the 2014 Code and the important
transformational projects being undertaken to
deliver the long-term success of the Group.
LEADERSHIP
Whilst the Executive Directors are
responsible for the day-to-day management
of the business, the entire Board leads the
Company and provides the debate and
constructive challenge to management
necessary to create accountability and
drive performance. We are mindful that
as the Group grows and the nature of the
challenges it faces change, we need to
ensure that the Board personnel are those
best placed to provide the appropriate
constructive debate on the Group’s
strategic direction. This year, as part of
the annual Board performance review, the
Board conducted a review of its skills and
experience. This review will form the basis
of Board discussions about the desired
make-up of the Board for the future needs
of the business.
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 We embrace the challenge of continuing
to improve our corporate governance
reporting to shareholders. I am pleased to
report that the Group won the “Corporate
Governance Reporting in the FTSE 250”
award at the Building Public Trust Awards
2014 in respect of the Group’s 2013
annual report. We are encouraged by
this recognition of the Group’s efforts to
ensure good governance reporting. We
will continue to keep our reporting under
review and welcome any feedback from
shareholders.
ANNUAL GENERAL MEETING
Our Annual General Meeting will be
held at 11 am on 15 May 2015 at
Peterborough Court, 133 Fleet Street,
London, EC4A 2BB. It provides an
excellent opportunity to meet the Directors
and I would like to encourage our
shareholders to attend.
Lord Rose
Chairman
Ocado Group plc
3 February 2015
In connection with the retirement of
founding director Jason Gissing from the
Board in May 2014, the Board considered
its succession plans for executive
management. The Board discussed the
senior management roles necessary to
support the growth of the business in UK
retail but also for international expansion.
The Board will continue to develop its
succession plans in 2015.
REMUNERATION AND RELATIONS WITH
SHAREHOLDERS
Incentivising our management team to
deliver the Group’s transformational
technology projects is important to the
future of our business. Informed by our
discussions and consultations with our large
shareholders, I believe that our remuneration
arrangements are the most appropriate way
to incentivise the Executive Directors and
senior management to create and sustain
value over the long term. Further details on
remuneration are set out in the Directors’
remuneration report on page 91.
ACCOUNTABILITY AND REPORTING
We have in place an effective and robust
process, which enables us to ensure
that this Annual Report is fair, balanced
and understandable and provides the
information for shareholders to properly
assess the Group’s position, performance,
strategy and business model. Further details
are set out in the Audit Committee report
on page 75.
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INTRODUCTION
The following sections explain how the Company applies the main principles set out in the UK Corporate Governance Code, September
2012 issued by the Financial Reporting Council (the “2012 Code”), as required by the Listing Rules of the Financial Conduct Authority
and meets other relevant requirements including provisions of the Disclosure and Transparency Rules of the Financial Conduct Authority.
This Statement of corporate governance covers the following areas: the structure and role of the Board and its committees; the Board’s
effectiveness; relations with the Company’s shareholders and the AGM; and the reports of the Nomination Committee and the Audit
Committee. The report of the Remuneration Committee is set out separately in the Directors’ remuneration report on pages 94 to 96. The
Group’s risk management and internal control framework and the Group’s principal risks and uncertainties are described on pages 32
to 35. These sections form part of this Statement of corporate governance. The Directors’ remuneration report on pages 91 to 129, the
Directors’ report on pages 82 to 89, and the going concern statement on page 87 also contain information required to be included in
this Statement of corporate governance, and so are incorporated into this statement by reference.
The Financial Reporting Council updated the UK Corporate Governance Code in September 2014 (the “2014 Code”). The 2014
Code applies to reporting periods beginning on or after 1 October 2014, and so does not apply to the Company’s reporting period
ended 30 November 2014. However, the Board has, where appropriate and feasible, adopted some of the new provisions in the
2014 Code earlier than required and provides disclosure against these requirements in this Annual Report.
COMPLIANCE WITH THE 2012 CODE
The obligation of all listed companies is to comply with the provisions of the 2012 Code, or to explain why it has not done so. “Comply
or explain” is an important recognition in the 2012 Code that not all provisions are applicable to all companies at all times. The
Company has complied with the principles and provisions of the 2012 Code, except for provisions C.3.7 and D.2.2. These areas
of non-compliance are explained in this Statement of corporate governance on pages 79 and 95 respectively. In respect of all other
provisions of the 2012 Code, the Company aims to explain how its practices are consistent with the principle to which the particular
provision relates, contribute to good governance and promote delivery of business objectives.
This separate Statement of corporate governance is approved by the Board and signed on behalf of the Board by its Chairman and the
Legal & Business Affairs Director and Company Secretary. Certain parts of this Statement of corporate governance have been reviewed
by the Company’s auditors, PwC, for compliance with the 2012 Code, to the extent required.
Further information on the 2012 Code can be found at www.frc.org.uk.
LEADERSHIP
BOARD STRUCTURE
The structure of the Board is designed to ensure that the Board focuses on strategy, monitoring the performance of the Group and
governance, risk and control issues.
Board
Executive
Directors
Management
Committee
Board
Committees
Principal
Executive
Committees
Audit
Committee
Nomination
Committee
Remuneration
Committee
66
Risk
Committee
Treasury
Committee
Information
Security
Committee
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 BOARD RESPONSIBILITIES
The Board is collectively responsible for the long-term success of the Company. Subject to the Articles and the Companies Act, the business
of the Company is managed by the Board who may exercise all of the powers of the Company. The Board’s main responsibilities and the
key actions carried out during the period are set out below. The Board delegates certain matters to the Board committees, and delegates the
detailed implementation of matters approved by the Board and the day-to-day operational aspects of the business to the Executive Directors.
Specific actions during the period
Annual strategy conference to
review and set the Group’s strategy.
Oversee and approve the Group’s
strategic plans to monetise its IP
and technology.
Receive reports from senior
management on trading, business
performance and financing.
Annual review of key risks and risk
appetite and regular review (by
Audit Committee) of reports on risk
management.
Review and approve the Group’s
regulatory results announcements
and reports.
Receive reports on health and
safety, IT security, investor relations
and legal and company
secretarial matters.
Approve the annual budget, the
business plan for the Group and
individual capital expenditure
projects.
Receive reports on and discuss the
Group’s operational performance
and marketing and retail initiatives.
Site visits to CFC2 and the NFDC
to assist in understanding the
operational issues the
business faces.
Receive a governance review
report from external advisers and
approve actions arising from
the report.
Review Board skills and
performance, discuss management
succession plans and Board
composition.
Approve revised corporate
governance arrangements
and policies.
Responsibility
Strategy and
performance
Risk
management
and accountability
controls
Oversight
of the Group’s
operations
Governance
BOARD ROLES
The names and details of the current (as at the date of this Annual Report) Directors on the Board are set out in the Board of Directors
section on pages 62 to 63. As at the date of this Annual Report, the Board comprises 11 members, including the Chairman, four
Executive Directors and six Non-Executive Directors. Some of the key responsibilities are summarised below.
Chairman
Chief
Executive
Officer
Senior
Independent
Director
Non-Executive
Directors
Company
Secretary and
Legal & Business
Affairs
Director
Lord Rose
Tim Steiner
David Grigson
Ruth Anderson,
Robert Gorrie,
Jörn Rausing, Alex Mahon,
Douglas McCallum
Neill Abrams
Responsibilities
Leadership of the Board.
Ensuring the Board’s
effectiveness and
governance.
Influencing the Board’s
agenda.
Day-to-day management of
the Group’s operations.
Providing a sounding board
for the Chairman.
Constructively challenging the
Executive Directors.
Ensuring that Board
procedures are followed.
Performance and results
of the Group.
Executing the strategy once
agreed by the Board.
Making proposals for the
Group’s strategy to the Board.
Serving as an intermediary
between the other Directors
when necessary.
Being available to discuss
any concerns with
shareholders.
Monitoring the delivery of the
Group’s strategy within the risk
and control framework set by
the Board.
Governance matters.
Ensuring that information
flows between the Board and
its committees.
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STATEMENT OF CORPORATE GOVERNANCE continued
The primary responsibilities of the Chief Executive Officer, the Chairman, the Senior Independent Director, the Company Secretary and
the Non-Executive Directors are set out in writing and provide a system of checks and balances in which no individual has unfettered
decision-making power.
BOARD COMMITTEES
Certain aspects of the Board’s responsibilities have been delegated to committees to assist the Board in various areas. The chairman of
each committee provides a report or update of each meeting of the respective committee to the Board at the subsequent Board meeting.
Committee
Role and terms of reference
Audit
Reviews and reports to the Board on the Group’s financial
reporting, internal control and risk management systems, the
independence and effectiveness of the external auditors
and the effectiveness of the internal audit function.
Makes recommendations to the Board for a resolution to
be put to shareholders of the Company in relation to the
appointment and remuneration of the external auditors.
Remuneration Determines the remuneration, bonuses, long-term incentive
arrangements, contract terms and other benefits in respect
of the Executive Directors, the Chairman and the Company
Secretary.
Monitors the level and structure of remuneration for senior
management.
Membership required under
the terms of reference
Minimum
number of
meetings per
year
Committee
report on
pages
At least three members.
Three
74 – 79
All members should be
independent Non-Executive
Directors.
At least three members.
Two
92 – 96
All members should be
independent Non-Executive
Directors.
Nomination Undertakes an annual review of succession planning and
At least three members.
Two
80 – 81
ensures that the membership and composition of the Board,
including the balance of skills, remain appropriate.
Makes recommendations for the membership of the Board,
the Audit Committee and the Remuneration Committee.
All members should be
Non-Executive Directors with
a majority of independent
Non-Executive Directors.
The full terms of reference for each committee are available on the Company’s corporate website (www.ocadogroup.com) and reports
by each committee are given in this Annual Report.
OTHER COMMITTEES
Certain detailed aspects of the Board’s responsibilities are delegated, in addition to the Executive Directors, to appropriate management-
led committees, whose roles are set out below.
Committee
Role
Management Committee
Risk Committee
Information Security Committee
Treasury Committee
Implementation of the day-to-day operational aspects of the business. Monitoring the
implementation of certain significant and cross-divisional projects.
Overseeing risk control processes and risk analysis as part of normal business decision
making.
Monitoring the Group’s IT security measures.
Overseeing the treasury policy concerning the Group’s cash and deposits, investments, foreign
exchange and applicable interest rates.
68
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 BOARD ATTENDANCE
The attendance record of the Directors at scheduled Board meetings during the period is
set out in the below table. The Board scheduled ten meetings during the period and four
ad hoc meetings and conference calls were also convened to deal with specific matters
which required attention between scheduled meetings. Details of attendance at committee
meetings are set out in the relevant committee report. During the period, the Non-Executive
Directors held a number of meetings without the Executive Directors present.
Board of Directors
Actual
Possible
Executive Directors
Tim Steiner
Duncan Tatton-Brown
Neill Abrams
Mark Richardson
Non-Executive Directors
Lord Rose (Chairman)
David Grigson
Jörn Rausing
Ruth Anderson
Robert Gorrie
Douglas McCallum
Alex Mahon
Former Directors
Jason Gissing
10
10
10
10
10
9
9
10
10
8
10
5
10
10
10
10
10
10
10
10
10
10
10
5
Note: Jason Gissing retired from the Board of the Company effective on 7 May 2014. Where a Director has not
attended a Board or committee meeting, it was due to a conflicting prior commitment.
BOARD COMPOSITION
BOARD CHANGES
Jason Gissing, co-founder and Commercial Director, retired from the Board at the annual
general meeting of the Company held on 7 May 2014.
REVIEW OF BOARD COMPOSITION
The Board and the Nomination Committee reviewed and discussed the Board’s and
the Board committees’ size and composition during the period, including in light of
the retirement of Jason Gissing and various other considerations, notably diversity,
tenure, independence and mix of skills and experience (detailed below). No changes
to the Board’s or Board committees’ compositions were made during the period. The
Nomination Committee report on page 81 provides further detail on the Board’s review in
early 2015 of Board composition and succession.
BOARD DIVERSITY AND TENURE
The Board seeks to ensure that it and its committees have an appropriate composition to
discharge their duties effectively and to manage succession issues. To enable the Board to
meet its responsibilities, it is important that the Board’s composition is sufficiently diverse and
reflects a broad range of knowledge, skills and experience. The Board’s diversity policy
includes a commitment to having a meaningful representation of women on the Board and
in senior positions in the Company. The policy also includes a commitment to engage only
executive search firms who have signed up to the Voluntary Code of Conduct for Executive
Search Firms. The Nomination Committee monitors these objectives. The charts on this page
illustrate the diversity of the Board in terms of length of tenure and gender. Since Admission,
four Non-Executive Directors have been appointed to the Board, including two women.
LENGTH OF TENURE OF
CHAIRMAN AND NON-
EXECUTIVE DIRECTORS
3
2
2
0–3
years
3–6
years
0
6–10
years
10+
years
GENDER DIVERSITY
9
5
4
2
Whole
Board
0
Executive
2
Non-
Executive
Male
Female
69
Our GovernanceStock Code: OCDOwww.ocadogroup.com23698-04 29-01-2015 PROOF 9 STATEMENT OF CORPORATE GOVERNANCE continued
LEVELS OF KNOWLEDGE AND
EXPERIENCE ON THE BOARD
100
s
t
n
e
d
n
o
p
s
e
R
f
o
t
e
g
a
n
e
c
r
e
P
90
80
70
60
50
40
30
20
10
0
l
i
t
a
e
R
l
y
g
o
o
n
h
c
e
T
e
c
r
e
m
m
o
C
E
-
t
d
e
a
m
o
u
A
t
g
n
i
r
e
e
n
g
n
E
i
l
a
n
o
i
t
a
n
r
e
n
t
I
s
n
o
i
t
a
r
e
p
O
/
d
n
a
e
c
n
a
n
i
F
g
n
i
t
n
u
o
c
c
A
r
o
Limited knowledge and/or experience
General knowledge and/or experience
Specialist knowledge and/or experience
BOARD INDEPENDENCE
36%
The Board is conscious of the fact that the number of women on the Board is currently
below 20% of membership. Whilst it has never been, in the Board’s opinion, in the best
interests of the Company and its shareholders to set numerical targets for gender on the
Board, the Board is committed to increasing the percentage of women on the Board
and in senior positions in the Company, and diversity will remain an active consideration
when changes to the Board’s composition are contemplated. Any future appointments will
continue to be based on objective criteria to ensure that the best individuals are appointed
for the role. For more information on diversity in respect of all employees, see the Our
People section on page 57.
The Board also takes into account the length of tenure of existing Directors when
considering reappointment and succession planning. Both Jörn Rausing and Robert Gorrie
have served as Directors for over 11 years and accordingly their reappointments to the
Board are subject to particular scrutiny.
MIX OF SKILLS AND EXPERIENCE
During the period, the Board conducted a Board skills review as part of the Nomination
Committee’s work in reviewing Board composition. As part of this review, each Director
assessed the current mix of skills and experience on the Board. The chart on the left shows
some of the results of the review, indicating the main areas of knowledge and experience
of existing Directors. Further details of the review process are set out in the Nomination
Committee report on page 81.
INDEPENDENCE
The 2012 Code recommends that at least half of the board, excluding the chairman,
should comprise non-executive directors determined by the Board to be independent.
Since, excluding the Chairman, there are six Non-Executive Directors all determined by
the Board to be independent and four Executive Directors, the Board complies with this
recommendation. The chart on the left illustrates the current composition of the Board in
respect of the independence of its members under the 2012 Code.
Similarly, the composition of the Audit Committee, Nomination Committee and
Remuneration Committee comply in all respects with the independence provisions of the
2012 Code.
9%
SCRUTINY BY THE BOARD
l Executive Director
l Chairman
l Independent Non-Executive Director
The Board has scrutinised the factors relevant to its determination of the independence of
the Non-Executive Directors Jörn Rausing and Robert Gorrie, in particular.
55%
JÖRN RAUSING
Jörn Rausing has been a Director for almost 12 years, although less than five of these
have been in the era of the Company as a listed company. Jörn is a beneficiary of the
Apple II Trust, a material (approximately 11%) shareholder of the Company. He is not
a representative of the Apple II Trust, nor does the Apple II Trust have any contractual or
other right to appoint a Director to the Board.
The Board considers his continued membership of the Board to be in the best interests
of the Company and supports the principles of the 2012 Code. His significant business
experience at Tetra Laval enhances the balance of skills and experience on the Board,
and reinforces the long-term perspective of the Board’s decision making.
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Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9
The Board considers Jörn to be independent in character and judgement and does not believe that the size of the Apple II Trust’s
shareholding or the length of Jörn’s tenure on the Board amounts to a relationship or circumstance which affects his judgement. Jörn has
stood for re-election annually since 2011 and on each occasion has been re-elected.
ROBERT GORRIE
Robert Gorrie has been a Director for almost 15 years, but less than five of these have been in the era of the Company as a listed
company. Robert acts as a non-executive chairman of the Ocado Council, an employee representative forum that was set up to provide
primarily hourly paid employees with direct access to the Board. He received an additional £7,100 during the period for performing this
role (2013: £11,000). Robert was employed by the Company until 2006, in an executive role as the Logistics Director.
The Board considers that Robert’s knowledge of the Company’s complex IT and logistics operations is of benefit to the Board in assisting
it to formulate the Company’s strategy. The Board does not consider the Ocado Council services to constitute a material business
relationship with the Company, nor the additional remuneration to be material in the context of impacting Robert’s judgement. Moreover,
the Board considers his role on the Ocado Council to be a positive asset in the promotion of good governance, by providing a direct
channel of communication between the Non-Executive Directors and employees and increasing the Board’s understanding of the
business. Robert has stood for re-election annually since 2011 and on each occasion has been re-elected.
EFFECTIVENESS
REVIEW OF BOARD EFFECTIVENESS
The effectiveness of the Board is important to the success of the Group, and the annual review provides a useful opportunity for the
Directors to reflect on their collective and individual effectiveness and consider changes.
The review for 2014 was carried out internally using two questionnaires. The online questionnaires were prepared by the Company
Secretary with support from an external and independent consultant, Independent Audit Limited. The focus of the review was to gauge
the extent of perceived progress of the Board and the Board committees in the areas of development identified in the Board review from
the previous year (which had been carried out by Independent Audit Limited). An assessment of each individual Director was also carried
out using online questionnaires.
The findings of the review were evaluated by the Company Secretary and the Chairman, and a summary Board evaluation report was
provided to the Board. The Board discussed the results of the review, which indicated that significant progress had been made in almost
all areas of development that had been identified in the previous external review. The Board had implemented a number of changes,
such as allocating more appropriate Board meeting time to strategic and risk discussions (rather than detailed operational performance)
to reflect the changing focus of the business, and implementing the recommendations from KPMG’s governance review (details of the
governance review are set out in the Audit Committee report on page 77). Each chairman of the Board committees separately discussed
the Board review as it pertained to their committee. The Chairman separately reviewed the results of the individual Director performance
evaluations.
The Board recognises that a continuous and constructive evaluation of its performance is an important factor in helping the Board realise
its maximum potential. The Board intends to continue to conduct annual performance reviews, with external oversight of the process at
least every three years.
DIRECTOR ELECTION
Each Director is required under the Articles to retire at every annual general meeting (each Director may offer himself or herself for
reappointment by the members at such meeting). At the last annual general meeting on 7 May 2014 all the then-current Directors other
than Jason Gissing stood for reappointment, and were duly elected with a range of 89% to 99% of votes cast by shareholders in favour
of reappointment.
The explanatory notes set out in the Notice of Meeting state the reasons why the Board believes a Director proposed for re-election
at the AGM should be reappointed. The Board has based its recommendations for re-election, in part, on its review of the results from
the Board evaluation process outlined above, on the reviews conducted at the meetings of the Non-Executive Directors, the Chairman’s
review of individual evaluations, and whether a Director has demonstrated substantial commitment to the role (including time for Board
and committee meetings (noted below) and other responsibilities, taking into account a number of considerations including outside
commitments and any changes thereof (outlined in this Statement of corporate governance on page 72) during the period).
The rules that the Company has about the appointment and replacement of Directors are described in the Directors’ report on page 83.
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BOARD INDUCTION AND PROFESSIONAL DEVELOPMENT
The Chairman and the Company Secretary are responsible for preparing and coordinating an induction programme when new Directors
are appointed to the Board (although there were no appointments in the period).
The Board and committees receive training including in specialist areas. Training is typically arranged by the Company Secretary in
consultation with the Chairman. During the period, the Company Secretary arranged training led by external legal advisers on insider
dealing and director duties, which served as a periodic reminder of director responsibilities and an update on developments in the
market abuse and inside information regime. The members of the Remuneration Committee received updates from the Remuneration
Committee’s remuneration advisers, Deloitte LLP, including on the new remuneration reporting market practices. The members of the
Audit Committee receive training from the Company’s auditors, PwC, from time to time. Members of the Audit Committee receive written
technical updates from PwC to keep them abreast of the latest accounting, auditing, tax and reporting developments.
INFORMATION FOR DIRECTORS
The Chairman is responsible for ensuring that all of the Directors are properly briefed on issues arising at Board meetings and that
they have full and timely access to relevant information. To enable the Board to discharge its duties, all Directors receive appropriate
information from time to time, including briefing papers distributed in advance of the Board meetings.
Directors can, where they judge it to be necessary to discharge their responsibilities as Directors, obtain independent professional
advice at the Company’s expense. The Board committees have access to sufficient resources to discharge their duties, including external
consultants and advisers.
EXTERNAL BOARD APPOINTMENTS AND CONFLICTS
There have been a number of changes to the Directors’ external appointments as set out in the table below. The Chairman and the Board are kept
informed by each Director of any proposed external appointments or other significant commitments as they arise. Each Director’s biographical
details and significant time commitments outside of the Company are set out in the Board of Directors section on pages 62 to 63.
Director
Lord Rose
Ruth Anderson
Duncan Tatton-Brown
Change in commitment
Effective date of change
Resigned as Non-Executive Director of Land Securities Group plc
Appointed Non-Executive Director of Coats plc
Appointed Non-Executive Director of Guinness Peat Group plc
Resigned as Non-Executive Director of Rentokil Initial plc
Appointed Non-Executive Director of Zoopla Property Group plc
January 2014
January 2014
April 2014
May 2014
May 2014
The Board noted that the impact of Lord Rose’s resignation from the Board of Land Securities Group plc is that Lord Rose has fewer
significant external commitments, and is able to dedicate more time to working with the Board.
Whenever a Director takes on additional external responsibilities, the Board considers any potential conflicts that may arise. The Board
monitors any potential conflicts of interest. The Companies Act provides that Directors must avoid a situation where they have, or can
have, a direct or indirect interest that conflicts, or possibly may conflict, with a company’s interests. Boards of public companies may
authorise conflicts and potential conflicts, where appropriate, if a company’s articles of association permit (which the Articles do).
Each Director is required to disclose conflicts and potential conflicts to the Chairman and the Company Secretary. As part of his or her
induction process, a newly appointed Director completes a questionnaire which requires him or her to disclose any conflicts of interests
to the Company. Thereafter each Director has an opportunity to disclose conflicts at the beginning of each Board and Board committee
meeting. No Director has declared to the Company any actual or potential conflicts of interest between any of his or her duties to the
Company and his or her private interests and/or other duties, except in the case of the Executive Directors, each of whom holds the
position of Director of the Company and Director of a number of Group subsidiary companies.
ENGAGEMENT WITH SHAREHOLDERS
INVESTOR RELATIONS
The Company keeps shareholders informed of its strategy and progress. The Company regularly meets with its large investors and
institutional shareholders who, along with analysts, are invited to presentations by the Company after the announcement of the
Company’s results. The Company conducts a bi-annual investor roadshow and also addresses current and prospective shareholders at
various investment conferences, both in the UK and abroad. The Board regularly receives feedback from the Company’s brokers and the
Executive Directors on the views of major shareholders and the investor relations programme and also receives reports at each Board
meeting on the main changes to the composition of the Company’s share register.
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Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 Lord Rose, the Chairman, and David Grigson, the Senior Independent Director, are available to the
Company’s shareholders for discussions. The Chairman, the Senior Independent Director and the
chairman of the Remuneration Committee met with some of the Company’s shareholders during the
period to discuss various matters including corporate governance and executive remuneration.
All shareholders can access this Annual Report, trading statements, investor presentations and
regular announcements on the Company’s corporate website. All shareholders can choose to
receive an Annual Report in paper or electronic form.
FORMAL REPORTING TO SHAREHOLDERS AND DIRECTORS’ RESPONSIBILITY
The Company reports to its shareholders in a number of ways including formal regulatory
news service announcements in accordance with the Company’s reporting obligations,
trading statements of sales performance published in March, September and December each year, the half-year report, the preliminary
announcement of annual results, the annual report, and investor presentations slides and videos. The Company makes available the
documents and other information concerning the Company on its corporate website.
The Directors take responsibility for preparing this Annual Report and make a statement to shareholders to this effect. The statement of
Directors’ responsibility on page 88 of this Annual Report is made at the conclusion of a robust and effective process undertaken by the
Company for the preparation and review of this Annual Report. The Directors believe that these well-established arrangements, which
involve the Audit Committee, enable them to ensure that the information presented in this Annual Report complies with the disclosure
requirements including in the Companies Act, and is fair, balanced and understandable and provides the information necessary
for shareholders to assess the Company’s position, performance, business model and strategy. In addition to this Annual Report, the
Company’s internal processes cover (to the extent necessary) the half-year report, trading statements and other financial reporting.
The Company’s internal processes in the preparation and review of this Annual Report (and other financial reporting) include (but are not
limited to): (1) review of and feedback on iterations of the Annual Report by the Executive Directors and the full Board; (2) focused review of
specific sections of the Annual Report by the relevant Board committees; (3) Audit Committee review of a management report on accounting
estimates and judgements, auditor and management reports on internal controls and risk management, accounting and reporting matters
and a management representation letter concerning accounting and reporting matters (for further information see page 75); (4) the Audit
Committee regularly reporting to the Board on the discharge of its responsibilities; (5) input from both internal and external legal advisers
and other advisers to cover relevant regulatory and governance obligations; (6) discussions between contributors and management to
identify relevant and material information; (7) detailed debates and discussions concerning the principal risks and uncertainties; (8) review
and approval by the external auditors; and (9) separate approval by the Director of Legal & Business Affairs, the Board committees and the
Board.
The statement by the external auditor on its reporting responsibilities is set out in the Independent Auditors’ report on pages 132 to 138.
THE COMPANY’S ANNUAL GENERAL MEETING
Shareholders will have the opportunity to meet and question all of the Directors at the AGM, which will be held at 11 am on
15 May 2015 at Peterborough Court, 133 Fleet Street, London, EC4A 2BB.
A detailed explanation of each item of business to be considered at the AGM is included with the Notice of Meeting, which will be
sent to the shareholders before the AGM. Shareholders who are unable to attend the AGM are encouraged to vote in advance of the
meeting, either online at www.ocadoshares.com or by using the proxy card which will be sent with the Notice of Meeting (if sent by
post) or can be downloaded from the Company’s corporate website.
At last year’s annual general meeting, all resolutions were passed with votes in support ranging from 73.24% to 100%.
The Company’s Statement of corporate governance (which is set out on pages 66 to 73) is approved by the Board and signed on its
behalf by
Lord Rose
Chairman
Neill Abrams
Legal & Business Affairs Director
and Company Secretary
Ocado Group plc
Registered in England and Wales,
number 07098618
3 February 2015
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Our GovernanceStock Code: OCDOwww.ocadogroup.com23698-04 29-01-2015 PROOF 9 AUDIT COMMITTEE REPORT
Ruth Anderson
Audit Committee Chairman
“A significant change
in the Group’s internal
control framework was
the appointment to the
newly created role of
Head of Internal Audit
& Risk.”
View more information about
internal audit on page 77
View more information online at
www.ocadogroup.com
DEAR SHAREHOLDER,
This Audit Committee report provides an
overview of the work we carried out during
the period, including the significant issues
considered in relation to the financial
statements and how we have assessed the
effectiveness of the external auditors.
We have a responsibility to oversee
the Group’s internal control and risk
management systems. A significant change
in the Group’s internal control framework
during the year was the appointment
to the newly created role of Head of
Internal Audit & Risk to provide additional
assurance for the Group. Overseeing
the appointment and establishment of
this function, including reviewing its
charter, strategy and work areas, was
a key achievement for us this year. We
will continue to monitor and review the
effectiveness of the Group’s internal control
and risk management systems with the
support of this new function.
This report also outlines the significant
accounting matters which received our
particular focus during the year. It seeks
to explain why the issues are considered
significant and together with the external
auditors’ report provides additional context
for understanding the Group’s accounting
policies and financial statements for the
period.
I will be available at the AGM to answer
any questions about our work.
Ruth Anderson
Audit Committee Chairman
3 February 2015
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Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 MEMBERSHIP AND MEETINGS
The membership and appointment dates of the Audit Committee members, together with details of member meeting attendance, are set
out below:
Ruth Anderson
(Chairman)
Audit Committee
member since
9 March 2010
David Grigson
Alex Mahon
Audit Committee
member since
9 March 2010
Audit Committee
member since
1 June 2012
Number of meetings
Number of meetings
Number of meetings
4
4
4
Number attended
4
Number attended
3
Number attended
4
Two members of the Audit Committee (Ruth Anderson and David Grigson) are considered by the Board to have competence in
accounting and/or auditing and recent and relevant financial experience. Both have professional qualifications with the Institute of
Chartered Accountants of England and Wales. The biography of each member of the Audit Committee is set out in the Board of
Directors section on pages 62 to 63.
Regular attendees at the Audit Committee meetings include the Chief Financial Officer, the Legal & Business Affairs Director and
Company Secretary, the Director of Finance and Risk, the Deputy Company Secretary, the Head of Internal Audit & Risk and the external
auditors. Other attendees who attend as required include the Chief Executive Officer, the Chairman, a number of senior members of the
finance department and other advisers to the Company.
KEY AREAS OF FOCUS FOR THE AUDIT COMMITTEE
The Audit Committee has an annual work plan, developed from its terms of reference, with standing items that the Audit Committee
considers at each meeting, in addition to any matters that arise during the year. The main matters that the Audit Committee considered
during the year are described below.
Financial statements and reporting: The Audit Committee monitored the financial reporting processes for the Group, which included
reviewing reports from, and discussing these with, the external auditors, PwC. The Board and the Audit Committee have reviewed this
Annual Report, as well as the half-year report and accounts. As part of the year-end reporting process the Audit Committee reviewed a
management report on accounting estimates and judgements, external auditors’ reports on internal controls, accounting and reporting
matters and a management representation letter concerning accounting and reporting matters.
Monitoring the integrity of the financial statements of the Company and the financial reporting process and reviewing the significant
accounting issues are key roles of the Audit Committee in assisting the Board to ensure this Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary for shareholders to assess the Company’s position, performance,
business model and strategy. For information concerning the process followed by the Company in preparing this Annual Report see page
73 of the Statement of corporate governance.
Accounting judgements and issues: The Audit Committee reviewed and discussed reports from management on significant accounting
issues and estimates in relation to this Annual Report, which also included the external auditors’ views. The Audit Committee sought to
assess the reasonableness of the assumptions and judgements underlying the significant accounting issues.
The Audit Committee considers that the Company has adopted appropriate accounting policies and made appropriate estimates and
judgements. The table overleaf summarises those significant accounting issues which received particular focus from the Audit Committee
in the period and how the issues were addressed.
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Our GovernanceStock Code: OCDOwww.ocadogroup.com23698-04 29-01-2015 PROOF 9 AUDIT COMMITTEE REPORT continued
Area
Issue and nature of judgement
Commercial
income
Capitalisation
of internally
generated costs
Accounting for the quantum and
timing of amounts due from suppliers
in relation to promotional activity and
volume related sales targets is material
and involves an element of judgement
in determining the amounts and timing
of income to be recognised.
The capitalisation of internally
generated costs is material and
involves management judgements
as to whether the costs meet the
criteria in accounting standards for
capitalisation.
Accounting for
share-based
payments
Deferred tax
asset
Multiple share schemes with
differing methods of settlement and
vesting criteria require management
judgement, including transfer
restrictions, share price volatility and
leaver numbers.
Estimates used to support the
amount of future profitability and
recognised deferred tax asset require
management judgement.
Factors and reasons considered and
conclusion
Impact on financial information
See detailed explanation below.
See detailed explanation below.
See notes to the consolidated financial
statements on page 147.
The criteria for identification of projects
which may be treated as intangible
assets and the process to capture the
costs of these projects were discussed.
Details of material projects which are
being capitalised along with the basis
for capitalisation were presented to
and reviewed by the Audit Committee.
Details of the accounting treatments
for new share-based payment
arrangements were considered. The
methodology and key assumptions for
each arrangement were discussed
and agreed.
The basis of estimates of future taxable
profits of the Group and the process
used to calculate the deferred tax
asset were reviewed.
The value of intangible non-current
assets created during 2014 is
included in notes to the consolidated
financial statements on page 155.
Charges for share-based payments are
included in operating expenses.
The methodology and key assumptions
are set out in notes to the consolidated
financial statements on pages 174 to
183.
Details of the deferred tax asset are
included in notes to the consolidated
financial statements on page 152.
Commercial income remains a key area of focus for the Audit Committee and is an area where, this year, users of the financial
statements may expect to receive more detailed information. This income comes from three major sources which, in diminishing order of
size, are promotional support; media income; and volume rebates.
• Promotional support — This represents over half of all commercial income. The Group negotiates funding with many of its suppliers
to support specific promotions on selected items. The funding is typically based on an agreed sum per item sold on promotion for
a period. There is limited judgement or estimation involved in recording the income received, which is collected in a timely manner
throughout the period. This is included within cost of sales.
• Media income — Income is received from suppliers and other third parties for advertising services provided on the Webshop. The
income received is recognised in other income over the period that the services are provided so limited judgement is required.
• Volume rebates — the smallest proportion of commercial income comes from annual agreements with many suppliers for volume
rebates based on agreed targets for the Ocado and Waitrose businesses. The majority of these agreements are negotiated on behalf
of the Group by its supply partner, Waitrose, and the contract period typically spans across the financial year end. Where Waitrose
negotiates the agreement it provides the Group with an estimate of the expected funds due to Ocado. Final confirmation of any
amounts due is usually received three to six months after the period end. The Audit Committee reviewed the judgements made by
management based on the estimates provided by Waitrose. This is included within cost of sales.
The accounting treatment of all significant issues and judgements was subject to review by the external auditors. The above list is not
a complete list of all accounting issues and estimates but highlights the most significant ones in the opinion of the Audit Committee.
For further information on the Company’s critical accounting estimates and assumptions refer to the notes to the consolidated financial
statements on page 146. For a discussion of the areas of particular audit focus by the external auditors, refer to pages 132 to 136 of
the Independent Auditors’ report.
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Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 Governance review: During the period, KPMG LLP, an external consultant, completed a broad-ranging review of the effectiveness of
the Group’s governance and risk management framework. The purpose of the review was to assess the Group’s governance framework
against market practice for listed companies in the context of a business that is growing rapidly and that has plans for future expansion.
The Company has taken steps to implement the recommendations from KPMG and has a timetable for completing them, including
formalising the Company’s approach to risk management and formalising the Group-wide policy framework. It has also embedded a
form of independent assurance, via the newly established internal audit and risk function (noted below).
Internal audit: The Group established an internal audit function during the period, with the appointment of a Head of Internal Audit
& Risk in July 2014. Internal audit provides independent and objective assurance and advisory services designed to add value and
improve the operations of the Group. Its scope encompasses, but is not limited to, the examination and evaluation of the adequacy and
effectiveness of the Group’s governance, risk management and internal control processes in relation to the Group’s defined goals and
objectives. The Audit Committee approved the internal audit function’s charter, which sets out its role, scope, accountability and authority.
Risk review: An annual review of the effectiveness of risk management and internal control processes was carried out by the Audit
Committee. The Audit Committee focused its review on the Company’s risk mitigation and controls and the strategic and organisation-
wide risks facing the Group.
The Audit Committee also oversaw an information technology risk review during the period, focusing on the key risks in connection with
the Group’s technology and the processes used to identify those risks. The Audit Committee reviewed reports from management on key
risk programmes concerning key technology projects including its new technology platform.
The Group’s risk management and internal control systems, including financial controls, are described in more detail in the How We
Manage Our Risks section on page 33, where the Audit Committee’s work in this area is highlighted.
Going concern assessment: The Audit Committee and the Board reviewed the going concern basis for preparing the Group’s
consolidated financial statements, including in particular the assumptions underlying the going concern statement and the period of
assessment. The Audit Committee’s assessment was based on reports by management and the external auditors and took note of the
principal risks and uncertainties, the improved financial performance of the Group, the existing financial position, the Group’s financial
resources including the new unutilised revolving credit facility, and the expectations for future performance and capital expenditure. For
further information concerning going concern see the notes to the consolidated financial statements on page 146, the Independent
Auditors’ report on page 137 and the Directors’ report on page 87. Although not applicable to the going concern assessment for the
period, the Audit Committee discussed the new 2014 Code requirements for reporting on the Group’s longer-term viability. Management
will report to the Audit Committee in 2015 on its review under the expanded going concern assessment.
Other matters considered by the Audit Committee: The Audit Committee also considered the Company’s tax strategy and concluded that
management’s low risk approach to tax management remained appropriate. The Audit Committee discussed the various means by which
the Group could provide the necessary tax expertise to cater for the growth of the business in the future. The Audit Committee considered
the Group’s approach to segmental reporting and concluded that the approach of reporting as one operating segment remains
appropriate given the Group continues to be managed as one segment.
Interaction with the Board: The Chairman of the Audit Committee reports at each Board meeting on the business conducted at the
previous Audit Committee meeting and the recommendations made by the Audit Committee.
Annual review: In addition to its annual performance evaluation, discussed in the Statement of corporate governance on page 71,
the Audit Committee carried out a review of its terms of reference. The terms were updated to reflect the Audit Committee’s changed
responsibilities as a result of amendments to the 2014 Code.
77
Our GovernanceStock Code: OCDOwww.ocadogroup.com23698-04 29-01-2015 PROOF 9 AUDIT COMMITTEE REPORT continued
ASSESSING THE EFFECTIVENESS OF THE EXTERNAL AUDIT PROCESS
The Audit Committee places great importance on ensuring that there are high standards of quality and effectiveness in the external audit
carried out by PwC. Audit quality is reviewed by the Audit Committee throughout the year and includes reviewing and approving the
annual audit plan to ensure that it is consistent with the scope of the audit engagement. In reviewing the audit plan, the Audit Committee
discussed the significant and elevated risk areas identified by PwC most likely to give rise to a material financial reporting error or those
that are perceived to be of higher risk and requiring additional audit emphasis (including those set out in the Independent Auditors’ report
on pages 132 to 136). The Audit Committee also considered the audit scope and materiality threshold.
The Audit Committee met with PwC at various stages during the audit process, including without management present, to discuss their
remit and any issues arising from the audit. The Audit Committee concluded that the effectiveness of the external audit process remains
strong.
AUDITOR REAPPOINTMENT OVERVIEW
The Audit Committee considered the reappointment of PwC. This review took into account the factors below.
Auditor effectiveness: The Audit Committee reviewed the performance of PwC based on a survey that contained various criteria for
judging their effectiveness and on feedback from management. The criteria for assessing the effectiveness of the audit included the
robustness of the audit, the quality of the audit delivery and the quality of the people and service. The Audit Committee also met with
management, including without the auditors present, to hear their views on the effectiveness of the external auditors. The Audit Committee
concluded that the performance of PwC remained effective.
Independence and objectivity: The Audit Committee considered the safeguards in place to protect the external auditors’ independence.
PwC follows the Auditing Practices Board’s standards and its own ethical guidelines, and reported to the Audit Committee that it had
considered its independence in relation to the audit and confirmed to the Audit Committee that it complies with UK regulatory and
professional requirements and that its objectivity is not compromised. The Audit Committee took this into account when considering the
auditor’s independence and concluded that PwC remained independent and objective in relation to the audit.
Non-audit work carried out by the external auditors: To help protect auditor objectivity and independence, the provision of any non-audit
services provided by the external auditors requires prior approval, as set out in the table below.
Approval thresholds for non-audit work
Approver
Over £10,000 and up to £30,000 per engagement
Over £30,000 and up to £100,000 per engagement
Greater than £100,000 per engagement, or if the value of
non-audit fees to audit fees reaches a ratio of 1:2 as a result
of a new engagement, regardless of value
Chief Financial Officer
Chief Financial Officer and Audit Committee Chairman
Audit Committee
Certain types of non-audit service are of sufficiently low risk as not to require the prior approval of the Audit Committee, such as “audit-
related services” including the review of interim financial information. The prohibited services are those that have the potential to conflict
directly with the auditors’ role, such as the preparation of the Company’s financial statements.
Non-audit work undertaken during the period: The significant non-audit work undertaken by PwC during the period included assurance
work on the Group’s carbon disclosures. The total of non-audit fees and audit fees paid to PwC during the period is set out in Note 2.5
of the consolidated financial statements on page 149.
The Audit Committee received a regular report from management regarding the extent of non-audit services performed by PwC. PwC
also provided a report to the Audit Committee on the specific safeguards put in place for each piece of non-audit work confirming
that it was satisfied that neither the extent of the non-audit services provided nor the size of the fees charged had any impact on its
independence as statutory auditors. The Audit Committee was satisfied that the quantum of the non-audit fees relative to the audit fees
(being 14.3%) of the audit fees together with the other measures taken by the Company and the auditors meant that the auditors’
independence from the Group was not compromised.
The Audit Committee continues to monitor the proposed audit reform regulations including tighter restrictions on non-audit services
provided by an auditor to an audit client and an overall non-audit fee size limit, as well as mandated audit committee duties regarding
auditor selection and audit process. As noted below, the Audit Committee will review its auditor appointment policy in 2015 with these
proposed requirements in mind.
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Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 Audit fees: The Audit Committee was satisfied that the level of audit fees payable in respect of the audit services provided (excluding
audit-related services) (being £244,000 (2013: £183,000)) was appropriate and that an effective audit could be conducted for such a
fee. The Audit Committee compared the proposed fees with the prior year’s fees in drawing this conclusion, noting that the 33% increase
in fees was mostly attributable to the increased complexity of the Group following the Morrisons agreement and Group reorganisation.
The existing authority for the Directors (including the Audit Committee) to determine the current remuneration of the external auditors is
derived from the shareholder approval granted at the Company’s annual general meeting in 2014. At the annual general meeting in
2014, 98.07% of votes cast by shareholders were in favour of granting the Directors this authority.
Tendering external audit contract: The Company must put the external audit contract out to tender at least every ten years, under the
2012 Code. As PwC has audited the Group’s accounts since 2001 and has not re-tendered for the contract since then, the Audit
Committee considered whether the audit should be put out to tender. Given that the Company became a listed company in 2010,
that the audit engagement partner had rotated in 2012, and that the Audit Committee remained satisfied with the independence and
effectiveness of PwC, the Audit Committee decided not to recommend a re-tender at this time.
The Audit Committee is cognisant of the current and emerging requirements governing the appointment of external auditors, notably
the re-tendering requirements of the 2012 Code and the Competition and Markets Authority, together with the mandatory firm rotation
regulations from the European Commission. The regulatory guidance includes transitional arrangements which, among other matters,
address the length of time for which an auditor has been incumbent at the date the rules come into force. In the case of the Company,
as a listed company since 2010, it is not entirely clear how the rules in rotation will apply, but it is understood the proposed rules would
require a tender process by 2020 and mandatory audit firm rotation by 2023. The Audit Committee will review its auditor appointment
policy in 2015 with these proposed re-tendering and rotation requirements in mind and will make a decision on audit re-tender in
due course.
Recommendation to reappoint: Following its consideration, the Audit Committee recommended to the Board the reappointment of
PwC as external auditors. The Board has accepted this recommendation and a resolution for its reappointment for a further year will be
put to the shareholders at the AGM. At the annual general meeting in 2014, 98.10% of votes cast by shareholders were in favour of
reappointing PwC as external auditors.
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Our GovernanceStock Code: OCDOwww.ocadogroup.com23698-04 29-01-2015 PROOF 9 NOMINATION COMMITTEE REPORT
David Grigson
Nomination Committee Chairman
I will be available at the AGM to answer
any questions about the work of the
Nomination Committee.
David Grigson
Chairman of the Nomination Committee
3 February 2015
“During the year, the
Nomination Committee
discussed succession
plans, reviewed Board
composition and
carried out a review of
the Board’s skills and
experience.”
View more information about
the skills review on pages 70 & 81
View more information online at
www.ocadogroup.com
DEAR SHAREHOLDER,
After a number of busy years with various
changes to the Board composition, we
had relatively fewer activities during the
year. Following Jason Gissing’s departure
at the annual general meeting in 2014,
the Nomination Committee discussed
succession plans, reviewed Board
composition and carried out a review of
the Board skills and experience. Since
period end, the Nomination Committee
has given further consideration to Board
composition and the formulation of a
revised succession plan for the Board.
Further details on the Nomination
Committee’s work are set out in the
following report.
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Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 MEMBERSHIP AND MEETINGS
The membership and attendance of the Nomination Committee, together with the appointment dates, are set out below:
David Grigson
(Chairman)
Robert Gorrie
Jörn Rausing
Ruth Anderson
Douglas McCallum
Alex Mahon
Lord Rose
Nomination Committee
member since
9 March 2010
Nomination Committee
member since
9 March 2010
Nomination Committee
member since
9 March 2010
Nomination Committee
member since
9 March 2010
Nomination Committee
member since
3 October 2011
Nomination Committee
member since
1 June 2012
Nomination Committee
member since
11 March 2013
Number of meetings
Number of meetings
Number of meetings
Number of meetings
Number of meetings
Number of meetings
Number of meetings
2
2
2
2
2
2
2
Number attended
Number attended
Number attended
Number attended
Number attended
Number attended
Number attended
2
2
1
2
2
2
2
The appointment of Douglas McCallum was renewed for a further three-year period from October 2014. The biography of each
member of the Nomination Committee is set out in the Board of Directors section on pages 62 to 63.
Other attendees at the Nomination Committee meetings include the Chief Executive Officer, the Director of Human Resources and the
Deputy Company Secretary.
PRINCIPAL ACTIVITIES OF THE NOMINATION COMMITTEE DURING 2014
The Nomination Committee undertook a number of activities during the period as described below.
Succession plans: The Nomination Committee is responsible for overseeing the process of succession and management development
for the Executive Directors and the next layer of management, the Management Committee. The Chief Executive Officer and Director of
Human Resources reported to the Nomination Committee the progress made on the succession plans, including restructuring reporting
lines for senior management in light of Jason Gissing’s retirement from the Board. The Nomination Committee was assured that
appropriate succession and development plans are in place.
Reviewing Board composition: The Nomination Committee considered the Board’s size and composition, including in the context of
Jason Gissing’s retirement from the Board. It was decided that there would not be an appointment to the Board role vacated by Jason
Gissing, and that any future executive appointments would be dependent on the growth and direction of the business.
The Nomination Committee review of Board composition also took into account various considerations including diversity, Director
tenure, independence and mix of Board knowledge, skills and experience. For an explanation of these considerations in relation to the
current Board see the Statement of corporate governance on page 69.
The Nomination Committee recommended that the Board undertake a review of the current skills and experience of the Board. The
review was intended to help the Board ensure that it has the right mix of skills, experience and backgrounds in the future to support
the Company’s strategic objectives. This review was carried out by way of self-assessment questionnaires which were prepared by the
Company Secretary. A summary of the findings of the review was presented and discussed by the Board. The skills review will form part
of the discussions of the Nomination Committee around the necessary skills and experience of future appointees to the Board as existing
Non-Executive Directors retire from the Board.
Since the period end the Nomination Committee discussed revised succession plans in anticipation of Board changes in future. Further
information on the results of the skills review is set out in the Statement of corporate governance on page 70.
Diversity: The Nomination Committee is also responsible for reviewing the composition of the Board, to ensure that its membership
represents a mix of backgrounds and experience that will enhance the quality of its deliberations and decisions. For further information
on Board diversity and long-serving Directors refer to the Statement of corporate governance on page 69 and on employee diversity
refer to page 57 of the Our People section.
Annual review: In addition to its annual performance evaluation, discussed in the Statement of corporate governance on page 71, the
Nomination Committee carried out a review of its terms of reference during the period. The review resulted in no changes to the terms of
reference.
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Our GovernanceStock Code: OCDOwww.ocadogroup.com23698-04 29-01-2015 PROOF 9 DIRECTORS’ REPORT
“The Directors are
responsible for preparing
the Annual Report, the
Directors’ remuneration
report and the financial
statements.”
INTRODUCTION
This section of this Annual Report is
a Directors’ report required by the
Companies Act to be prepared by the
Directors for the Company and the Group.
INDEX OF DIRECTORS’ REPORT
DISCLOSURES
This Directors’ report should be read in
conjunction with the Strategic report (pages
2 to 59) which includes the Corporate
responsibility report (pages 50 to 59), and
the Statement of corporate governance
Amendment of the Articles
Appointment and replacement of Directors
View more information about
the Directors’ responsibility statement on
page 88
Board of Directors
Change of control
Community
View more information online at
www.ocadogroup.com
Directors’ insurance and indemnities
Directors’ inductions and training
Directors’ responsibility statement
Disclosure of information to auditors
Diversity
Employee involvement
Employees with disabilities
Future developments of the business
Going concern
Greenhouse gas emissions
Independent auditors
(defined in the index below as the “CG
Statement”) (pages 66 to 73), which
are incorporated by reference into this
Directors’ report.
The information required to be disclosed
in the Directors’ report can be found in
this Annual Report on the pages listed
below. Pursuant to Listing Rule 9.8.4C, the
information required to be disclosed in the
Annual Report under Listing Rule 9.8.4R is
marked with an asterisk (*).
83
83
CG Statement, 62 - 63
86
Corporate Responsibility, 55
83
CG Statement, 72
88
88
Our People, 57
CG Statement, 69
Our People, 57
Our People, 57
Strategic Report, 2 - 59
87
CG Statement, 77
87
Corporate Responsibility, 52
87
Long term incentive plans under Listing Rule 9.4.3*
Remuneration Report, 111 - 126
Political donations
Post-balance sheet events
Powers for the Company to issue or buy back its shares
Powers of the Directors
Profit/loss and dividends
Research and development activities
Restrictions on transfer of securities
Rights attaching to shares
Risk management and internal control
How the business manages risk
Note 4.8–4.10 to the consolidated financial statements
Share capital
Significant agreements
Significant related party agreements*
Significant shareholders
Statement of corporate governance
Strategic report
Voting rights
Corporate Responsibility, 55
87
85
CG Statement, 67
87
Strategic Report, 24 - 29
87
84
84
32 - 33
32 - 33
172 - 174
84
86
86
85
CG Statement, 66
2 - 59
84
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Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 THE STRATEGIC REPORT
The Directors are required under the Companies Act to prepare a strategic report for the Company and the Group. The Strategic report
contains the Directors’ explanation of the basis on which the Group preserves value over the longer term and the strategy for delivering
the objectives of the Group. The Companies Act requires that the Strategic report must: (1) contain a fair review of the Group’s business
and contain a description of the principal risks and uncertainties facing the Group; and (2) be a balanced and comprehensive analysis
of the development and performance of the Group’s business during the financial year and the position of the Group’s business at the
end of that year, consistent with the size and complexity of the business. The information that fulfils the strategic report requirements is set
out in the Strategic report on pages 2 to 59.
The Company has chosen to include some of the information required to be disclosed in the Directors’ report within the Strategic report
(pages 2 to 59), as noted above. Certain matters, including those of sufficient importance, that would otherwise be required to be
disclosed in the Directors’ report, have been set out in the Strategic report and Statement of corporate governance, as noted in the index
on page 82.
The Strategic report and the Directors’ report (or parts thereof) (together with sections of this Annual Report incorporated by reference) are
the “management report” for the purposes of the Disclosure and Transparency Rule 4.1.8.
The Strategic report and the Directors’ report (together with the sections of this Annual Report incorporated by reference) have been
drawn up and presented in accordance with and in reliance upon applicable English company law and the liabilities of the Directors in
connection with that report shall be subject to the limitations and restrictions provided by such law.
For an explanation of how the Board satisfies itself that this Annual Report meets the disclosure requirements refer to the Statement of
corporate governance on pages 66 to 73 and the Directors’ responsibility statement on page 88.
AMENDMENT OF THE ARTICLES
The Company’s Articles, which govern a number of constitutional aspects of the Company’s management, may be amended by a special
resolution of its shareholders.
APPOINTMENT AND REPLACEMENT OF DIRECTORS
The appointment and replacement of Directors of the Company is governed by the Articles.
Appointment of Directors: A Director may be appointed by the Company by ordinary resolution of the shareholders or by the Board.
The Board or any committee authorised by the Board may from time to time appoint one or more Directors to hold any employment or
executive office for such period and on such terms as they may determine and may also revoke or terminate any such appointment.
A Director appointed by the Board holds office only until the next annual general meeting of the Company and is then eligible for
reappointment.
Retirement of Directors: At every annual general meeting of the Company, each Director shall retire from office and may offer himself/
herself for reappointment by the members.
Removal of Directors by special resolution: The Company may by special resolution remove any Director before the expiration of his/her
period of office.
Vacation of office: The office of a Director shall be vacated if: (i) he resigns; (ii) his resignation is requested by all of the other Directors
(not less than three in number); (iii) he is or has been suffering from mental or physical ill health and the Board resolves that his office be
vacated; (iv) he is absent without the permission of the Board from meetings of the Board (whether or not an alternate Director appointed
by him attends) for six consecutive months and the Board resolves that his office is vacated; (v) he becomes bankrupt; (vi) he is prohibited
by law from being a Director; (vii) he ceases to be a Director by virtue of the Companies Act; or (viii) he is removed from office pursuant
to the Articles.
For a description of any changes of the Company’s Directors during the period see the Statement of corporate governance on page 69.
DIRECTORS’ INSURANCE AND INDEMNITIES
The Company maintains directors’ and officers’ liability insurance cover for its Directors and officers as permitted under the Articles and the
Companies Act. Such insurance policies were renewed during the period and remain in force as at the date of this Annual Report. The
Company also agrees to indemnify the Directors under an indemnity deed with each Director which contains provisions that are permitted
by the director liability provisions of the Companies Act and the Articles. An indemnity deed is usually entered into by a Director at the time
of his or her appointment to the Board.
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SHARE CAPITAL
The Company’s authorised and issued ordinary share capital as at 30 November 2014 comprised a single class of ordinary shares. The
shares have a nominal value of 2 pence each. The ISIN of the shares is GB00B3MBS747.
As at 20 January 2015, being the latest practicable date prior to publication of this report, the Company’s issued share capital consisted
of 621,005,986 issued ordinary shares, compared with 619,019,232 issued ordinary shares per the annual report for 2013. Details
of movements in the Company’s issued share capital can be found in Note 4.11 to the consolidated financial statements. During the
period, shares in the Company were issued to satisfy options and awards under the Company’s share and incentive schemes, as set out
in Note 4.12 to the consolidated financial statements.
RIGHTS ATTACHING TO SHARES
The Company’s shares when issued are credited as fully paid and free from all liens, equities, charges, encumbrances and other
interests. All shares have the same rights (including voting and dividend rights and rights on a return of capital) and restrictions as set out
in the Articles, described below.
Except in relation to dividends which have been declared and rights on a liquidation of the Company, the shareholders have no rights to
share in the profits of the Company.
The Company’s shares are not redeemable. However, the Company may purchase or contract to purchase any of the shares on or off-
market, subject to the Companies Act and the requirements of the Listing Rules, as described below.
No shareholder holds shares in the Company which carry special rights with regard to control of the Company. There are no shares
relating to an employee share scheme which have rights with regard to control of the Company that are not exercisable directly and
solely by the employees, other than in the case of the JSOS, where share interests can be transferred to a spouse, civil partner or lineal
descendant of a participant in the JSOS or certain trusts under the rules of the JSOS (as noted below).
VOTING RIGHTS
Each ordinary share carries one right to vote at a general meeting of the Company. At any general meeting, a resolution put to the vote
of the meeting shall be decided on a show of hands unless a poll is demanded. On a show of hands, every member who is present in
person or by proxy at a general meeting of the Company shall have one vote. On a poll, every member who is present in person or by
proxy shall have one vote for every share of which they are a holder. The Articles provide a deadline for submission of proxy forms of not
less than 48 hours before the time appointed for the holding of the meeting or adjourned meeting. No shareholder shall be entitled to
vote in respect of a share held by him if any call or sum then payable by him in respect of such share remains unpaid or if a member has
been served a restriction notice, described below.
JSOS voting rights: Of the issued ordinary shares, 34,810,561 are held by Greenwood Nominees Limited on behalf of Appleby Trust
(Jersey) Limited, the independent company which is the trustee of Ocado’s employee benefit trust (the “EBT Trustee”). The EBT Trustee
has waived its right to exercise its voting rights in respect of these 34,810,561 ordinary shares, although it may at the request of a
participant vote in respect of 33,956,896 ordinary shares which have vested under the JSOS and remain in the trust at period end. The
total of 34,810,561 ordinary shares held by the EBT Trustee are treated as treasury shares in the Group’s consolidated balance sheet
in accordance with IAS 32 ‘’Financial Instruments: Presentation’’. As such, calculations of earnings per share for Ocado exclude the
34,810,561 ordinary shares held by the EBT Trustee. Note 4.12(b) to the consolidated financial statements provides more information
on the Group’s accounting treatment of treasury shares.
RESTRICTIONS ON TRANSFER OF SECURITIES
The Company’s shares are freely transferable, save as set out below.
The transferor of a share is deemed to remain the holder until the transferee’s name is entered in the register. The Board can decline to
register any transfer of any share which is not a fully paid share. The Company does not currently have any partially paid shares. The
Board may also decline to register a transfer of a certificated share unless the instrument of transfer: (A) is duly stamped or certified or
otherwise shown to be exempt from stamp duty and is accompanied by the relevant share certificate; (B) is in respect of only one class of
share; and (C) if to joint transferees, is in favour of not more than four such transferees. Registration of a transfer of an uncertificated share
may be refused in the circumstances set out in the uncertificated securities rules (as defined in the Articles) and where, in the case of a
transfer to joint holders, the number of joint holders to whom the uncertificated share is to be transferred exceeds four.
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Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 Restriction on transfer of JSOS interests: Participants’ interests under the JSOS are generally non-transferable during the period beginning
on acquisition of the interest and ending at the expiry of the relevant restricted period as set out in the JSOS rules. However, interests can
be transferred to a spouse, civil partner or lineal descendant of a participant; a trust under which no person other than the participant
or their spouse, civil partner or lineal descendant has a vested beneficial interest; or any other person approved by the EBT Trustee. If
a participant purports to transfer, assign or charge his interest other than as set out above, the EBT Trustee may acquire the participant’s
interest for a total price of £1.
Other than as described above, the Company is not aware of any agreements existing at the end of the period between holders of
securities that may result in restrictions on the transfer of securities or that may result in restrictions on voting rights.
POWERS FOR THE COMPANY TO ISSUE OR BUY BACK ITS SHARES
The Company was authorised by shareholders on 7 May 2014, at the annual general meeting, to purchase in the market up to 10% of
its issued ordinary shares (excluding any treasury shares), subject to certain conditions laid out in the authorising resolution. This standard
authority is renewable annually; the Directors will seek to renew this authority at the AGM. The Directors did not exercise their authority to
buy back any shares during the period.
The Directors were granted authority at the previous annual general meeting to allot shares in the Company. That authority will apply until
the conclusion of the AGM. At the AGM, shareholders will be asked to grant an authority to allot shares in the Company: (A) up to one-
third of the issued share capital; and (B) comprising equity securities up to two-thirds of the issued share capital but after deducting any
allotments or grants made under (A) above in connection with an offer by way of a rights issue, such authorities to apply until the end of
the next annual general meeting or, if earlier, until the close of business on 15 August 2016.
A special resolution will also be proposed to renew the Directors’ powers to disapply pre-emption rights. It would give the Directors the
authority to allot ordinary shares for cash without first offering them to existing shareholders in proportion to their existing shareholdings.
This authority would be, similar to last year, limited to allotments in connection with pre-emptive offers up to an aggregate nominal
amount of approximately 5% of the issued ordinary share capital of the Company.
During the period, the Directors used their power to issue shares under the authorities provided by the shareholder resolution passed on
7 May 2014, to satisfy options and awards under the Company’s option and incentive schemes and one-off incentive arrangements.
SIGNIFICANT SHAREHOLDERS
During the period the Company has received notifications, in accordance with Disclosure and Transparency Rule 5.1.2R, of interests in
3% or more of the voting rights attaching to the Company’s issued share capital, as set out in the table below:
The London and Amsterdam Trust Company Limited
The Capital Group Companies, Inc.
Lansdowne Partners
Generation Investment Management LLP
Odey Asset Management LLP
The Nomad Investment Partnership L.P.
Number of
ordinary
shares
Percentage of
issued share
capital
Nature of
holding
47,961,383
56,003,232
44,505,945
31,043,243
29,113,291
–
12.08% Direct/Indirect
Indirect
9.03%
Indirect
7.10%
5.01%
Indirect
4.98% Direct & CFD
Direct
Below 3%
These figures represent the number of shares and percentage held as at the date of notification to the Company.
No changes have been disclosed in accordance with Disclosure and Transparency Rule 5.1.2R in the period between 1 December
2014 and 20 January 2015 (being not more than one month prior to the date of the Notice of Meeting), except as set out in the
table below:
The Capital Group Companies, Inc.
Norges Bank
Number of
ordinary
shares
Percentage of
issued share
capital
68,548,308
20,069,631
11.04%
3.23%
Nature of
holding
Indirect
Direct
These figures represent the number of shares and percentage held as at the date of notification to the Company.
85
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SIGNIFICANT RELATED PARTY AGREEMENTS
There were no contracts of significance during the period between the Company or any Group company and either (1) a Director of the
Company or (2) a controlling shareholder of the Company.
CHANGE OF CONTROL
The Company does not have any agreements with any Director or employee that would provide compensation for loss of office or
employment resulting from a takeover bid except that it should be noted that: (i) provisions of the Company’s share schemes may cause
options and shares granted to employees under such schemes to vest on a takeover; and (ii) certain members of senior management (not
including the Directors) who were employed prior to 2010 are entitled to a payment contingent on a change of control of the Company
or merger of the Company (irrespective of loss of employment) as set out in his or her respective employment contract. For further
information on the change of control provisions in the Company’s share schemes refer to the Directors’ remuneration report on page 109.
SIGNIFICANT AGREEMENTS
There are a number of agreements to which the Group is a party that take effect, alter or terminate upon a change of control of the
Company following a takeover bid. Details of the significant agreements are summarised below.
Morrisons operating agreement: If certain competitors of Morrisons acquire 50% or more of the voting rights in the Company’s shares or
take control of the composition of the Company’s Board, or acquire all or substantially all of the Group’s business and undertakings, then
Morrisons will be entitled to give notice to terminate the operating agreement (a “Termination Event”).
If such a Termination Event occurs prior to the date on which capital is intended to be expended on an agreed new CFC (“Capital
Commitment Date”), then:
• Morrisons would be entitled to give not less than four (but not more than four and a half) years’ notice to terminate and the Company’s
right to be the exclusive supplier of the services would fall away.
• The Company shall purchase Morrisons’ shares in MHE JV Co Limited (the owner of the automation in CFC2) and may be required to
repurchase CFC2.
If such a Termination Event occurs after the Capital Commitment Date, then:
• The Company would continue to be obliged to provide the services under the operating agreement, but the Company’s right to be the
exclusive supplier of the services would fall away and Morrisons would be released from its annual sales target.
• Further, certain of the fees payable by Morrisons would scale back to reflect Morrisons.com’s actual use of the services, but would
not (except if the Company had procured a third party to acquire Morrisons’ capacity of all relevant CFCs) afford either party a
termination right prior to the end of the term.
Revolving credit facility agreement: The Group has an unsecured £100 million revolving credit facility with Barclays Bank PLC, HSBC
Bank plc, The Royal Bank of Scotland plc and Santander UK plc for general corporate and working capital purposes. If there is a
change of control of the Company, and agreeable terms cannot be negotiated between the parties within 30 days from the date of the
change of control, any lender may cancel their commitment under the facility and all outstanding utilisations for that lender, together with
accrued interest, shall be immediately payable.
86
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 Sourcing Agreement with Waitrose: The Company’s primary operating subsidiary, Ocado Retail Limited (“ORL”), is party to the Sourcing
Agreement with Waitrose and its parent company, John Lewis. If certain competitors of Waitrose or John Lewis acquire 50% or more of
the shares or control of the Company’s Board, then each of ORL, Waitrose and John Lewis may terminate the Sourcing Agreement. In
these circumstances, ORL is obliged to pay Waitrose the lower of £40 million and 4% of the market capitalisation of the Company. This
change of control provision will cease to bind the parties if, prior to the change of control, any party has already given a valid notice of
termination.
RESEARCH AND DEVELOPMENT ACTIVITIES
The Group has dedicated in-house software, logistics and engineering design and development teams with primary focus on IT and
improvements to the CFCs and the automation equipment used in them. Costs relating to the development of computer software are
capitalised if it is probable that the future economic benefits that are attributable to the asset will accrue to the entity and the costs can
be measured reliably. The Company is carrying out a number of IT and engineering design and build projects with the intention of
developing new and improved automation equipment and processes for its warehouses. Further information is contained in the Strategic
report on pages 24 to 29.
FUTURE DEVELOPMENTS OF THE BUSINESS
The Group’s likely future developments including its strategy are described in the Strategic report on pages 2 to 59.
PROFIT/(LOSS) AND DIVIDENDS
The Group’s results for the period are set out in the consolidated income statement on page 139. The Group’s profit/(loss) before tax for
the period amounted to £7.2 million (2013: loss of £12.5 million).
The Directors do not propose to pay a dividend for the period (2013: nil).
POST-BALANCE SHEET EVENTS
There have been no material events after the balance sheet date of 30 November 2014 to the date of this report.
GOING CONCERN
Based on the Group’s forecasts, the Directors are satisfied that the Company, and the Group as a whole, have adequate resources
to continue in operational existence for the foreseeable future. Accordingly, the Directors considered it appropriate to adopt the going
concern basis of accounting in the preparation of the financial statements.
There have been no material uncertainties identified which would cast significant doubt upon the Company’s ability to continue using the
going concern basis of accounting for the 12 months following the approval of this Annual Report.
In adopting the going concern basis for preparing the financial statements, the Directors have made appropriate enquiries and have
considered the Group’s cash flows, solvency and liquidity position and borrowing facilities (including the new unutilised £100 million
revolving credit facility) and business activities as set out in the How We Manage Our Risks section on pages 32 to 33 and set out in
the Group’s financial statements on page 139, the Group’s principal risks and uncertainties as set out on pages 34 to 35, the financial
risks described in the notes to the consolidated financial statements on pages 144 to 187 and the Group’s expectations for future
performance and capital expenditure.
The statement has been prepared in accordance with Going Concern and Liquidity Risk: Guidance for Directors of UK Companies
2009, published by the Financial Reporting Council in October 2009. The Company’s going concern statement has been reviewed by
the Company’s auditors, PwC.
Further information on going concern is set out in the Statement of corporate governance on page 66.
INDEPENDENT AUDITORS
The Company’s auditors, PwC, have indicated their willingness to continue their role as the Company’s auditors. Resolutions concerning
the reappointment of PwC as auditors of the Company and to authorise the Directors to determine their remuneration will be proposed
at the AGM and set out in the Notice of Meeting. For further information on the reappointment of the auditors, refer to page 78 of the
Statement of corporate governance.
87
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DISCLOSURE OF INFORMATION TO AUDITORS
In accordance with the Companies Act, each Director who held office at the date of the approval of this Directors’ report (whose names
and functions are listed in the Board of Directors section on pages 62 to 63 of this Annual Report) confirms that, so far as he or she is
aware, there is no relevant audit information of which the Group’s auditors are unaware, and that each Director has taken all of the
steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and to
establish that the Group’s auditors are aware of that information.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing this Annual Report, the Directors’ remuneration report and the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared
the Group and parent company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted
by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and the Company and of the result of the Company and the Group for that
period. In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed
and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable
them to ensure that the financial statements and the Directors’ remuneration report comply with the Companies Act and, as regards
the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company
and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors
are responsible for the maintenance and integrity of the Group’s corporate website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors consider that this Annual Report, 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.
Each of the Directors who held office at the date of the approval of this Annual Report (whose names and functions are listed on pages
62 to 63 of this Annual Report) confirms, to the best of his or her knowledge, that:
• the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view
of the assets, liabilities, financial position and profit or loss of the Group; and
• the “management report” (as defined in the Directors’ report on page 83) includes a fair review of the development and performance
of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
88
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 FORWARD-LOOKING STATEMENTS
Certain statements made in this report are
forward-looking statements. Such statements
are based on current expectations and
assumptions and are subject to a number
of risks and uncertainties that could cause
actual events or results to differ materially
from any expected future events or results
expressed or implied in these forward-
looking statements. They appear in a
number of places throughout this report and
include statements regarding the intentions,
beliefs or current expectations of the
Directors concerning, amongst other things,
the Group’s results of operations, financial
condition, liquidity, prospects, growth,
strategies and the business. Persons
receiving this report should not place undue
reliance on forward-looking statements.
Unless otherwise required by applicable
law, regulation or accounting standard,
the Group does not undertake to update
or revise any forward-looking statements,
whether as a result of new information,
future developments or otherwise.
The Company’s Directors’ Report is
approved by the Board and signed on its
behalf by
Neill Abrams
Legal & Business Affairs Director and
Company Secretary
Ocado Group plc
Registered in England and Wales,
number 07098618
3 February 2015
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Our GovernanceStock Code: OCDOwww.ocadogroup.com23698-04 29-01-2015 PROOF 9 W I D E R
RANGE
“Our centralised fulfilment
model enables us to carry a
greater range than stores...
we have now introduced
additional dedicated
‘department stores’ for
certain product categories.”
90
23698-04 29-01-2015 PROOF 9 DIRECTORS’
REMUNERATION
REPORT
92
94
96
111
127
Annual Statement from the Remuneration
Committee Chairman
Description of the Remuneration Committee
Remuneration Policy Report
Annual Report on Remuneration — 2014
Annual Report on Remuneration — Implementation of
Policy for 2015
View more information on the
Directors’ remuneration in 2014 on page 111
View more information online at
www.ocadogroup.com
91
23698-04 29-01-2015 PROOF 9 DIRECTORS’ REMUNERATION REPORT
ANNUAL STATEMENT FROM THE
REMUNERATION COMMITTEE CHAIRMAN
Douglas McCallum
Remuneration Committee Chairman
“One of our key roles
is to ensure that the
remuneration arrangements
for the Executive Directors
reward efforts that
enhance the Company’s
performance and promote
the long-term success of
the Company.”
View more information about
the Directors’ remuneration policy on
pages 96 to 110
View more information online at
www.ocadogroup.com
92
DEAR SHAREHOLDER,
On behalf of the Board, I am pleased to
present the Directors’ remuneration report
for 2014.
Last year, the Remuneration Committee
undertook an extensive review of the
Company’s remuneration policy for
the Executive Directors, which resulted
in a number of changes to executive
remuneration. These changes received
support from shareholders, both through
the process of shareholder consultation and
annual general meeting voting results. This
support recognised our efforts to closely
align the Executive Directors’ incentives
with the strategic growth objectives of
the business. The Directors’ remuneration
policy was approved by shareholders at
the annual general meeting which took
place on 7 May 2014 and will continue in
force until 2017. There are no proposals to
amend the Directors’ remuneration policy at
the present time.
The Annual report on remuneration section
of the Directors’ remuneration report sets
out the Directors’ remuneration policy, how
the policy was implemented in 2014, and
how it is proposed to be applied in 2015.
KEY CHANGES TO EXECUTIVE DIRECTOR
REMUNERATION
One of our key roles is to ensure that
the remuneration arrangements for the
Executive Directors reward efforts that
enhance the Company’s performance
and promote the long-term success of the
Company. We also need to ensure that
the rewards received by the Executive
Directors are proportionate to the levels
of performance achieved. So we have to
give full consideration to the Company’s
strategy, its performance and shareholders’
interests when making decisions relating to
the remuneration of the Executive Directors.
A new long-term incentive plan, known
as the Growth Incentive Plan (“GIP”), was
implemented after it received shareholder
approval at the 2014 annual general
meeting. The GIP is intended to reward
outstanding growth in value of the Group
relative to the FTSE 100 over five years.
Base salaries of the Executive Directors
were reviewed and increased in line with
employee salary increases. The base
salary of the Chief Executive Officer was
increased more significantly to reflect
the substantial change in the size and
complexity of the business since the
transaction with Morrisons.
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 CHANGES TO NON-EXECUTIVE
DIRECTOR REMUNERATION
The Non-Executive Directors’ annual fees
were increased for the first time since 2010
to ensure that their remuneration reflects
the increased responsibility of the role. This
change followed a comparative market
review by the Executive Directors and the
Chairman.
2014 CODE
We reviewed the existing remuneration
arrangements and Directors’ remuneration
policy in light of the proposed changes
under the 2014 Code. The Company
is compliant with the new provisions of
the 2014 Code in a number of areas
including the requirements for clawback
and malus provisions. Our response to
the 2014 Code changes is set out in
this report.
REMUNERATION DISCLOSURE
Each year, we review how shareholders
voted on the remuneration report, together
with any feedback received. We are
focused on providing clear reporting on
past remuneration and future policy, and
we welcome your feedback.
I will be available at the AGM to answer
any questions about the work of the
Remuneration Committee.
Douglas McCallum
Remuneration Committee Chairman
3 February 2015
During the financial year, we undertook
a review of the Executive Director Annual
Incentive Plan (“AIP”) structure and
concluded that the financial measures of
EBITDA and Gross sales remained aligned
with the Company’s strategy and should be
retained for 2015 in order to encourage
strong growth. The proportion allotted to
individual objectives for the 2015 AIP has
been increased from 20% to 30%, to reflect
the increased importance of delivering key
strategic objectives in 2015.
Following consultation with our
shareholders and a review of the Long Term
Incentive Plan (“LTIP”), the performance
measures for the 2014 LTIP awards
were changed from EBIT, to be equally
weighted between earnings per share
and Group Revenue. For the 2015 LTIP
awards an additional financial target
will be included to reward delivering the
economic efficiency of the new proprietary
infrastructure solution, which is intended to
help promote the success of this important
long-term strategic objective.
Our Share Incentive Plan (“SIP”) was
launched for all employees in August this
year. All of the Executive Directors elected
to participate in the SIP, alongside their
existing participation in the Company’s
other HMRC-approved share schemes.
RELATIONSHIP BETWEEN PAY AND
PERFORMANCE
We have, in accordance with the Directors’
remuneration policy and the rules of the
2014 AIP, recommended an aggregate
bonus payment of £912,415 under the
plan for the period. This recommendation is
based on the achievement of targets which
are set out in more detail in the Annual
report on remuneration on page 114.
The Remuneration Committee believes that
the level of bonus payment appropriately
reflects the performance of the business
and individual performance during the
period, which saw strong trading for the
Group in a very competitive market and
good progress with the development of the
Group’s strategic objectives.
93
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DESCRIPTION OF THE REMUNERATION COMMITTEE
This section of the Directors’ remuneration report describes the membership of the Remuneration Committee, its advisers and principal
activities during the period. It forms part of the Annual report on remuneration section of the Directors’ remuneration report.
MEMBERSHIP
The current membership of the Remuneration Committee, together with appointment dates, is set out below:
Douglas McCallum
(Chairman)
Ruth Anderson
David Grigson
Remuneration Committee
member since
3 October 2011
Remuneration Committee
member since
9 March 2010
Remuneration Committee
member since
5 February 2013
Number of meetings
Number of meetings
Number of meetings
5
5
5
Number attended
5
Number attended
5
Number attended
4
The appointment of Douglas McCallum to the Remuneration Committee was renewed for a further three-year period from October 2014.
The biography of each member of the Remuneration Committee is set out in the Board of Directors section on pages 62 to 63.
Other attendees at the Remuneration Committee meetings included the Chairman of the Board, the Chief Executive Officer, the Chief
Financial Officer, the Director of Human Resources, the Rewards and Benefits Manager, the Company Secretary, the Deputy Company
Secretary and the external adviser to the Remuneration Committee, Deloitte LLP. The Chairman, the Company Secretary and the
Executive Directors and other attendees are not involved in any decisions of the Remuneration Committee and are not present at any
discussions regarding their own remuneration. The Deputy Company Secretary is secretary to the Remuneration Committee.
EXTERNAL ADVICE
During the period, the Remuneration Committee and the Company retained independent external advisers to assist them on various
aspects of the Company’s remuneration and share schemes as set out below:
Adviser
Deloitte LLP
Retained by
Remuneration
Committee
Slaughter and May Company
Services provided to the
Remuneration Committee
Executive remuneration advice including
in respect of GIP design, changes to the
Directors’ remuneration policy and other
incentive arrangements.
None
Other services provided
Separate teams engaged by the Company
to advise on a range of Company tax, share
schemes and accounting matters, including
transaction advice.
Employment law, share schemes and tax as
well as general UK legal advice in respect
of a number of the Company’s remuneration
matters, including implementation of share
schemes such as the GIP.
Deloitte LLP were appointed by the Remuneration Committee in 2012 following a tender process led by the Remuneration Committee
Chairman. Deloitte LLP confirmed to the Company that it is a member of the Remuneration Consultants Group and as such operates
under the code of conduct in relation to executive remuneration consulting in the UK. The Remuneration Committee is, following its annual
review, satisfied that Deloitte LLP has maintained independence and objectivity.
For the period, Deloitte LLP were paid £71,400 in advisory fees for services provided to the Remuneration Committee during the period.
In addition to the external advice received, the Remuneration Committee consulted and received reports from the Company’s Chief
Executive Officer, the Chief Financial Officer, the Chairman, the Director of Human Resources and the Deputy Company Secretary. The
Remuneration Committee is mindful of the need to recognise and manage conflicts of interest when receiving views and reports from, or
consulting with, the Executive Directors or members of senior management.
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The Remuneration Committee has been delegated responsibility for setting remuneration for all of the Executive Directors, the Chairman
and the Company Secretary. This is outlined on page 68. In line with its terms of reference, the following key matters were considered
by the Remuneration Committee during the period:
• approving the Directors’ remuneration policy and 2013 Directors’ remuneration report;
• reviewing performance under the 2013 AIP and consideration of any bonuses payable;
• approving the 2014 AIP performance targets;
• approving the 2014 LTIP awards and performance targets;
• reviewing and approving the proposed new GIP scheme and 2014 ESOS;
• considering a report on shareholder consultation meetings;
• approval of changes to the AIP for 2015 including review of performance measures;
• consideration of changes to the performance measures for the LTIP for 2015 awards;
• receiving a report on the Group’s share schemes and plans for 2015;
• approving the implementation of the SIP;
• approving a new invitation for 2015 under the Sharesave scheme;
• receiving a report on Executive Director remuneration benchmarking and approving increases in the Executive Director base salaries;
• consulting the Chief Executive Officer and the Chairman on performance and remuneration of the Executive Directors;
• receiving a report on Group-wide and management remuneration for 2014;
• receiving reports from Deloitte on senior executive pay, market themes and trends;
• reviewing the pension arrangements for the Executive Directors;
• reviewing the Remuneration Committee’s performance; and
• reviewing the performance of Deloitte LLP and retaining them as external remuneration consultants.
The Remuneration Committee’s work also included monitoring and considering (rather than recommending) the level and structure
of remuneration for the Management Committee. Ultimate decision-making responsibility for the remuneration of the Management
Committee lies with the Chief Executive Officer.
During the period, the Remuneration Committee Chairman and the Chairman carried out a shareholder consultation with the largest
shareholders. The Company’s major shareholders were given the opportunity to meet to discuss a number of remuneration initiatives
for the Executive Directors, including the Directors’ remuneration policy and the new long-term incentive arrangements. Changes were
made to the proposed incentive arrangements in response to the feedback received from shareholders (for example, changes to the LTIP
design and performance measures and changes to the performance targets under the GIP). Following the consultation, the remuneration
proposals were approved by shareholders at the Company’s annual general meeting in May 2014 (as further outlined in the Annual
report on remuneration on page 129).
The Remuneration Committee carried out a review of its terms of reference during the period. The review resulted in some amendments to
the terms of reference to take account of the changes in the 2014 Code.
In addition to the activities of the Remuneration Committee, the Executive Directors and the Chairman reviewed the remuneration
arrangements of the Non-Executive Directors.
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COMPLIANCE WITH THE 2012 CODE AND 2014 CODE
The Company has complied with the 2012 Code in respect of the Directors’ remuneration policy and this Directors’ remuneration report, to
the extent explained in the Statement of corporate governance on page 66. The 2014 Code does not apply to the Company’s reporting
period ended 30 November 2014. However, the Board has, where appropriate and feasible, adopted some of the new provisions in the
2014 Code earlier than required and provides disclosure against these requirements in this Directors’ remuneration report.
Clawback and Malus
The Remuneration Committee reviewed the Director’s remuneration policy and existing remuneration arrangements in light of the proposed
changes under the 2014 Code. As noted in the Directors’ remuneration policy, all of the rules of the Executive Director share schemes
and incentives contain clawback and malus provisions or equivalent bad leaver provisions, which allow the Company to potentially
recover sums paid or withhold payment of any amount in certain circumstances. To this extent, the Company is compliant with the new
provisions of the 2014 Code.
Deferral
The 2014 Code provides that for share schemes, directors should be required to hold shares for a period after vesting or exercise
including for a period after leaving the Company. While some of the share schemes do not contain any requirements for share
deferral or additional holding periods, the Remuneration Committee feels that their absence is materially mitigated by the existing large
shareholdings held by the Executive Directors in the Company and by the lengthy five-year vesting period that applies to the GIP. Such
factors help create a longer-term focus for the business from the Executive Directors and stronger alignment with shareholders.
REMUNERATION POLICY REPORT
INTRODUCTION
This part of the Directors’ remuneration report sets out the Company’s policy for the remuneration of its Directors.
The Directors’ remuneration policy was approved by shareholders at the annual general meeting which took place on 7 May 2014
and took effect from that date. Since then the Remuneration Committee reviewed the Directors’ remuneration policy and concluded
that it remained appropriate for the foreseeable future. Given there were no proposals to revise the policy it remains valid and will not
be put for shareholder approval at the AGM. It is expected that the Company will next propose a resolution to approve the Directors’
remuneration policy at the Annual General Meeting to be held in 2017, or sooner in the event of proposed revisions to the policy.
The Directors’ remuneration policy is extracted in full from the 2013 annual report, without amendment except: (i) this introduction; (ii) to
reflect shareholder approval of the GIP and 2014 ESOS; and (iii) minor amendments such as page or cross references and changed
defined terms. It is in the form approved by shareholders at the annual general meeting which took place on 7 May 2014.
REMUNERATION PRINCIPLES FOR SENIOR EXECUTIVES
The Directors’ remuneration policy and reward strategy is underpinned by the remuneration principles. These principles relate to the core
values of the Company. The main principles of senior executive remuneration are set out below:
• Support long-term success and sustainable long-term shareholder value.
• Be aligned to the business strategy and achievement of planned business goals.
• Be compatible with the Group’s risk policies and systems.
• Link maximum payout to outstanding results.
• Ensure that performance related pay constitutes a significant proportion of the overall package.
• Provide a balance between attracting, retaining and motivating the right calibre of candidates, and taking into account the
entrepreneurial culture of the business.
• Encourage a high performance culture.
LINK WITH STRATEGY
The Company’s reward strategy continues to evolve in parallel with the Company’s development. The key objective to be achieved
through the Directors’ remuneration policy is to support the Group’s main strategic objectives of expansion and high growth. The AIP, the
LTIP and the GIP contain specific performance measures designed to support the objectives of accelerating core business performance
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sustainable long-term shareholder value (for example, EPS target and share price growth targets).
The Directors’ remuneration policy, outlined on the following pages, provides the detailed structure of each element of remuneration and
how each element is determined. The remuneration package of the Executive Directors is made up of elements of fixed and variable
remuneration.
Base Salary
Benefits
Pension
Annual
Incentive
Plan
Deferred
Bonus
Under AIP
Long-Term
Incentives
One-Off
Plans
Reflects the value of the individual, their role, skills,
experience and contribution to the business.
Fixed
Aligned with all other employee arrangements.
Ensures remuneration is comprehensive.
Incentivises achievement of annual objectives.
Aligns Director and shareholder interests by delivering
bonus payments in deferred shares.
Incentivises generation of long-term shareholder value.
Motivates key individuals to achieve specific long-term
targets and exceptional levels of performance.
Variable
The Remuneration Committee is mindful of the weighting of fixed and variable pay and balance of short and long-term awards, and
sought to position a larger proportion of the remuneration package as equity based and performance related, in order to support the
Company’s strategic objectives of high growth and expansion and to create shareholder alignment. The balance of the remuneration of
the Executive Directors is set out at ‘Illustration of Directors’ remuneration policy’ on page 110. The Remuneration Committee introduced
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share deferral in the AIP, minimum shareholding requirements and the GIP to help ensure a longer-term focus for the business from the
Executive Directors.
REMUNERATION COMMITTEE DISCRETION AND JUDGEMENT
In formulating the Directors’ remuneration policy, the Remuneration Committee has sought to allow it sufficient operational flexibility
over Director remuneration for the next three years. While the policy provides the boundaries for remuneration arrangements, the policy
is intended to provide some isolated discretion for the Remuneration Committee to use in various circumstances relating to particular
components of remuneration. The Directors’ remuneration policy does not provide for the exercise of discretion over any aspect of the
policy. The Remuneration Committee may not use any discretion outside the policy without separate shareholder approval.
The Remuneration Committee operates the share schemes according to their respective rules and in accordance with the Listing Rules and
other rules and regulations, where relevant. The Remuneration Committee retains discretion, in a number of regards to the operation and
administration of these plans. The discretions include, but are not limited to, those set out in the table below.
Area of discretion
AIP
LTIP
JSOS
GIP
The participants
The timing of grant of an award or payment
The size of an award (up to a predetermined maximum)
The determination of vesting or payment
Discretion required when dealing with a change of control or restructuring
of the Group
Determination of the treatment of leavers based on the rules of the plan
and the appropriate treatment chosen
Adjustments required in certain circumstances (for example, rights issues,
corporate restructuring events and dividends)
Adjust or change the performance conditions if anything happens
which causes the Remuneration Committee reasonably to consider
it appropriate (for example, Board approved strategic initiative or
transaction) provided that any changed performance condition will be
equally difficult to satisfy as the original condition would have been had
such circumstances not arisen
The annual review of performance measures and weighting, and targets
from year to year
Adjustment to level of payments, even when targets met (for example, to
reflect individual or Company performance)
Application of malus and clawback
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
N
Y
Y
Y
Y
N
Y
Y
Y
N
Y
N
N
Y
Y
Y
Y
Y
Y
Y
Y
N
N
Y
In addition, the terms of the Chairman’s Share Matching Award provide that the Board has discretion with respect to dealing with
change of control and treatment of leavers. The use of discretion in relation to the Company’s ESOS, Sharesave and Share Incentive Plan
will be as permitted under HMRC rules and the other relevant rules and regulations.
Any use of the above discretions would, where relevant, be explained in the Directors’ remuneration report and may, as appropriate, be
the subject of consultation with the Company’s major shareholders.
The Remuneration Committee may also apply judgement or a qualitative assessment, for example in assessing achievement against role
specific objectives under the AIP.
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Shareholder context
The Remuneration Committee has sought alignment between the Directors’ remuneration policy and shareholder interests.
When proposing changes to the Executive Directors’ remuneration arrangements, the Remuneration Committee has sought the views of
the Company’s largest shareholders. The Remuneration Committee sought shareholder input on the Directors’ remuneration policy and
new incentive arrangements for 2013 and 2014. Changes have been made to incentive arrangements in response to the feedback
received (for example, changes to the design and performance measures for the LTIP and changes to the GIP). The Company is
committed to ongoing dialogue with shareholders on the Directors’ remuneration and will continue to seek their views on any significant
changes to the remuneration arrangements or exercises of discretion.
Employee context
The Directors’ remuneration policy is designed in line with the remuneration principles outlined on page 96, which reflect the
remuneration principles for the Group. A key remuneration principle for the Group is that share schemes be used to recognise and
reward good performance and attract and retain employees, wherever possible and appropriate. This is reflected by the operation
of the ESOS which allows all employees an opportunity to share in the Group’s success via share ownership. This philosophy will be
maintained via awards to all employees under the Share Incentive Plan, rather than the ESOS.
The remuneration arrangements for employees below Board level reflect the seniority of the role. The components and levels of
remuneration for different employees differ from the remuneration framework for the Executive Directors. The Group operates some
tailored bonus and long-term incentive arrangements for certain groups of employees, but has not adopted a universal approach to these
elements of remuneration for all employees.
The Remuneration Committee receives an annual report from management on Group-wide remuneration. This review covers changes to
pay, benefits, pension and share schemes for all employees in the Group, including the percentage increases in base pay for monthly
and hourly paid employees. The Remuneration Committee’s work includes monitoring and commenting on the level and structure of
remuneration for the Management Committee in relation to various changes to base pay and incentive plans. This provides some of the
context for the Remuneration Committee’s decisions concerning changes to base pay and other elements of remuneration for the Executive
Directors. The Company did not consult with employees when drawing up the Directors’ remuneration policy, nor take into account any
remuneration comparison measurements.
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REMUNERATION POLICY TABLE: ELEMENTS OF DIRECTOR REMUNERATION
The Directors’ remuneration policy as it applies to the Executive Directors consists of the elements set out in the table below:
How it operates
Performance conditions
Maximum opportunity
Purpose and link
to strategy
Fixed pay
Base pay
Attract and retain the
right calibre of senior
executive required
to support the long-
term interests of the
business.
Paid monthly in cash.
Not performance linked.
Reviewed annually by the Remuneration
Committee, with any changes normally
becoming effective in April each year.
The review takes into account a number
of factors including: the Group’s annual
review process, business performance,
total remuneration, appropriate market
data for comparable roles for companies
of equivalent size and complexity
in similar sectors and geographical
locations to the Company, and an
individual’s contribution to the Group.
Recovery or
withholding
No contractual
provisions for
clawback or
malus.
No contractual
provisions for
clawback or
malus.
To avoid setting the expectations
of Executive Directors and other
employees, no maximum salary is set
under the policy. However, normally,
maximum salary increases for Executive
Directors will be within the normal
percentage range and guidelines
that are applied to the monthly paid
employees of the Company in that year.
Where appropriate and necessary,
larger increases may be awarded
in exceptional circumstances; for
example, if a role has increased
significantly in scope or complexity.
Larger awards may also be considered
appropriate and necessary to bring
a recently appointed executive in
line with the market and the other
executives in the Company where
their initial salary has been positioned
below the market.
Benefits for Executive Directors are
set at a level which the Remuneration
Committee considers to be
appropriate against appropriate
market data for comparable roles
for companies of equivalent size
and complexity in similar sectors
and geographical locations to the
Company.
Not performance linked.
Benefits
Attract and retain the
right calibre of senior
executive required
to support the long-
term interests of the
business.
The Company provides a range of
benefits which are aligned with those
provided to monthly paid employees.
These may include: private medical
insurance, life assurance, travel insurance,
critical illness cover, travel allowance, free
parking, access to financial and legal
advice and Company-wide employee
benefits including an employee assistance
programme, staff product discount and
subsidised staff canteens and discounts.
Any travel arrangements or travel costs
required for business purposes will be
provided by the Company. Additional
benefits or payments in lieu of benefits
may also be provided in certain
circumstances, if required for business
needs.
Any benefits allowances will be paid in
cash monthly and will not form part of
pensionable salary.
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Performance conditions
Maximum opportunity
Contributions to the defined
contribution scheme for Executive
Directors will normally be in line
with the other scheme participants;
however, the Remuneration
Committee may exceed this standard
maximum in order to be market
competitive and attract and retain
the right calibre of senior executive
talent needed to support the long-term
interests of the business.
Pension contributions for UK Executive
Directors will not exceed 30% of
base salary.
For Executive Directors outside
the UK, provision for an executive
pension will be set taking into
account local market rates.
The maximum bonus is 200%
of base salary.
For the 2014 performance year, the
maximum bonus is 100% of base
salary for the Executive Directors and
125% for the Chief Executive Officer.
Purpose and link
to strategy
Pension
Attract and retain the
right calibre of senior
executive required
to support the long-
term interests of the
business.
Not performance linked.
Contributions, allowances and pension
choices for the Executive Directors are on
the same terms as for other employees.
Executive Directors can choose to
participate in the defined contribution
Group personal pension scheme or an
occupational money purchase scheme.
Where lifetime or annual pension
allowances have been met, employer
contributions may be paid into a
personal pension arrangement. These
will not be treated as salary for the
purposes of incentive awards.
The Group’s contributions under the
defined contribution scheme are set as
a percentage of salary based on length
of scheme membership. Contributions
under the occupational money purchase
scheme are aligned with the legislative
minimum.
Variable pay: Short-term incentives
Annual Incentive
Plan (“AIP”)
Provide a direct link
between measurable
and predictable
annual Company
and/or role specific
performance and
reward.
Measures and targets are set annually
and bonus payments are determined by
the Remuneration Committee following
the year-end based on performance
against the targets.
Bonus payments, if made, are payable
in cash after the results of the Group
have been audited.
Incentivise the
achievement
of outstanding
results aligned to the
business strategy.
To the extent that an Executive Director
does not meet the minimum shareholding
requirement, up to 50% of any bonus
payment will be deferred into shares,
vesting after a period of three years.
The Remuneration Committee sets
annual targets that are closely
aligned to the delivery of the
Group’s strategic objectives for
that year.
These will be a mix of strategic
and financial targets with the
majority being financial.
For threshold performance, 25%
of the maximum opportunity
will be earned. For stretch
performance, the maximum
opportunity will be earned. A
straight-line sliding scale applies
between the threshold and the
maximum.
The performance conditions for
the relevant financial year are
described in the Annual report
on remuneration.
Recovery or
withholding
No contractual
provisions for
clawback or
malus.
The AIP rules
provide for
clawback and
malus for three
years from date
of payment
of a bonus
or grant of a
deferred award
in certain
exceptional
circumstances.
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Purpose and link
to strategy
How it operates
Performance conditions
Maximum opportunity
Recovery or
withholding
The Remuneration Committee
sets targets that are closely
aligned to the delivery of the
Group’s strategic objectives
for the performance period.
These may be a mix of strategic
and financial targets with the
majority being financial.
The Remuneration Committee may
grant awards, with a maximum total
market value of 150% of annual
base salary of a participant. In the
case of the Chief Executive Officer,
the maximum total market value of
an LTIP Award is 200% of annual
base salary.
Clawback and
malus provisions
may be applied
to LTIP awards
in certain
exceptional
circumstances.
In exceptional circumstances, the
Remuneration Committee may
grant awards with a maximum total
market value of 300% of annual
base salary of a participant or,
in the case of the Chief Executive
Officer, 400% of annual base
salary.
The JSOS rules contain a 7.5%
issued share capital limit for the
cumulative total of awards under
the plan and the ABI’s 5% and 10%
in ten year dilution limit for total
awards, which constrain the number
of interests that may be issued under
the JSOS.
Certain leaver
provisions
described on
page 108
allow the
Company
to recover
share interests
in certain
circumstances.
For threshold performance, 25%
of the maximum opportunity will
vest. For stretch performance,
the maximum opportunity
will vest. Vesting will be on a
straight-line basis between the
threshold and the maximum.
The measurement period for
performance conditions will
ordinarily comprise at least
three financial years of the
Company. The performance
conditions for the final year of
the three-year vesting period are
described in the Annual report
on remuneration.
Interests in shares vest annually
over a four-year period subject to
leaver provisions. The participant
benefits from the increase in
value of the shares above a
predetermined market price for
each tranche (the “hurdle price”).
Awards under the JSOS will have
no value unless the hurdle price
is achieved.
Interests in the Company’s shares
are granted in tranches, with
a different hurdle rate for each
tranche.
Variable pay: Longer-term incentives
Long Term Incentive
Plan (“LTIP”)
Attract, retain and
incentivise senior
executives.
An award over a fixed number of
shares is granted annually. Awards
made in the form of nil-cost options or
conditional share awards will ordinarily
vest three years from award, subject to
continued service and the achievement
of performance conditions and other
conditions.
Align the interests
of the senior
executives and the
shareholders.
Dividend equivalents may be paid
in cash or additional shares on LTIP
awards that vest.
The award may be satisfied either by
a new issue of shares, the transfer of
treasury shares or shares held in the
Company’s EBT or by market purchase
of shares.
Joint Share
Ownership Scheme
(“JSOS”)
Attract, retain and
incentivise senior
executives.
Align the interests
of the senior
executives and the
shareholders, by
driving share price
growth over four
years.
The JSOS was established prior to the
Company’s listing on the London Stock
Exchange in 2010.
The participants and Appleby Trust
(Jersey) Limited, the EBT Trustee,
acquire separate beneficial interests in
ordinary shares of the Company. The
participant may lose his interest in the
shares.
No future annual awards will be made
under the JSOS to Executive Directors.
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Performance conditions
Maximum opportunity
Awards will be granted on a one-off
basis. An Executive Director will be
granted options over shares in the
Company with a nil exercise price.
Options will be subject to a
single performance condition to
be satisfied over the five years
from the date of grant.
Recovery or
withholding
Clawback and
malus provisions
may be applied
to GIP awards
in certain
exceptional
circumstances.
Four million shares will be awarded
to the Chief Executive Officer.
One million shares will be awarded
to each of the other participating
Executive Directors.
Awards to new participating
Executive Directors will not exceed
the proposed award levels to existing
participants.
Purpose and link
to strategy
Growth Incentive
Plan (“GIP”)
Attract, retain and
incentivise senior
executives.
Align the interests
of senior executives
and shareholders, by
incentivising senior
executives to deliver
exceptional levels of
growth and return to
the shareholder over
the long term.
While all Executive Directors are
eligible to participate in this plan,
only the Chief Executive Officer and
two existing Executive Directors will
receive an initial grant. New Executive
Directors may be invited to participate
at a level dependent on the point
during the performance period at
which they joined.
To participate, the Executive Directors
are required to hold a level of shares
throughout the performance period.
For the Chief Executive Officer, this
shareholding must be at least one
times salary and for other Executive
Directors, this shareholding must be at
least half times salary.
The share price of the
Company is the sole
performance measure and
will be assessed relative to the
growth of the FTSE 100 Share
Index over that period.
Performance will be assessed
based on the three month
average share price of the
Company and of the FTSE 100
Share Index at the beginning
and end of the performance
period.
The performance target
schedule is as follows:
• Growth of less than the
FTSE 100 Share Index plus
5% p.a.: 0% of the award
vests.
• Growth in FTSE 100 Share
Index plus 5% p.a.: 25% of
the award vests.
• Growth in FTSE 100 Share
Index plus 10% p.a.: 50%
of the award vests.
• Growth in FTSE 100 Share
Index plus 15% p.a.: 75%
of the award vests.
• Growth in FTSE 100 Share
Index plus 20% p.a. (or
more): 100% of the award
vests.
Not performance linked.
All-employee share plans
Sharesave
Provide all
employees, including
Executive Directors,
the opportunity to
voluntarily invest in
Company shares
and be aligned
with the interests of
shareholders.
All employees are eligible to
participate in this HMRC approved
employee share scheme. The
Company grants options over
shares in the Company to employees,
including the Executive Directors.
To obtain an option an eligible
individual must agree to save a fixed
monthly amount for three years up to
the maximum monthly amount in line
with HMRC limits. The amount saved
will determine the number of shares
over which the option is granted.
Options are granted at a discount to
the market price at the time of grant.
Options may be granted at a
maximum discount to the market
price up to a maximum amount in
line with HMRC limits.
Employees are limited to saving a
maximum in line with these HMRC
limits.
The scheme
rules do not
provide for
malus or
clawback
provisions.
Options may be exercised in a six
month period three or five years from
the date of grant, subject to continued
service.
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How it operates
Performance conditions
Maximum opportunity
Not performance linked.
Maximum opportunity for awards
will be in line with HMRC limits.
All employees are eligible to
participate in this HMRC approved
employee share scheme. The SIP
allows for:
• the Company to grant free
shares to all employees
allocated on an equal basis;
• all employees to buy partnership
shares monthly from their gross
salary; and
• the Company may offer matching
shares to employees who purchase
partnership shares.
Dividend shares are also covered by
the SIP arrangements.
Recovery or
withholding
The scheme
rules do not
provide for
malus or
clawback
provisions.
All employees are eligible to
participate in this HMRC approved
employee share scheme and the
unapproved part of the scheme.
The Company grants options over
shares in the Company to employees.
There are currently no plans to make
awards to the Executive Directors under
this plan.
If awards are made the
Remuneration Committee will
set targets. Targets will be
closely aligned to the delivery
of the Group’s strategic
objectives. These may be a
mix of strategic and financial
targets with the majority being
financial.
The scheme
rules do not
provide for
malus or
clawback
provisions.
Maximum opportunity for awards
will be in line with HMRC limits for
the HMRC approved part of the
scheme.
Maximum opportunity for awards
under the unapproved part of the
scheme are limited by the scheme
rules which limit an award to 300%
of annual base salary, except in
exceptional circumstances.
For threshold performance,
up to 25% of the maximum
opportunity would be received.
Same as for ESOS
described above.
Same as for ESOS described
above.
Same as
for ESOS
described
above.
Options over shares vest on the
third anniversary of grant, subject to
continued service and satisfaction of
any performance conditions. If vested,
the options may be exercised at any
time between the third and tenth
anniversaries of grant at the executive’s
discretion.
The 2014 ESOS was approved by
shareholders at the 2014 annual
general meeting. The 2014 ESOS is
based on the ESOS, described above.
There are currently no plans to make
awards to the current Executive
Directors under this plan.
Purpose and link
to strategy
Share Incentive Plan
(‘‘SIP’’)
Provide all
employees, including
Executive Directors,
the opportunity to
receive and invest
in Company shares
and be aligned
with the interests of
shareholders.
Executive Share
Option Scheme
(‘‘ESOS’’)
Provide all
employees, including
Executive Directors,
the opportunity to
receive Company
share options and
be aligned with
the interests of
shareholders.
2014 Executive
Share Option
Scheme (‘‘2014
ESOS’’)
Provide all
employees, including
Executive Directors,
the opportunity to
receive Company
share options and
be aligned with
the interests of
shareholders.
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Purpose and link to strategy
How it operates
Non-Executive Director fee
Core element of
remuneration, paid for
fulfilling the role in question.
Chairman fee
Core element of
remuneration, paid for
fulfilling the role in question.
Chairman’s Share
Matching Award
To attract and retain the
right calibre of Chairman
necessary to support the
long-term interests of the
business.
Paid monthly in cash.
Fee structure includes an annual base fee for a Non-Executive Director and a Senior Independent Director,
and additional fees for being a Board Committee chair.
Reviewed annually by the Executive Directors and Chairman, with any changes normally becoming
effective in April each year.
The review takes into account a number of factors including: the Group’s annual review process, business
performance and appropriate market data for comparable roles for companies of equivalent size and
complexity to the Company.
Non-Executive Directors are not usually eligible for annual bonus, all-employee share incentive schemes,
pensions or other benefits with the exception of the staff product discount offered to all employees.
Paid monthly in cash.
Reviewed annually by the Remuneration Committee, with any changes normally becoming effective in
April each year.
The review takes into account a number of factors including: the Group’s annual review process, business
performance and appropriate market data for comparable roles for companies of equivalent size and
complexity to the Company.
The Chairman is not usually eligible for annual bonus, any incentive schemes, pensions or other benefits.
The current Chairman received a one-off initial share award upon his appointment as Chairman. Shares
will not vest until the Chairman has served for three years. The Chairman will not be entitled to sell any
shares awarded to him until the first anniversary of when he ceases to be a member of the Board. The
award is not subject to performance conditions. Certain leaver provisions described on page 108 allow
the Company to recover the award in certain circumstances.
Notes to the Policy table:
1. No other items in the nature of remuneration are provided by the Company to its Non-Executive Directors, save for the amounts paid to Robert Gorrie as described on page 117.
2. The Non-Executive Directors are entitled to be reimbursed for out of pocket expenses incurred in carrying out their responsibilities to the Company.
3. Other than as described in the policy table, there are no components of the Executive Directors’ remuneration that are not subject to performance measures. In the case
of the Sharesave and SIP, these HMRC approved all-employee schemes are subject to rules constrained by legislation and so awards are made on the same terms (not
comprising performance conditions) to all employees including Executive Directors. Prior to the Company’s listing in 2010, some option awards were made to the Executive
Directors under the ESOS without performance conditions. Although awards will not usually be made to existing Executive Directors, the rules of the ESOS and 2014 ESOS
require the Remuneration Committee to impose performance conditions on any awards made to a Director under each plan. The Chairman’s Share Matching Award was
a one-off award of shares made to the Chairman on appointment. No performance conditions attached to the receipt of the award (only continued service as Chairman
until the end of the three-year vesting period). In structuring the Chairman’s Share Matching Award without any performance related elements, the Remuneration Committee
complied with the 2012 Code and sought to ensure the Chairman’s independence on appointment. The Chairman is not entitled to sell any awarded shares until a year
after he leaves the Board. The award was approved by shareholders at the 2013 annual general meeting. Performance targets apply to the AIP, LTIP and GIP.
a. AIP – The Remuneration Committee adjusts the design (including measures and weightings) of the AIP each year to incentivise the delivery of key business objectives and
individual performance for that financial year. Management proposes suitable metrics and levels of performance to form the threshold and stretch levels of performance. Any
individual objectives applicable for the AIP are linked to the Executive Director’s role and/or his business area(s) and are in line with the Group’s strategy. The measurable
objectives are agreed between the Executive Director and the Chief Executive Officer (or in the case of the Chief Executive Officer, between him and the Chairman). The
Remuneration Committee reviews the proposed targets to assess whether they are appropriately aligned with the strategy and shareholders’ interests and whether the reward that
would accrue to the Executive Director is appropriate in the circumstances. Usually, full vesting will only occur where exceptional performance levels have been achieved and
significant shareholder value created. Details of the performance measures applying to the 2014 AIP are outlined in the Annual report on remuneration.
LTIP – The Remuneration Committee reviews the design of the LTIP each year to ensure that the performance conditions remain relevant to the Company’s key strategic
objectives. The Remuneration Committee reviews the performance measures in light of the long-term strategic plan and agrees the threshold and stretch conditions
that must be achieved. Full vesting will only occur where exceptional performance levels have been achieved and significant shareholder value created. In light of
shareholder feedback from the shareholder consultation conducted in March 2013, the Remuneration Committee revised the targets from 2013 and decided to put in
place two performance objectives for the 2014 awards. The underlying measurement period for performance conditions will ordinarily comprise at least three financial
years of the Company. In the case of the 2013 and 2014 awards the measurement period is the last financial year.
b.
c. GIP – the GIP performance measure was designed to incentivise outstanding growth in value of the Group over the five-year performance period. The performance
measure requires the growth in the Company share price to be significantly more than the growth of the FTSE 100 Share Index over that period. This helps to ensure
alignment with shareholders, as full vesting will only occur where outstanding shareholder value is created. The GIP was approved by shareholders at the 2014 annual
general meeting.
4. The Directors’ remuneration policy contains formal components for short and long-term incentives with performance conditions attached. While the Group has a policy of
remunerating its employees through share scheme participation, it does not have formal arrangements for all employees akin to the components of Directors’ remuneration.
Senior management participate in an annual bonus plan and the long-term incentive schemes including the LTIP and JSOS, with award levels set at lower percentages
of salary than those of the Directors. The performance conditions and other terms of these schemes are the same as for the Executive Directors. The bonus plan does not
include provision for share deferral of a payment. The Group operates some tailored bonus and long-term incentive arrangements (such as the JSOS) for other small groups
of employees but aside from the JSOS and the all-employee share schemes (the SIP, the ESOS and the Sharesave), the variable remuneration of employees is not closely
aligned with that of Directors.
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DIRECTOR SHAREHOLDING OBLIGATION
It is the policy of the Company that the Directors are expected to build up over a period of time, and hold, a minimum level of
shareholding in the Company. This is considered an effective way to align the interests of the Executive Directors and shareholders in the
long term. These shareholding requirements are outlined in the table below.
Director
Shareholding requirement
Executive
Directors
Executive Directors are required to hold 100% base salary (150% for the Chief Executive Officer) in shares. This can be
built up over three years from appointment.
Share awards may count if vesting is not subject to any further performance conditions or other conditions such as
continued employment. Share interests and share awards which are vested, but remain subject to a holding period and/
or clawback, may count towards the holding requirement.
Until the minimum shareholding is met, an Executive Director must defer up to 50% of any cash bonus payable under the
AIP as an award of shares.
Non-Executive Directors are required to hold the equivalent of one year’s annual fee in shares. This can be built up over
three years.
The Chairman is required to hold the equivalent of one year’s annual fee in shares. This can be built up over three years
from appointment.
Non-
Executive
Directors
Chairman
Should the requirement be achieved but the market value of the Company’s shares subsequently fall below the required level, compliance
with this requirement will be based on the higher of the original share purchase price or current market price.
APPROACH TO REMUNERATION OF DIRECTORS ON RECRUITMENT
Recruitment of Executive Directors
When determining the remuneration of a newly appointed Executive Director, the Remuneration Committee will apply a number of
principles.
The Remuneration Committee will seek to align the remuneration package of a newly appointed Executive Director with the Directors’
remuneration policy outlined above. However, the Remuneration Committee retains the discretion to include any other remuneration
component or award in the remuneration package which it considers to be appropriate.
In determining the remuneration arrangements for a new Executive Director, the Remuneration Committee will take into account
all relevant factors including (but not limited to) the specific circumstances, the calibre of the individual, the market practice for the
candidate’s location, the nature of the role they are being recruited to fulfil and any relevant market factors, including any competing
offers the candidate may be considering. The Remuneration Committee is at all times conscious of the need to pay no more than is
necessary. The Remuneration Committee’s considerations would be subject to the overall limit on variable remuneration outlined below.
Where promotion to an Executive Director role is from within the Company, any performance-related pay element arising from their
previous role will continue on its original terms, provided such element was not made in contemplation of such person becoming an
Executive Director.
To facilitate recruitment, the Remuneration Committee may, to the extent permitted by relevant plan rules or Listing Rules, make a one-off
award to “buy out” incentives or any other compensation arrangements forfeited by the appointee on leaving a previous employer. In
doing so the Remuneration Committee will ensure that any such awards offered should be on a comparable basis, taking into account
all relevant factors including any performance conditions, the likelihood of those conditions being met, the proportion of the vesting
or performance period remaining and the form of the award. In determining whether it is appropriate to use such judgement, the
Remuneration Committee will ensure that any awards made are in the best interests of both the Company and its shareholders.
In addition, one-off payments in respect of relocation or ongoing relocation allowances may be made to a newly appointed Executive
Director. However, these payments must reflect actual financial loss or cost of moving the Executive Director, their family or assets, and the
market practice in the geographical location to which the Executive Director is moving to or from. The Company may provide relocation
costs by funding services or cash payment or a combination of both.
The maximum level of variable pay which may be awarded upon recruitment (excluding any “buy out” awards or costs and allowances
on relocation and awards made to appointees under the GIP) is 600% of base salary. GIP awards will be subject to the award limits set
out in the remuneration policy table.
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The remuneration package for newly appointed Non-Executive Directors will be in line with the structure set out in the remuneration policy
table for Non-Executive Directors.
LOSS OF SERVICE OR TERMINATION POLICY
Service contracts for Executive Directors
Each of the Executive Directors is employed pursuant to a service contract with Ocado Central Services Limited.
The Directors’ remuneration policy provides that an Executive Director’s employment may be terminated by the Company giving to the
Executive Director not less than 12 months’ notice or by the Executive Director giving to the Company not less than six months’ notice.
The Directors’ remuneration policy provides that if an Executive Director’s service contract is terminated without cause, Ocado Central
Services Limited can request that the Executive Director work their notice period, take a period of garden leave or pay an amount in lieu
of notice equal to one times their basic salary, benefits and pension for the remainder of their notice period. While the service contracts
do not specify this, the Company’s remuneration principles provide that any payments should be reduced in certain circumstances where
the Executive Director’s loss has been mitigated, for example, where he moves to other employment.
The service contracts do not contain any specific provisions relating to a change of control of the business.
If employment is terminated by the Company, the Remuneration Committee retains a discretion to settle any other amounts reasonably
payable to the Executive Director including legal fees incurred by the Executive Director in connection with the termination of employment
and obtaining independent legal advice on a settlement or compromise agreement, and the relocation costs for returning the departing
Executive Director and his family to their original country of origin. The Company may provide relocation costs by funding services, or
cash payment or a combination of both.
Other than described above, there are no relevant contractual provisions that are, or are proposed to be, contained in any Executive
Director service contract that could give rise to remuneration payments or payments for loss of office, but which are not disclosed
elsewhere in the Directors’ remuneration policy.
Letters of appointment for Non-Executive Directors
Each of the Non-Executive Directors has a letter of appointment with the Company. The Directors’ remuneration policy provides that a
Non-Executive Director’s appointment may be terminated by either party giving to the other not less than one month notice, or in the case
of the Chairman, not less than six months’ notice.
Other than described above, there are no relevant contractual provisions that are, or are proposed to be, contained in any Non-
Executive Director’s letter of appointment that could give rise to remuneration payments or payments for loss of office, but which are not
disclosed elsewhere in the Directors’ remuneration policy.
Payments on cessation of employment for Executive Directors
The Executive Director service contracts do not oblige the Company to pay a bonus if the Executive Director is under notice of
termination. But under the rules of the AIP, the Executive Director may receive a proportion of the bonus or deferred award that the
Remuneration Committee determines would otherwise have been payable or granted to him under the rules for the financial year.
The treatment of outstanding share awards is governed by the relevant scheme rules, all of which have been approved by shareholders.
The table on page 108 provides a summary of these leaver provisions. The Remuneration Committee generally has discretion to
determine the treatment of a leaver, but will be conscious of the remuneration principle that it should not reward poor performance or
behaviour.
Payments on cessation of service for Non-Executive Directors
The table on page 108 provides a summary of the leaver provisions applicable to the Chairman’s Share Matching Award. The
Remuneration Committee has discretion in defining the type of leaver category applicable to the departing Chairman.
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SHARE SCHEME LEAVER PROVISIONS
Bad leavers
Good leavers
Remuneration
element
JSOS
LTIP
If a participant is a ‘‘bad leaver’’
(i.e. he is neither a ‘‘good leaver’’
nor a ‘‘very bad leaver’’), he would
retain his vested interests but unvested
interests may be acquired by the EBT
Trustee for the lower of the market
value and the initial subscription price.
In the case of a “very bad leaver” (i.e.
has or could have been dismissed for
cause or is in material breach of an
obligation binding after termination),
both vested and unvested interests may
be acquired by the EBT Trustee for
the lower of the market value and the
initial subscription price.
Generally, unvested LTIP awards (and
vested LTIP options) will lapse on the
date the participant ceases to be an
employee.
The participant’s interest shall continue to vest on the same dates
as if that participant had remained in employment so long as the
participant remains a good leaver.
Should the participant die before a tranche vests, the participant’s
interest will vest entirely on the date of death.
If a participant ceases to be an employee of the Group for a good
leaver reason (e.g. ill health, injury or permanent disability), then
his awards which have not vested will vest on the vesting date (or
earlier as the Remuneration Committee shall determine) but only to the
extent that the performance conditions have been satisfied subject to
operation of malus and clawback provisions. Unless the Remuneration
Committee decides otherwise, the award will be reduced pro rata to
reflect the proportion of the performance period that has elapsed to
the date of cessation of employment.
If a participant dies, his LTIP awards will vest on the date of his
death and the performance conditions will not apply but (unless the
Remuneration Committee decides otherwise) the LTIP award will be
reduced pro rata to reflect the proportion of the performance period
that has elapsed at the date of death.
To the extent that LTIP options vest in accordance with the above
provisions, they may usually be exercised for a period of 12 months
following vesting and will otherwise lapse at the end of that period. To the
extent that a participant who leaves in circumstances other than dismissal
for cause or who dies holding vested LTIP options, they may be exercised
at any time during the usual exercise period and will otherwise lapse at
the end of that period.
See LTIP above, as the same leaver rules apply.
An Executive Director will retain his deferred share award on ceasing
employment with the Group and will receive the award at the usual
vesting date in accordance with the plan rules, subject to the operation
of clawback and malus provisions.
Leavers will be treated within the HMRC approved scheme rules.
If the Chairman ceases to be a Director of the Company prior to
vesting for a “good leaver reason” (death, illness, injury or disability or
any other reason determined by the Board) then a pro rata proportion
of the share award will vest and the remainder shall lapse.
GIP
Deferred shares
under the AIP
See LTIP above, as the same leaver
rules apply.
Deferred share awards will lapse on
the date the Executive Director ceases
to be an employee.
All-employee share
plans
Chairman’s Share
Matching Award
Leavers will be treated within the
HMRC approved scheme rules.
If the Chairman ceases to be a
Director of the Company prior to
vesting for any reason other than a
good leaver reason, the share award
will be forfeited.
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The incentive schemes contain change of control provisions, as set out in the relevant scheme rules.
Under the LTIP, in the event of a takeover of the Company, LTIP awards will vest early subject to: (i) the extent that the performance and
other conditions have been satisfied at that time, (ii) the operation of malus or clawback, and (iii) (unless the Remuneration Committee
decides that prorating would be inappropriate in the particular circumstances) prorating to reflect the proportion of the normal
performance period that has elapsed at the date of that event.
Under the GIP, if there is a change of control of the Company, options may be exercised early subject to the performance target being
satisfied, and in proportion to the amount of the performance period that has elapsed.
Under the AIP, deferred share awards vest early on a change of control, though the Remuneration Committee has discretion to not release
the award early and instead roll the award into an equivalent award in the acquiring company.
Under the terms of the Chairman’s Share Matching Award, in the event of a change of control a pro rata proportion of the share award
will vest, subject to the Board’s discretion to determine that a greater number of shares should vest.
Under the terms of the JSOS rules, in the event of an offer a participant may request the EBT Trustee to accept the offer with respect to
shares that have vested under the JSOS.
For further information on agreements impacted by a change of control see the Directors’ report on page 86.
OTHER REMUNERATION
External appointments for Executive Directors
It is the Company’s policy and a requirement of the contract of employment that the Executive Director may not take up non-executive
directorships or other appointments without the approval of the Board. Any outside appointments are considered by the Nomination Committee
or the Board to ensure they would not cause a conflict of interest and are then approved by the Board. The Board would not usually agree to
an Executive Director taking on more than one non-executive directorship of a listed or public company or the chairmanship of such a company.
It is the Company’s policy that remuneration earned from such appointments may be kept by the individual Executive Director.
Remuneration arrangements prior to policy
The Remuneration Committee has the right to make any remuneration payments and payments for loss of office, notwithstanding that they
are not in line with the Directors’ remuneration policy, where the terms of the payment were agreed either before the policy came into
effect or at a time when the relevant individual was not a Director of the Company, and in the opinion of the Committee, the payment
was not consideration for the individual becoming a Director of the Company. For these purposes, “payments” includes the Remuneration
Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are agreed at
the time the award is granted.
ILLUSTRATION OF DIRECTORS’ REMUNERATION POLICY
The bar charts on page 110 provide estimates of the potential future reward opportunity for each of the Executive Directors based on the
Directors’ remuneration policy outlined on pages 96 to 110.
Minimum
Target or
at expectation
Maximum
AIP
LTIP
Performance is below threshold on each metric.
Threshold performance is reached on each metric.
Performance is below threshold on each metric.
Threshold performance is reached on each metric.
Maximum performance is achieved on each metric. Maximum performance is achieved on each metric.
Base salary,
benefits and
pension
Fixed.
Fixed.
Fixed.
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The figures use the prior year base salary and pension (see 2013 annual report on pages 88 to 89) and value of benefits received for
2013 (see 2013 annual report on page 89). The performance related pay figures are based on the potential awards for 2014 (see
2013 annual report on pages 102 to 103), but it should be noted that LTIP awards granted in a year do not normally vest until the
third anniversary of the date of grant. For the purposes of illustrating the Directors’ remuneration policy, it is assumed that the LTIP awards
granted in 2014 will also be vesting in 2014. The impact of the GIP has not been included. The estimated remuneration for each
Executive Director is based on three different levels of performance, set out below.
In all scenarios, the impact of share price movements on the value of LTIP awards has been excluded.
TIM STEINER, CHIEF EXECUTIVE OFFICER
(£ million)
MARK RICHARDSON, OPERATIONS DIRECTOR
(£ million)
Minimum
Target
Maximum
93%
7%
3%
34%
25%
38%
2%
23%
29%
46%
0
0.5
1
1.5
2
Salary and Benefits
Pension
AIP
LTIP
Minimum
Target
Maximum
93%
7%
3%
39%
24% 34%
2%
28%
28%
42%
0
0.5
1
1.5
Salary and Benefits
Pension
AIP
LTIP
JASON GISSING, COMMERCIAL DIRECTOR
(£ million)
DUNCAN TATTON-BROWN, CHIEF FINANCIAL OFFICER
(£ million)
Minimum
Target
Maximum
93%
7%
3%
39%
24%
34%
2%
28%
28%
42%
Minimum
Target
Maximum
97%
3%
1%
39%
25% 35%
2%
28%
28%
42%
0
0.5
1
1.5
Salary and Benefits
Pension
AIP
LTIP
0
0.5
1
1.5
Salary and Benefits
Pension
AIP
LTIP
NEILL ABRAMS, LEGAL AND BUSINESS AFFAIRS DIRECTOR
(£ million)
Minimum
Target
93%
7%
3%
39%
24% 34%
2%
Maximum
28%
28%
42%
0
0.5
1
1.5
Salary and Benefits
Pension
AIP
LTIP
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INTRODUCTION
This part of the Directors’ remuneration report sets out the Directors’ remuneration paid in respect of the 2014 Financial year. It sets out
actual payments to Directors and details on the link between Company performance and remuneration of the Chief Executive Officer.
This part, together with the Description of the Remuneration Committee section on pages 94 to 96 constitutes the Annual report on
remuneration, and will be subject to an advisory shareholder vote at the Company’s AGM.
HIGHLIGHTS FOR 2014
This table briefly summarises the highlights of the Directors’ remuneration arrangements for the Financial year.
Base pay and benefits
Pension
AIP
Long-term incentives
All-employee schemes
Base pay increase of 3%
to 3.6% for the Executive
Directors and 22% for the
Chief Executive Officer.
No changes made to
Company contributions
to pensions for Executive
Directors.
Pay increases for the Non-
Executive Directors.
No change to benefits.
Further information:
Total bonus earned
for 2014 based on
54% to 56% of target
achievement resulting in
£793,090 less aggregate
bonus payments than
2013 for the Executive
Directors.
Awards were granted
under the LTIP and GIP.
No LTIP awards vested
during the period.
No awards or options
vested under any all-
employee share schemes
during the period.
Final tranche of JSOS
vested during the period.
No share interests were
sold or realised by the
Executive Directors and
remain in the EBT.
Certain options exercised
under ESOS and
Sharesave, where options
were due to expire.
Ongoing participation in
the SIP scheme.
See page 113.
See page 113.
See page 114.
See page 115.
See pages 115 - 116.
TOTAL DIRECTOR REMUNERATION (AUDITED)
The total remuneration paid to all of the Directors during the period was £3,171,000 (not including any amount attributable to the
JSOS). The detailed remuneration breakdown for the Executive Directors and the Non-Executive Directors is set out separately on
the next page.
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EXECUTIVE DIRECTORS
TOTAL REMUNERATION (AUDITED)
The total remuneration for the period for each of the Executive Directors is set out in the table below. Total remuneration (excluding any
amount attributable to the JSOS) paid to the Executive Directors was £2,656,000, which was 21% lower than 2013 (£3,367,000).
Tim Steiner
Jason Gissing1
Neill Abrams
Duncan Tatton-Brown
Mark Richardson
2014
£’000
2013
£’000
2014
£’000
2013
£’000
2014
£’000
2013
£’000
2014
£’000
2013
£’000
2014
£’000
2013
£’000
Salary
Taxable Benefits
Pensions
Total Fixed Pay
AIP
Total Remuneration
in cash
Share Plans –
requiring investment
JSOS – theoretical gain
Share Plans – awards
LTIP
GIP
ESOS
2014 ESOS
SIP
Sharesave
Total for Share Plans
Recovery of sums
paid
Total Remuneration
517
1
41
559
385
944
417
1
33
451
528
979
144
1
12
157
—
157
5,503
—
3,669
—
—
—
—
—
—
5,503
—
6,447
—
—
—
—
—
32
32
—
1,011
—
—
—
—
—
—
3,669
—
3,826
278
1
22
301
307
608
—
—
—
—
—
—
—
—
—
608
282
1
23
306
156
462
226
1
18
245
257
502
337
1
19
357
184
541
2,227
—
2,937
—
—
—
—
—
—
2,227
—
2,689
—
—
—
—
—
32
32
—
534
—
—
—
—
—
—
2,937
—
3,478
310
1
9
320
307
627
—
—
—
—
—
—
—
—
—
627
337
1
27
365
187
552
2,562
—
—
—
—
—
—
2,562
—
3,114
258
1
21
280
307
587
—
—
—
—
—
—
—
—
—
587
1.
Jason Gissing retired from the Board at the Company’s annual general meeting on 7 May 2014.
Explanation of JSOS: The JSOS amounts set out in the total remuneration table represent a theoretical gain on interests in the fourth
tranche of JSOS shares purchased by the Executive Directors. None of the Executive Directors have realised any of their JSOS share
interests and therefore no money has been received by any of the Executive Directors in this regard.
The JSOS scheme which was put in place prior to the Company’s Admission in 2010, involves the Executive Directors investing their own
funds to purchase a shared interest in the Company’s shares at the market value at that time. These investments were made in 2010 (in
the case of Tim Steiner, Neill Abrams and Mark Richardson) and in 2012 (in the case of Duncan Tatton-Brown and Mark Richardson
again). The Executive Directors invested from their own resources. The purchased interests entitle the Executive Directors to a return only if,
in the future, the share price exceeds the relevant hurdle rate. If the share price remains below the hurdle until the end of the scheme, the
Executive Directors will lose their investment. For a detailed description of the JSOS scheme refer to pages 249 to 252 of the Prospectus.
The fourth and final tranche of JSOS shares vested in the period, on 1 January 2014. The calculation of the amount shown in the total
remuneration table is based on the Company’s share price on the next trading day, 2 January 2014, being 447 pence per share. This
price was above the hurdle price of 228 pence per share for the fourth tranche (and above the hurdle price of 180 pence per share in
respect of the additional fourth tranche held by Mark Richardson and Duncan Tatton-Brown) of JSOS share interests. Consequently, amounts
of JSOS remuneration for 2014 are shown in the total remuneration table. This compares to zero in 2013 in respect of the third tranche of
JSOS share interests, as on the equivalent vesting date in 2013 (being 2 January 2013) the Company’s share price was 84.75 pence per
share, below the hurdle price of 208 pence per share for the third tranche (and below the hurdle price of 170 pence per share in respect
of the additional third tranche held by Mark Richardson and Duncan Tatton-Brown) of JSOS share interests. The third tranche of JSOS share
interests at the 2013 vesting date had a value of zero and would have been rendered worthless had the share price remained at that level
until the end of the scheme. Consequently no remuneration is shown for JSOS in 2013 in the total remuneration table.
An explanation of each element of remuneration paid in the table is set out in the following section.
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The Company has obtained a written confirmation from each Executive Director that they have not received any other items in the nature
of remuneration from the Group, other than those already disclosed in the total remuneration table.
BASE SALARY (AUDITED)
During the period, the Remuneration Committee reviewed the salaries of the Executive Directors. After taking into account a number of
relevant factors which are discussed in more detail below, the Remuneration Committee recommended that all basic salaries (other than
Jason Gissing’s) be increased. The following table shows the change in each Executive Director’s salary.
Director
Tim Steiner
Neill Abrams
Mark Richardson
Duncan Tatton-Brown
Jason Gissing1
Salary 2014
(£)
Salary 2013
(£)
Effective from
550,000
285,000
340,000
340,000
330,000
450,000 1 April 2014
275,000 1 April 2014
330,000 1 April 2014
330,000 1 April 2014
—
330,000
1.
Jason Gissing received no increase in base salary in light of his retirement on 7 May 2014.
The changes to base salary were made in line with the Directors’ remuneration policy. The Executive Directors (except the Chief Executive
Officer) received an increase in base pay of £10,000 each which was in line with the percentage salary increases for the monthly
paid employees of the Group in the period. The Remuneration Committee decided to increase the base salary of the Chief Executive
Officer more significantly than this after taking into account the changes in the complexity and scale of the role due to the transaction
with Morrisons, which was completed in July 2013. The increases, which position the salaries broadly around the market median for a
company of the Company’s size and complexity, also aim to help retain the Executive Directors.
TAXABLE BENEFITS (AUDITED)
The Executive Directors received taxable benefits during the period, notably private medical insurance. The Executive Directors also received
other benefits, which are not taxable, including life assurance and Group-wide employee benefits, such as an employee product discount.
The remuneration arrangements for the Executive Directors do not include a company car or car cash allowance.
PENSIONS (AUDITED)
The Company made pension contributions on behalf of the Executive Directors to the defined contribution Group personal pension scheme
(which is administered by Standard Life). The employer contributions to the pension scheme in respect of each Executive Director are
made in line with the Group personal pension scheme for all employees (the rates being, for employees and Executive Directors joining
the pension scheme before May 2013, from 3% up to 8%, and for employees joining the scheme after May 2013, from 3% up to 6%,
depending on the number of years the employee or Executive Director has participated in the scheme). The contributions during the period
made on behalf of the Executive Directors were 8% of base salary, except in the case of Duncan Tatton-Brown, which was 6% of base
salary during the period, and has subsequently increased to 7% effective from January 2015, in accordance with the generally applicable
rules of the scheme.
These contributions were made in line with the Directors’ remuneration policy which allows the Company to make employer contributions
of up to 30% of base salary.
During the period the Remuneration Committee reviewed this policy and the Company’s pension arrangements, including the employer
contribution rates for the Executive Directors. The market data illustrated that the existing Company pension contributions are materially below
the market median rate when compared with similar senior executive roles in companies of a similar size and complexity to the Company.
The Remuneration Committee recommended to the Board that all pension contribution rates for the Executive Directors not be changed.
In reaching its decision the Remuneration Committee took into account the Director’s remuneration policy, relevant market data (presented
by Deloitte), the overall remuneration package of the Executive Directors (presented by management) and the recent changes made to
the remuneration of the Executive Directors, including the introduction of long-term incentive arrangements. The Company’s overall policy
is to seek to position a larger proportion of the remuneration package as equity-based and performance-related in order to support the
Company’s strategic objectives of high growth and expansion and to create shareholder alignment. The recent introduction of the LTIP
and the GIP supports this emphasis in the policy. So while the alignment of the Company’s pension arrangements with the market may
become crucial in future to ensure the Company remains competitive, an increase in pension contributions for the Executive Directors was
not considered appropriate at this time.
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During the period, the Remuneration Committee agreed to allow pension contributions to be made to the Executive Directors as a
cash allowance where the Executive Director has reached either the HMRC annual limit or HMRC lifetime allowance limit for pension
contributions. Such change was provided for in the Directors’ remuneration policy.
ANNUAL INCENTIVE PLAN (AUDITED)
The Remuneration Committee re-examines the design of the AIP each year to incentivise the delivery of key business objectives and
individual performance for that financial year. The 2014 AIP was based on the performance targets and weightings set out below.
Financial performance measures, namely Gross sales and EBITDA, were the primary targets, with 80% of the annual bonus being
determined by performance against targets set by the Remuneration Committee at the start of the financial year, by reference to the
Company’s budget for the period. Of the balance, 20% related to individual objectives for each of the Directors, largely independent of
the financial objectives. Each target was discrete and could be earned separately. The Chief Executive Officer had a maximum bonus
opportunity of 125% of salary and the other Executive Directors had a maximum opportunity of 100% of salary.
Tim Steiner
Duncan Tatton-Brown
Mark Richardson
Neill Abrams
Financial objectives
EBITDA (% of total target)
Gross sales (% of total target)
Individual objectives
(% of total target)
Examples of business
area objectives
40
40
20
40
40
20
40
40
20
40
40
20
1.
2.
3.
Develop strategic plans for the internationalisation of the Company
Drive efficiency,
capacity and
increased capability
within the business
Analyse and act
on strategic
opportunities
Prepare and execute
financing strategy
to include UK
and international
requirements
Continue to operate
an efficient and
effective finance
function
Improve productivity
at CFC2 to
agreed level
Implement
recommendations
of KPMG corporate
governance review
Effectively lead
the technology
function
Develop and
implement a
CR policy
Financial targets and individual targets
Each Executive Director had between five and eight individual objectives, with different weightings, under the plan. They related to specific
programmes relevant to each Executive Director’s business area for which they have primary responsibility. All of the Executive Directors had
an individual objective which concerned the development of strategic plans for internationalising the business. The Remuneration Committee
also considered environmental, social and governance issues when setting the individual objectives, in particular for Neill Abrams who
has responsibility for the Group’s CR policy. The Remuneration Committee reviewed the performance of each Executive Director against
the measurable performance metrics and based their assessment on a report by the Chief Executive Officer and the Chairman and on the
Remuneration Committee’s judgement of the performance against these individual objectives.
The Group’s Gross sales for the period were £1,026.5 million, which was above the ‘‘threshold” set under the 2014 AIP. The Group’s
EBITDA for the period was £71.6 million, which was above the “threshold” set under the 2014 AIP. The Remuneration Committee, in
assessing performance, took into account the level of the Group’s trading performance compared with UK grocery retail peers and the
Group’s progress against its strategic objectives.
Achievement against the objectives was between 54% and 56%.
Disclosure of targets
The achievement against the AIP targets has been disclosed. Although the Remuneration Committee is conscious of the 2014 Code
requirement that performance targets should be transparent, the Remuneration Committee considers that the targets were and remain
commercially sensitive to the Company and if disclosed could damage the Company’s commercial interests. The actual AIP targets,
therefore, have not been disclosed. The Remuneration Committee does not expect to disclose this information at a later date. The
Remuneration Committee believes that the targets were stretching and have been rigorously applied.
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The Remuneration Committee has, in accordance with the Directors’ remuneration policy and the rules of the 2014 AIP, recommended an
aggregate bonus payment of £912,415 (2013: £1,705,505) under the plan for the period. The Remuneration Committee believes that
the level of bonus payment appropriately reflects the performance of the business and individual performance during the period, which saw
strong trading performance for the Group in a very competitive market and good progress with the development of the Group’s strategic
objectives. The table below summarises the bonus payments for each Executive Director for the 2014 AIP. The cash payments are expected
to be made in February 2015. No amount has been deferred to a later date given that under the rules of the AIP deferral does not apply as
all of the Executive Directors have met the minimum shareholding requirements under the Directors’ remuneration policy.
Director
Tim Steiner
Duncan Tatton-Brown
Neill Abrams
Mark Richardson
Achievement
against
objectives
(%)
Maximum
Opportunity
(% of salary)
125
100
100
100
55.98
54.18
54.88
54.98
Total
bonus
earned1
(£’000)
385
184
156
187
1. The applicable salary used for calculating the bonus payment under the rules of the 2014 AIP is the applicable base salary on the date of payment.
SHARE PLANS (AUDITED)
Awards granted under long-term incentive plans only count towards the total remuneration figure for the period in which they vest.
Awards under most of the Company’s share plans are subject to three-year vesting periods and therefore awards made or exercised
during the period will not necessarily be reflected in the total remuneration figure for this period. Further details on all the existing share
incentives held by the Executive Directors are set out below.
JSOS
The fourth and final tranche of JSOS shares vested in the period, on 1 January 2014. All four tranches of the JSOS share interests in the
scheme have been retained by each Executive Director and no money has been received by the Executive Directors in this regard. An
explanation of the JSOS is set out on page 112.
LTIP
As the second year of operation for the LTIP was 2014, no awards vested during the period. Therefore no value is shown in the total
remuneration table for the period.
GIP
The awards made under the GIP are expected to vest in May 2019 (if and to the extent that the vesting criteria are met). Therefore no
value is shown in the total remuneration table for the period.
ESOS
No awards under the ESOS vested during the period. Accordingly, no value is shown in the total remuneration table for the period.
2014 ESOS
No awards have been granted to the Executive Directors under the 2014 ESOS, and the Remuneration Committee does not have any
intention of making an award of options under the 2014 ESOS scheme to the Executive Directors. Accordingly, no value is shown in the
total remuneration table for the period.
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SIP
Free and matching shares awarded under the SIP are subject to a three-year forfeiture period starting from the date of grant. This means that if an
Executive Director ceases to be employed by the Group during the three-year period, the free and matching shares will be forfeited. As 2014 was
the first year of operation for the SIP, no such forfeiture period had expired in respect of free or matching shares awarded to the Executive Directors.
Partnership shares purchased under the SIP are not included in the total remuneration table as these are purchased by the Executive Directors from their
salary, rather than granted by the Company as an element of remuneration. Therefore, no value is shown in the total remuneration table for the period.
Sharesave
No awards under the Sharesave vested during the period. Accordingly, no value is shown in the total remuneration table for the period.
RECOVERY OF SUMS PAID (AUDITED)
No sums paid or payable to the Executive Directors were sought to be recovered by the Group.
NON-EXECUTIVE DIRECTORS
TOTAL FEES (AUDITED)
The fees paid to the Non-Executive Directors and the Chairman during the period are set out in the remuneration table below. With the
exception of the Chairman (who has received the Chairman’s Share Matching Award, which is noted on page 124) and Robert Gorrie (who
receives other remuneration as set out below), the Non-Executive Directors received no remuneration from the Group other than their annual fee.
Fees
Taxable
benefits
Pension
entitlements
Annual bonus
Long-term
incentives
Recovery of
sums paid
Total
remuneration
Non-Executive
Director
2014
£’000
2013
£’000
2014
£’000
2013
£’000
2014
£’000
2013
£’000
2014
£’000
2013
£’000
2014
£’000
2013
£’000
2014
£’000
2013
£’000
2014
£’000
2013
£’000
Lord Rose1
David Grigson
Ruth Anderson
Robert Gorrie
Jörn Rausing
Douglas McCallum
Alex Mahon
200
67
57
45
45
56
45
118
62
50
40
40
47
40
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 200
67
—
57
—
45
—
45
—
56
—
45
—
118
62
50
40
40
47
40
1.
Lord Rose was paid £40,000 per annum for the period from appointment as an independent Non-Executive Director on 11 March 2013 to the date of becoming
Chairman on 10 May 2013, and £200,000 per annum thereafter.
As explained in the 2013 annual report, the remuneration arrangements for the Non-Executive Directors (except the Chairman) were
reviewed by the Executive Directors and the Chairman during the period. It was recommended that all base fees and certain Board
committee chairman fees be increased, with such changes to take effect in April 2014. The following table shows the change in each
Non-Executive Director’s annual fees.
Base element
£’000
Committee chair
element
£’000
Senior Independent
Director element
£’000
Total
£’000
Non-Executive Director
2014
2013
2014
2013
2014
2013
2014
2013
David Grigson
Ruth Anderson
Robert Gorrie
Jörn Rausing
Douglas McCallum
Alex Mahon
48
48
48
48
48
48
40
40
40
40
40
40
7
12
—
—
12
—
7
10
—
—
8
—
15
—
—
—
—
—
15
—
—
—
—
—
70
60
48
48
60
48
62
50
40
40
48
40
The review was carried out by the Executive Directors and Chairman in accordance with the Directors’ remuneration policy and accordingly
took into account the increased responsibility and time commitments of the roles of the Non-Executive Directors and Board committee chairmen
given the growth of the Group, the improved financial position and trading performance of the business, and the appropriate benchmark data
(obtained from third party providers) for comparable roles for companies of equivalent size and complexity to the Company.
The Chairman’s fees were not subject to review in 2014 as it was agreed on appointment that the Chairman’s fee would not be
reviewed by the Remuneration Committee for a minimum of three years from appointment.
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In addition to the fees, the Non-Executive Directors are entitled to the staff product discount in line with the Group’s employees.
The Chairman received the Chairman’s Share Matching Award on becoming Chairman in May 2013. The details of the award are
outlined on page 124.
Robert Gorrie provides consultancy services to the Group and chairs the meetings of the Ocado National Council, in addition to his role
as a Non-Executive Director. He provides these services through Robert Gorrie Limited (of which he is the sole shareholder) and is paid a
per diem fee for these services. These fees are included in the related party transactions with key management personnel in Note 5.4 to
the consolidated financial statements.
The Company has obtained a written confirmation from each Non-Executive Director that they have not received any other items in the
nature of remuneration from the Group, other than those already referred to in this report.
RECOVERY OF SUMS PAID (AUDITED)
No sums paid or payable to the Non-Executive Directors were sought to be recovered by the Group.
OTHER REMUNERATION DISCLOSURES (AUDITED)
EXECUTIVE DIRECTORS’ SERVICE CONTRACTS
Each of the Executive Directors has a service contract with the Group. The terms of these contracts are consistent with the Directors’
remuneration policy, though the contracts provide for payment in lieu of notice of one times basic salary only (and do not include other
fixed elements of pay, which are permitted by the policy). The service contracts for each of the Executive Directors are continuous until
terminated by either party (on 12 months’ notice if terminated by the Company, or six months’ notice if terminated by the Director).
NON-EXECUTIVE DIRECTORS’ LETTERS OF APPOINTMENT
The Chairman and the Non-Executive Directors do not have service contracts and were appointed by letter of appointment for an
initial period of three years, subject to annual reappointment at the annual general meeting. There are no provisions in the letters of
appointment for payment for early termination. A Non-Executive Director appointment may be terminated on one month’s notice, except
in the case of the Chairman, which requires six months’ notice. A copy of a pro forma Non-Executive Director letter of appointment
is available on the Company’s corporate website. Copies of the letters of appointment and the service contracts of the Directors are
available for inspection at the Company’s registered office.
DIRECTOR RETIREMENT ARRANGEMENTS
Jason Gissing, a founder of the business and Commercial Director, retired from the Board at the Company’s annual general meeting on
7 May 2014. The Remuneration Committee determined, in accordance with the Directors’ remuneration policy, that the arrangements
(set out in the table below) should apply in relation to Jason Gissing’s remuneration on retirement.
Element of remuneration
Remuneration payments
Treatment
All outstanding salary and pension entitlements were paid up to 7 May 2014 in accordance with Jason
Gissing’s terms of employment.
There were no payments, pension contributions, provision of benefits or pay in lieu of benefits made after
the date of Jason Gissing’s retirement. There is no intention to make any such payments in the future.
The staff product discount has been retained by Jason Gissing post retirement date.
Payment for loss of office No payment for loss of office or other remuneration payment was made or is to be made.
AIP
Payment of £306,900 was made in March 2014 in respect of the 2013 AIP. This bonus payment was
accrued in respect of the 52 weeks ended 1 December 2013 and was paid at the discretion of the
Remuneration Committee provided pursuant to the terms of 2013 AIP rules.
Jason Gissing was not a participant in the 2014 AIP.
The award of 533,536 conditional shares made to Jason Gissing under the 2013 LTIP had not vested
prior to retirement and consequently were forfeited. Jason Gissing had no other LTIP awards.
All four tranches of JSOS share interests had vested prior to retirement and so were retained by Jason
Gissing after his retirement (subject to the rules of the scheme including with respect to leavers).
The 200,000 ESOS options held by Jason Gissing had vested and were exercised by Jason Gissing in
April 2014. Jason Gissing had no other ESOS options outstanding.
The 9,846 options held by Jason Gissing under the Sharesave had not vested and so lapsed on his
retirement. Accumulated savings made under the Sharesave were returned to Jason Gissing as required by the
Sharesave scheme rules. No other options or amounts were held by Jason Gissing under the Sharesave.
117
LTIP
JSOS
ESOS
Sharesave
Directors’ Remuneration ReportStock Code: OCDOwww.ocadogroup.com23698-04 29-01-2015 PROOF 9 DIRECTORS’ REMUNERATION REPORT continued
PAYMENTS TO PAST DIRECTORS
The Company does not have any arrangements for payments to any former Directors of the Company, including Jason Gissing, who
retired during the period.
PAYMENTS OUTSIDE THE DIRECTORS’ REMUNERATION POLICY
The Company has not made any payments to a Director outside of the Directors’ remuneration policy.
EXTERNAL REMUNERATION FOR EXECUTIVE DIRECTORS
As at the date of this Annual Report:
• In addition to his role as Executive Director of the Company, Neill Abrams is an alternate non-executive director of Mr Price Group
Limited, listed on the Johannesburg Stock Exchange. The role does not involve any remuneration paid or payable to Neill.
• In addition to his role as Executive Director of the Company, Duncan Tatton-Brown was, up until May 2014, an independent non-
executive director of Rentokil Initial plc, listed on the London Stock Exchange. For his services to Rentokil Initial plc Duncan was paid
a fee of £70,000 per annum. On 1 May 2014 Duncan became an independent non-executive director, senior independent director
and audit committee chairman of Zoopla Property Group plc, listed on the London Stock Exchange. For his services to Zoopla
Property Group plc Duncan is paid a fee of £50,000 per annum.
DIRECTOR SHAREHOLDINGS (AUDITED)
The beneficial interests in the Company’s shares of Directors serving at the end of the period, and their connected persons, as
shareholders and as discretionary beneficiaries under trusts, were:
Ordinary shares of 2 pence
each held at 30 November 2014
Ordinary shares of 2 pence each
held at 1 December 2013
Director
Tim Steiner
Lord Rose
Robert Gorrie
Neill Abrams
Douglas McCallum
Duncan Tatton-Brown
Ruth Anderson
David Grigson
Alex Mahon
Jörn Rausing
Mark Richardson
Former Directors
Jason Gissing3
Direct holding Indirect holding
Direct holding Indirect holding
14,404,145 14,291,314 14,396,400 14,291,200
—
—
1,308,900
—
60,000
—
—
—
— 69,015,602
—
—
—
—
1,313,8531
—
60,1632
—
—
—
— 69,015,602
208
—
750,000
690,660
557,054
68,000
50,000
55,000
15,000
2,000
750,000
415,660
560,054
10,000
97,865
80,000
35,000
11,099
9,857,600
5,276,200
9,657,600
8,326,200
1. This includes a holding by Caryn Abrams (wife of Neill Abrams) who holds 79,745 (2013: 75,000) ordinary shares, and is a discretionary beneficiary of a trust holding
133,100 (2013: 133,100) ordinary shares.
2. This includes a holding by Kate Tatton-Brown (wife of Duncan Tatton-Brown) who holds 60,000 (2013: 60,000) ordinary shares. The 2013 annual report erroneously showed
Duncan Tatton-Brown as holding 60,000 shares and Kate Tatton-Brown as holding 50,000 shares, rather than as correctly stated in the table above, in respect of 2013.
3. This shows Jason Gissing’s interests in the Company’s shares as at the date of his retirement, being 7 May 2014.
Additional disclosure:
• There have been no changes in the Directors’ interests in the shares issued or options granted by the Company and its subsidiaries between the end of the period and the
date of this Annual Report, except shares held pursuant to the SIP, as set out on page 123.There have been no changes in the Directors’ beneficial interests in trusts holding
ordinary shares of the Company.
• No Director had an interest in any of the Company’s subsidiaries at the beginning or end of the period.
• On 17 May 2013, in respect of various contracts for the transfer of shares (as described on pages 235 and 238 of the Prospectus), Tim Steiner, Jason Gissing and Neill
Abrams delayed the date on which completion under the contracts for transfer would take place to 30 June 2016, or such later date as the parties may agree.
• Where applicable, the above indirect holdings include partnership shares held under the SIP, which are held in trust.
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The table below shows current compliance with the Director shareholding requirements in the Directors’ remuneration policy as at the
date of this Annual Report.
Director
Tim Steiner
Duncan Tatton-Brown
Neill Abrams
Mark Richardson
Lord Rose
Robert Gorrie
Douglas McCallum
Ruth Anderson
David Grigson
Alex Mahon
Jörn Rausing
Minimum shareholding
requirement (% of
base salary or fee)
Complied with
shareholding
requirement?
150
100
100
100
100
100
100
100
100
100
100
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Basis for compliance
Indirect and direct shareholdings
Indirect and direct shareholdings
Indirect and direct shareholdings
JSOS and SIP interests
Direct shareholdings
Direct shareholdings
Direct shareholdings
Direct shareholdings
Direct shareholdings
Direct shareholdings
Indirect shareholdings
The assessment for compliance is based on the current annualised salary or fee (as set out in the total remuneration tables) which
applied on 20 January 2015 (being the last practicable date prior to the publication of this Annual Report) and the higher of the original
purchase price(s) or the current market price (being 403.4 pence per share on 20 January 2015), of the relevant shareholdings. Mark
Richardson satisfies the requirement through his holding of vested JSOS share interests in the EBT, based on the share price on
20 January 2015. Douglas McCallum sold shares during the period, on 25 February 2014. At the time of the share sale Douglas
McCallum remained compliant with the Director shareholding requirement in the Directors’ remuneration policy. But owing to a
subsequent decline in the Company share price and an increase in his annual base fee in April 2014 (the result of which is to increase
the minimum shareholding), his current shareholding falls below the minimum Director shareholding requirement as at 20 January 2015.
Douglas McCallum expects to purchase additional Company shares in due course which would be intended to satisfy the Director
shareholding requirement.
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DIRECTOR INTERESTS IN SHARE SCHEMES (AUDITED)
JSOS (AUDITED)
At the end of the period the Executive Directors’ interests in ordinary shares in the Company pursuant to the Group’s JSOS were as follows:
Director
Tim Steiner
Neill Abrams
Duncan Tatton-Brown
Mark Richardson
Former Directors
Jason Gissing
Date of issue
03/02/10
03/02/10
03/02/10
03/02/10
03/02/10
03/02/10
03/02/10
03/02/10
01/11/12
01/11/12
03/02/10
03/02/10
03/02/10
03/02/10
30/11/12
30/11/12
30 November
2014
1 December
2013
Hurdle price
(£)
Exercise period
2,513,100
2,513,100
2,513,100
2,513,000
1,017,200
1,017,200
1,017,200
1,017,100
365,000
1,100,000
223,300
223,300
223,300
223,200
711,975
776,700
2,513,100
2,513,100
2,513,100
2,513,000
1,017,200
1,017,200
1,017,200
1,017,100
365,000
1,100,000
223,300
223,300
223,300
223,200
711,975
776,700
1.73 01/01/11 – 01/01/19
1.91 01/01/12 – 01/01/19
2.08 01/01/13 – 01/01/19
2.28 01/01/14 – 01/01/19
1.73 01/01/11 – 01/01/19
1.91 01/01/12 – 01/01/19
2.08 01/01/13 – 01/01/19
2.28 01/01/14 – 01/01/19
1.70 01/01/13 – 01/01/19
1.80 01/01/14 – 01/01/19
1.73 01/01/11 – 01/01/19
1.91 01/01/12 – 01/01/19
2.08 01/01/13 – 01/01/19
2.28 01/01/14 – 01/01/19
1.70 01/01/13 – 01/01/19
1.80 01/01/14 – 01/01/19
03/02/10
03/02/10
03/02/10
03/02/10
1,675,400
1,675,400
1,675,400
1,675,300
1,675,400
1,675,400
1,675,400
1,675,300
1.73 01/01/11 – 01/01/19
1.91 01/01/12 – 01/01/19
2.08 01/01/13 – 01/01/19
2.28 01/01/14 – 01/01/19
Granted: No awards of JSOS shares interests were made during the period. The Remuneration Committee does not, as at the date of
this Annual Report, have any intention of making a further award of share interests under the JSOS scheme to the Executive Directors.
Most share interests held by the Executive Directors under the JSOS were granted prior to the Company’s listing in 2010.
Vested: Details of JSOS interests which vested during the period can be found on page 112.
Sold: No JSOS share interests have been sold by an Executive Director since inception of the scheme.
LTIP (AUDITED)
At the end of the period the Executive Directors’ total LTIP awards were as follows:
Director
Tim Steiner
Mark Richardson
Neill Abrams
Duncan Tatton-Brown
Type of interest
Conditional shares
Conditional shares
Conditional shares
Conditional shares
Conditional shares
Conditional shares
Conditional shares
Conditional shares
Basis on
which award
is made (% of
salary)
400
200
280
150
200
120
300
150
Date of grant
23/07/13
05/02/14
23/07/13
05/02/14
23/07/13
05/02/14
23/07/13
05/02/14
Number of
shares
1,371,951
174,588
469,512
96,023
304,878
64,016
685,975
96,023
Face value (£)
1,800,000
900,000
616,000
495,000
400,000
330,000
900,000
495,000
End of
performance
period
29/11/15
03/12/16
29/11/15
03/12/16
29/11/15
03/12/16
29/11/15
03/12/16
• In its first year of operation, LTIP awards were made in respect of both 2012 and 2013.
• 533,536 conditional shares awarded under the LTIP were forfeited by Jason Gissing on his retirement on 7 May 2014.
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Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 Granted: LTIP awards were made in respect of 2014 of up to 150% of annual base salary and in the case of the Chief Executive
Officer, an LTIP award with a total market value of 200% of annual base salary. Such awards were made in accordance with the
Directors’ remuneration policy. The number of shares subject of an LTIP award was determined based on a price of 515.5 pence per
share, being the volume weighted average price of the Company’s ordinary shares on the three trading days prior to 5 February 2014
(being the LTIP grant date).
The 2014 LTIP awards are conditional awards under the rules of the LTIP, which are a right to receive free shares in the Company,
subject to the achievement of two equally weighted performance conditions over a three-year performance period, which are the levels
of earnings per share and Group Revenue. These measures replace the EBIT measure that was used for the 2013 awards and were
selected following feedback from the shareholder consultation carried out in March 2013.
The Remuneration Committee believes that these two measures provide a more balanced basis for judging performance and earnings
per share in particular, better reflecting shareholder interests. The rationale for, and basis of measurement of, the performance metrics was
as follows:
Performance target
Commercial rationale
Basis of measurement
Group Revenue (50%)
Earnings per share (50%)
Rewards top line sales growth in line with the
Group’s strategy; is the primary management
measure.
Rewards the creation of financial returns to
shareholders.
Group Revenue for the Group for the 2015/2016
financial year.
Diluted and adjusted earnings per share for
2015/2016 financial year.
The Remuneration Committee has agreed “threshold” and “maximum” conditions that must be achieved. No LTIP award will vest unless
a “threshold” level of the performance condition has been achieved. At “threshold” performance, 25% of an LTIP award will vest and at
“maximum” performance, 100% of an LTIP award will vest. Full vesting will only occur where exceptional performance levels have been
achieved and significant shareholder value created.
The actual performance conditions are not disclosed due to their commercial sensitivity on the basis that if disclosed it would be likely to
damage the Company’s commercial interests. The Company will disclose the extent to which the performance conditions are met after
the end of the performance period. The Remuneration Committee is conscious of the Regulations and the new 2014 Code requirement
for transparent performance targets so will consider at a later date whether it remains appropriate not to disclose such targets in future.
The performance conditions for the 2014 LTIP awards will be tested in relation to the financial year ending in 2016 to determine what
percentage of the LTIP awards has been achieved, and will vest during 2017 to the extent that the performance condition has been
achieved.
Vested: No LTIP awards vested during the period.
Sold: As no awards under the LTIP have vested, no shares held under the LTIP have been sold by an Executive Director.
Lapsed: The award of 533,536 conditional shares made to Jason Gissing under the 2013 award had not vested prior to Jason’s
retirement and consequently lapsed.
GIP (AUDITED)
At the end of the period the Executive Directors’ total GIP awards were as follows:
Director
Type of interest
Exercise period
Option with nil exercise price 08/05/14 4,000,000 12,744,000 08/05/19 08/05/19 – 31/05/24
Tim Steiner
Option with nil exercise price 08/05/14 1,000,000 3,186,000 08/05/19 08/05/19 – 31/05/24
Mark Richardson
Duncan Tatton-Brown Option with nil exercise price 08/05/14 1,000,000 3,186,000 08/05/19 08/05/19 – 31/05/24
Date of
grant
Number
of share
options
Face value
(£)
End of
performance
period
Granted: One-off awards under the GIP were made to three of the Executive Directors during the period, as approved by shareholders
at the 2014 annual general meeting and made in accordance with the Directors’ remuneration policy.
The GIP awards are options over shares in the Company with a nil exercise price. The face value of the options which are the subject of
a GIP award was determined based on a price of 318.60 pence per share, being the closing price of the Company’s ordinary shares
on 8 May 2014 (being the GIP award grant date).
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A condition of vesting is that each participant holds, and retains throughout the performance period, shares in the Company. The Chief
Executive Officer is required to hold shares equivalent, at the date of the award, to the value of his annual salary. All other participants
are required to hold shares equivalent, at the date of the award, to the value of half of their annual salary.
The GIP award is subject to the achievement of a single performance condition to be satisfied over five years commencing on the date of grant
of the awards. The share price of the Company is the sole performance measure, and will be assessed relative to the growth of the FTSE 100
Share Index over that period assessed using a three-month averaging period. The performance schedule is set out in the table below.
Performance target
Growth of less than the FTSE 100 Share Index +5% p.a.
Growth in the FTSE 100 Share Index +5% p.a.
Growth in the FTSE 100 Share Index +10% p.a.
Growth in the FTSE 100 Share Index +15% p.a.
Growth in the FTSE 100 Share Index +20% p.a. (or more)
Percentage of award vesting (%)
0
25
50
75
100
The Remuneration Committee considered that the GIP would aim to incentivise and reward truly exceptional levels of performance
over a five-year period. The potential for greater rewards for the Executive Directors was only if shareholders benefited from significant
outperformance of the FTSE 100 sustained over a five-year period.
GIP awards will normally become exercisable following the end of the performance period to the extent that any applicable performance
and other conditions have been satisfied and to the extent permitted under any operation of malus or clawback provisions. GIP awards
will normally remain exercisable until 31 May 2024.
Vested: No awards under the GIP vested during the period. The awards are expected to vest in May 2019 (if and to the extent that the
vesting criteria are met).
Sold: As no awards under the GIP have vested, no shares held under the GIP have been sold by an Executive Director.
ESOS (AUDITED)
The Directors have, as at period end, the following options over ordinary shares in the Company which they were awarded (without
payment) under the Group’s ESOS:
Director
Tim Steiner
Neill Abrams
Mark Richardson
Duncan Tatton-Brown
Former Directors
Jason Gissing
Date of grant
16/05/05
16/05/05
31/05/09
12/08/13
30 November
2014
Exercise price
(£)
1 December
2013
Exercise price
(£)
Exercise period
200,000
100,000
70,000
9,923
1.15
1.15
1.20
3.02
200,000
100,000
70,000
9,923
1.15
1.15
1.20
3.02
16/05/08 – 15/05/15
16/05/08 – 15/05/15
31/05/12 – 30/05/19
08/07/16 – 07/07/23
16/05/05
—
1.15
200,000
1.15
16/05/08 – 15/05/15
Granted: The Remuneration Committee does not, as at the date of this Annual Report, have any intention of making a further award of
options under the ESOS scheme to the existing Executive Directors. Existing options held by the Executive Directors under the ESOS were
granted prior to the Company’s listing in 2010 (except those granted in 2013 to new appointee Director, Duncan Tatton-Brown).
Vested: No awards under the ESOS vested during the period.
Exercised: Jason Gissing exercised 200,000 ESOS options with an exercise price of 115.00 pence per option. The gain made by
Jason Gissing on the exercise of share options was £470,100.
Director
Jason Gissing
Number of
options
Exercise price
(£)
Date of
exercise
Gain (£)
200,000
1.15 26/03/2014
470,100
During the period, Tim Steiner and Neill Abrams each signed an irrevocable instruction electing to exercise, on 13 May 2015, any
remaining options held under the ESOS which were granted to them in May 2005, provided that the share price is higher than the
exercise price on that date. They also elected to subsequently sell a sufficient number of shares to meet the cost of the exercise and any
taxes and other related costs, and retain the balance of the shares outstanding from the exercise of the option and subsequent sale. The
options are due to lapse on 16 May 2015. The instructions do not prevent the earlier exercise of the options. As at 20 January 2015,
being the last practicable date prior to the publication of this Annual Report, the options had not been exercised earlier.
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16/05/05
16/05/05
Number of
options
Exercise price
(£)
Date to be exercised
Minimum
share price for
sale
200,000
100,000
1.15
1.15
13/05/2015
13/05/2015
1.16
1.16
Date irrevocable
signed
28/11/2014
28/11/2014
Director
Tim Steiner
Neill Abrams
SIP (AUDITED)
At the end of the period, interests in shares held by the Executive Directors under the SIP were as follows:
Director
Tim Steiner
Duncan Tatton-Brown
Mark Richardson
Neill Abrams
Partnership
shares
acquired in
the year
Matching
shares
awarded in
the year
Free shares
awarded in
the year
Total face value of free
shares and matching
shares awarded in the
year2
Total SIP
shares held
30/11/2014
SIP shares
that became
unrestricted1
in the period
114
163
208
208
16
23
29
29
1,161
1,097
1,097
919
£3,640
£3,462
£3,484
£2,932
1,291
1,283
1,097
1,156
—
—
—
—
Total
unrestricted
SIP shares
held
30/11/2014
—
—
—
—
1. Unrestricted shares (which are included in the total shares held as at 30 November 2014) are those which have been held beyond the three-year forfeiture period.
2. The value of the share awards made under the SIP is based on the middle market quotation of a share on the trading day immediately preceding the date of grant.
Granted: The SIP was implemented by the Company during the period and made available to all employees. The SIP allows for the
grant of a number of different forms of awards.
An award of free shares was made to the Executive Directors in September 2014 under the terms of the SIP and the Directors’
remuneration policy. “Free shares” are where up to £3,600 of ordinary shares may be allocated to any employee in any year. Free
shares are allocated to employees equally on the basis of salary, as permitted by the relevant legislation.
An award of matching shares was made to those Executive Directors who purchased partnership shares (using deductions taken from their gross
basic pay) under the terms of the SIP and in accordance with the Directors’ remuneration policy. “Partnership shares” are where employees are
invited to purchase ordinary shares directly from their earnings. The market value of such partnership shares which an employee can purchase
in any tax year currently may not exceed £1,800 (or 10% of the relevant employee’s remuneration, if lower). “Matching shares” are additional
free shares which may be allocated to an employee who purchases partnership shares. The rules of the SIP reflect current UK legislation and
allow for a maximum match of two to one. The matching ratio adopted by the Company for the SIP during the period was a ratio of one
matching share for every seven partnership shares purchased, considerably lower than the maximum permitted ratio.
There are no performance conditions attached to awards made under the SIP, although free and matching shares are subject to a three-
year forfeiture period, which is described in more detail on page 104. Partnership shares are purchased by the employees and therefore
forfeiture does not apply. Free and matching shares awarded under the SIP are subject to a holding period of no less than three years
but no more than five years. Partnership shares purchased by employees will not be subject to a holding period.
The Executive Directors continued their membership in the SIP after the end of the period and were therefore awarded further matching
shares pursuant to the SIP rules. Since the end of the period and 20 January 2015, being the last practicable date prior to the publication of
this Annual Report, the Executive Directors acquired or were awarded further shares under the SIP as set out in the table below.
Director
Tim Steiner
Duncan Tatton-Brown
Mark Richardson
Neill Abrams
Partnership
shares
acquired
Matching
shares
awarded
Free shares
awarded
Face value of
free shares
and matching
shares
Total SIP
shares held
20/01/2015
78
79
78
78
11
11
11
11
—
—
—
—
£41.78
£41.78
£41.78
£41.78
1,380
1,373
1,423
1,245
Vested: No awards under the SIP vested during the period.
Sold: No shares held under the SIP have been sold by an Executive Director.
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SHARESAVE SCHEME (AUDITED)
At the end of the period the Executive Directors’ option interests in the Sharesave scheme were as follows:
Director
Tim Steiner
Neill Abrams
Duncan Tatton-Brown
Former Directors
Jason Gissing
Date of issue
01/10/13
01/10/10
01/10/13
01/10/10
01/10/13
30 November
2014
Exercise price
(£)
1 December
2013
Exercise price
(£)
Exercise period
2,987
–
2,987
–
2,987
3.01
1.16
3.01
1.16
3.01
2,987
7,745
2,987
7,745
2,987
3.01
1.16
3.01
1.16
3.01
01/12/16 – 31/05/17
01/12/13 – 01/06/14
01/12/16 – 31/05/17
01/12/13 – 01/06/14
01/12/16 – 31/05/17
19/03/12
–
0.91
9,846
0.91
01/05/15 – 01/11/15
Granted: No awards under the Sharesave were granted during the period.
Maturity: No awards matured under the Sharesave scheme during the period.
Exercised: Tim Steiner and Neill Abrams both exercised their options under the Sharesave scheme which matured on 1 December 2013, as
set out in the table below. The options were originally issued at an option price which was discounted by 10% from the applicable market
value of the Company’s shares at the date of grant. Like all HMRC approved Save As You Earn schemes, options are issued on the same terms
to all employees and therefore are not issued subject to performance conditions as they are not provided for under the scheme rules.
Director
Tim Steiner
Neill Abrams
Number of
options
7,745
7,745
Exercise
price (£)
1.16
1.16
Date of exercise
26/03/2014
26/03/2014
Share price
on date of
exercise (£)
4.492
4.492
Value at date
of exercise (£)
34,791
34,791
Neither Tim Steiner nor Neill Abrams sold shares as a result of such option exercises.
No other Executive Directors exercised Sharesave options during the period.
Lapsed: Jason Gissing retired from the Company in May 2014 and consequently the 9,846 Sharesave options held by him lapsed prior
to their maturity date of 1 May 2015.
CHAIRMAN’S SHARE MATCHING AWARD (AUDITED)
At the end of the period, the Chairman’s Share Matching Award was as follows:
Director
Lord Rose
Type of interest
Date of grant
Restricted shares 17 May 2013
Number of
shares
452,284
Face value
(£)1
End of vesting
period
400,000 10/05/2016
1. The face value of the award has been calculated using a price of 88.44 pence per share, being the volume weighted average share price of the Company’s ordinary
shares on the three trading days prior to 22 January 2013 (the date of the announcement of the Chairman’s appointment). The basis for the award was to match up to
£400,000 of Company shares where such shares were acquired by the Chairman.
2. The award is not subject to any performance conditions other than continued service.
SHARE PRICE AND OTHER OPTION INFORMATION
The closing market price of the Company’s shares as at 28 November 2014, being the last trading day in the period ended
30 November 2014, was 325.00 pence per ordinary share (2013: 409.00 pence) and the share price range applicable during the
period was 220.60 pence to 617.00 pence per ordinary share.
No other Directors have options over shares of the Company outside one of the Company’s recognised share schemes.
DILUTION
DILUTION LIMITS
Awards granted under the Company’s Sharesave, ESOS, 2014 ESOS and SIP schemes are met by the issue of new shares when the
options are exercised or shares granted. The allocation of awards under the JSOS were met by the subscription for new shares by the
124
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 participant and the EBT. Awards granted under the LTIP and GIP may be met by the issue of new shares, the transfer of shares from
treasury, or the purchase or transfer of existing shares by the EBT. The Chairman’s Share Matching Award was met by the new issue of
shares on the date of grant. The share deferral provisions in the AIP have not been approved by shareholders and accordingly awards
will be satisfied only by the purchase of existing shares by the EBT until such shareholder approval is obtained.
There are limits on the number of shares that may be allocated under the Company’s share plans. These dilution limits were
recommended by the Remuneration Committee and incorporated into the rules of the various share schemes, which have been approved
by the Company’s shareholders.
The dilution limits restrict the commitment to issue new ordinary shares or reissue treasury shares under all share schemes of the Group
to 10% of the nominal amount of the Company’s issued share capital and under the JSOS, the LTIP and the GIP (and any other selective
share scheme) to 5% of the nominal amount of the issued share capital of the Company in any rolling ten year period. These limits are
consistent with the guidelines of institutional shareholders.
The JSOS rules have additional overriding limits on the number of shares that may be allocated under the JSOS. Up to 7.5% of the
Company’s ordinary issued share capital may be held under the JSOS.
IMPACT ON DILUTION
The Company monitors the number of shares issued under these schemes and their impact on dilution. The charts below show the
Company’s commitment, as at the last practical date prior to the publication date of this Annual Report, to issue new shares in respect
of its share schemes assuming all performance conditions are met, all award holders remain in employment to the vesting date and all
awards are settled in newly issued shares. For these purposes, no account is taken of ordinary shares allocated prior to the Company’s
Admission.
ALL SHARE PLANS
DISCRETIONARY SHARE PLANS
Actual
Limit
4.82%
Actual
2.88%
10.00%
Limit
5.00%
REVIEW OF CHANGES IN REMUNERATION AND COMPANY PERFORMANCE
This part of the report provides some context for the Directors’ remuneration arrangements including information concerning the
Company’s performance, shareholder returns and the Group’s total expenditure on employee pay.
CHIEF EXECUTIVE OFFICER HISTORICAL REMUNERATION
The table below summarises in respect of the Chief Executive Officer the single figure of total remuneration, the AIP or bonus plan
payment as a percentage of maximum opportunity, and the long-term incentives as a percentage of maximum opportunity for the current
period and the previous four financial years.
Chief
Executive
Officer
total
remuneration
(excluding JSOS)
(£’000)
Chief
Executive
Officer
total
remuneration
(including JSOS)
(£’000)
944
1,011
483
379
599
6,447
1,011
483
987
599
AIP or bonus
payment as
a percentage
of target
achievement
(%)
56
93.8
29.7
0
n/a
Value of
AIP or bonus
payment
(£’000)
385
528
104
0
220
Long-term
Incentives as
a percentage
of maximum
opportunity
(%)
100
0
0
100
0
Year
2014
2013
2012
2011
2010
• The Chief Executive Officer total remuneration figures prior to the 2013 period represent the previously presented audited information with necessary adjustments for
amounts required to be included in the single total figure of remuneration (such as pension amounts).
• From 2010, the Company had the JSOS as the main form of long-term incentive plan. For the 2012 and 2013 financial years, the JSOS interests did not have any value
at the vesting date. In 2014, the final tranche of JSOS shares vested in the period (the value of such remuneration is noted in the single total figure of remuneration table).
In 2011, the first tranche of JSOS shares vested in that period. The LTIP was implemented in 2013 but the first award has a performance period ending in 2015 and a
vesting date in 2016. The GIP and SIP were both implemented in 2014, but have vesting dates in 2019 and 2017 respectively.
• For an explanation of JSOS and the theoretical remuneration represented in the Chief Executive Officer’s total remuneration, see page 112.
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CHIEF EXECUTIVE OFFICER PERCENTAGE CHANGE VERSUS REPRESENTATIVE EMPLOYEE GROUP
To put the Directors’ remuneration into context, the table below sets out the change in salary, benefits, and bonus of the Chief Executive
Officer and of all of the Group’s UK employees from the preceding period to the current period.
Percentage change in salary from 2013 to 2014
Percentage change in taxable benefits from 2013 to 20143
Percentage change in AIP earned from 2013 to 2014
1. Most of the Group’s employees are not entitled to earn an annual bonus payment as part of their remuneration.
2. The change in salary data for the Group’s UK employees is on a per capita basis.
3. The change in benefits is due to an increase in the cost of private medical insurance by this proportion.
RELATIVE IMPORTANCE OF SPEND ON PAY
Chief
Executive
Officer
22.2%
27.4%
(27)%
All UK
employees
3.58%2
27.3%
0%1
The following table shows the Company’s profit/(loss), and total Group-wide expenditure on pay for all employees for the period and
last financial year. The Company has not paid a dividend or carried out a share buyback in the current year or previous year. The
information shown in this chart is:
• Profit/(loss) – Group profit/(loss) before tax taken from the table on page 139 of the financial statements.
• Total gross employee pay – total gross employment costs for the Group (including pension, variable pay, share-based payments and
social security) as stated on page 149 of the financial statements.
Profit/(loss) before tax
Total gross employee pay
TOTAL SHAREHOLDER RETURN
30 November
2014
(£m)
1 December
2013
(£m)
7.2
190.5
(12.5)
156.7
The following graph shows the total shareholder return (“TSR”) performance of an investment of £100 in the Company’s shares from
its Admission to the end of the period compared with an equivalent investment in the FTSE 250 Index (which was chosen because it
represents a broad equity market index of which the Company is a constituent). The TSR was calculated by reference to the movements
in share price. The Company has not paid a dividend since its Admission so the Company’s TSR does not factor in dividends reinvested
in shares.
250
200
150
100
50
0
Ocado Group plc
FTSE 250
28 Nov 2010
27 Nov 2011
2 Dec 2012
1 Dec 2013
30 Nov 2014
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ANNUAL REPORT ON REMUNERATION —
IMPLEMENTATION OF POLICY FOR 2015
INTRODUCTION
This part of the Directors’ remuneration report sets out implementation of the Directors’ remuneration policy for 2015.
SUMMARY OF CHANGES FOR EXECUTIVE DIRECTORS
This table briefly summarises the proposals for the Directors’ remuneration arrangements for 2015 when compared to the arrangements
for the period.
Base salary and
benefits
Base salary will be
subject to annual
review.
Pension
AIP
Long-term incentives
All-employee schemes
No changes proposed. No change to the maximum
opportunity, measures or
structure of scheme (except
a change in weighting of
performance measures).
No change to the maximum
opportunity for LTIP awards.
Additional financial target.
New invitation to participate
in Sharesave.
Ongoing participation in
the SIP.
BASE SALARY AND BENEFITS
The Remuneration Committee expects to finalise its annual review of the Executive Directors’ base salaries later in 2015, in line with the
timing of pay reviews for all of the Group’s employees.
The benefits in kind offered to the Executive Directors are expected to remain unchanged.
PENSIONS
Pension contributions, as described in the Directors’ remuneration policy, remain unchanged from the previous period.
2015 AIP
The Remuneration Committee approved the implementation of an AIP for the Executive Directors applicable to the 2014/2015 financial
year. This plan broadly reflects the framework of the 2014 AIP and the Directors’ remuneration policy.
The bonus potential for the Executive Directors is 100% and for the Chief Executive Officer is 125% of base salary for “maximum”
performance, which is the same as the 2014 AIP.
In order to align awards made under the AIP with the Group’s focus on delivering key strategic objectives in 2015, the weighting
towards the achievement of individual strategic objectives has been increased for the 2014/2015 financial year. The performance
measures have been amended to 35% for Gross sales, 35% for Group EBITDA and 30% for performance measured against role-specific
objectives. In 2015, the Gross sales target relates to the Group’s retail sales and does not include any income or benefits from the
Morrisons operation. The rationale for setting these performance measures has not changed from 2014. For an explanation, see the
Annual report on remuneration on page 114.
The actual performance conditions are not disclosed due to their commercial sensitivity on the basis that if disclosed it would likely
damage the Company’s commercial interests. The Company will disclose the extent to which they were met after the end of the
performance period.
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2015 LTIP AWARDS
The Remuneration Committee approved the making of awards under the LTIP for the Executive Directors for the 2014/2015 Financial
year. The amount of the LTIP awards is based on a percentage of salary, expected to be broadly in line with the percentages agreed for
the 2014 LTIP awards and in line with the Directors’ remuneration policy.
In accordance with the Directors’ remuneration policy, the Remuneration Committee proposes to make 2015 LTIP award grants subject
to earnings per share and Revenue performance conditions, as well as a third performance condition. The additional performance
condition will be made-up of two measurable financial targets linked to the economic efficiency of the new proprietary infrastructure
solution. The Remuneration Committee believes that this performance condition encourages the delivery of a crucial strategic objective
of the Group, and provides a better basis for assessing performance for the performance period than the two measures alone that were
used for the 2014 LTIP awards. The performance conditions concerning the financial performance of the Group, earnings per share and
Revenue, will be focused on the Group’s retail business performance only and will be weighted 25% each, while the new proprietary
infrastructure solution performance condition will have a 50% weighting.
No LTIP award will vest unless a “threshold” level of performance condition has been achieved. At “threshold” performance, 25% of
an LTIP award will vest and at “maximum” performance, 100% of an LTIP award will vest. Full vesting will occur where exceptional
performance levels have been achieved and significant shareholder value created.
The actual performance conditions are not disclosed due to their commercial sensitivity on the basis that if disclosed it would likely
damage the Company’s commercial interests. The Company will disclose the extent to which they were met after the end of the
performance period.
SIP
The Executive Directors are expected to continue their participation in the scheme in 2015.
SHARESAVE
The Executive Directors will be invited to participate in the next offer of Sharesave, expected to be made in 2015. In November 2014,
all of the Executive Directors confirmed their intention to participate in the 2015 Sharesave.
CHANGES FOR NON-EXECUTIVE DIRECTORS AND CHAIRMAN
The review of remuneration of the Non-Executive Directors will be finalised in line with the timing of pay reviews for all of the Group’s
employees. There will be no change to the remuneration arrangements for the Chairman and currently no changes are expected for the
Non-Executive Directors for 2015.
SHAREHOLDER APPROVAL AND VOTES AT AGM
The 2014 Directors’ remuneration report will be subject to a shareholder vote at the AGM. Entitlement of a Director to remuneration is
not made conditional on this resolution being passed.
The Remuneration Committee Chairman is committed to ongoing shareholder dialogue on Directors’ remuneration and takes an active
interest in voting outcomes. In the event of a substantial vote against a resolution in relation to the Directors’ remuneration report, the
Directors’ remuneration policy or a new share scheme, the Company would seek to understand the reasons for any such vote and would
detail in the announcement of the results of voting any actions it intends to take to understand the reasons behind the vote result and also
note this in the next annual report. The Remuneration Committee considers that a vote against that exceeds 20% should be considered
significant and requires explanation.
The Directors’ remuneration report and the GIP resolutions received significant shareholder votes against them (19.96% and 26.76%
respectively) at the annual general meeting in May 2014 (see the table on the next page for the voting outcomes for the resolutions
regarding remuneration at the previous annual general meeting). The Remuneration Committee had consulted with shareholders on the
GIP and the Directors’ remuneration policy and other key remuneration changes prior to the 2014 annual general meeting.
The Remuneration Committee will continue to seek the views of shareholders on any significant changes to the Directors’ remuneration
arrangements or any proposed exercises of discretion in relation thereto.
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Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 The table below sets out the actual voting in respect of resolutions regarding remuneration at the three previous annual general meetings.
Resolution text
Votes for
% For
Votes against % Against
Total votes
Votes withheld
2014 AGM
Approve the Directors’
remuneration policy
Approve the 2013 Directors’
remuneration report
Approve the Ocado Growth
Incentive Plan
Approve the 2014 ESOS
2013 AGM
Approve the 2012 Directors’
remuneration report
Approve the Ocado Long Term
Incentive Plan
Approve the Chairman’s Share
Matching Award
2012 AGM
Approve the 2011 Directors’
remuneration report
426,933,076
87.15
62,969,024
12.85
499,692,970
9,790,870
399,764,910
80.04
99,701,426
19.96
499,693,161
226,825
365,970,183
481,882,997
73.24
97.10
133,721,017
14,373,969
26.76
2.90
499,693,271
499,692,971
2,071
3,436,005
349,776,432
76.54
107,184,194
23.46
461,418,179
4,457,553
360,235,983
86.40
56,698,838
13.60
461,418,179
44,483,358
384,380,959
83.30
77,037,220
16.70
461,418,179
0
338,085,907
97.60
8,316,258
2.40
346,402,165
8,767,398
BASIS OF PREPARATION AND AUDIT REVIEW
This report is a Directors’ remuneration report for the 52 weeks ended 30 November 2014, prepared for the purposes of satisfying
section 420(1) and section 421(2A) of the Companies Act. It has been drawn up in accordance with the Companies Act and the
2012 Code, the Regulations, the Listing Rules and the Disclosure and Transparency Rules. The report also makes reference to the new
requirements of the 2014 Code, where appropriate.
In accordance with section 497 of the Companies Act and the Regulations, certain parts of this Directors’ remuneration report (where
indicated) have been audited by the Company’s auditors, PricewaterhouseCoopers LLP.
A copy of this Directors’ remuneration report will be available on the Company’s corporate website.
This Directors’ remuneration report is approved by the Board and signed on its behalf by
Douglas McCallum
Chairman of the Remuneration Committee
Ocado Group plc
3 February 2015
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PRICES
“The automation and
aggregation of our
operating model strips
out costs and increases
efficiency...cost savings
allow us to offer products
at competitive prices”
130
23698-04 29-01-2015 PROOF 9 OUR FINANCIALS
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Income Statement
Independent Auditor’s Report (Group)
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
132
139
140
141
142
143
144 Notes to the Consolidated Financial Statements
188
190
191
192
193 Notes to the Company Financial Statements
Company Statement of Changes in Equity
Company Statement of Cash Flows
Independent Auditor’s Report
Company Balance Sheet
View the Independent Auditors’
Report on pages 132 to 138
View more information online at
www.ocadogroup.com
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23698-04 29-01-2015 PROOF 9 INDEPENDENT AUDITORS’ REPORT
to the members of Ocado Group plc
REPORT ON THE GROUP FINANCIAL STATEMENTS
OUR OPINION
In our opinion, Ocado Group plc’s group financial statements (the “financial statements”):
• give a true and fair view of the state of the group’s affairs as at 30 November 2014 and of its profit and cash flows for the 52 week
period (“the period”) then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European
Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.
WHAT WE HAVE AUDITED
Ocado Group plc’s financial statements comprise:
• the consolidated balance sheet as at 30 November 2014;
• the consolidated income statement and consolidated statement of comprehensive income for the period then ended;
• the consolidated statement of cash flows for the period then ended;
• the consolidated statement of changes in equity for the period then ended; and
• the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.
Certain required disclosures have been presented elsewhere in the Annual Report and Accounts, rather than in the notes to the financial
statements. These are cross-referenced from the financial statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and IFRSs as
adopted by the European Union.
OUR AUDIT APPROACH
OVERVIEW
• Overall group materiality: £4 million which represents 0.4% of revenue.
Materiality
• All active trading companies located in the UK, whose results taken together account for all material balances
and line items within the consolidated financial statements, were audited by the UK engagement team.
Audit scope
Areas
of focus
• The UK engagement team also audited the group’s joint venture with Wm Morrisons Supermarkets Plc
(“Morrisons”).
• Commercial income.
• Capitalisation of internal development costs.
• Share based payments.
The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In
particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates
that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed
the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that
represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are
identified as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specific areas in order
to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be
read in this context. This is not a complete list of all risks identified by our audit.
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Area of focus
COMMERCIAL INCOME
As described in the Audit Committee Report on page 76 and in
the critical accounting estimates and judgements and accounting
policies sections in the notes to the accounts (page 147), Ocado
has three main streams of commercial income; promotional
support; media income; and volume rebates (stated in order of
value, highest to lowest).
This remains an area of focus due to the quantum of income
recorded under these arrangements and its significance in relation
to the result for the period. It is also an area of heightened focus
in light of recent market announcements. The amount to be
recognised in the income statement for elements of commercial
income requires management to apply judgement based on the
contractual terms in place with suppliers and estimates of amounts
the group is entitled to where transactions span the financial
period-end.
Promotional support and media income arrangements are typically
structured to last for a four week duration and are settled with
suppliers within a short period following the relevant service or
promotion having been fulfilled. This income stream involves high
volume, lower value arrangements and requires limited judgement
or estimation by management in determining the amount that
the group is entitled to. Notwithstanding the limited judgement
involved, the magnitude of this income is highly material. Our
focus was therefore whether an arrangement or agreement for
the promotional support and media income recognised existed,
whether the relevant promotion or media advertising had taken
place and whether the income recognised was recorded in the
appropriate period.
The third stream of commercial income, namely volume rebates, is
the one which, in our view, involves the most judgement. Volume
rebates are earned both on supply arrangements managed by
Waitrose (as the group’s supply partner) under the Waitrose
sourcing agreement referred to on page 10 and on arrangements
with direct suppliers to Ocado. Rebates earned under Waitrose
managed supply arrangements are material to the group’s results.
Entitlement to income is based on the level of purchasing activity
for the combined Ocado and Waitrose businesses, a judgement
that is made more complex by the fact that the Waitrose
accounting period end is two months later than that of Ocado.
How our audit addressed the area of focus
COMMERCIAL INCOME
Promotional support and media income
Our approach, specifically in relation to promotional income, was
underpinned by testing key system controls, including those used
to determine the amount of items sold under the terms of a supplier
funded promotion arrangement. We determined that the testing
of these controls provided us with audit evidence that promotional
support income had been recorded appropriately and in the correct
period. Our testing for promotions also included checking the
computation of the amounts billed to suppliers.
We additionally reconciled the total value of promotion income
recorded in Ocado’s “Promotions” system for the period to the
total value recognised in the general ledger and found no material
reconciling items.
We independently confirmed the terms of a sample of individual
promotion and media agreements, covering both the duration of
the promotion / campaign and the quantum of promotional support
per unit sold / the price charged for the campaign, directly with
a range of suppliers, including requesting confirmation of items
invoiced in the period and for amounts accrued at the period end,
checking that the amount recognised was recorded in the correct
period based on the suppliers’ confirmation of details of the period
the funding related to.
Similar to promotional income, we reconciled the total value of
amounts recorded in Ocado’s “Media” booking system to the total
value of media income recorded in the financial statements and
found no material reconciling items. We also selected a sample of
individual media adverts in the period and checked that income
relating to these adverts was recognised in the period.
VOLUME REBATES
In relation to income due from Waitrose under the terms of their
supply arrangements, we visited the Waitrose head office and
met with the members of the Waitrose Commercial Finance team
responsible for determining rebates due to Ocado. We obtained
and read a sample of supplier contracts negotiated by Waitrose
and checked that there was an accrual for amounts due to Ocado
in relation to these agreements, the accuracy of which we tested as
set out below. We also considered how Waitrose determine their
overall supplier volume rebate income and the associated Ocado
share of this.
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to the members of Ocado Group plc
Area of focus
COMMERCIAL INCOME (continued)
How our audit addressed the area of focus
VOLUME REBATES (continued)
As Waitrose negotiates and agrees the contracts with suppliers,
Ocado has to determine income to be recorded based on interim
payments received during the year and estimates provided by
Waitrose for amounts due at the period end. The key judgement
that we therefore focus on in the calculation of Ocado’s share
of rebates due from Waitrose is the estimate of amounts to be
accrued at the period end, based on volume estimates prepared
by Waitrose.
We agreed a sample of amounts invoiced by Ocado to Waitrose
during the period by testing the settlement of these amounts by
Waitrose. With respect to accrued income recognised as due
from Waitrose at the period end, we obtained an independent
confirmation from Waitrose at the period end as to their estimate of
the uninvoiced amount due to Ocado for the full year. We checked
that the amounts accrued by Ocado were consistent with the
estimates and amounts confirmed by Waitrose.
We also assessed the historical accuracy of estimates made by
Ocado in relation to the estimate of the full year amount due to them
from Waitrose noting that historic estimates in the last two years
had proved highly accurate, based on amounts finally invoiced and
settled.
OVERALL COMMERCIAL INCOME
In relation to the overall amounts recognised for all commercial
income streams, we analysed the total amounts recognised each
month for each stream, and compared these amounts to the
equivalent month in the previous two years, to identify whether there
were any unusual trends of significance in the amounts or timing of
commercial income recognised in each period. No such items were
identified.
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CAPITALISATION OF INTERNAL DEVELOPMENT COSTS
As explained on pages 28 and 29, Ocado develops a
significant amount of the software used to operate the systems
and technology used in the business and are further developing
additional technology to increase the efficiency and capacity of
existing operations, and to support future international expansion.
In the current period, as set out in notes 3.1 and 3.2 £21.6m of
internal development costs have been capitalised within Intangible
Assets and Property, Plant and Equipment.
We focussed on this area due to the size of the internal costs
capitalised, and the fact that there is judgement involved in
assessing whether the criteria set out in the accounting standards
required for capitalisation of such costs have been met,
particularly:
• The technical feasibility of the project; and
• The likelihood of the project delivering sufficient future economic
benefits.
We had particular regard to the fact that the group is investing
in new technology to support future expansion both in the UK
and internationally, and therefore we focussed on whether the
economic benefits of the various projects under development
supported the amounts capitalised. This specifically included:
• Projects relating to the re-platforming of the group’s technology
to enable it to improve its ability to develop and operate and
to expand internationally, where the economic benefit of a
successful launch is only achieved in the longer term and is
inherently, therefore, more judgemental, and
• Projects where there are significant judgements made as to the
level of future economic benefits due to the innovative nature of
some of the technology being developed.
As part of our work we also focussed on management’s
judgements regarding whether capitalised costs were of a
developmental rather than research nature (which would result in
the costs being expensed rather than capitalised); and whether
costs, including employment (payroll) costs, were directly
attributable to relevant projects.
In light of the development of new software and systems, we also
focussed on whether the carrying value of existing capitalised
software or systems was impaired.
How our audit addressed the area of focus
We obtained a breakdown, by value, of all individual internal
development projects capitalised in the period and reconciled this to
the amounts recorded in the general ledger, identifying no significant
reconciling differences.
We tested all projects where capitalised costs were in excess of
£250,000, together with a sample of smaller projects from the
remaining population, as follows:
• We obtained explanations from management of why the project
was considered to be capital in nature, in terms of how the
specific requirements of the relevant accounting standards and
other guidance, most notably of IAS 38, IAS 16 and SIC 32
(Web Site Costs) were met. We also conducted interviews
with individual project development managers responsible for
the projects selected to corroborate these explanations and to
obtain an understanding of the specific projects to enable us
to independently assess whether the projects met all the criteria
for capitalisation set out in accounting standards. We found
the explanations obtained from individual project managers
to be consistent with those obtained from management, our
understanding of developments in the business and supported
management’s assessment that the costs met the relevant
capitalisation criteria.
• We challenged both management and the relevant development
project managers as to whether the development of new software
or systems superseded or impaired any of the existing assets on
the balance sheet. We noted that, as disclosed in notes 3.1
and 3.2 an impairment charge of £2.6m was recorded in this
regard, but did not identify any further indicators of impairment.
We also applied our own understanding of both new and
existing projects and considered whether, in our view, there were
any projects where the software is no longer in use or its life was
shortened by any development activity. We found no such items.
To determine whether costs were directly attributable to projects,
we obtained listings of hours worked on individual projects and
selected a sample of the individual hours recorded and met with the
project manager of the relevant project to obtain an understanding
of the project being worked upon and to confirm that the employee
selected for testing was involved on the project and to ascertain the
nature of the work they had been performing. We also checked
the hours charged equated to the value of costs capitalised, by
applying the standard charge out rate per employee to the timesheet
hours, without exception.
We also tested the standard hourly rates, referred to above,
that had been applied to the hours identified as appropriate for
capitalisation by reconciling these to the hourly rate equivalent
of the average salary of Ocado’s technology development team.
We agreed that the rates applied reflected an appropriate amount
of internal development employee costs in each instance with no
significant matters arising.
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to the members of Ocado Group plc
Area of focus
SHARE BASED PAYMENTS
The group has in place a number of different share incentive
schemes which are accounted for in accordance with IFRS 2
“Share based payments”. These range from non-complex ‘vanilla’
share option plans to more complex Executive Director long term
incentive schemes, details of which are explained in note 4.12.
The accounting treatment differs for each scheme depending on
the details of the individual scheme. For certain schemes, namely
the “Growth Incentive Plan” and the “Long Term Incentive Plans”,
determining the appropriate accounting charge for the period
requires various judgments to be made including the likelihood
of specific performance criteria being met (e.g., ‘Revenue’ and
’Earnings Before Interest and Tax’ targets and share price growth)
which determines whether an award will crystallise, and the level
of payout that will be achieved. We focussed on understanding
the details of each scheme, the applicable criteria related
to vesting, and assessing management’s judgements around
estimated achievement of the relevant performance criteria.
How our audit addressed the area of focus
We obtained and read the contractual documentation underpinning
all new schemes which came into force in the current period, in
particular, the Growth Incentive Plan (“GIP”) described in note
4.12, and updated our understanding of existing schemes.
We discussed with management the accounting that they had
applied, and together with our own independent evaluation of
the contractual documentation, evaluated whether the accounting
charge (where applicable) and disclosures in relation to each
scheme were in accordance with IFRS 2, and determined that the
treatment and disclosures relating to the schemes was consistent
with the accounting requirements. We also re-performed the related
calculations to check their arithmetical accuracy with no exceptions
identified.
Where the accounting charge to be recorded was dependent on
judgement around the achievement of various performance criteria,
including an assessment of achieving future targets, we challenged
management’s assumptions and compared them to the group’s
detailed business plans and forecasts and external market data,
which we found to be materially consistent.
We also had regard to the level of historical accuracy of
management’s projections. In addition, particularly in relation to
the volatility assumption used in determining the GIP charge, we
assessed the impact on the charge recorded if key judgements were
adjusted to reflect a range of alternative potential outcomes.
In light of the above, we found that the judgements made by
management were reasonable and that the charge booked was
not materially sensitive to what we considered to be a range
of realistically possible alternative outcomes as to the levels of
performance attained.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements
as a whole, taking into account the structure of the group, the accounting processes and controls, and the industry in which the group
operates. As described in the Strategic Report, specifically on pages 18-29, the group’s main trading activities are grocery retailing and
the development and monetisation of intellectual property and technology for the online retailing, logistics and distribution of grocery and
consumer goods, which is all undertaken in the UK.
Following a re-organisation during the period, the group’s retailing, logistics and technology development operations were transferred
into separate legal entities. The scope of our audit includes all active trading companies located in the UK, whose results taken together
account for all material balances and line items within the consolidated financial statements. All entities are managed from one central
location in the UK and all audit work is undertaken by the UK engagement team.
The group structure also includes a Joint Venture arrangement with Morrisons related to the provision of warehouse equipment in CFC2.
The results of this entity are also audited by the UK engagement team. No audit work was deemed necessary in relation to the group’s
captive insurer in Malta or development operation in Poland as the results of these entities are immaterial to the overall consolidated
financial statements.
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The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall group materiality
How we determined it
Rationale for benchmark
applied
£4 million (2013: £3.85 million).
0.4% of revenue.
We have applied revenue as a benchmark for determining materiality as we considered that this
provides us with a consistent year-on-year basis for determining materiality, reflecting the group’s
growth and investment plans and levels of profitability, and which we believe is also a key measure
used by the shareholders as a body in assessing the group’s performance.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £200,000 (2013:
£190,000) as well as any misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the directors’ statement, set out on page 87, in relation to going concern. We have
nothing to report having performed our review.
As noted in the directors’ statement, the directors have concluded that it is appropriate to prepare the financial statements using the going
concern basis of accounting. The going concern basis presumes that the group has adequate resources to remain in operation, and that
the directors intend it to do so, for at least one year from the date the financial statements were signed. As part of our audit we have
concluded that the directors’ use of the going concern basis is appropriate.
However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the group’s ability to
continue as a going concern.
OTHER REQUIRED REPORTING
CONSISTENCY OF OTHER INFORMATION
Companies Act 2006 opinion
In our opinion, the information given in the Strategic Report and the Directors’ Report for the financial period for which the financial
statements are prepared is consistent with the financial statements.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
• information in the Annual Report and Accounts is:
— materially inconsistent with the information in the audited financial statements; or
— apparently materially incorrect based on, or materially inconsistent with, our knowledge of the group
acquired in the course of performing our audit; or
— otherwise misleading.
We have no exceptions
to report arising from this
responsibility.
• the statement given by the directors on page 88, in accordance with provision C.1.1 of the UK
Corporate Governance Code (“the Code”), that they consider the Annual Report and Accounts taken
as a whole to be fair, balanced and understandable and provides the information necessary for
members to assess the group’s performance, business model and strategy is materially inconsistent with
our knowledge of the group acquired in the course of performing our audit.
We have no exceptions
to report arising from this
responsibility.
• the section of the Annual Report and Accounts on page 78, as required by provision C.3.8 of
the Code, describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
We have no exceptions
to report arising from this
responsibility.
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to the members of Ocado Group plc
ADEQUACY OF INFORMATION AND EXPLANATIONS RECEIVED
Under the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information and
explanations we require for our audit. We have no exceptions to report arising from this responsibility.
DIRECTORS’ REMUNERATION
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration
specified by law are not made. We have no exceptions to report arising from these responsibilities.
CORPORATE GOVERNANCE STATEMENT
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the company’s compliance
with nine provisions of the UK Corporate Governance Code. We have nothing to report having performed our review.
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
OUR RESPONSIBILITIES AND THOSE OF THE DIRECTORS
As explained more fully in the Statement of Directors’ Responsibilities set out on page 88, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK &
Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility
for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.
WHAT AN AUDIT OF FINANCIAL STATEMENTS INVOLVES
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately
disclosed;
• the reasonableness of significant accounting estimates made by the directors; and
• the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements,
and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a
reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures
or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies
with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent
with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report
OTHER MATTER
We have reported separately on the company financial statements of Ocado Group plc for the 52 week period ended 30 November
2014 and on the information in the Directors’ Remuneration Report that is described as having been audited.
Andrew Latham (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
St Albans
3 February 2015
138
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for the 52 weeks ended 30 November 2014
Revenue
Cost of sales
Gross profit
Other income
Distribution costs
Administrative expenses
Operating profit before result from joint venture and exceptional items
Share of result from joint venture
Exceptional items
Operating profit/(loss)
Finance income
Finance costs
Exceptional finance costs
Profit/(loss) before tax
Taxation
Profit/(loss) for the period
Profit/(loss) per share
Basic profit/(loss) per share
Diluted profit/(loss) per share
52 weeks
ended
30 November
2014
£m
52 weeks
ended
1 December
2013
£m
948.9
(636.0)
312.9
39.4
(253.1)
(85.0)
14.2
2.4
(0.3)
16.3
0.4
(9.5)
—
7.2
0.1
7.3
792.1
(544.6)
247.5
23.1
(200.0)
(69.6)
1.0
0.9
(4.6)
(2.7)
0.4
(7.4)
(2.8)
(12.5)
—
(12.5)
Notes
2.3
2.4
3.4
2.7
4.5
4.5
2.7
2.8
pence
pence
2.9
2.9
1.24
1.18
(2.16)
(2.16)
Non-GAAP measure: Earnings before interest, taxation, depreciation, amortisation, impairment and exceptional items (EBITDA)
Operating profit/(loss)
Adjustments for:
Depreciation of property, plant and equipment
Amortisation expense
Impairment of property, plant and equipment
Impairment of intangible assets
Exceptional items†
EBITDA
Notes
3.2
3.1
3.2
3.1
2.7
† Included within exceptional items in the 52 weeks ended 1 December 2013 is a £0.2 million impairment reversal (see Note 2.7).
52 weeks
ended
30 November
2014
£m
52 weeks
ended
1 December
2013
£m
16.3
40.0
12.4
1.1
1.5
0.3
71.6
(2.7)
33.1
9.5
0.5
0.8
4.6
45.8
139
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CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
for the 52 weeks ended 30 November 2014
Profit/(loss) for the period
Other comprehensive income:
Items that will not be reclassified to profit or loss
Cash flow hedges
— Gains arising on interest rate swaps
Items that may be subsequently reclassified to profit or loss
Cash flow hedges
— (Losses)/gains arising on forward foreign exchange contracts
— Losses/(gains) transferred to property, plant and equipment
Translation of foreign subsidiary
Other comprehensive (expense)/income for the period, net of tax
Total comprehensive income/(expense) for the period
52 weeks
ended
30 November
2014
£m
52 weeks
ended
1 December
2013
£m
7.3
(12.5)
—
—
(0.4)
0.3
(0.1)
(0.2)
(0.2)
7.1
0.4
0.4
0.5
(0.3)
—
0.2
0.6
(11.9)
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CONSOLIDATED BALANCE SHEET
as at 30 November 2014
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax asset
Available-for-sale financial asset
Investment in joint ventures
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Obligations under finance leases
Derivative financial instruments
Provisions
Net current (liabilities)/assets
Non-current liabilities
Borrowings
Obligations under finance leases
Provisions
Deferred tax liability
Net assets
Equity
Share capital
Share premium
Treasury shares reserve
Reverse acquisition reserve
Other reserves
Retained earnings
Total equity
30 November
2014
£m
1 December
2013
£m
Notes
3.1
3.2
2.8
3.3
3.4
3.7
3.8
3.9
3.10
4.2
4.3
4.6
3.11
4.2
4.3
3.11
2.8
4.11
4.11
4.11
4.11
4.11
38.4
275.2
9.4
0.4
67.8
391.2
27.6
43.1
76.3
147.0
538.2
(136.5)
(4.4)
(26.5)
(0.2)
(0.4)
(168.0)
(21.0)
(2.3)
(142.5)
(5.2)
(2.0)
(152.0)
218.2
12.5
255.1
(51.8)
(116.2)
(0.3)
118.9
218.2
27.0
224.3
7.9
0.4
58.9
318.5
23.9
45.2
110.5
179.6
498.1
(130.0)
(3.3)
(25.0)
(0.2)
(0.5)
(159.0)
20.6
(6.2)
(126.9)
(3.2)
(0.4)
(136.7)
202.4
12.4
251.5
(52.4)
(116.2)
(0.1)
107.2
202.4
The notes on pages 144 to 187 form part of these financial statements. The consolidated financial statements on pages 139 to 143
were authorised for issue by the Board of Directors and signed on its behalf by:
Tim Steiner
Chief Executive Officer
Duncan Tatton-Brown
Chief Financial Officer
3 February 2015
Ocado Group plc
Company Registration Number 07098616 (England and Wales)
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CONSOLIDATED STATEMENT OF CASH FLOWS
for the 52 weeks ended 30 November 2014
52 weeks
ended
30 November
2014
£m
52 weeks
ended
1 December
2013
£m
Notes
7.2
(12.5)
3.1, 3.2
3.11
3.4
2.6
2.7, 4.5
4.11
3.9
55.0
1.9
(2.4)
4.4
0.1
9.1
(3.6)
(1.5)
13.8
84.0
(9.7)
74.3
(53.0)
—
(25.8)
0.5
(78.3)
3.7
—
—
(2.9)
(30.5)
(0.5)
(30.2)
(34.2)
110.5
—
76.3
43.7
0.6
(0.9)
3.3
—
9.8
(6.4)
(13.7)
43.6
67.5
(7.1)
60.4
(60.7)
(1.1)
(15.7)
0.3
(77.2)
3.8
53.5
4.4
(2.5)
(21.6)
0.1
37.7
20.9
89.6
—
110.5
Cash flows from operating activities
Profit/(loss) before tax
Adjustments for:
— Depreciation, amortisation and impairment losses
— Movement in provisions
— Share of profit in joint venture
— Share-based payments charge
— Foreign exchange movements
— Net finance costs
Changes in working capital:
— Movement in inventories
— Movement in trade and other receivables
— Movement in trade and other payables
Cash generated from operations
Interest paid
Net cash flows from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Borrowing costs capitalised in property, plant and equipment
Purchase of intangible assets
Interest received
Net cash flows from investing activities
Cash flows from financing activities
Proceeds from the issue of ordinary share capital net of transaction costs
Proceeds from the sale and leaseback of property, plant and equipment
Proceeds from the sale and leaseback of intangible assets
Repayment of borrowings
Repayments of obligations under finance leases
Settlement of forward foreign exchange contracts
Net cash flows from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Exchange adjustments
Cash and cash equivalents at the end of the period
142
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CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
for the 52 weeks ended 30 November 2014
Balance at 2 December 2012
Loss for the period
Other comprehensive income:
Cash flow hedges
— Gains arising on forward foreign
exchange contracts
— Gains arising on interest rate swaps
— Gains transferred to property, plant
and equipment
Total comprehensive income/(expense) for
the period ended 1 December 2013
Transactions with owners:
Issues of ordinary shares
Share-based payments charge
Disposal of treasury shares
Total transactions with owners
Balance at 1 December 2013
Profit for the period
Other comprehensive income:
Cash flow hedges
— Losses arising on forward foreign
exchange contracts
— Gains arising on interest rate swaps
Translation of foreign subsidiary
Total comprehensive income/(expense) for
the period ended 30 November 2014
Transactions with owners:
Issues of ordinary shares
Share-based payments charge
Disposal of treasury shares
Total transactions with owners
Balance at 30 November 2014
Notes
Share
capital
£m
12.3
—
Share
premium
£m
247.8
—
Treasury
shares
reserve
£m
Reverse
acquisition
reserve
£m
(53.9)
—
(116.2)
—
Other
reserves
£m
(0.7)
—
Retained
earnings
£m
116.4
(12.5)
Total
equity
£m
205.7
(12.5)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.5
0.4
(0.3)
—
—
—
0.5
0.4
(0.3)
0.6
(12.5)
(11.9)
—
—
—
—
(0.1)
—
(0.4)
0.3
(0.1)
—
3.3
—
3.3
107.2
7.3
3.8
3.3
1.5
8.6
202.4
7.3
—
—
—
(0.4)
0.3
(0.1)
(0.2)
7.3
7.1
0.1
—
—
0.1
12.4
—
3.7
—
—
3.7
251.5
—
—
—
1.5
1.5
(52.4)
—
—
—
—
—
(116.2)
—
—
—
—
—
—
—
—
—
4.11
4.11
4.11
4.11
—
—
—
—
0.1
—
—
0.1
12.5
—
—
—
—
3.6
—
—
3.6
255.1
—
—
0.6
0.6
(51.8)
—
—
—
—
(116.2)
—
—
—
—
(0.3)
—
4.4
—
4.4
118.9
3.7
4.4
0.6
8.7
218.2
143
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
SECTION 1— BASIS OF PREPARATION
GENERAL INFORMATION
Ocado Group plc (hereafter “the Company”) is a public limited company incorporated in England and Wales under the Companies
Act 2006 (Registration number 07098618) and domiciled in the United Kingdom. The address of its registered office is Titan Court, 3
Bishops Square, Hatfield Business Park, Hatfield, Hertfordshire, AL10 9NE. The financial statements comprise the results of the Company
and its subsidiaries (hereafter “the Group”), see Note 5.1. The financial period represents the 52 weeks ended 30 November 2014.
The prior financial period represents the 52 weeks ended 1 December 2013.
The principal activities of the Group are described in the Strategic Report on pages 2 to 59.
BASIS OF PREPARATION
The financial statements have been prepared in accordance with the Listing Rules and the Disclosure and Transparency Rules of the
UK Financial Conduct Authority (where applicable), International Financial Reporting Standards (IFRS) and International Financial
Reporting Standards Interpretation Committee (IFRIC) interpretations as endorsed by the European Union “IFRS-EU”, and with those parts
of the Companies Act 2006 applicable to companies reporting under IFRS. The accounting policies applied are consistent with those
described in the Annual Report and financial statements for the 52 weeks ended 1 December 2013 of Ocado Group plc.
The financial statements are presented in pounds sterling, rounded to the nearest hundred thousand unless otherwise stated. The financial
statements have been prepared under the historical cost convention, as modified by the revaluation of financial asset investments and
certain financial assets and liabilities, which are held at fair value.
The Directors are satisfied that the Company and the Group as a whole have adequate resources to continue in operational existence
for the foreseeable future (see page146). Thus, they continue to adopt the going concern basis of accounting in preparing the financial
information.
Standards, amendments and interpretations adopted by the Group in 2013/14 or issued that are effective, and are not material
to the Group
The Group has considered the following new standards, interpretations and amendments to published standards that are effective for the
Group during the financial year beginning 2 December 2013 and concluded that they are either not relevant to the Group or that they
would not have a significant impact on the Group’s financial statements:
IFRS 10†
IFRS 11†
IFRS 12†
IAS 1 (amendments)
IAS 27 (revised 2011)†
IAS 28 (revised 2011)†
Various
Consolidated Financial Statements
Joint Arrangements
Disclosures of Interests in Other Entities
Presentation of financial statements
Separate financial statements
Investments in Associates and Joint Ventures
Amendments to various IFRSs and IASs including those arising from the IASB’s annual
improvements project.
Effective Date
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
Various
† These standards, amendments and interpretations were early adopted in the prior year. The Group concluded that they would not have a significant impact on the Group’s
financial statements.
The following further new standards, interpretations and amendments to published standards and interpretations which are relevant to
the Group have been issued but are not effective for the financial year beginning 2 December 2013, are not material to the Group and
have not been adopted early:
IFRS 2 (amendment)
IFRS 9
IFRS 15
Various
Share-Based Payments
Financial Instruments
Revenue from Contracts with Customers
Amendments to various IFRSs and IASs including those arising from the IASB’s annual
improvements project.
Effective Date
1 July 2014
1 January 2018
1 January 2017
Various
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Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 BASIS OF CONSOLIDATION
The consolidated Group financial statements consist of the financial statements of the Company, all entities controlled by the Company
(its subsidiaries) and the Group’s share of its interests in joint ventures.
Subsidiaries
The financial statements of subsidiaries are included in the consolidated financial statements from the date on which power over the
operating and financial decisions is obtained and cease to be consolidated from the date on which power is transferred out of the
Group. Power is achieved when the Company has the ability and right, directly or indirectly, to govern the financial and operating
policies of an entity so as to obtain economic benefits from its activities. This is evident for all of the Group’s subsidiaries per Note 5.1.
All intercompany balances and transactions, including recognised gains arising from inter-group transactions, have been eliminated
in full. Unrealised losses are eliminated in the same manner as recognised gains except to the extent that they provide evidence of
impairment.
Joint ventures
The Group’s share of the results of joint ventures is included in the Group Income Statement using the equity method of accounting.
Investments in joint ventures are carried in the Group Balance Sheet at cost plus post-acquisition changes in the Group’s share of the net
assets of the entity, less any impairment in value. The carrying values of the investments in joint ventures include acquired goodwill.
If the Group’s share of losses in a joint venture or associate equals or exceeds its investment in the joint venture, the Group does not
recognise further losses, unless it has incurred obligations to do so or made payments on behalf of the joint venture.
Unrealised gains arising from transactions with joint ventures are eliminated to the extent of the Group’s interest in the entity.
ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of these financial statements are set out in the relevant notes to these
financial statements. Accounting policies not specifically attributable to a note are set out below. These policies have been consistently
applied to all the periods presented, unless otherwise stated.
FOREIGN CURRENCY TRANSLATION
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (“the functional currency”). Sterling is the Company’s functional and the Group’s presentation
currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions or valuation where items are remeasured. Foreign exchange gains or losses resulting from the settlement of such transactions
and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised
in the income statement, except when deferred in equity as qualifying cash flow hedges.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within
finance income or finance costs. All other foreign exchange gains and losses are presented in the income statement within operating
profit.
Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a
functional currency different from the presentation currency are translated into the presentation currency as follows:
a. assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
b. income and expenses for each income statement are translated at average exchange rates (unless average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are
translated at the rate on the dates of the transactions); and
c. all resulting exchange differences are recognised as a separate component of equity.
145
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FINANCIAL STATEMENTS continued
SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ESTIMATES, JUDGEMENTS AND ASSUMPTIONS
The preparation of the Group financial statements requires the use of certain judgements, estimates and assumptions that affect the
reported amounts of assets, liabilities, income and expenses. Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
Changes in accounting estimates may be necessary if there are changes in the circumstances on which the estimate was based or as a
result of new information or more experience.
Accounting policies that are significant due to the nature of business are set out below:
• Revenue recognition (Note 2.1);
The estimates, judgements and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial period are set out below. Sensitivities to the estimates and assumptions are provided, where
relevant, in the related notes:
• Cost of sales (Note 2.1);
• Segmental reporting (Note 2.2);
• Recognition of deferred tax assets (Note 2.8);
• Intangible assets (capitalisation of software costs) (Note 3.1);
• Exceptional items (Note 2.7);
• Share options and other equity instruments (Note 4.12); and
• Going concern basis including its effect on the impairment of assets (see below).
GOING CONCERN BASIS INCLUDING ITS EFFECT ON THE IMPAIRMENT OF ASSETS
The Group has significant cash reserves and maintains a mixture of short and medium-term debt and lease finance arrangements that
are designed to ensure that it has sufficient available funds to finance its operations. The Board monitors rolling forecasts of the Group’s
liquidity requirements based on a range of precautionary scenarios to ensure it has sufficient cash to meet operational needs while
maintaining sufficient headroom on its committed borrowing facilities at all times so that the Group does not breach borrowing limits
or covenants (where applicable) on any of its borrowing facilities. During the year the Group entered into a three-year £100 million
revolving credit facility, which remains unutilised as at 30 November 2014.
After making appropriate enquiries and having considered the business activities and the Group’s principal risks and uncertainties as set
on pages 32 to 35, the Directors are satisfied that the Company and the Group as a whole have adequate resources to continue in
operational existence for the foreseeable future, notwithstanding the Group’s net current liabilities. Accordingly, the financial statements
have been prepared on a going concern basis.
Impairment of assets based on the separation of the business into cash-generating units
The Group is required to undergo an assessment of the future viability of assets grouped at the lowest levels for which there are
separately identifiable cash flows (cash-generating units). Given the Group’s current operating structure, the lowest level at which cash
flows can reasonably be assessed is for the Group as a whole. The Board does not consider that any further impairment of assets is
required. There are a large number of assumptions and estimates involved in calculating these future cash flow projections, including
management’s expectations of:
• Increase in revenue;
• Growth in EBITDA;
• Timing and quantum of future capital expenditure; and
• Estimation and cost of future funding.
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2.1 PROFIT BEFORE TAX
Accounting policies
Revenue
The Group follows the principles of IAS 18 “Revenue”, in determining appropriate revenue recognition policies.
Revenue comprises the fair value of consideration received or receivable for the sale of goods and services. These are shown net of
returns, relevant marketing vouchers/offers and value added taxes. Relevant vouchers/offers include money-off coupons, conditional
spend vouchers and offers such as buy three for the price of two. Delivery receipts are included in revenue.
Revenue from the sale of goods is always recognised when the significant risks and rewards of ownership of the goods have been
transferred to the customer, which is upon delivery of the goods to the customer’s home. Revenue is recorded when the collection of
the amount due is reasonably assured. Income from “Ocado Smart Pass”, the Group’s discounted pre-pay membership scheme, is
recognised in the period to which it relates, on an accruals basis.
Revenue from the rendering of services is recognised over the period in which services are rendered. Initial licence contract revenues are
recognised over a term which is specific to individual customer contracts. For services, the term is the period over which services are rendered.
For the licence of technology assets, the revenue is recognised over a period consistent with the expected life of the related technology assets.
Annual licence contract revenues, including associated service and operational fees, are recognised as income in the relevant period.
Cost of sales
Cost of sales represents the cost of groceries and other products the Group sells, any associated licence fees which are driven by the
volume of sales of specific products or product groups, including the branding and sourcing fees payable to Waitrose, adjustments to
inventory, and charges for transportation of goods from a supplier to a CFC.
Cost of sales also includes monies received from suppliers in relation to the agreed funding of selected items that are sold by the
Company on promotion and is recognised once the promotional activity has taken place in the period to which it relates on an accruals
basis. The estimates required for this source of income are limited because the time periods of promotional activity are less than one
month in most cases and the invoicing for the activity occurs on a regular basis shortly after the promotions have ended.
At the period end the Group is required to estimate supplier income due from annual agreements for volume rebates, which span across the
year-end date. Estimates are required due to the fact that firm confirmation of some amounts due is often only received three to six months
after the period end. Where estimates are required these are based on historical data for prior years and a review of significant supplier
contracts. A material amount of this income is received from third parties via the Company’s supply agreement with Waitrose. The estimates
for this income are prepared following discussions with Waitrose throughout the year and regularly reviewed by senior management.
Other income
Other income comprises the fair value of consideration received or receivable for advertising services provided by Ocado to suppliers
and other third parties on the Webshop, commission income, rental income, sublease payments receivable and amounts receivable not
in the ordinary course of business. Income for advertising services is recognised over the particular time period for which the service is
provided on an accruals basis. An adjustment is made at the period end to accrue the amount of income in relation to campaigns that
may span the period end, however such adjustments are not typically material.
Employee benefits
The Group contributes to the personal pension plans of its staff through two pension plans: a defined contribution Group personal
pension administered by Standard Life, and a defined contribution Money Purchase Scheme administered by People’s Pensions.
Employer contributions to the schemes are calculated as a percentage of salary based on length of scheme membership. Contributions
are charged to the income statement in the period to which they relate.
Distribution costs
Distribution costs consist of all the costs incurred, excluding product costs, to the point of sale. In most cases, this is the customer’s home. This
includes the payroll-related expenses for the picking, dispatch and delivery of products sold to the point of sale, the cost of making those
deliveries, including fuel, tolls, maintenance of vehicles, the operating costs of the properties required for the picking, dispatch and onward
delivery operations and all associated depreciation, amortisation and impairment charges, call centre costs and payment processing charges.
This includes costs incurred on behalf of Morrisons which are subsequently recharged.
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FINANCIAL STATEMENTS continued
2.1 PROFIT BEFORE TAX continued
Administrative expenses
Administrative expenses consist of all IT costs, advertising and marketing expenditure (excluding vouchers), share-based payments costs,
employment costs of all central functions, which include board, legal, finance, human resources, marketing and procurement, rent and other
property-related costs for the head office, all fees for professional services and the depreciation, amortisation and impairment associated with IT
equipment, software, fixtures and fittings. Additionally, this includes costs incurred on behalf of Morrisons which are subsequently recharged.
Exceptional items
The Group has adopted an income statement format which seeks to highlight significant items within the Group results for the year.
The Group believes this format is useful as it highlights one-off items, such as material set-up costs for new fulfilment warehouses,
reorganisation and restructuring costs, profit or loss on disposal of operations, and impairment of assets. Exceptional items, as disclosed
on the face of the income statement, are items that due to their material and/or non-recurring nature, as determined by management,
have been classified separately in order to draw them to the attention of the reader of the financial statements and to avoid distortion
of underlying performance. This facilitates comparison with prior periods to assess trends in financial performance more readily. It is
determined by management that each of these items relates to events or circumstances that are non-recurring in nature.
The Group applies judgement in identifying the significant non-recurring items of income and expense that are recognised as exceptional
to help provide an indication of the Group’s underlying business performance. Examples of items that the Group considers as exceptional
include, but are not limited to, material costs relating to the opening of a new warehouse, corporate reorganisations and any material
costs, outside of the normal course of business as determined by management.
2.2 SEGMENTAL REPORTING
The Group’s principal activities are grocery retailing and the development and monetisation of Intellectual Property (“IP”) and technology
used for the online retailing, logistics and distribution of grocery and consumer goods, currently derived solely from the UK. The Group is
not reliant on any major customer for 10% or more of its revenue.
In accordance with IFRS 8 “Operating Segments”, an operating segment is defined as a business activity whose operating results are reviewed
by the chief operating decision-maker and for which discrete information is available. Operating segments are reported in a manner consistent
with the internal reporting provided to the chief operating decision-maker, as required by IFRS 8. The chief operating decision-maker, who is
responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Directors.
The principal activities of the Group are currently managed as one segment. Consequently, all activities relate to this segment.
The chief operating decision-maker’s main indicator of performance of the segment is EBITDA, which is reconciled to operating profit
below the income statement.
2.3 GROSS SALES
A reconciliation of revenue to gross sales is as follows:
Revenue
VAT
Marketing vouchers
Gross sales
2.4 OTHER INCOME
A breakdown of other income is as follows:
Media and other income
Rental income
148
52 weeks
ended
30 November
2014
£m
52 weeks
ended
1 December
2013
£m
948.9
66.3
11.3
1,026.5
792.1
50.4
9.9
852.4
52 weeks
ended
30 November
2014
£m
52 weeks
ended
1 December
2013
£m
28.0
11.4
39.4
19.2
3.9
23.1
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9
2.5 OPERATING PROFIT
Operating profit is stated after charging/(crediting) the following:
Cost of inventories recognised as an expense
Employment costs
Amortisation expense
Depreciation of property, plant and equipment
Impairment of property, plant and equipment, included in:
— Distribution costs
— Administrative expenses
— Exceptional items
Impairment of intangible assets, included in:
— Administrative expenses
Loss on disposal of property, plant and equipment
Impairment of receivables
Operating lease rentals
— Land and buildings
— Other leases
Net foreign exchange movements
During the period, the Group obtained the following services from its auditors:
Fees payable to the Company auditor for the audit of the Parent Company and consolidation
— Statutory Group and Company audit
Fees payable to the Company auditor for other services
— Statutory audit of subsidiaries
— Advisory support
— Audit-related services
2.6 EMPLOYEE INFORMATION
Employment costs during the financial period were as follows:
Staff costs during the period:
Wages and salaries
Social security costs
Other pension costs
Share-based payment expense†
Total gross employment costs
Staff costs capitalised to intangible assets
Staff costs capitalised to property, plant and equipment
Total employment cost expense
Average monthly number of employees (including Executive Directors) by function
Operational staff
Support staff
52 weeks
ended
30 November
2014
£m
52 weeks
ended
1 December
2013
£m
Notes
3.1
3.2
3.2
3.1
3.2
3.8
621.1
168.9
12.4
40.0
1.1
1.0
0.1
—
1.5
-
0.5
9.4
0.5
(0.2)
530.4
137.3
9.5
33.1
0.3
0.3
0.2
(0.2)
0.8
0.1
—
5.2
0.4
0.1
52 weeks
ended
30 November
2014
£’000
52 weeks
ended
1 December
2013
£’000
60
184
35
28
307
48
135
40
27
250
52 weeks
ended
30 November
2014
£m
52 weeks
ended
1 December
2013
£m
165.8
14.6
4.1
6.0
190.5
(17.3)
(4.3)
168.9
6,001
1,004
7,005
138.4
12.1
2.9
3.3
156.7
(15.1)
(4.3)
137.3
4,967
775
5,742
†
Included in the share-based payment expense is the IFRS 2 charge of £4.4 million and a £1.6 million provision for the payment of employer’s NIC upon allotment of
the share awards.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS continued
2.7 EXCEPTIONAL ITEMS
Corporate restructure
Set-up costs
— CFC2
— Non-food
Impairment (reversal)
Strategic operating agreement
— Legal and professional fees
— Exceptional finance costs
Corporate restructuring
52 weeks
ended
30 November
2014
£m
52 weeks
ended
1 December
2013
£m
0.3
—
—
—
—
—
0.3
—
1.3
0.2
(0.2)
3.3
2.8
7.4
During the year, the Group undertook a corporate restructuring. The Group’s business was split between a number of legal entities in
order to reflect broadly the operational division of the business. To assist the restructuring the Group sought tax, accountancy and legal
advice, for which a number of one-off costs were incurred.
Prior year
Set-up costs
During 2013, the Group incurred further costs relating to the set-up of CFC2 of £1.3 million (2012: £1.2 million), which first delivered
customer orders in February 2013, and officially went live in March 2013, and the set-up of the non-food distribution centre of £0.2
million (2012: £0.3 million), which went live in January 2013.
Impairment of assets
During 2013, an impairment reversal of £0.2 million was identified as part of the review of the land, building and plant and machinery
related to a former spoke site at Coventry.
Strategic operating agreement
In 2013, the Group announced its first strategic client for its IP and operating services with the signing of a 25-year agreement with
Morrisons. To facilitate the finalisation of the agreement, a number of one-off costs were incurred by the Group which reflect services from
professional advisers. The agreement also allowed the Group to repay its £100 million loan facility which resulted in the full amortisation
of the prepaid arrangement fees from 2012. These one-off costs incurred amounted to £6.1 million.
2.8 TAXATION
Accounting policies
The tax charge for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that
it relates to items recognised in other comprehensive income or directly in equity, in which case the tax is also recognised in other
comprehensive income or directly in equity respectively.
Current taxation
Current tax is the expected tax payable on the taxable income for the period, calculated using tax rates enacted or substantively
enacted by the balance sheet date. Management periodically evaluates positions taken in tax returns with respect to situations in which
applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be
paid to the tax authorities.
Deferred taxation
Deferred tax is recognised using the balance sheet liability method on temporary differences arising between the tax base of assets
and liabilities and their carrying amount in the financial statements. Deferred tax is calculated at the tax rates that have been enacted
or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the
deferred tax liability is settled. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except
where the timing of reversal of the temporary differences is controlled by the Group and it is probable that the temporary difference will
not reverse in the foreseeable future.
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2.8 TAXATION continued
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the
temporary differences can be utilised. Recognition, therefore, involves judgement regarding the prudent forecasting of future taxable
profits of the business and in applying an appropriate risk adjustment factor. The final outcome of some of these items may give rise to
material profit and loss and/or cash flow variances. At the balance sheet date management has forecast that the Group would generate
future taxable profits against which existing tax losses could be relieved. The carrying amount of deferred tax assets is reviewed at each
balance sheet date.
Deferred tax assets and liabilities are offset against each other when there is a legally enforceable right to offset current taxation assets
against current taxation liabilities and it is the intention to settle these on a net basis.
Taxation – Income statement
Recognised in the Income statement
Current tax:
UK corporation tax on profits of the period
Overseas corporation tax on profits of the period
Adjustments in respect of prior periods
Total current tax
Deferred tax:
Adjustment in respect of prior periods
Origination and reversal of temporary differences
Total deferred tax
Income tax expense/(credit)
52 weeks
ended
30 November
2014
£m
52 weeks
ended
1 December
2013
£m
—
0.1
(0.3)
(0.2)
0.3
(0.2)
0.1
(0.1)
—
—
—
—
—
—
—
—
The tax on the Group’s profit/(loss) before tax differs from the theoretical amount that would arise using the weighted average tax rate
applicable to losses of the Group as follows:
Profit/(loss) before tax
Effective tax charge/(credit) at the UK tax rate of 21.7% (2013: 23.3%)
Effect of:
Change in UK corporation tax rate
Utilisation of brought forward losses
Permanent differences
Difference in overseas tax rates
Release of deferred tax on capitalised R&D
Tax losses for which no deferred tax asset recognised
Temporary differences on which no deferred tax recognised
Income tax charge/(credit) for the period
52 weeks
ended
30 November
2014
£m
7.2
1.5
—
(0.2)
1.8
—
(0.4)
0.3
(3.1)
(0.1)
52 weeks
ended
1 December
2013
£m
(12.5)
(2.9)
1.3
—
1.2
0.6
—
—
(0.2)
—
As enacted in Finance Act 2013, the standard rate of corporation tax in the UK changed from 23% to 21% with effect from 1 April
2014. Accordingly, the effective rate for the period is 21.7%.
151
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS continued
2.8 TAXATION continued
Taxation — Balance sheet
Movement in the deferred tax asset is as follows:
As at 2 December 2012
Effect of change in UK corporation tax rate
Tax losses recognised through the Income statement
As at 1 December 2013
Effect of change in UK corporation tax rate
Tax losses recognised through the Income statement
As at 30 November 2014
Tax losses carry-
forwards
£m
7.9
(1.1)
1.1
7.9
—
1.5
9.4
As enacted in Finance Act 2013, the standard rate of corporation tax in the UK changed to 21% from 1 April 2014 and will change to
20% from 1 April 2015. Deferred tax has been provided at the rates enacted at the balance sheet date.
Movement in the unrecognised deferred tax asset is analysed below:
As at 2 December 2012
Adjustment in respect of prior periods
Effect of change in UK corporation tax rate
Potential movement in the period unrecognised through:
— Income statement
— Equity
As at 1 December 2013
Adjustment in respect of prior periods
Effect of change in UK corporation tax rate
Potential movement in the period unrecognised through:
— Income statement
— Equity
As at 30 November 2014
Tax losses carry-
forwards
£m
Accelerated
capital
allowances
£m
Derivative
financial
instruments
£m
Other short-
term timing
differences
£m
56.7
—
(7.4)
(1.0)
—
48.3
—
—
(0.7)
—
47.6
17.1
0.7
(2.3)
1.5
—
17.0
—
—
(2.0)
—
15.0
0.1
—
—
—
(0.1)
—
—
—
—
—
—
0.1
—
—
(0.1)
—
—
—
—
0.5
—
0.5
Total
£m
74.0
0.7
(9.7)
0.4
(0.1)
65.3
—
—
(2.2)
—
63.1
As at 30 November 2014 the Group had approximately £285.3 million of unutilised tax losses (2013: approximately £279.5 million) available
for offset against future profits. A deferred tax asset of £9.4 million (2013: £7.9 million) has been recognised in respect of £47.0 million (2013:
£39.6 million) of such losses, the recovery of which is supported by the expected level of future profits of the Group. The recognition of the deferred
tax asset is based on forecasted operating results calculated in approved business plans and a review of tax planning opportunities. Management
have concluded that there is sufficient evidence for the recognition of the deferred tax asset of £9.4 million.
No deferred tax asset has been recognised in respect of the remaining losses on the basis that their future economic benefit is uncertain
given the unpredictability of future profit streams. All tax losses, both recognised and unrecognised, can be carried forward indefinitely.
Movement in the recognised deferred tax liability is analysed below:
As at 2 December 2012
Recognised through the Income statement
As at 1 December 2013
Recognised through the Income statement
As at 30 November 2014
£m
(0.4)
—
(0.4)
(1.6)
(2.0)
For the year ended 30 November 2014 the Group has recognised a deferred tax liability of £2.0 million. Of this amount, £1.7 million
is in respect of intangible assets that management assessed as qualifying for research and development corporation tax relief. The timing
of the tax deductions in respect of expenditure incurred on these assets differs to the amortisation profile of the assets giving rise to the
deferred tax liability. This liability will be unwound over the useful lives of the assets.
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2.8 TAXATION continued
In a prior period, the Group recognised a deferred tax liability of £0.4 million in respect of intangible assets that management assessed
as qualifying for research and development corporation tax relief. After corporation tax relief, the timing of tax deductions in respect of
expenditure incurred on these assets differs to the amortisation profile of the assets giving rise to the deferred tax liability. This liability will
be unwound over the useful lives of the assets.
2.9 PROFIT/(LOSS) PER SHARE
Basic profit/(loss) per share is calculated by dividing the profit/(loss) attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue during the period, excluding ordinary shares held pursuant to the Group’s JSOS which are
accounted for as treasury shares.
Diluted profit/(loss) per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume
conversion or vesting of all dilutive potential shares. The Company has two categories of potentially dilutive shares, namely share options
and shares held pursuant to the JSOS.
For the year ended 1 December 2013 there was no difference in the weighted average number of shares used for the calculation of
basic and diluted profit/(loss) per share as the effect of all potentially dilutive shares outstanding was anti-dilutive.
Basic and diluted profit/(loss) per share has been calculated as follows:
Issued shares at the beginning of the period, excluding treasury shares
Effect of share options exercised in the period
Effect of treasury shares disposed of in the period
Effect of shares issued in the period
Weighted average number of shares at the end of the period for basic earnings per share
Potentially dilutive share options and shares
Weighted average number of diluted ordinary shares
Profit/(loss) attributable to the owners of the Company
Basic profit/(loss) per share
Diluted profit/(loss) per share
52 weeks
ended
30 November
2014
Number of
shares
(m)
52 weeks
ended
1 December
2013
Number of
shares
(m)
582.5
2.1
0.3
—
584.9
29.4
614.3
£m
7.3
pence
1.24
1.18
578.3
1.4
0.3
—
580.0
—
580.0
£m
(12.5)
pence
(2.16)
(2.16)
The only transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of these financial
statements were the exercise of 80,441 share options under the company ESOS scheme, 10,163 share options under the SAYE2
scheme, 46 under the SAYE3 scheme and the issue of 22,443 Partnership Shares under the SIP.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS continued
SECTION 3 — ASSETS AND LIABILITIES
3.1 INTANGIBLE ASSETS
Accounting policies
Intangible assets
Intangible assets comprise internally generated assets relating mainly to computer software and other intangible assets relating mainly
to externally acquired computer software and assets, and the right to use land. These are carried at cost less accumulated amortisation
and any recognised impairment loss. Other intangible assets such as externally acquired computer software and software licences are
capitalised and amortised on a straight-line basis over their useful lives of three to seven years. Costs relating to the development of
computer software for internal use are capitalised once all the development phase recognition criteria of IAS 38 “Intangible Assets” are
met. When the software is available for its intended use, these costs are amortised in equal annual amounts over the estimated useful life
of the software. Amortisation and impairment of computer software or licences are charged to administrative expenses in the period in
which they arise. For the Group’s impairment policy on non-financial assets see Note 3.2.
Amortisation on other intangible assets is calculated on a straight-line basis from the date on which they are brought into use, charged to
administrative expenses, and is calculated based on the useful lives indicated below:
Internally generated assets
Other intangible assets
Right to use land
3–5 years, or the lease term if shorter
3–7 years, or the lease term if shorter
The estimated useful economic life, or the lease term if shorter
Amortisation periods and methods are reviewed annually and adjusted if appropriate.
Cost capitalisation
The cost of internally generated assets are capitalised as an intangible asset where it is determined by management’s judgement that the
ability to develop the assets is technically feasible, will be completed, and that the asset will generate economic benefit that outweighs
its cost. This is in line with the recognition criteria as outlined in IAS 38 “Intangible Assets”. Management determine whether the nature
of the projects meet the recognition criteria to allow for the capitalisation of internal costs, which include the total cost of any external
products or services and labour costs directly attributable to development. During the year management have considered whether costs
in relation to the time spent on specific software projects can be capitalised. Time spent that was eligible for capitalisation included time
which was intrinsic to the development of new assets to be used or monetised by the Group, the enhancement of existing warehouse and
routing systems capabilities, or improvements to applications used by the Group’s customers.
Other development costs that do not meet the above criteria are recognised as an expense as incurred. Development costs previously
recognised as an expense are not recognised as an asset in a subsequent period.
Research expenditure is recognised as an expense as incurred. These are costs that form part of the intent of gaining new knowledge,
which management assess as not satisfying the capitalisation criteria per IAS 38 “Intangible Assets” as outlined above. Examples
of research costs include, but are not limited to, the following: salaries and benefits of employees assessing and analysing future
technologies and their likely viability, and professional fees such as marketing costs and the cost of third party consultancy.
In certain circumstances, some assets are ready for use, but are not performing as intended by management. Development costs that
relate to the enhancement or modifications of existing assets are capitalised until the asset is performing as intended by management.
Management assess the capitalisation of these costs by consulting the guidance outlined in IAS 38 “Intangible Assets” and exercise
judgement in determining the qualifying costs. When unsure if the enhancement or modification costs relate to the development of the
asset or are maintenance expenditure in nature, management treat the expenditure as if it were incurred in the research phase only in line
with IAS 38 guidance.
Internally generated assets consist primarily of costs relating to intangible assets which provide economic benefit independent of other
assets, and intangible assets that are utilised in the operation of property, plant and equipment. These intangible assets are required
for certain tangible assets to operate as intended by management. Management assess each material internally generated asset
addition and consider whether it is integral to the successful operation of a related item of hardware, can be used across a number of
applications and therefore whether the asset should be recognised as property, plant and equipment. If the asset could be used on other
existing or future projects it will be recognised as an intangible asset. For example, should an internally generated asset, such as the
software code to enhance the operation of existing CFC equipment, be expected to form the foundation or a substantial element of future
software development, it has been recognised as an intangible asset.
Of the internally generated assets capitalised, 20% relates to asset additions within property, plant and equipment.
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Estimation of useful life
The charge in respect of periodic amortisation is derived by estimating an asset’s expected useful life and the expected residual value at the
end of its life. Increasing an asset’s expected life or its residual value would result in a reduced amortisation charge in the income statement.
The useful life is determined by management at the time the software is acquired and brought into use and is regularly reviewed for
appropriateness. For computer software licences, the useful life represents management’s view of the expected period over which the Group
will receive benefits from the software. For unique software products developed and controlled by the Group, the life is based on historical
experience with similar products as well as anticipation of future events which may impact their useful life, such as changes in technology.
Cost
At 2 December 2012
Additions
Internal development costs capitalised
Disposals
At 1 December 2013
Additions†
Internal development costs capitalised
Disposals
At 30 November 2014
Accumulated amortisation
At 2 December 2012
Charge for the period
Impairment
Disposals
At 1 December 2013
Charge for the period
Impairment
Disposals
At 30 November 2014
Net book value
At 1 December 2013
At 30 November 2014
†
Included within other intangible assets additions is £4.2 million for the right to use land.
The net book value of computer software held under finance leases is analysed below:
Cost
Accumulated amortisation
Net book value
Internally
generated
assets
£m
Other intangible
assets
£m
Total
intangible assets
£m
43.8
8.3
15.1
(9.2)
58.0
—
17.3
(9.7)
65.6
(24.7)
(8.6)
(0.8)
0.8
(33.3)
(11.5)
(1.5)
9.7
(36.6)
24.7
29.0
13.6
0.9
—
(1.1)
13.4
8.0
—
(8.2)
13.2
(11.1)
(0.9)
—
0.9
(11.1)
(0.9)
—
8.2
(3.8)
2.3
9.4
57.4
9.2
15.1
(10.3)
71.4
8.0
17.3
(17.9)
78.8
(35.8)
(9.5)
(0.8)
1.7
(44.4)
(12.4)
(1.5)
17.9
(40.4)
27.0
38.4
30 November
2014
£m
1 December
2013
£m
13.2
(7.2)
6.0
12.8
(4.8)
8.0
For the 52 weeks ended 30 November 2014, internal development costs capitalised represented approximately 68% (2013: 94%) of
expenditure on intangible assets and 15% (2013: 8%) of total capital spend including property, plant and equipment.
3.2 PROPERTY, PLANT AND EQUIPMENT
Accounting policies
Property, plant and equipment
Property, plant and equipment excluding land are stated at cost less accumulated depreciation and any recognised impairment loss.
Cost includes the original purchase price of the asset, any costs attributable to bringing the asset to its working condition for its intended
use and major spares. An item of property, plant and equipment is recognised as an asset if it is probable that future economic benefits
associated with the asset will flow to the entity, and the cost of the asset can be measured reliably.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS continued
3.2 PROPERTY, PLANT AND EQUIPMENT continued
Property, plant and equipment represents 51% of the total asset base of the Group in 2014 (2013: 45%). The estimates and
assumptions made to determine the carrying value of property, plant and equipment and related depreciation are important to the
Group’s financial position and performance. Management assess the estimates and assumptions based on available external information
and historical experience.
In determining the cost of property, plant and equipment, certain costs that relate to the intangible element of an asset are separately
disclosed within Intangible assets, Note 3.1. Management exercise judgement to review each material asset addition and consider
whether the intangible asset element can be used for other property, plant and equipment additions in the current or future years.
Software written for the Group’s first CFC in Hatfield is identified as a standalone intangible asset, and has provided the foundation for
software used in some areas of CFC2, and is expected to provide part of the foundation of software used in future centres.
For more information on the Group’s policy on capitalisation of borrowings costs, see Note 4.1.
Depreciation on other property, plant and equipment is charged to distribution costs and administrative expenses and is calculated based
on the useful lives indicated below:
Freehold buildings and leasehold properties
Fixtures and fittings
Plant and machinery
Motor vehicles
25 years, or the lease term if shorter
5–10 years
3–20 years
2–7 years
Land is held at cost and not depreciated.
Assets in the course of construction are carried at cost less any recognised impairment loss. Cost includes professional fees and other
directly attributable costs. Depreciation of these assets commences when the assets are ready for their intended use, on the same basis
as other property assets.
Gains and losses on disposal are determined by comparing proceeds with the asset’s carrying amount and are recognised within
operating profit.
Estimation of useful life
Depreciation is provided at rates estimated to write off the cost of the relevant assets less their estimated residual values by equal annual
amounts over their expected useful lives. Residual values and expected useful lives are reviewed and adjusted, if appropriate, at the end
of each reporting period.
The charge in respect of periodic depreciation is derived by estimating an asset’s expected useful life and the expected residual value
at the end of its life. Increasing an asset’s expected life or its residual value would result in a reduced depreciation charge in the income
statement. The useful lives of the Group’s assets are determined by management at the time the asset is acquired and reviewed at least
annually for appropriateness.
Management also assess the useful lives based on historical experience with similar assets as well as anticipation of future events which
may impact their useful life, such as changes in technology. Historically, changes in useful lives have not resulted in material changes to
the Group’s depreciation charge.
Impairment of non-financial assets
An annual impairment review is performed and assets which do not have indefinite useful lives are subject to an annual depreciation or amortisation
charge. Assets that are subject to an annual amortisation or depreciation charge are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less
costs to sell and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of assessing
impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows (cash-generating units).
Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at the end of each reporting period.
When an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate
of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined
had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.
Given the Group’s current operating structure the lowest level at which cash flows can reasonably be assessed is the Group as a whole.
The Group prepares detailed forward projections which are constantly updated and refined. Based on these projections the Board does
not consider that any further impairment of assets is required, other than that recognised in the income statement.
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Cost
At 2 December 2012†
Additions
Disposals1
At 1 December 2013†
Additions
Disposals1
At 30 November 2014†
Accumulated depreciation and impairment
At 2 December 2012
Charge for the period
Impairment
Disposals
At 1 December 2013
Charge for the period
Impairment
Disposals
At 30 November 2014
Net book value
At 1 December 2013
At 30 November 2014
Land and
buildings
£m
Fixtures, fittings,
plant and
machinery
£m
Motor
vehicles
£m
117.8
5.1
(80.6)
42.3
13.2
(0.3)
55.2
(15.2)
(2.0)
0.2
0.3
(16.7)
(1.8)
(0.3)
0.3
(18.5)
25.6
36.7
257.4
149.8
(110.4)
296.8
67.2
(11.9)
352.1
(98.4)
(24.2)
(0.5)
4.1
(119.0)
(30.0)
(0.8)
11.0
(138.8)
177.8
213.3
34.1
9.1
(4.3)
38.9
12.6
(4.1)
47.4
(15.4)
(6.9)
—
4.3
(18.0)
(8.2)
—
4.0
(22.2)
20.9
25.2
Total
£m
409.3
164.0
(195.3)
378.0
93.0
(16.3)
454.7
(129.0)
(33.1)
(0.3)
8.7
(153.7)
(40.0)
(1.1)
15.3
(179.5)
224.3
275.2
† There were no capitalised borrowing costs in 2014 (2013: £1.9 million). The capitalisation rate for the prior period was the same as that incurred on the underlying
borrowings, being LIBOR plus 3%. Borrowing costs were capitalised on specific borrowings which were wholly attributable to qualifying assets.
1. During 2013, the Group entered into a sale and 25-year leaseback transaction of its MHE relating to CFC2 to MHE JV Co. Of the £16.3 million disposals, £0.9 million relates to the
sale of assets to MHE JVCo, all of which were leased back and are included in total additions of £93.0 million. Of the prior period disposals of £195.3 million, £115.2 million relates
to the sale of assets to MHE JV Co, £112.1 million of which were leased back and are included in total additions of £164.0 million.
Included within property, plant and equipment is capital work-in-progress for land and buildings of £15.4 million (2013: £0.1 million)
and capital work-in-progress for fixtures, fittings, plant and machinery of £20.1 million (2013: £5.2 million).
Of the prior period impairment charge, a reversal of £0.2 million has been included within exceptional costs (see Note 2.7).
The net book value of non-current assets held under finance leases is set out below:
At 1 December 2013
Cost
Accumulated depreciation and impairment
Net book value
At 30 November 2014
Cost
Accumulated depreciation and impairment
Net book value
Land and
buildings
£m
Fixtures, fittings,
plant and
machinery
£m
29.3
(14.8)
14.5
30.3
(16.3)
14.0
171.9
(56.6)
115.3
203.7
(73.9)
129.8
Motor
vehicles
£m
38.1
(17.5)
20.6
46.5
(21.6)
24.9
Total
£m
239.3
(88.9)
150.4
280.5
(111.8)
168.7
There were no assets reclassified from owned assets to assets held under finance leases following asset-based financing arrangements
(2013: £1.7 million).
Property, plant and equipment with a net book value of £13.3 million (2013: £14.0 million) has been pledged as security for the
secured loans (Note 4.1).
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS continued
3.3 AVAILABLE-FOR-SALE FINANCIAL ASSETS
Accounting policies
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivatives that are not designated as held for trading or that are not designated as
“at fair value through profit and loss”. They are included in non-current assets unless the investment matures or management intends to
dispose of it within 12 months of the end of the reporting period. Management considers that the Group’s investments fall within this
category as explained below.
Investments
Available-for-sale investments are held at fair value if this can be reliably measured. If the equity instruments are not quoted in an active
market and their fair value cannot be reliably measured, the available-for-sale investment is carried at cost, less accumulated impairment.
Unless the valuation falls below its original cost, gains and losses arising from changes in fair value of available-for-sale assets are
recognised directly in equity. On disposal the cumulative net gain or loss is transferred to the statement of comprehensive income.
Valuations below cost are recognised as impairment losses in the income statement. Dividends are recognised in the income statement
when the right to receive payment is established.
Unlisted equity investment — cost and net book value
30 November
2014
£m
1 December
2013
£m
0.4
0.4
The unlisted equity investment comprises a 25% interest in Paneltex Limited (“Paneltex”), which has not been treated as an associated
undertaking as the Group does not have significant influence over the company. In arriving at this decision, the Board has reviewed the
conditions set out in IAS 28 “Investments in Associates” and concluded that despite the size of its holding it is unable to participate in the
financial and operating policy decisions of Paneltex due to the position of the majority shareholder as Executive Managing Director. The
relationship between the Group and the company is at arm’s length.
The shares of Paneltex are not quoted in an active market and their fair value cannot be reliably measured. As such, the investment in
Paneltex is measured at cost less accumulated impairment.
The Group does not intend to dispose of this investment in the foreseeable future.
3.4 INVESTMENT IN JOINT VENTURES
Accounting policies
The Group’s share of the results of joint ventures is included in the Consolidated income statement and is accounted for using the equity
method of accounting as provided under IFRS 11 “Joint Arrangements”. Investments in joint ventures are carried in the Consolidated
balance sheet at cost plus post-acquisition changes in the Group’s share of the net assets of the entity, less any impairment in value.
On transfer of land and/or work-in-progress to joint ventures, the Group recognises only its share of any profits or losses, namely that
proportion sold outside the Group.
If the Group’s share of losses in a joint venture or associate equals or exceeds its investment in the joint venture or associate, the Group
does not recognise further losses, unless it has incurred obligations to do so or made payments on behalf of the joint venture or associate.
Unrealised gains arising from transactions with joint ventures and associates are eliminated to the extent of the Group’s interest in
the entity.
Investment in joint ventures
The Group has a 50% equity interest valued at £67.8 million (2013: £58.9 million) in MHE JV Co, a joint venture company in which
Morrisons and the Company are the sole investors. During the year the Group injected a £6.5 million capital contribution into MHE JV
Co to finance the acquisition of CFC2 fixed assets.
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3.4 INVESTMENT IN JOINT VENTURES continued
The Group’s share of profit after tax in MHE JVCo for the year is detailed as follows:
Group share of revenue
Group share of expenses, inclusive of tax
Group share of profit after tax
52 weeks
ended
30 November
2014
£m
52 weeks
ended
1 December
2013
£m
2.7
(0.3)
2.4
1.0
(0.1)
0.9
At the period end, the Group’s share of the net assets of MHE JVCo were valued at £67.8 million reflecting the £2.4 million Group
share of profit after tax.
For the 52 weeks ended 30 November 2014 the entity, MHE JVCo Limited, has recognised net interest income of £5.4 million.
Material amounts held on its balance sheet as at 30 November 2014 include £130.8 million of finance lease receivables, £4.8 million
of property, plant and equipment, £2.7 million of cash and cash equivalents, and £3.5 million of trade and other payables, contributing
towards net assets of £135.6 million. Other than as a finance lessor to the Group, MHE JVCo has no other significant operations.
3.5 BUSINESS COMBINATIONS
Accounting policies
Business combinations
The acquisition method of accounting is used for the acquisition of subsidiaries. The cost of the acquisition is measured at the aggregate
fair value of the consideration given. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions
for recognition under IFRS 3 “Business Combinations” are recognised at their fair value at the date the Group assumes control of the
acquiree.
Acquisition related costs are recognised in the Consolidated income statement as incurred. If the business combination is achieved
in stages, the acquisition date fair value of the Group’s previously held investment in the acquiree is remeasured to fair value at the
acquisition date through profit or loss.
Certain assets and liabilities are not recognised at their fair value at the date control was achieved as they are accounted for using
other applicable IFRSs. These include deferred tax assets/liabilities (IAS 12 “Income Taxes”), any assets related to employee benefit
arrangements (IAS 19 “Employee Benefits” and IFRS 2 “Share-Based Payment”) and non-current assets held for sale or discontinued
operations (IFRS 5 “Non-Current Assets Held for Sale”).
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs,
the Group reports provisional amounts for the items for which the valuation of the fair value of assets and liabilities acquired is still in
progress. Those provisional amounts are adjusted during the measurement period of one year from the date control is achieved when
additional information is obtained about facts and circumstances which would have affected the amounts recognised as of that date.
Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration
arrangement measured at fair value at the date control is achieved. Subsequent changes in such fair values are adjusted against the
cost of acquisition where they qualify as measurement period adjustments. All other subsequent changes in the fair value of contingent
consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs.
Investments in subsidiaries
Investments in subsidiaries held by the Company are carried at cost less accumulated impairment losses.
Goodwill represents the difference between the fair value of the assets given in consideration and the fair value of identifiable assets,
liabilities and contingent liabilities of the acquiree.
On 3 November 2014 Speciality Stores Limited, a Group subsidiary, acquired 100% of the issued share capital of Paws & Purrs Ltd,
obtaining control of the entity. The principal activity of Paws & Purrs Ltd is the sale of pet products. It was acquired to further develop the
non-food operations of the Group. Total consideration transferred was £15,000, acquiring £20,000 of gross assets and £5,000 of net
assets resulting in a net cash outflow of £7,000. Goodwill of £10,000 has been recognised, being the consideration paid in excess of
the value of acquired net assets.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS continued
3.6 WORKING CAPITAL ACCOUNTING POLICIES
Inventories
Inventories comprise goods held for resale, fuel and other consumable goods. Inventories are valued at the lower of cost and net
realisable value as provided in IAS 2 “Inventories”. Goods held for resale and consumables are valued using the weighted average
cost basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in
marketing, selling and distribution. It also takes into account slow-moving, obsolete and defective inventory. Fuel stocks are valued at
calculated average cost. Costs include all direct expenditure and other appropriate attributable costs incurred in bringing inventories to
their present location and condition. There has been no security granted over inventory unless stated otherwise.
The Group have a mix of grocery and non-food items within inventory which have different characteristics. For example, grocery lines
have high inventory turnover, while non-food lines are typically held within inventory for a longer period of time and so run a higher risk of
obsolesence. As inventories are carried at the lower of cost and net realisable value, this requires the estimation of the eventual sales price of
goods to customers in the future. Judgement is applied when estimating the impact on the carrying value of inventories such as slow-moving,
obsolete and defective inventory, which includes reviewing the quantity, age and condition of inventories throughout the year.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
They are included in current assets, except for maturities greater than 12 months after the end of the reporting period, which are
classified as non-current assets. The Group’s loans and receivables comprise “Trade and other Receivables” in the Balance sheet.
Trade and other receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method,
less provision for impairment.
Other receivables are non-interest bearing and are recognised initially at fair value, and subsequently at amortised cost, reduced by
appropriate allowances for estimated irrecoverable amounts.
Provision for impairment of trade receivables
A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to
collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that
the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are
considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying
amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount
of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement
within administrative expenses. When a trade receivable is considered uncollectible, it is written off against the allowance account for
trade receivables. Subsequent recoveries of amounts previously written off are credited against administrative expenses in the income
statement. The outcome depends on future events which are by their nature uncertain. In assessing the likely outcome, management bases
its assessment on historical experience and other factors that are believed to be reasonable in the circumstances.
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Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, demand deposits with banks and short-term deposits with a maturity
of three months or less at the date of acquisition. Cash at bank and in hand and short-term deposits are shown under current assets on
the Consolidated balance sheet. The carrying amount of these assets approximates to their fair value. They are therefore included as a
component of cash and cash equivalents.
Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An
equity instrument is any contract that gives a residual interest in the assets of the Group after deducting all of its liabilities.
Trade and other payables
Trade and other payables are initially recognised at fair value and subsequently at amortised cost, using the effective interest rate
method.
3.7 INVENTORIES
Goods for resale
Consumables
30 November
2014
£m
1 December
2013
£m
27.1
0.5
27.6
23.5
0.4
23.9
Write-downs of inventories recognised as an expense amounted to £0.2 million (2013: £0.5 million) in the Consolidated income
statement.
3.8 TRADE AND OTHER RECEIVABLES
Trade receivables
Less: provision for impairment of trade receivables
Net trade receivables
Other receivables
Prepayments
Accrued income
30 November
2014
£m
1 December
2013
£m
12.6
(3.0)
9.6
21.7
6.6
5.2
43.1
23.6
(0.5)
23.1
15.6
5.1
1.4
45.2
Included within trade receivables is a balance of £0.8 million (2013: £12.3 million) owed by MHE JV Co.
Included in other receivables is £8.9 million (2013: £7.1 million) due from suppliers in relation to supplier-funded promotional activity
and £5.5 million (2013: £6.2 million) due from suppliers in relation to volume-based rebate amounts.
The ageing analysis of trade and other receivables (excluding prepayments), including the provision for impairment, is set out below:
Not past due
Past due 0–3 months
Past due 3–6 months
Past due over 6 months
30 November 2014
Gross
£m
Impairment
£m
30.9
6.7
1.3
0.6
39.5
(2.0)
(0.3)
(0.2)
(0.5)
(3.0)
1 December 2013
Gross
£m
34.7
5.7
0.1
0.2
40.7
Impairment
£m
—
(0.3)
(0.1)
(0.1)
(0.5)
The provisions account for trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of
the amount owing is possible; at that point, the amounts considered irrecoverable are written off against trade receivables directly.
Impairment losses are included within administrative expenses in the Income statement.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS continued
3.8 TRADE AND OTHER RECEIVABLES continued
Trade receivables that are past due but not impaired amount to £7.6 million (2013: £5.4 million) and relate to a number of suppliers for
whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:
Past due 0–3 months
Past due 3–6 months
Past due over 6 months
3.9 CASH AND CASH EQUIVALENTS
Cash at bank and in hand
30 November
2014
£m
1 December
2013
£m
6.4
1.1
0.1
7.6
5.4
—
—
5.4
30 November
2014
£m
1 December
2013
£m
76.3
110.5
£2.3 million (2013: £1.7 million) of the Group’s cash and cash equivalents are held by the Group’s captive insurance company to
maintain its solvency requirements. Therefore, these funds are restricted and are not available to circulate within the Group on demand.
3.10 TRADE AND OTHER PAYABLES
Trade payables
Taxation and social security
Accruals
Deferred income
30 November
2014
£m
1 December
2013
£m
61.3
4.8
46.6
23.8
136.5
53.0
4.1
42.0
30.9
130.0
Deferred income represents the value of delivery income received under the Ocado Smart Pass scheme allocated to future periods,
upfront licence fees from the Morrisons strategic operating agreement, lease incentives, and media income from suppliers which relate to
future periods.
3.11 PROVISIONS
Accounting policies
Provisions can be distinguished from other types of liability by considering the events that give rise to the obligation and the degree of
uncertainty as to the amount or timing of the liability. These are recognised in the Consolidated balance sheet when the Group has a
present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the
obligation and the amount can be reliably estimated.
The amounts recognised as a provision are management’s best estimates of the expenditure to settle present obligations as at balance
sheet date. The outcome depends on future events, which are by their nature uncertain. In assessing the likely outcome, management
base their assessment on historical experience and other factors that are believed to be reasonable in the circumstances.
Insurance claims
Provisions for insurance claims relate to potential motor insurance claims and potential public liability claims where accidents have
occurred but a claim has yet to be made. The provision is made based on estimates provided to Ocado by the third party manager of
the Ocado Cell in Atlas Insurance PCC Limited (the “Ocado Cell”).
Dilapidations
Provisions for dilapidations are made in respect of vehicles and properties where there are obligations to return the vehicles and
properties to the condition and state they were in when the Group obtained the right to use them. These are recognised on a property-
by-property basis and are based on the Group’s best estimate of the likely committed cash outflow. Where relevant, these estimated
outflows are discounted to net present value.
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3.11 PROVISIONS continued
Employee incentive schemes
Provisions for employee incentive schemes relate to HMRC unapproved equity settled schemes and the Cash-Based Long Term Incentive
Plan (“Cash LTIP”). For all unapproved schemes and the Cash LTIP, the Group is liable to pay employer’s NIC upon allotment of the share
awards.
Unapproved schemes are the 2013 and 2014 Long Term Incentive Plan (“LTIP”), the Chairman’s Share Matching Award and the Growth
Incentive Plan (“GIP”). For more details on these schemes, refer to note 4.12.
During the year, the Group established the Cash LTIP in order to incentivise selected high performing employees of the Company. At the
end of the three-year vesting period, employees will be paid a cash amount equal to the notional number of awards at the prevailing
share price, adjusted for the achievement of the performance conditions.
Provisions
As at 2 December 2012
Charged/(credited) to the income statement
— additional provision
Unused during the period
Unwind of discount
As at 1 December 2013
Charged/(credited) to the income statement
— additional provision
— unused amounts reversed
Used during the period
As at 30 November 2014
Analysis of total provisions as at 1 December 2013
Current
Non-current
Analysis of total provisions as at 30 November 2014
Current
Non-current
Insurance claims
Insurance claims
£m
Dilapidations
£m
0.5
0.4
(0.1)
—
0.8
0.3
—
(0.2)
0.9
2.1
0.7
—
0.1
2.9
0.4
(0.1)
(0.1)
3.1
Insurance claims
£m
Dilapidations
£m
0.4
0.4
0.8
0.1
2.8
2.9
Insurance claims
£m
Dilapidations
£m
0.2
0.7
0.9
0.2
2.9
3.1
Employee
incentive
schemes
£m
—
—
—
—
—
1.6
—
—
1.6
Employee
incentive
schemes
£m
—
—
—
Employee
incentive
schemes
£m
—
1.6
1.6
Total
£m
2.6
1.1
(0.1)
0.1
3.7
2.3
(0.1)
(0.3)
5.6
Total
£m
0.5
3.2
3.7
Total
£m
0.4
5.2
5.6
The Ocado Cell uses statistical information built up over several years to estimate, as accurately as possible, the future out-turn of the total
claims value incurred but not reported as at the balance sheet date. In practice the Ocado Cell receives newly reported claims after the
end of the underwriting period that have to be allocated to the year of loss (i.e. the underwriting year of occurrence). The calculation
of this provision involves estimating a number of variables, principally the level of claims which may be received and the level of any
compensation which may be payable. Uncertainty associated with these factors may result in the ultimate liability being different from the
reported provision. Although it is expected that £0.2 million claims will be settled within 12 months of the balance sheet date, the exact
timing of utilisation of the provision is uncertain.
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FINANCIAL STATEMENTS continued
3.11 PROVISIONS continued
Dilapidations
The dilapidations provision is based on the future expected repair costs required to restore the Group’s leased buildings and vans to their
fair condition at the end of their respective lease terms.
The CFC1 lease expires in 2032, with leases for the spokes expiring between 2014 and 2068. Contractual amounts are due to be
incurred at the end of the respective lease terms. The CFC2 lease expires in 2038.
Leases for vans run for five years, with the contractual obligation per van payable at the end of the five-year lease term. If a non-
contractual option to extend individual leases for a further six months is exercised by the Group, the contractual obligation remains the
same but is deferred by six months.
Employee incentive schemes
The provision consists of the Cash LTIP and employer’s NIC on HMRC unapproved equity-settled schemes. The Cash LTIP provision
represents the expected cash payments to participants upon vesting of the awards. It has been calculated using various assumptions
regarding liquidity, participants’ retention and achievability of the performance conditions. If at any point following initial valuation any
of these assumptions are revised, the charge will need to be amended accordingly. In addition to the base cost, since this is a cash
benefit, the Group will be liable to pay employer’s NIC on the value of the cash award upon allotment, which is included in the above
employer’s NIC provision.
To calculate the employer’s NIC provision, the applicable employers NIC rate is applied to the number of share awards which are
expected to vest, valued with reference to the year-end share price. The number of share awards expected to vest is dependent
on various assumptions which are determined by management; namely participants’ retention rate, the expectation of meeting the
performance criteria, if any, and the liquidity discount. All assumptions are supported by historical trends and internal financial forecasts,
where appropriate.
For the GIP, an external valuation was carried out to determine the fair value of the awards granted (see Note 4.12 (g)).
If at any point during the life of each share award, any non-market conditions are subject to change, such as the retention rate or the
likelihood of the performance condition being met, the number of share awards likely to vest will need to be recalculated which will
cause the value of the employer’s NIC provision to change accordingly.
Once the share awards under each of the schemes have vested, the provision will be utilised when they are exercised by participants.
Vesting will occur between 2016 and 2019.
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4.1 LEASES AND BORROWINGS
Accounting policies
Borrowings
Interest bearing bank loans and overdrafts are initially recorded at fair value, net of transaction costs. Subsequent to initial recognition,
interest bearing borrowings are stated at amortised cost with any difference between cost and redemption value being capitalised
to qualifying assets or recognised in the Consolidated income statement over the period of the borrowings on the effective interest
rate basis.
Leased assets
Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership to the
Group. All other leases are classified as operating leases. For property leases, the land and building elements are accounted for
separately after determining the appropriate lease classification.
Finance leases
Assets funded through finance leases are capitalised either as property, plant and equipment, or intangible assets, as appropriate, and
are depreciated/amortised over their estimated useful lives or the lease term, whichever is shorter. The amount capitalised is the lower
of the fair value of the asset or the present value of the minimum lease payments during the lease term, measured at the inception of the
lease. The resulting lease obligations are included in liabilities, net of attributable transaction costs. Finance costs on finance leases are
charged directly to the income statement on the effective interest rate basis.
Operating leases
Assets leased under operating leases are not recorded on the balance sheet. Rental payments are charged directly to the income
statement on a straight-line basis.
Sale and leaseback
A sale and leaseback transaction is one where the Group sells an asset and immediately reacquires the use of the asset by entering into
a lease with the buyer.
The leaseback transaction is classified as a finance lease when the terms of the lease transfer substantially all the risks and rewards of
ownership to the Group. All other leasebacks are classified as operating leases.
For sale and finance leasebacks, any profit from the sale is deferred and amortised over the lease term. For sale and operating
leasebacks, the assets are expected to be sold at fair value, and accordingly the profit or loss from the sale is recognised immediately in
the Consolidated income statement.
Lease incentives
Lease incentives primarily include upfront cash payments or rent-free periods. Lease incentives are capitalised and released against the
relevant rental expense over the lease term.
Critical accounting estimates and assumptions
The Group has a number of complex high value lease arrangements. The Group follows the guidance of IAS 17 “Leases” to determine
the classification of leases as operating leases versus finance leases. The classification of a lease as a finance lease as opposed to
an operating lease will change EBITDA as the charge made by the lessor will pass through finance charges and depreciation will be
charged on the capitalised asset. Retained earnings may also be affected depending on the relative size of the amounts apportioned
to capital repayments and depreciation. IAS 17 “Leases” requires the Group to consider splitting property leases into their component
parts (i.e. land and building elements). As only the building elements could be considered as a finance lease, management must make a
judgement, based on advice from suitable experts, as to the relative value of the land and buildings.
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FINANCIAL STATEMENTS continued
4.2 BORROWINGS AND FINANCE LEASES
Current liabilities
Borrowings
Obligations under finance leases
Non-current liabilities
Borrowings
Obligations under finance leases
Total borrowings and finance leases
BORROWINGS
As at 1 December 2013
Secured loans
Total borrowings
As at 30 November 2014
Secured loans
Total borrowings
30 November
2014
£m
1 December
2013
£m
Notes
4.3
4.3
4.4
26.5
30.9
2.3
142.5
144.8
175.7
Less than
one year
£m
Between one
year and
two years
£m
Between two
years and
five years
£m
3.3
3.3
4.4
4.4
4.0
4.0
1.8
1.8
2.2
2.2
0.5
0.5
3.3
25.0
28.3
6.2
126.9
133.1
161.4
Total
£m
9.5
9.5
6.7
6.7
The secured loans outstanding at period end can be analysed as follows:
Inception
May 07
Dec 06
Feb 09
Dec 09
July 12
July 12
Secured over
Property, plant
and equipment
Freehold property
Freehold property
Freehold property
Freehold property
Property, plant
and equipment
Current
interest rate
Clearing bank base
rate + 3.0%
LIBOR + 2.75%
LIBOR + 2.75%
LIBOR + 2.75%
LIBOR + 2.75%
Instalment
frequency
Final
payment due
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Feb 15
Feb 15
Feb 15
Dec 15
July 15
9.12%‡
Monthly
July 17
Principal amount
£m
8.0
1.5
1.5
2.8
2.6
2.5
Disclosed as:
Current
Non-current
Carrying
amount as at
30 November
2014
£m
Carrying
amount as at
1 December
2013
£m
0.8
0.4
0.6
1.5
1.9
1.5
6.7
4.4
2.3
6.7
2.4
0.5
0.8
1.7
2.2
1.9
9.5
3.3
6.2
9.5
‡ Calculated as the effective interest rate, the calculation of which includes an optional balloon payment at the end of the term.
During the year a three-year £100 million revolving credit facility was entered into with Barclays, HSBC, RBS and Santander. As at
30 November 2014 the facility remains unutilised. The facility contains restrictions concerning dividend payments and additional debt
and leases.
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4.3 OBLIGATIONS UNDER FINANCE LEASES
Obligations under finance leases due:
Within one year
Between one and two years
Between two and five years
After five years
Total obligations under finance leases
30 November
2014
£m
1 December
2013
£m
26.5
22.4
56.0
64.1
169.0
25.0
20.7
46.3
59.9
151.9
External obligations under finance leases are £38.2 million (2013: £39.2 million) excluding £130.8 million (2013: £112.7 million)
payable to MHE JVCo, a joint venture company.
Minimum lease payments due:
Within one year
Between one and two years
Between two and five years
After five years
Less: future finance charges
Present value of finance lease liabilities
Disclosed as:
Current
Non-current
30 November
2014
£m
1 December
2013
£m
34.9
29.3
70.4
71.0
205.6
(36.6)
169.0
26.5
142.5
169.0
31.9
26.8
59.4
67.6
185.7
(33.8)
151.9
25.0
126.9
151.9
The existing finance lease arrangements entered into by the Group contain no restrictions concerning dividends, additional debt and
further leasing. Furthermore, no material leasing arrangements exist relating to contingent rent payable, renewal or purchase options and
escalation clauses.
4.4 ANALYSIS OF NET DEBT
Net debt
Current assets
Cash and cash equivalents
Current liabilities
Borrowings
Obligations under finance leases
Non-current liabilities
Borrowings
Obligations under finance leases
Total net debt
30 November
2014
£m
1 December
2013
£m
Notes
3.9
4.2
4.3
4.2
4.3
76.3
110.5
(4.4)
(26.5)
(30.9)
(2.3)
(142.5)
(144.8)
(99.4)
(3.3)
(25.0)
(28.3)
(6.2)
(126.9)
(133.1)
(50.9)
167
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS continued
4.4 ANALYSIS OF NET DEBT continued
Net cash is £31.4 million (2013: £61.8 million), excluding finance lease obligations of £130.8 million (2013: £112.7 million)
payable to MHE JV Co, a joint venture company. £2.3 million (2013: £1.7 million) of the Group’s cash and cash equivalents are
considered to be restricted and are not available to circulate within the Group on demand. For more information see Note 3.9.
Reconciliation of net cash flow to movement in net debt
Net (decrease)/increase in cash and cash equivalents
Net decrease in debt and lease financing
Non-cash movements:
— Assets acquired under finance lease
— Debt settled by third party
— Net movement in arrangement fees charged against loans
Movement in net debt in the period
Opening net debt
Closing net debt
4.5 FINANCE INCOME AND COSTS
Accounting policies
Borrowing costs
30 November
2014
£m
1 December
2013
£m
(34.2)
33.4
(47.7)
—
—
(48.5)
(50.9)
(99.4)
20.9
24.1
(122.4)
85.3
(3.6)
4.3
(55.2)
(50.9)
Borrowing costs which are directly attributable to the acquisition or construction of qualifying assets are capitalised. They are defined as
the borrowing costs that would have been avoided if the expenditure on the qualifying asset had not been made. All other borrowing
costs which are not capitalised are charged to finance costs, using the effective interest rate method.
Finance income and costs
Interest income is accounted for on an accruals basis using the effective interest method.
Finance costs comprise obligations on finance leases and borrowings and are recognised in the period in which they fall due.
Finance income and costs
Interest on cash balances
Finance income
Borrowing costs
— Obligations under finance leases
— Borrowings
Capitalised borrowing costs
Fair value movement in derivative financial instruments
Finance costs
Net finance costs
52 weeks
ended
30 November
2014
£m
52 weeks
ended
1 December
2013
£m
0.4
0.4
(8.7)
(0.9)
—
0.1
(9.5)
(9.1)
0.4
0.4
(4.7)
(3.6)
1.1
(0.2)
(7.4)
(7.0)
The fair value movement in derivative financial instruments arose from fair value adjustments on the Group’s cash flow hedges.
4.6 DERIVATIVE FINANCIAL INSTRUMENTS
Accounting policies
Derivative financial instruments
Derivative financial instruments are initially recognised at fair value on the contract date and are subsequently measured at their fair
value at each balance sheet date. The method of recognising the resulting fair value gain or loss depends on whether the derivative is
designated as a hedging instrument and the nature of the item being hedged. At 30 November 2014 the Group’s derivative financial
instruments consist of forward foreign exchange contracts which are designated as cash flow hedges of highly probable forecast
transactions.
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4.6 DERIVATIVE FINANCIAL INSTRUMENTS continued
The Group documents at the inception of the hedge the relationship between hedging instruments and hedged items, the risk
management objectives and strategy and its assessment of whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
This assessment is performed retrospectively at each financial reporting period. Movements on the hedging reserve within shareholders’
equity are shown in the Consolidated statement of comprehensive income. The full fair value of hedging derivatives is classified as
current when the remaining maturity of the hedged item is less than 12 months.
Cash flow hedging
The effective portion of changes in the fair value of derivatives that are designated as cash flow hedges and qualify for hedge
accounting is recognised in other comprehensive income. Amounts accumulated through other comprehensive income are recycled in
the income statement in the periods when the hedged item affects profit or loss. When the hedged forecast transaction results in the
recognition of property, plant and equipment, the gains or losses previously deferred in equity are included in the initial cost of the asset
and are ultimately recognised in profit or loss within the depreciation expense. During the period all the Group’s cash flow hedges were
100% effective and there is therefore no ineffective portion recognised in profit or loss.
Derivative liability
Forward foreign exchange contracts (cash flow hedges)
Forward foreign exchange contracts
30 November
2014
£m
1 December
2013
£m
(0.2)
(0.2)
(0.2)
(0.2)
The notional principal amounts of the outstanding forward foreign exchange contracts at 30 November 2014 were €3.8 million (2013:
€21.8 million). The corresponding amount in sterling as at 30 November 2014 was £3.2 million (2013: £18.3 million).
The hedged highly probable forecast transactions denominated in foreign currency are expected to occur at various dates during the next
three months. Cumulative gains and losses recognised in the hedging reserve within other comprehensive income are £0.4 million of
losses (2013: £0.4 million of gains). These gains are recognised in the income statement in periods during which the hedged forecast
transaction affects the income statement, which for property, plant and equipment is over the useful life of the asset (3 to 10 years).
Interest rate swaps
In the previous financial year, the Group terminated all interest rate swaps upon repayment and cancellation of the £100 million credit
facility. As a result, there were no notional amounts of interest rate swaps as at 30 November 2014, nor as at 1 December 2013.
4.7 FINANCIAL INSTRUMENTS
Accounting policies
Financial assets and financial liabilities are recognised on the Balance sheet when the Group becomes a party to the contractual
provisions of the instrument.
The Group classifies its financial instruments in the following categories:
• Available-for-sale;
• Loans and receivables;
• Other financial liabilities at amortised cost; and
• Financial assets and liabilities at fair value through profit or loss.
The classification depends on the purpose for which the financial assets and liabilities were acquired. Management determines the
classification of its financial instruments at initial recognition or in certain circumstances on modification.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the Balance sheet when there is a legally enforceable right to
offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS continued
4.7 FINANCIAL INSTRUMENTS continued
Impairment of financial assets
Assets carried at amortised cost
The Group assesses whether there is objective evidence that a financial asset is impaired at the end of each reporting period. A financial asset
is impaired and an impairment loss recognised if there is objective evidence of impairment as a result of a loss event that occurred after the
initial recognition of the asset and the loss event has an impact on the estimated future cash flows of the financial assets that can be reliably
estimated. The criteria that the Group uses to determine that there is objective evidence of an impairment loss include but are not limited to:
• Financial difficulty indicators;
• Breach of contract such as missed payments;
• Fraud;
• Bankruptcy; and
• Disappearance of an active market.
The amount of the loss is measured as the difference between the asset’s carrying value and the present value of estimated future cash
flows discounted at the financial asset’s original effective interest rate. The asset’s carrying value is reduced and the loss recognised in the
income statement.
If, in a subsequent period, the impairment loss decreases and the decrease can be related objectively to an event occurring after the
impairment was recognised, the reversal of the previously recognised impairment loss is recognised in the Income statement.
Available-for-sale financial assets
Equity investments classified as available-for-sale and held at cost are reviewed annually to identify if an impairment loss has occurred.
The amount of the impairment loss is measured as the difference between the carrying value of the financial asset and the present value
of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses recognised in
the income statement on equity investments are not reversed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments carried at fair value in the Balance Sheet comprise the derivative assets and liabilities — see Note 4.6. The Group
uses the following hierarchy for determining and disclosing the fair value of these financial instruments:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
• Inputs other than quoted prices that are observable for the asset and liability, either directly or indirectly (level 2);
• Inputs for the assets or liabilities that are not based on observable market data (level 3).
The Group’s derivative assets and liabilities are all classified as level 2.
Set out below is a comparison by category of carrying values and fair values of all financial instruments that are included in the financial statements:
Financial assets
Cash and cash equivalents
Trade receivables
Other receivables (incl. accrued income, excl. prepayments)
Available-for-sale financial asset
Total financial assets
Financial liabilities
Trade payables
Accruals
Borrowings
Finance lease obligations
Derivative liabilities
Total financial liabilities
170
30 November 2014
1 December 2013
Carrying value
£’000
Notes
Fair value
£’000
Carrying value
£’000
Fair value
£’000
3.9
3.8
3.8
3.3
3.10
3.10
4.2
4.3
4.6
76.3
9.6
26.9
0.4
113.2
(61.3)
(46.6)
(6.7)
(169.0)
(0.2)
(283.8)
76.3
9.6
26.9
0.4
113.2
(61.3)
(46.6)
(6.7)
(169.0)
(0.2)
(283.8)
110.5
23.1
17.1
0.4
151.1
(53.0)
(42.0)
(9.5)
(151.9)
(0.2)
(256.6)
110.5
23.1
17.1
0.4
151.1
(53.0)
(42.0)
(9.6)
(152.0)
(0.2)
(256.8)
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9
4.7 FINANCIAL INSTRUMENTS continued
The derivative liabilities relate to forward foreign exchange contracts.
The Group’s only available-for-sale financial asset consists of an unlisted equity investment of which the fair value cannot be reliably
determined, and which is therefore measured at cost. There has been no movement in this investment during the period.
The fair values of cash and cash equivalents, receivables, payables and accruals of a maturity of less than one financial period are
assumed to approximate to their carrying values but for completeness are included in this analysis.
The interest rate used to discount borrowings is based on a LIBOR plus margin measure blended for the type of security offered and was
calculated as 3.0% (2013: 3.0%).
The fair values of all other financial assets and liabilities have been calculated by discounting the expected future cash flows at prevailing
market interest rates.
The Group has categorised its financial instruments as follows:
As at 1 December 2013
Financial assets as per the Balance sheet
Cash and cash equivalents
Trade and other receivables (excluding
prepayments)
Available-for-sale financial asset
Total
Financial liabilities as per the Balance sheet
Trade payables
Accruals
Borrowings
Obligations under finance leases
Derivative liabilities
Total
As at 30 November 2014
Financial assets as per the Balance sheet
Cash and cash equivalents
Trade and other receivables (excluding
prepayments)
Available-for-sale financial asset
Total
Financial liabilities as per the Balance sheet
Trade payables
Accruals
Borrowings
Obligations under finance leases
Derivative liabilities
Total
Available-
for-sale
£m
Loans and
receivables
£m
Financial
liabilities at
amortised cost
£m
Financial
liabilities at
fair value
through profit
and loss
£m
—
110.5
—
0.4
0.4
—
—
—
—
—
—
40.1
—
150.6
—
—
—
—
—
—
—
—
—
—
53.0
42.0
9.5
151.9
—
256.4
—
—
—
—
—
—
—
—
0.2
0.2
Available-
for-sale
£m
Loans and
receivables
£m
Financial
liabilities at
amortised cost
£m
Financial
liabilities at fair
value through
profit and loss
£m
—
—
0.4
0.4
—
—
—
—
—
—
76.3
36.5
—
112.8
—
—
—
—
—
—
—
—
—
—
61.3
46.6
6.7
169.0
—
283.6
—
—
—
—
—
—
—
—
0.2
0.2
Notes
3.9
3.8
3.3
3.10
3.10
4.2
4.3
4.6
Notes
3.9
3.8
3.3
3.10
3.10
4.2
4.3
4.6
Total
£m
110.5
40.1
0.4
151.0
53.0
42.0
9.5
151.9
0.2
256.6
Total
£m
76.3
36.5
0.4
113.2
61.3
46.6
6.7
169.0
0.2
283.8
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS continued
4.8 CREDIT RISK
Credit risk
The Group’s exposures to credit risk arise from holdings of cash and cash equivalents, trade and other receivables (excluding
prepayments) and derivative assets.
Exposure to credit risk
The carrying value of these financial assets, as set out in Note 4.7, represents the maximum credit exposure. No collateral is held as
security against these assets.
Cash and cash equivalents
The Group’s exposure to credit risk on cash and cash equivalents is managed by investing in banks and financial institutions with strong
credit ratings and by regular review of counterparty risk.
Trade and other receivables
Trade and other receivables at the period end comprise mainly monies due from suppliers, which are considered of a good credit
quality, as well as VAT receivables. The Group provides for doubtful receivables in respect of monies due from suppliers.
The Group has very low retail credit risk due to transactions being principally of a high volume, low value and short maturity. The Group
has effective controls over this area. The Group has allowed for doubtful receivables in respect of consumer sales by reviewing the
ageing profile and, based on prior experience, assessing the recoverability of overdue balances.
Movements in the allowance for the impairment of trade and other receivables are as follows:
At the beginning of the period
Provision for impairment of receivables
Uncollectable amounts written off
Recovery of amounts previously provided
At the end of the period
4.9 LIQUIDITY RISK
30 November
2014
£m
1 December
2013
£m
Notes
(0.5)
(2.5)
(0.5)
0.5
(3.0)
(0.3)
(0.2)
—
—
(0.5)
3.8
The Group has adequate cash resources to manage the short-term working capital needs of the business. The Group may need to
negotiate sufficient future financing arrangements, however in the year a 3-year £100 million revolving facility was entered into with
Barclays, HSBC, RBS and Santander, and as at 30 November 2014 the facility remained unutilised.
The Group monitors its liquidity requirements to ensure it has sufficient cash to meet operational needs. For further details see Note 4.13.
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period to the
contractual maturity date at the Balance sheet date. The amounts disclosed in the table are the carrying values and undiscounted
contractual cash flows.
Financial liabilities
Trade payables
Accruals
Borrowings
Obligations under finance leases
Derivative liabilities
1 December 2013
Notes
3.10
3.10
4.2
4.3
4.6
Carrying
value
£m
Contractual
cash flows
£m
(53.0)
(42.0)
(9.5)
(151.9)
(0.2)
(256.6)
(53.0)
(42.0)
(10.3)
(185.7)
(0.2)
(291.2)
1 year
or less
£m
(53.0)
(42.0)
(3.7)
(31.9)
(0.2)
(130.8)
1–2
years
£m
—
—
(4.3)
(26.8)
—
(31.1)
2–5
years
£m
—
—
(2.3)
(59.4)
—
(61.7)
More than
5 years
£m
—
—
—
(67.6)
—
(67.6)
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4.9 LIQUIDITY RISK continued
Financial liabilities
Trade payables
Accruals
Borrowings
Obligations under finance leases
Derivative liabilities
30 November 2014
4.10 MARKET RISK
Currency risk
Notes
3.10
3.10
4.2
4.3
4.6
Carrying
value
£m
Contractual
cash flows
£m
(61.3)
(46.6)
(6.7)
(169.0)
(0.2)
(283.8)
(61.3)
(46.6)
(6.9)
(205.6)
(0.2)
(320.6)
1 year
or less
£m
(61.3)
(46.6)
(4.5)
(34.9)
(0.2)
(147.5)
1–2
years
£m
—
—
(1.9)
(29.3)
—
(31.2)
2–5
years
£m
—
—
(0.5)
(70.4)
—
(70.9)
More than
5 years
£m
—
—
—
(71.0)
—
(71.0)
The Group has foreign currency exposure in relation to its foreign currency trade payables and a portion of its cash and cash equivalents.
Foreign currency trade payables arise principally on purchases of plant and equipment. Euro bank accounts are maintained in order to
minimise the Group’s exposure to fluctuations in the euro relating to current and future purchases of plant and equipment. Forward foreign
exchange contracts are entered into to hedge future purchases of plant and equipment in Euro.
The Group’s exposure to currency risk is based on the following amounts:
Cash and cash equivalents — EUR
Cash and cash equivalents — PLN
Trade payables at period end — EUR
Trade payables at period end — USD
Derivative liability (forward foreign exchange contracts) — EUR
30 November
2014
£m
1 December
2013
£m
0.7
0.3
(0.4)
(0.1)
(0.2)
0.3
0.6
0.1
(3.4)
—
(0.2)
(2.9)
The table below shows the Group’s sensitivity to changes in foreign exchange rates on its euro-related financial instruments:
10% appreciation of the euro
10% depreciation of the euro
30 November 2014
1 December 2013
Increase/
(decrease) in
income
£m
Increase/
(decrease) in
equity
£m
Increase/
(decrease) in
income
£m
Increase/
(decrease) in
equity
£m
(0.1)
0.1
0.3
(0.3)
(0.4)
0.4
1.8
(1.8)
A movement of the euro, as indicated, against sterling at 30 November 2014 would have increased/(decreased) equity and profit or
loss by the amounts detailed above. This analysis is based on foreign currency exchange rate variances that the Group considered to be
reasonably possible at the end of the period. The analysis assumes that all other variables remain constant.
Interest rate risk
The Group is exposed to interest rate risk on its floating rate interest bearing borrowings and floating rate cash and cash equivalents. The
Group’s interest rate risk policy seeks to minimise finance charges and volatility by structuring the interest rate profile into a diversified portfolio of
fixed rate and floating rate financial assets and liabilities. Interest rate risk on floating rate interest bearing borrowings is not significant.
At the Balance sheet date the interest rate profile of the Group’s interest bearing financial instruments was:
30 November
2014
£m
1 December
2013*
£m
Fixed rate instruments
Financial assets
Financial liabilities
Variable rate instruments
Financial assets
Financial liabilities
50.8
(169.0)
25.5
(6.7)
* A financial liability with a value of £112.7 million as at 1 December 2013 has been reclassified from variable rate instruments to fixed rate instruments.
76.4
(153.8)
34.0
(7.5)
173
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS continued
4.10 MARKET RISK continued
Sensitivity analysis
An increase of 100 basis points (1.0%) in interest rates would increase equity and profit or loss by the amounts shown below. A rate of
100 basis points was assessed as being appropriate, considering the current short-term interest rate outlook. The calculation applies the
increase to average floating rate interest bearing borrowings and cash and cash equivalents existing during the period. This analysis
assumes that all other variables remain constant and considers the effect on financial instruments with variable interest rates.
Equity
Gain
Income
Gain
4.11 SHARE CAPITAL AND RESERVES
Accounting policy
30 November
2014
£m
1 December
2013
£m
—
0.1
—
0.1
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Share capital and reserves
As at 30 November 2014, the number of ordinary shares available for issue under the Block Listing Facilities was 19,094,500 (2013:
6,221,636). These ordinary shares will only be issued and allotted when the shares under the relevant share incentive plan have been
awarded or the share options under the Group’s executive share ownership scheme and non-employee share options and Sharesave
schemes have been exercised. They are therefore not included in the total number of ordinary shares outstanding below.
The movements in the called up share capital and share premium accounts are set out below:
At 2 December 2012
Issues of ordinary shares
At 1 December 2013
Issues of ordinary shares
Allotted in respect of Joint Share Ownership Scheme
Allotted in respect of share option schemes
At 30 November 2014
Ordinary
shares
Number of
shares
(million)
614.6
3.1
617.7
0.5
—
2.7
620.9
Ordinary
shares
£m
12.3
0.1
12.4
—
—
0.1
12.5
Share
premium
£m
247.8
3.7
251.5
0.1
0.2
3.3
255.1
Included in the total number of ordinary shares outstanding above are 34,810,561 (2013: 35,249,176) ordinary shares held by the
Group’s employee benefit trust (see Note 4.11(a)). The ordinary shares held by the trustee of the Group’s employee benefit trust pursuant
to the Joint Share Ownership scheme are treated as treasury shares in the Consolidated balance sheet in accordance with IAS 32
‘‘Financial Instruments: Presentation’’. These ordinary shares have voting rights but these have been waived by the trustee (although the
trustee may vote in respect of shares that have vested and remain in the trust). The number of allotted, called up and fully paid shares,
excluding treasury shares, at the end of each period differs from that used in the basic profit/(loss) per share calculation in Note 2.9 as
basic profit/(loss) per share is calculated using the weighted average number of ordinary shares in issue during the period, excluding
treasury shares.
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4.11 SHARE CAPITAL AND RESERVES continued
The movements in reserves other than share premium are set out below:
At 2 December 2012
Movement on derivative financial instrument
Reacquisition of interest in treasury shares
At 1 December 2013
Movement on derivative financial instrument
Reacquisition of interest in treasury shares
At 30 November 2014
(a) Treasury shares reserve
Notes
4.11(b)
4.11(a)
4.11(b)
4.11(a)
Treasury
shares
reserve
£m
(53.9)
—
1.5
(52.4)
—
0.6
(51.8)
Reverse
acquisition
reserve
£m
(116.2)
—
—
(116.2)
—
—
(116.2)
Fair value
reserve
£m
(0.7)
0.6
—
(0.1)
(0.2)
—
(0.3)
This reserve arose when the Group issued equity share capital under its JSOS, which is held in trust by the trustee of the Group’s
employee benefit trust. Treasury shares cease to be accounted for as such when they are sold outside the Group or the interest is
transferred in full to the participant pursuant to the terms of the JSOS. Participant interests in unexercised shares held by participants are
not included in the calculation of treasury shares; unvested interests of leavers which have been reacquired by the Group’s employee
benefit trust during the period are now accounted for as treasury shares. See Note 4.12(b) for more information on the JSOS.
(b) Other reserves
The fair value reserve comprises gains and losses on movements in the Group’s cash flow hedges, which consist of foreign currency and
interest rate hedges.
The acquisition by the Company of the entire issued share capital in 2010 of Ocado Limited was accounted for as a reverse acquisition
under IFRS 3 (revised). Consequently the previously recognised book values and assets and liabilities have been retained and the
consolidated financial information for the period to 30 November 2014 has been presented as if the Company had always been the
parent company of the Group.
4.12 SHARE-BASED PAYMENTS
Accounting policies
Employee benefits
Employees (including Directors) of the Group receive part of their remuneration in the form of share-based payments, whereby,
depending on the scheme, employees render services in exchange for rights over shares (“equity-settled transactions”) or entitlement to a
future cash payment (“cash-settled transactions”).
The cost of equity-settled transactions with employees is measured, where appropriate, with reference to the fair value at the date
on which they are granted. Where options need to be valued an appropriate valuation model is applied. The expected life used
in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and
behavioural considerations.
The cost of cash-settled transactions is measured with reference to the fair value of the liability, which is taken to be the closing price
of the Company’s shares. Until the liability is settled it is remeasured at the end of each reporting period and at the date of settlement,
with any changes in the fair value being recognised in the Income statement for the period. For more details please refer to Note 3.11
Provisions — Employee incentive schemes.
The cost of equity-settled transactions is recognised, along with a corresponding increase in equity, over the years in which the performance
conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“vesting date”). The cost of
cash-settled transactions is recognised, along with a corresponding provision for the expected cash settlement, over the vesting period.
At each reporting date, the cumulative expense recognised for equity-settled transactions reflects the extent to which the vesting period
has expired and the number of awards that, in the opinion of management, will ultimately vest. Management’s estimates are based on
the best available information at that date.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market
condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance
conditions are satisfied.
175
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS continued
4.12 SHARE-BASED PAYMENTS continued
The Group has exposure in respect of cash-settled share-based payment transactions and share-based payment transactions with cash
alternatives as defined by IFRS 2 “Share-Based Payment” in respect of bad leaver provisions in the Group’s JSOS and the Cash LTIP (see
Note 3.11 Provisions). National insurance contribution (NIC) obligations arising from cash-settled schemes and HMRC unapproved
equity-settled schemes are treated as if they are cash settled, regardless of the actual cash/equity determination of the scheme itself.
SHARE OPTIONS AND OTHER EQUITY INSTRUMENTS
The Group operates various employee share incentive schemes, namely the Executive Share Ownership Scheme (the “ESOS”), the Joint
Share Ownership Scheme (the “JSOS”), the Sharesave Scheme, the Long Term Incentive Plan (“LTIP”), the Growth Incentive Plan (“GIP”)
and the share incentive plan (“SIP”). The Group also operates a cash-settled incentive scheme, the Cash LTIP.
The total expense for the period relating to employee share-based payment plans was £6.0 million (2013: £3.3 million), of which £4.4
million related to equity-settled share-based payment transactions and £1.6 million as a provision for the payment of employers’ NIC
upon allotment of HMRC unapproved equity-settled share schemes and for the Cash LTIP (see Note 3.11 Provisions for further details).
(a) ESOS
The Group’s ESOS is an equity-settled share option scheme approved by HMRC. Options have also be granted under the terms of
HMRC’s schedule, which is not approved. The ESOS was established by Ocado in 2001.
Under the ESOS, Ocado or the trustees of an employee trust may grant options over shares in the Company to eligible employees. The
eligible employees to whom options are granted and the terms of such options will be determined by the Directors of Ocado or the
trustees. The employees who are eligible to participate in the ESOS are all Ocado’s Executive Directors and employees, including the
employees of the Company’s subsidiaries. Options are not transferable. The exercise price of options may not be less than the market
value of the Company’s shares on the date of grant. If the trustees or the Directors have determined that the exercise of an option will be
satisfied by the issue of ordinary shares, the exercise price may also not be less than the nominal value of ordinary shares.
The Directors of Ocado or the trustees may impose a performance target and any further condition determined to be appropriate on the
exercise of an option. In most cases any performance target must be measured over a period of at least three years. There are currently
no options granted which are subject to performance targets that have not yet been met. The vesting period for the ESOS is three years.
If the options remain unexercised after a period of ten years from the date of grant or the employee leaves the Group, the options expire
(subject to a limited number of exceptions).
At each respective Balance sheet date the outstanding options were as follows:
Year of
issue
30 November
2014
Exercise
price (£)
1 December
2013
Exercise
price (£)
Approved
Total approved options
176
2004
2005
2005
2006
2006
2007
2008
2008
2009
2009
2010
2011
2011
2012
2012
2012
2013
2013
2014
2014
2014
—
85,333
4,782
8,086
5,960
107,527
26,570
52,358
49,039
201,311
230,958
125,269
265,581
372,278
681,389
817,864
661,462
210,343
65,585
453,353
1,278
4,426,326
0.90
1.00
1.15
1.40
1.50
1.50
1.35
1.20
1.20
1.35
1.65
1.89
2.55
0.85
1.03
1.05
1.28
3.02
5.10
4.84
3.36
28,923
115,109
13,752
9,145
9,205
128,129
38,545
86,927
51,772
279,714
333,623
181,271
584,993
417,070
786,556
850,732
856,442
291,669
—
—
—
5,063,577
0.90
1.00
1.15
1.40
1.50
1.50
1.35
1.20
1.20
1.35
1.65
1.89
2.55
0.85
1.03
1.05
1.28
3.02
—
—
—
Exercise period
31/05/07–29/11/14
31/05/08–29/11/15
31/05/08–30/05/15
31/05/09–30/05/16
30/11/09–29/11/16
31/05/10–29/11/17
31/05/11–30/05/18
30/11/11–29/11/18
31/05/12–30/05/19
02/11/12–29/11/19
30/06/13–29/06/20
19/07/14–18/07/21
14/02/14–13/02/21
27/06/15–26/06/22
21/02/15–13/02/22
09/03/15–08/03/22
05/03/16–04/03/23
08/07/16–07/07/23
05/02/14–04/02/24
17/03/14–16/03/24
01/08/14–31/07/24
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9
4.12 SHARE-BASED PAYMENTS continued
Year of
issue
30 November
2014
Exercise
price (£)
Unapproved
Total unapproved options
Total
2005
2005
2007
2009
2012
2014
2014
2014
—
354,150
50,833
122,600
135,166
13,512
29,962
25,756
731,979
5,158,305
1.00
1.15
1.50
1.20
1.05
3.27
3.36
4.84
1 December
2013
754
582,950
50,833
122,600
112,076
—
—
—
869,213
5,932,790
Exercise
price (£)
1.00
1.15
1.50
1.20
1.05
—
—
—
Exercise period
30/11/08–29/11/15
16/05/08–29/11/15
31/05/10–30/05/17
31/05/12–30/05/19
09/03/15–08/03/22
08/08/14–07/08/24
01/08/14–31/07/24
17/03/14–16/03/24
Of the total employee share options above, the following options were subject to performance criteria in relation to the average
contribution by basket and EBITDA:
30 November 2014
1 December 2013
Year of
issue
2005
2009
Number of
share options
Exercise
price (£)
Number of
share options
31,116
139,600
170,716
1.15
1.20
53,001
139,600
192,601
Exercise
price (£)
1.15
1.20
Exercise period
31/05/08–30/05/15
31/05/12–30/05/19
Total options subject to
performance criteria
Details of the movement in the number of share options outstanding during each period are as follows:
Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
30 November 2014
1 December 2013
Number of
share options
5,932,790
603,779
(522,409)
(855,855)
5,158,305
1,690,357
Weighted
average
exercise
price (£)
1.42
4.75
1.66
1.73
1.73
1.55
Number of
share options
8,835,578
1,479,220
(1,722,506)
(2,659,502)
5,932,790
1,895,710
Weighted
average
exercise
price (£)
1.33
1.71
1.56
1.31
1.42
1.31
Since the Company’s Admission, the market value of the Company’s shares at each option grant date was taken to be the closing mid-
market price of the shares on the day prior to issuance. Prior to the Admission, the market value of the Company’s shares was derived
based on the market value of similar companies and by taking into account transactions with shareholders during the relevant period.
The Share Valuation Office of HMRC has confirmed in correspondence that in respect of options granted prior to Admission, the exercise
price was not less than the market value of the Company’s shares at each option grant date.
For exercises during the period, the weighted average share price at the date of exercise was £4.64 (2013: £2.92).
In determining the fair value of the share options granted during the period, the Black–Scholes Option Pricing Model was used with the
following inputs:
Weighted average share price
Weighted average exercise price
Expected volatility
Weighted expected life — years
Risk-free interest rate
Expected dividend yield
30 November
2014
1 December
2013
£4.75
£4.75
0.40
3.00
1.2%
0.0%
£1.71
£1.71
0.25
3.00
3.5%
0.0%
177
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS continued
4.12 SHARE-BASED PAYMENTS continued
Given the immaturity of the Company’s share history, the expected volatility was determined by considering the historic performance
of the shares of a basket of companies similar to and including the Company. The expected life used in the model has been adjusted,
based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. All share
awards under the ESOS are equity-settled.
The weighted average remaining contractual lives for outstanding share options under the ESOS are as follows:
30 November 2014
1 December 2013
Exercise price
(£)
Number of
share options
Weighted
average
remaining
contractual life
(years)
Exercise price
(£)
Number of
share options
Weighted
average
remaining
contractual life
(years)
0.85
0.90
1.00
1.03
1.05
1.15
1.20
1.28
1.35
1.40
1.50
1.65
1.89
2.55
3.02
3.27
3.36
4.84
5.10
372,278
—
85,333
681,389
953,030
358,932
223,997
661,462
227,881
8,086
164,320
230,958
125,269
265,581
210,343
13,512
31,240
479,109
65,585
5,158,305
7.6
—
0.9
7.2
7.3
0.5
4.4
8.3
4.8
1.5
2.6
5.6
6.6
6.2
8.6
9.7
9.7
9.3
9.2
0.85
0.90
1.00
1.03
1.05
1.15
1.20
1.28
1.35
1.40
1.50
1.65
1.89
2.55
3.02
—
—
—
—
417,070
28,923
115,863
786,556
962,808
596,702
261,299
856,442
318,259
9,145
188,167
333,623
181,271
584,993
291,669
—
—
—
—
5,932,790
8.6
0.8
1.9
8.2
8.3
1.5
5.4
9.3
5.8
2.5
3.6
6.6
7.6
7.2
9.6
—
—
—
—
Outstanding at the end of the period
(b) JSOS
The JSOS is an executive incentive scheme which was introduced to incentivise and retain its Executive Directors and select members
of senior management of the Group (the “Participants”). It is a share ownership scheme under which the Participants and Appleby Trust
(Jersey) Limited, the Employee Benefit Trust Trustee, held at the Balance sheet date separate beneficial interests in 34,810,561 (2013:
35,249,176) ordinary shares which represents 5.6% (2013: 5.7%) of the issued share capital of the Company. Of these ordinary
shares, 1,453,254 (2013: 1,453,254) are held by the Employee Benefit Trust on an unallocated basis.
Nature of interests
Interests take the form of a restricted interest in ordinary shares in the Company (the “Interest”). An Interest permits a Participant to benefit
from the increase (if any) in the value of a number of ordinary shares in the Company (“Shares”) over specified threshold amounts. In
order to acquire an Interest, a Participant must enter into a joint share ownership agreement with the Employee Benefit Trust Trustee, under
which the Participant and the Employee Benefit Trust Trustee jointly acquire the Shares and agree that once all vesting conditions have
been satisfied the participant is awarded a specific number of Shares equivalent to the benefit achieved, or at their discretion, when the
Shares are sold, the Participant has a right to receive a proportion of the sale proceeds insofar as the value of the Shares exceeds the
threshold amount.
178
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4.12 SHARE-BASED PAYMENTS continued
Participants
In prior periods Interests were acquired by the Participants under the first JSOS scheme (“JSOS1”) in 32,476,700 Shares at an issue
price of £1.50 per share, and the second group of Participants’ JSOS scheme (“JSOS2”) in 3,990,799 Shares at an issue price of
£1.70 per share. In the prior period, 2,953,675 Shares in which interests of Participants have lapsed were reallocated to the third
group of Participants under the JSOS scheme (“JSOS3”). For JSOS1 and JSOS2 there are four tranches, each with their own hurdle price.
For JSOS3 there are two tranches, each with their own hurdle price.
JSOS1
JSOS2
JSOS3
Tranche
Vesting
date
Hurdle
value
%
of issue
price
Tranche
Vesting
date
Hurdle
value
%
of issue
price
Tranche
Vesting
date
Hurdle
value
1 (2011)
Jan 11
£1.73
115%
1 (2012)
June 12
£1.96
115%
1 (2013)
Jan 13
£1.70
2 (2012)
3 (2013)
4 (2014)
Jan 12
Jan 13
Jan 14
£1.91
£2.08
£2.28
127%
139%
152%
2 (2013)
3 (2014)
4 (2015)
June 13
June 14
June 15
£2.15
£2.36
£2.59
127%
139%
152%
2 (2014)
—
—
Jan 14
—
—
£1.80
—
—
% of
market
price
230%–
265%
244%–
280%
—
—
For JSOS1, Participants were required to purchase their Interest for 2.0% of the issue price. For JSOS2, the price was in a range of 7.1%
to 10.8%, and for JSOS3, the price was in a range of 1.47% to 1.70% of the share price at date of issue. When an Interest vests, the
Employee Benefit Trust Trustee will transfer Shares to the Participant of equal value to the Participant’s Interest or the Shares will be sold
and the Employee Benefit Trust Trustee will account to the Participant for the balance, i.e. the difference between the sale proceeds (less
expenses) and the hurdle price.
Vesting conditions
The vesting of the Interests granted to Participants is subject to a time vesting condition, as detailed above.
The fair value of the Interests awarded under the JSOS was determined using the Black–Scholes Option Pricing Model. As per IFRS 2
“Share-Based Payment”, market-based vesting conditions and the share price target conditions in the JSOS have been taken into account in
establishing the fair value of the equity instruments granted. Other non-market or performance-related conditions were not taken into account
in establishing the fair value of equity instruments granted; instead, these non-market vesting conditions are taken into account by adjusting
the number of equity instruments included in the measurement of the transaction amount so that ultimately the amount recognised for services
received as consideration for the equity instruments granted is based on the number of equity instruments that will eventually vest.
In determining the fair value of the Interests granted, the Black–Scholes Option Pricing Model was used with the following inputs:
JSOS1
Weighted average Share price
Weighted average exercise price
Expected volatility
Weighted expected life — years
Risk-free interest rate
Expected dividend yield
JSOS2
Weighted average Share price
Weighted average exercise price
Expected volatility
Weighted expected life — years
Risk-free interest rate
Expected dividend yield
Tranche 1
Tranche 2
Tranche 3
Tranche 4
£1.35
£1.73
0.25
0.91
3.5%
0.0%
£1.35
£1.91
0.25
1.91
3.5%
0.0%
£1.35
£2.08
0.25
2.91
3.5%
0.0%
£1.35
£2.28
0.25
3.91
3.5%
0.0%
Tranche 1
Tranche 2
Tranche 3
Tranche 4
£1.70
£1.96
0.25
1.0
3.5%
0.0%
£1.70
£2.15
0.25
2.0
3.5%
0.0%
£1.70
£2.36
0.25
3.0
3.5%
0.0%
£1.70
£2.59
0.25
4.0
3.5%
0.0%
179
Our FinancialsStock Code: OCDOwww.ocadogroup.com23698-04 29-01-2015 PROOF 9 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS continued
4.12 SHARE-BASED PAYMENTS continued
Expected volatility was determined by comparing the Company to a basket of others of a similar size or which operate in a similar
industry.
As the Interests in JSOS3 were reallocated from lapsed Interests in JSOS1 and JSOS2, the fair value of those Interests had been
calculated in prior periods using the inputs disclosed in the tables above.
Details of the movement in the number of Interests in Shares during each period are as follows:
Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
(c) Non-employee share options
30 November 2014
1 December 2013
Number of
interests in
Shares
33,795,922
—
—
(438,615)
33,357,307
32,503,642
Weighted
average
exercise price
(£)
1.99
—
—
2.02
2.00
1.98
Number of
interests in
Shares
34,851,845
—
—
(1,055,923)
33,795,922
23,934,156
Weighted
average
exercise price
(£)
1.99
—
—
1.82
1.99
1.90
Options to subscribe for ordinary shares and convertible preference shares have been granted by Ocado Limited to non-employees.
These options are equity-settled, and do not have any vesting criteria. As a result of the Group’s restructuring, these options are now held
over ordinary shares in Ocado Group plc.
At each respective Balance sheet date the outstanding options were as follows:
Date of issue
Feb 02
Jan 04
Outstanding at the end of the period
30 November 2014
1 December 2013
Number of
share options
—
435,300
435,300
Exercise
price (£)
0.90
1.03
Number of
share options
886,700
435,300
1,322,000
Exercise
price (£)
0.90
1.03
Exercise period
04/02/02–04/02/17
03/01/04–03/01/18
Details of the movement in the number of non-employee share options outstanding during each period are as follows:
Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
30 November 2014
1 December 2013
Number of
share options
1,322,000
—
—
(886,700)
435,300
435,300
Weighted
average
exercise
price (£)
0.95
—
—
0.90
1.03
1.03
Number of
share options
1,322,000
—
—
—
1,322,000
1,322,000
Weighted
average
exercise
price (£)
0.95
—
—
—
0.95
0.95
The weighted average remaining contractual lives for outstanding non-employee share options are as follows:
30 November 2014
1 December 2013
Weighted
average
remaining
contractual life
(years)
—
3.1
Exercise price
(£)
Number of
share options
0.90
1.03
—
435,300
435,300
Exercise price
(£)
Number of
share options
0.90
1.03
886,700
435,300
1,322,000
Weighted
average
remaining
contractual life
(years)
3.2
4.1
Outstanding at the end of the period
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Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9
4.12 SHARE-BASED PAYMENTS continued
(d) Sharesave Scheme
In 2010 the Group launched the Ocado Group Sharesave Scheme (“SAYE”). This is an HMRC approved scheme and is open to any
person that was an employee or officer of the Group at the launch date. Under the scheme, members save a fixed amount each month
for three years. At the end of the three year period they are entitled to use these savings to buy shares in the Company at a price which
is determined at launch date; 85% of the market value in the case of the Group’s first Sharesave Scheme (“SAYE1”) and 90% of the
market value in the case of the Group’s second Sharesave Scheme (“SAYE2”) and third Sharesave Scheme (“SAYE3”).
At 30 November 2014 employees of the Company’s subsidiaries held 1,528 (2013: 2,049) contracts in respect of options over
3,789,044 (2013: 5,031,578) shares. Details of the movement in the number of Sharesave options outstanding during each period
are as follows:
Outstanding at the beginning of the period
Granted during the period
Forfeited during in the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
(e) Long Term Incentive Plan
30 November 2014
1 December 2013
Number of
share options
5,031,578
—
(286,625)
(955,909)
3,789,044
22,347
Weighted
average
exercise
price (£)
1.61
—
2.37
1.16
1.67
1.39
Number of
share options
4,075,994
1,577,602
(597,671)
(24,347)
5,031,578
—
Weighted
average
exercise
price (£)
0.98
3.01
1.02
1.02
1.61
—
During the prior period, the Group introduced an equity-settled long term incentive plan (“LTIP”) as approved by the Remuneration
Committee and shareholders, under which shares are conditionally awarded to Executive Directors and select members of senior
management. The number of awards issued are calculated based on a percentage of the participants’ salaries and will vest at the end
of a period of three years from the grant date. The final number and proportion of awards expected to vest will depend on achievement
of certain performance conditions. For the 2013 LTIP, the single performance condition is the Group’s earnings before interest, tax and
exceptional items (“EBIT”) for the financial year ending November 2015 and for the 2014 LTIP, the performance conditions are the
Group’s revenue and profit/(loss) per share for the financial year ending December 2016.
The number of awards issued, adjusted to reflect the achievement of the performance conditions, will then vest during 2016 for the
2013 LTIP and 2017 for the 2014 LTIP. Full vesting will only therefore occur where exceptional performance levels have been achieved
and significant shareholder value created. An award will lapse if a participant ceases to be employed within the Group before the
vesting date.
A summary of the status of this LTIP as at 30 November 2014 and changes during the year is presented below:
Outstanding at the beginning of the period
Adjustment to share awards outstanding at the beginning of the period*
Granted during the period
Forfeited during the period
Outstanding at the end of the period
Number of
share awards
30 November
2014
3,365,852
1,582,724
672,808
(533,536)
5,087,848
Number of
share awards
1 December
2013
—
—
3,365,852
—
3,365,852
* The adjustment represents share awards in the prior period to selected members of senior management which were not disclosed in the prior period accounts. This did not
impact the accounting entries.
There were no awards exercisable as at 30 November 2014 nor at 1 December 2013.
The Group recognised an expense of £3.8 million (2013: £2.3 million) related to these awards in the Consolidated income statement
during the year. The expectation of meeting the performance criteria, based upon internal budgets and forecasts, was taken into account
when calculating this expense.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS continued
4.12 SHARE-BASED PAYMENTS continued
(f) Chairman’s Share Matching Award
During the prior period, the Group introduced the equity-settled Chairman’s Share Matching Award, under which a one-off award of
restricted shares were awarded to the Chairman, Lord Rose, on assuming the role of Chairman.
The award condition is based on a personal investment of a minimum of 400,000 shares and continued membership of the Board. This
will vest three years from when the award was approved by the Remuneration Committee. There is no performance criteria to which
vesting is subject.
These shares are restricted from being sold while he is on the Board and the shares are not allowed to be sold until the first anniversary
of his ceasing to be a member of the Board.
A summary of the status of this Chairman’s Share Matching Award as at 30 November 2014 and changes during the year is presented below:
Outstanding at the beginning of the period
Granted during the period
Outstanding at the end of the period
Number of
share awards
30 November
2014
Number of
share awards
1 December
2013
452,284
—
452,284
—
452,284
452,284
The Group recognised an expense of £0.4 million (2013: £0.2 million) related to this award in the Consolidated income statement
during the year.
(g) Growth Incentive Plan
During the period, the Group introduced an equity-settled Growth Incentive Plan (GIP), under which nil cost shares were conditionally
awarded to certain Executive Directors.
The final number and proportion of awards expected to vest will depend on achievement of a performance condition, being the growth
in the Company’s share price relative to the growth in the FTSE 100 Share Index over a five-year performance period.
These awards will vest in 2019. An award will lapse if a participant ceases to be employed within the Group before the vesting date.
Performance will be assessed based on the three-month average share price of the Company and the FTSE 100 Share Index at the end
of the performance period in comparison to the three-month average share price of the Company and the FTSE 100 Share Index prior to
the start of the performance period.
In determining the fair value of the awards granted, a unique Monte Carlo model was used with the following inputs:
Weighted average share price
Value of FTSE 100 index
Expected correlation
Expected volatility of Company
Expected volatility of FTSE 100 Index
Weighted expected life — years
Risk-free rate
Expected dividend yield
Valuation model
30 November
2014
£3.19
6,389.25
29%
40%
16%
5.00
1.96%
0.0%
Monte Carlo Pricing
Expected correlation was determined with reference to the historic share price correlation of the shares in the Company and the FTSE
100 Index over a period commensurate with the terms of the award (i.e. five years).
Expected volatility of the Company was determined by comparing the Company to others of a similar size or which operate in a similar
industry. Expected volatility of the FTSE 100 Index was determined by reference to its historic volatility over a period commensurate with
the terms of the award (i.e. five years). Volatility is a key estimate in determining the fair value of the GIP award, as the overall charge is
most sensitive to changes in this assumption. Management have had regard to an appropriate range of alternative volatility assumptions,
and concluded that a change in the volatility within this range would not have a material impact on the financial statements.
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The use of the Monte Carlo model and calculation of the associated input parameters requires judgement. Therefore management
obtained professional advice to assist in determining the fair value of the awards granted.
A summary of the GIP as at 30 November 2014 and changes during the year is presented below:
Outstanding at the beginning of the year
Granted during the year
Outstanding at the end of the year
There were no awards exercisable as at 30 November 2014.
Number of
share awards
30 November
2014
—
6,000,000
6,000,000
The Group recognised an expense of £0.9 million related to these awards in the Consolidated income statement during the year. The
expectation of meeting the performance criteria was taken into account when calculating this expense.
(h) Share Incentive Plan
During the year, the Group introduced the Ocado Share Incentive Plan (“SIP”). This HMRC approved scheme provides all employees,
including Executive Directors, the opportunity to receive and invest in Company shares. All SIP shares are held in a SIP Trust, administered
by Yorkshire Building Society.
There are two elements in the plan - the Buy As You Earn (“BAYE”) arrangement and the Free Share Award. Under the BAYE, participants
can purchase shares in the Company (“Partnership Shares”) each month using contributions from pre-tax pay, subject to an upper limit.
For every seven shares purchased, the Company gifts the participant one free share (“Matching Shares”).
Under the Free Shares Award shares are given to eligible employees, as a proportion of the annual base pay, subject to a maximum.
Eligible employees are those with three months’ service as at the grant date.
Partnership Shares can be withdrawn from the Plan Trust at any time; however, Matching Shares and Free Shares are subject to a three-
year holding period, during which continuous employment within the Group is required. The Matching Shares will be forfeited if any
corresponding Partnership Shares are removed from the Plan Trust within this three-year period, or if the participant leaves Ocado.
A summary of the status of the SIP as at 30 November 2014 and changes during the year is presented below:
Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Released during the period
Sold during the period
Outstanding at the end of the period
Unrestricted at the end of the period
Partnership
Shares
Matching
Shares
Free Shares
—
53,410
—
(696)
—
52,714
52,714
—
7,283
(94)
—
—
7,189
—
—
400,258
(17,115)
(54)
—
383,089
—
Number of
share awards
2014
Total
—
460,951
(17,209)
(750)
—
442,992
52,714
All Partnership Shares were unrestricted as at 30 November 2014. There were no unrestricted Matching Shares or Free Shares as at 30
November 2014.
In the year, the Group recognised an expense of £0.1 million related to these awards. The expectation of meeting the holding period
was taken into account when calculating this expense.
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FINANCIAL STATEMENTS continued
4.13 CAPITAL MANAGEMENT
The Board’s objective is to maintain an appropriate balance of debt and equity financing to enable the Group to continue as a going
concern, to sustain future development of the business and to maximise returns to shareholders and benefits to other stakeholders.
The Board closely manages trading capital, defined as net assets plus net debt. Net debt is calculated as total debt (obligations under
finance leases and borrowings as shown in the Balance sheet), less cash and cash equivalents. The Group’s net assets at the end of the
period were £218.2 million (2013: £202.4 million) and it had net debt of £99.4 million (2013: £50.9 million).
The main areas of capital management revolve around working capital management and compliance with externally imposed financial
covenants. In the period, the Group entered into a new unsecured three-year Revolving Credit Facility (RCF) with Barclays, HSBC, RBS
and Santander. Throughout the period, the Group has complied with all covenants imposed by lenders. In addition, a key aspect of
capital management was the strategic operating agreement with Morrisons, discussed in Note 5.4.
The components of working capital management include monitoring inventory turn, age of inventory, age of receivables, receivables
days, payables days, balance sheet reforecasting, period projected profit/(loss), weekly cash flow forecasts and daily cash balances.
Major investment decisions are based on reviewing the expected future cash flows and all major capital expenditure requires approval
by the Board. There were no changes in the Group’s approach to capital management during the period.
Given the Group’s commitment to expand the business and the investment required to complete CFC3 and future CFCs, the declaration
and payment of a dividend is not part of the short-term capital management strategy of the Group.
At the Balance sheet date, the Group’s undrawn facilities and cash and cash equivalents were as follows:
Total facilities available
Facilities drawn down†
Undrawn facilities at end of period
Cash and cash equivalents gross of drawn overdraft facility
Notes
4.2
3.9
30 November
2014
£m
1 December
2013
£m
288.7
(175.7)
113.0
76.3
189.3
173.4
(161.5)
11.9
110.5
122.4
† During the prior period, the Group repaid and cancelled its £100 million credit facility. Facilities drawn down also include the leaseback of MHE relating to CFC2 to
MHE JV Co. In the prior period, excluded from the amount of facilities drawn down is £0.1 million relating to capitalised transaction costs. In the current period, there are
£1.1 million of capitalised transaction costs relating to the £100 million revolving credit facility entered into with Barclays, HSBC, RBS and Santander.
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SECTION 5 — OTHER NOTES
5.1 SUBSIDIARIES
The subsidiary undertakings of the Company are set out below. A schedule of interests in all undertakings is filed with the annual return.
Ocado Holdings Limited
Ocado Retail Limited (formerly Ocado Limited)
Ocado Information Technology Limited
Ocado Polska Sp. Z.o.o
Ocado Innovation Limited
Ocado Operating Limited
Ocado Central Services Limited
Speciality Stores Limited
Newco Beauty Limited
Jalapeno Partners Limited
Last Mile Technology Limited
Paws & Purrs Ltd
Ocado Cell in Atlas Insurance PCC Limited
Principal activity
Holding company
Retail
Intellectual property
Technology
Technology
Logistics and Distribution
Business Services
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Retail
Insurance company
Proportion of
share capital
held
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Country of incorporation
England and Wales
England and Wales
Republic of Ireland
Poland
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Malta
In accordance with Section 410(2)(a) of the Companies Act, a full list of subsidiaries was annexed to the 2013 annual return and
submitted to Companies House. A full list of subsidiaries will be submitted to Companies House with the 2014 annual return.
The Group has effective control over the financial and operating activities of the Ocado Cell and therefore consolidates the Ocado Cell
in its financial statements in accordance with SIC 12 “Consolidation — Special Purpose Entities”. The Group uses the Ocado Cell to
provide self-insurance for its vehicle fleet and public and product liability claims.
5.2 COMMITMENTS
CAPITAL COMMITMENTS
Contracts placed for future capital expenditure but not provided for in the financial statements are as follows:
Land and buildings
Property, plant and equipment
Total capital expenditure committed at the end of the period
30 November
2014
£m
1 December
2013
£m
2.9
20.0
22.9
1.0
27.8
28.8
Of the total capital expenditure committed at the current period end, £7.6 million relates to CFC3, £2.5 million relates to phase 2 of
CFC2 and £1.5 million relates to technology related projects. The remainder relates to CFC1 upgrades and fleet expansion.
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FINANCIAL STATEMENTS continued
5.2 COMMITMENTS continued
OPERATING LEASE COMMITMENTS
The Group leases a number of offices, facilities and equipment under non-cancellable operating leases. The leases have varying terms,
escalation clauses and renewal rights.
At 30 November 2014 the ageing profile of future aggregate minimum lease payments under non-cancellable operating leases are as
follows:
Due within one year
Due after one year but less than five
Due after five years
Total commitment
5.3 CONTINGENT LIABILITIES
30 November
2014
£’000
1 December
2013
£’000
12.0
34.6
123.7
170.3
10.0
32.1
115.8
157.9
The Group has contingent liabilities in respect of legal claims arising in the ordinary course of business, all of which the Group expects
will be either covered by its insurances or will not be material in the context of the Group’s financial position.
5.4 RELATED PARTY TRANSACTIONS
Key management personnel
Only the Executive and Non-Executive Directors are recognised as being key management personnel. It is the Board which has
responsibility for planning, directing and controlling the activities of the Group. The key management compensation is as follows:
Salaries and other short-term employee benefits
Salaries and other short-term employee benefits in respect of Directors retired during the year
Share-based payments
52 weeks
ended
30 November
2014
£m
52 weeks
ended
1 December
2013
£m
3.0
0.2
3.7
6.9
3.8
—
1.9
5.7
Further information on the remuneration of Directors and Directors’ interests in ordinary shares of the Company are disclosed in the
Directors’ remuneration report on pages 91 to 129.
Other related party transactions with key management personnel made during the period related to the purchase of professional services
and amounted to £15,000 (2013: £11,000). All transactions were on an arm’s length basis and no period end balances arose as a
result of these transactions.
At the end of the period, there were no amounts owed by key management personnel to the Group (2013: £27,000). The prior period
amounts arose in periods before relevant directorships were obtained.
There were no other material transactions or balances between the Group and its key management personnel or members of their close
family.
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Investment
The following transactions were carried out with Paneltex Limited, a company in which the Group holds a 25% interest. Further
information on the Group’s relationship with Paneltex Limited is provided in Note 3.3.
Purchase of goods
— Plant and machinery
— Consumables
52 weeks
ended
30 November
2014
£m
52 weeks
ended
1 December
2013
£m
—
0.4
0.4
0.1
0.9
1.0
Indirect transactions, consisting of the purchase of plant and machinery through some of the Group’s finance lease counterparties, were
carried out with Paneltex Limited to the value of £7.2 million (2013: £4.0 million).
At period end, the Group owed Paneltex £19,000 (2013: £33,000).
Joint Venture
The following transactions were carried out with MHE JV Co, a joint venture company in which the Group holds a 50% interest:
Sale of assets to MHE JVCo
Capital contributions made to MHE JVCo
Reimbursement of supplier invoices paid on behalf of MHE JVCo
Lease of assets from MHE JVCo
Capital element of finance lease instalments paid to MHE JVCo
Interest element of finance lease instalments accrued or paid to MHE JVCo
52 weeks
ended
30 November
2014
£m
52 weeks
ended
1 December
2013
£m
—
6.5
34.9
31.0
15.7
5.4
116.0
—
—
112.1
0.3
1.9
During the period the Group made a capital contribution of £6.5 million to MHE JVCo and paid lease instalments (including interest)
of £21.1 million to MHE JVCo. 50% of these lease instalments were recovered by the Group from Morrisons. These funds are used by
MHE JVCo to finance the acquisition of CFC2 fixed assets.
Included within trade and other receivables is a balance of £3.5 million owed by MHE JVCo (2013: £12.3 million). £2.7 million of this
relates to a finance lease accrual which is included within other receivables (2013: £nil).
Included within trade and other payables is a balance of £0.8 million owed to MHE JVCo (2013: £8.4 million).
Included within obligations under finance leases is a balance of £130.8 million owed to MHE JVCo (2013: £112.7 million).
No other transactions that require disclosure under IAS 24 “Related Party Disclosures” have occurred during the current financial period.
5.5 POST BALANCE SHEET EVENTS
There have been no significant events, outside the ordinary course of business, affecting the Group since 30 November 2014.
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to the members of Ocado Group plc
REPORT ON THE COMPANY FINANCIAL STATEMENTS
OUR OPINION
In our opinion, Ocado Group plc’s company financial statements (the “financial statements”):
• give a true and fair view of the state of the company’s affairs as at 30 November 2014 and of its cash flows for the 52 week period
(“the period”) then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European
Union and as applied in accordance with the provisions of the Companies Act 2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
WHAT WE HAVE AUDITED
Ocado Group plc’s financial statements comprise:
• the company balance sheet as at 30 November 2014;
• the company statement of cash flows for the period then ended;
• the company statement of changes in equity for the period then ended; and
• the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.
Certain required disclosures have been presented elsewhere in the Annual Report and Accounts, rather than in the notes to the financial
statements. These are cross-referenced from the financial statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and IFRSs as
adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006.
OTHER REQUIRED REPORTING
CONSISTENCY OF OTHER INFORMATION
Companies Act 2006 opinion
In our opinion, the information given in the Strategic Report and the Directors’ Report for the financial period for which the financial
statements are prepared is consistent with the financial statements.
ISAs (UK & Ireland) reporting
Under International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”) we are required to report to you if, in our opinion,
information in the Annual Report and Accounts is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the company acquired in the course of
performing our audit; or
• otherwise misleading.
We have no exceptions to report arising from this responsibility.
ADEQUACY OF ACCOUNTING RECORDS AND INFORMATION AND EXPLANATIONS RECEIVED
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting
records and returns.
We have no exceptions to report arising from this responsibility.
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Directors’ remuneration report — Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration
specified by law are not made. We have no exceptions to report arising from this responsibility.
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
OUR RESPONSIBILITIES AND THOSE OF THE DIRECTORS
As explained more fully in the Statement of Directors’ Responsibilities set out on page 88, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK &
Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility
for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.
WHAT AN AUDIT OF FINANCIAL STATEMENTS INVOLVES
We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately
disclosed;
• the reasonableness of significant accounting estimates made by the directors; and
• the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own
judgements, and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide
a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive
procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies
with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for our report.
OTHER MATTER
We have reported separately on the group financial statements of Ocado Group plc for the 52 week period ended 30 November
2014.
Andrew Latham (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
St Albans
3 February 2015
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as at 30 November 2014
Non-current assets
Investments
Current assets
Other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Provisions
Net current assets
Net assets
Equity
Share capital
Share premium
Retained earnings
Total equity
30 November
2014
£m
1 December
2013
£m
Notes
3.1
3.3
3.4
3.5
3.6
4.1
4.1
488.7
488.7
203.2
53.4
256.6
745.3
(1.2)
(1.6)
(2.8)
253.8
742.5
12.5
254.6
475.4
742.5
482.6
482.6
155.5
97.6
253.1
735.7
(0.5)
—
(0.5)
252.6
735.2
12.4
251.5
471.3
735.2
The Company financial statements on pages 190 to 203 were authorised for issue by the Board of Directors and signed on its behalf
by:
Tim Steiner
Chief Executive Officer
Duncan Tatton-Brown
Chief Financial Officer
Ocado Group plc
Company Registration Number 07098618 (England and Wales)
3 February 2015
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COMPANY STATEMENT OF CASH FLOWS
for the 52 weeks ended 30 November 2014
Cash flow from operating activities
Loss before income tax
Adjustments for:
— Finance income
— Finance costs
Changes in working capital:
— Movement in other receivables
— Movement in trade and other payables
Net cash (outflow)/inflow from operations
Interest paid on behalf of Group undertakings
Net cash (outflow)/inflow from operating activities
Cash flow from investing activities
Interest received
Decrease in short-term investment
Net cash from investing activities
Cash flow from financing activities
Proceeds from issue of ordinary share capital net of transaction costs
Proceeds from borrowings received on behalf of group undertakings
Net cash from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
52 weeks
ended
30 November
2014
£m
52 weeks
ended
1 December
2013
£m
Notes
(0.3)
(0.4)
—
(47.7)
0.6
(47.8)
—
(47.8)
0.4
—
0.4
3.2
—
3.2
(44.2)
97.6
53.4
(0.2)
(0.4)
—
32.3
(9.0)
22.7
(0.1)
22.6
0.3
—
0.3
3.8
—
3.8
26.7
70.9
97.6
3.4
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COMPANY STATEMENT OF CHANGES IN EQUITY
for the 52 weeks ended 30 November 2014
Balance at 2 December 2012
(Loss)/profit for the period
Total comprehensive income/(expense) for the period ended
1 December 2013
Transactions with owners:
— Issue of ordinary shares
— Share-based payments charge
Total transactions with owners
Balance at 1 December 2013
(Loss)/profit for the period
Total comprehensive income/(expense) for the period ended
30 November 2014
Transactions with owners:
— Issue of ordinary shares
— Share-based payments charge
Total transactions with owners
Balance at 30 November 2014
Notes
4.1
4.1
Share
capital
£m
12.3
—
Share
premium
£m
247.8
—
Retained
earnings
£m
468.2
(0.2)
Total
equity
£m
728.3
(0.2)
—
—
(0.2)
(0.2)
0.1
—
0.1
12.4
—
—
0.1
—
0.1
12.5
3.7
—
3.7
251.5
—
—
3.3
3.3
471.3
(0.3)
3.8
3.3
7.1
735.2
(0.3)
—
(0.3)
(0.3)
3.1
—
3.1
254.6
—
4.4
4.4
475.4
3.2
4.4
7.6
742.5
192
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NOTES TO THE COMPANY
FINANCIAL STATEMENTS
SECTION 1 — BASIS OF PREPARATION
GENERAL INFORMATION
Ocado Group plc is incorporated in England and Wales and domiciled in the United Kingdom. The address of its registered office is
Titan Court, 3 Bishops Square, Hatfield Business Park, Hatfield, Hertfordshire, AL10 9NE. The financial period represents the 52 weeks
ended 30 November 2014 (prior period 52 weeks ended 1 December 2013).
BASIS OF PREPARATION
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and International
Financial Reporting Standards Interpretation Committee (IFRIC) interpretations as endorsed by the European Union (“IFRS-EU”), and those
parts of the Companies Act applicable to companies reporting under IFRS.
The financial statements are presented in sterling, rounded to the nearest hundred thousand unless otherwise stated. The prior period
financial statements have accordingly also been restated to the nearest hundred thousand unless otherwise stated. They have been
prepared under the historical cost convention, except for financial instruments that have been measured at fair value.
The financial statements have been prepared on the going concern basis, which assumes that the Company will continue to be able to
meet its liabilities as they fall due for the foreseeable future.
EXEMPTIONS
The Directors have taken advantage of the exemption available under Section 408 of the Companies Act and not presented an income
statement or a statement of comprehensive income for the Company alone. The loss for the period is £0.3 million (2013: loss £0.2
million).
Standards, amendments and interpretations adopted by the Company in 2013/14 or issued, are effective and do not have a material
impact on the Company.
The Company has considered the following new standards, interpretations and amendments to published standards that are effective for
the Company for the financial year beginning 2 December 2013 and concluded that they are either not relevant to the Company or that
they would not have a significant impact on the Company’s financial statements:
STANDARDS, AMENDMENTS AND INTERPRETATIONS EFFECTIVE FOR THE COMPANY, BUT NOT MATERIAL TO THE RESULTS
AND FINANCIAL POSITION OF THE COMPANY
IFRS 10†
IFRS 11†
IFRS 12†
IAS 1 (amendments)
IAS 27 (revised 2011)†
IAS 28 (revised 2011)†
Various
Consolidated Financial Statements
Joint Arrangements
Disclosures of Interests in Other Entities
Presentation of Financial Statements
Separate Financial Statements
Investments in Associates and Joint Ventures
Amendments to various IFRSs and IASs including those arising from the IASB’s annual
improvements project.
Effective date
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
Various
† These standards, amendments and interpretations were early adopted in the prior year. The Group concluded that they would not have a significant impact on the Group’s
financial statements.
The following further new standards, interpretations and amendments to published standards and interpretations which are relevant to the
Company have been issued but are not effective for the financial year beginning 2 December 2013 and have not been adopted early:
STANDARDS, AMENDMENTS AND INTERPRETATIONS EFFECTIVE FOR THE COMPANY BUT NOT MATERIAL TO THE RESULTS
AND FINANCIAL POSITION OF THE COMPANY
IFRS 2 (amendment)
IFRS 9
IFRS 15
Various
Share-Based Payments
Financial Instruments
Revenue from Contracts with Customers
Amendments to various IFRSs and IASs including those arising from the IASB’s annual
improvements project.
Effective date
1 July 2014
1 January 2018
1 January 2017
Various
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FINANCIAL STATEMENTS continued
ACCOUNTING POLICIES
Foreign currency translation
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions or valuation where items are remeasured. Foreign exchange gains or losses resulting from the settlement of such transactions
and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised
in the Income statement.
Taxation
Tax is recognised in the Income statement, except to the extent that it relates to items recognised in other comprehensive income or
directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity respectively.
Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted by the
Balance sheet date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax
regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax
authorities.
Critical accounting estimates and assumptions
The preparation of the Company financial statements requires the use of certain judgements, estimates and assumptions that affect
the reported amount of assets, liabilities, income and expenses. Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions relevant to the Consolidated financial statements are embedded with the
relevant notes to the Consolidated financial statements.
SECTION 2 — RESULTS FOR THE YEAR
2.1 PROFIT BEFORE TAX
Accounting policies
Administrative expenses
Administrative expenses consist of fees for professional services, bank charges and any other costs of an administrative nature.
2.2 OPERATING LOSS
During the period, the Company obtained audit services from its auditors, PricewaterhouseCoopers LLP, to the amount of £0.06 million
(2013: £0.05 million).
2.3 EMPLOYEE INFORMATION
The Company does not incur any direct staff costs as the Group’s employees are employed by a subsidiary company.
Analysis and disclosures in relation to share-based payments are given in Note 4.2.
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3.1 INVESTMENTS
Accounting policies
Investments in Group companies are valued at cost less accumulated impairment.
Investments
Cost
Contributions to subsidiaries:
— Novation of derivative liability in respect of warrants issued by Ocado Limited
— Group share-based payments
Carrying value at end of period
30 November
2014
£m
1 December
2013
£m
482.6
476.5
—
6.1
488.7
1.1
5.0
482.6
Investments represent investments in Group companies, Ocado Holdings Limited and Ocado Innovation Limited. For more information
regarding the Company’s investments see Note 5.1.
Subsidiaries are recharged for the amount recognised as share-based payments relating to awards to their employees. These are
recognised as an increase in the investment in relevant subsidiaries in accordance with IFRS 2 “Share-based Payments”.
3.2 WORKING CAPITAL
Accounting policies
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They
are included in current assets, except for maturities greater than 12 months after the end of the reporting period which are classified as non-
current assets. The Company’s loans and receivables comprise “Other receivables” and “Cash and cash equivalents” in the Balance sheet.
Other receivables
Other receivables are non-interest bearing and are recognised initially at fair value, and subsequently at amortised cost, reduced
by appropriate allowances for estimated irrecoverable amounts. No security has been granted over other receivables unless stated
otherwise.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, demand deposits with banks and short-term deposits with a maturity of
three months or less at the Balance sheet date.
Financial liabilities
Financial liabilities are classified according to the substance of the contractual arrangements entered into.
Trade and other payables
Trade and other payables are initially recognised at fair value and subsequently at amortised cost, using the effective interest rate method.
3.3 OTHER RECEIVABLES
Accrued income
Amounts due from subsidiary undertakings
30 November
2014
£m
1 December
2013
£m
0.2
203.0
203.2
0.1
155.2
155.3
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NOTES TO THE COMPANY
FINANCIAL STATEMENTS continued
3.4 CASH AND CASH EQUIVALENTS
Cash at bank and in hand
3.5 TRADE AND OTHER PAYABLES
Other payables
Amounts due to subsidiary undertakings
3.6 PROVISIONS
Employee incentive schemes
30 November
2014
£m
1 December
2013
£m
53.4
97.6
30 November
2014
£m
1 December
2013
£m
0.4
0.8
1.2
0.5
—
0.5
Provisions for employee incentive schemes relate to HMRC unapproved equity settled schemes and the Cash-Based Long Term Incentive
Plan (“Cash LTIP”). For all unapproved schemes and the Cash LTIP, the Company is liable to pay employer’s NIC upon allotment of the
share awards.
Unapproved schemes are the 2013 and 2014 Long Term Incentive Plan (“LTIP”), the Chairman’s Share Matching Award and the Growth
Incentive Plan (“GIP”). For more details on these schemes, refer to note 4.12.
During the year, the Company established the Cash LTIP in order to incentivise selected high performing employees of the Group. At the
end of the three-year vesting period, employees will be paid a cash amount equal to the notional number of awards at the prevailing
share price, adjusted for the achievement of the performance conditions.
Employee
incentive
schemes
£m
—
—
—
—
—
1.6
—
—
—
1.6
Total
£m
—
—
—
—
—
1.6
—
—
—
1.6
Provisions
As at 2 December 2012
Charged/(credited) to the Income statement
— additional provision
Unused during the period
Unwind of discount
As at 1 December 2013
Charged/(credited) to the Income statement
— additional provision
— unused amounts reversed
Used during the period
Unwind of discount
As at 30 November 2014
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Analysis of total provisions as at 30 November 2014
Current
Non-current
Employee incentive schemes
Employee
incentive
schemes
£m
—
1.6
1.6
Total
£m
—
1.6
1.6
The provision consists of the Cash LTIP and employers’ NIC on HMRC unapproved equity-settled schemes. The Cash LTIP provision
represents the expected cash payments to participants upon vesting of the awards. It has been calculated using various assumptions
regarding liquidity, participants’ retention and achievability of the performance conditions. If at any point following initial valuation any
of these assumptions are revised, the charge will need to be amended accordingly. In addition to the base cost, since this is a cash
benefit, the Company will be liable to pay employer’s NIC on the value of the cash award upon vesting, which is included in the above
employer’s NIC provision.
To calculate the employer’s NIC provision, the applicable employer’s NIC rate is applied to the number of share awards which are
expected to vest, valued with reference to the year-end share price. The number of share awards expected to vest is dependent
on various assumptions which are determined by management; namely participants’ retention rate, the expectation of meeting the
performance criteria, if any, and the liquidity discount. All assumptions are supported by historical trends and internal financial forecasts,
where appropriate.
For the GIP, an external valuation was carried out to determine the fair value of the awards granted (see Note 4.12 (g)).
If at any point during the life of each share award, any non-market conditions are subject to change, such as the retention rate or the
likelihood of the performance condition being met, the number of share awards likely to vest will need to be recalculated which will
cause the value of the employer’s NIC provision to change accordingly.
Once the share awards under each of the schemes have vested, the provision will be utilised when they are exercised by participants.
Vesting will occur between 2016 and 2019.
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FINANCIAL STATEMENTS continued
SECTION 4 — CAPITAL STRUCTURE AND FINANCING COSTS
4.1 SHARE CAPITAL AND PREMIUM
Accounting policies
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Share capital and premium
Included in the total number of ordinary shares outstanding below are 34,810,561 (2013: 35,249,176) ordinary shares held by the
Group’s employee benefit trust (see Note 4.11(a) in the Consolidated financial statements). The ordinary shares held by the trustee of the
Group’s employee benefit trust pursuant to the Joint Share Ownership Scheme are treated as treasury shares in the Group’s Consolidated
balance sheet in accordance with IAS 32 ‘‘Financial Instruments: Presentation’’. These ordinary shares have voting rights but these have
been waived by the trustee. The number of allotted, called up and fully paid shares, excluding treasury shares, at the end of each period
differs from that used in the basic profit/(loss) per share calculation in Note 2.9 of the Consolidated financial statements, as basic profit/
(loss) per share is calculated using the weighted average number of ordinary shares in issue during the period, excluding treasury shares.
At 30 November 2014, the number of ordinary shares available for issue under the Block Listing Facilities was 19,094,500 (2013:
6,221,636). These ordinary shares will only become allotted when the shares under the Share Incentive Plan have been awarded or
the share options under the Group’s executive share ownership scheme, non-employee share options and sharesave schemes have been
exercised, and are therefore not included in the total number of ordinary shares outstanding.
The movements in the called up share capital and share premium are set out below:
At 2 December 2012
Issues of ordinary shares
Allotted in respect of share option schemes
At 1 December 2013
Issues of ordinary shares
Allotted in respect of share option schemes
At 30 November 2014
4.2 SHARE-BASED PAYMENTS
Ordinary
shares
Number (m)
Ordinary
shares
£m
614.6
—
3.1
617.7
0.5
2.7
620.9
12.3
—
0.1
12.4
—
0.1
12.5
Share
premium
£m
247.8
—
3.7
251.5
0.1
3.0
254.6
For more information on the Group’s share schemes, see Note 4.12 to the Consolidated financial statements.
4.3 FINANCIAL INSTRUMENTS
Accounting policies
Financial assets and financial liabilities are recognised on the Balance sheet when the Company becomes a party to the contractual
provisions of the instrument. The Company classifies its financial instruments into available-for-sale, loans and receivables, and other
financial liabilities at amortised cost.
The classification depends on the purpose for which the financial assets and liabilities were acquired. Management determines the
classification of its financial instruments at initial recognition or in certain circumstances on modification.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the Balance sheet when there is a legally enforceable right to
offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
Fair value of financial instruments
Set out below is a comparison by category of carrying values and fair values of all financial instruments that are included in the financial
statements. The fair values of financial assets and liabilities are based on prices available from the market on which the instruments are
traded where available. The fair values of cash and cash equivalents, receivables and payables are assumed to approximate to their
carrying values but for completeness are included in the analysis below.
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4.3 FINANCIAL INSTRUMENTS continued
Financial assets
Investments
Cash and cash equivalents
Other receivables
Total financial assets
Financial liabilities
Trade and other payables
Total financial liabilities
4.4 CREDIT RISK
30 November 2014
1 December 2013
Carrying value
£m
Notes
Fair value
£m
Carrying value
£m
Fair value
£m
3.1
3.4
3.3
3.5
488.7
53.4
203.2
745.3
(1.2)
(1.2)
488.7
53.4
203.2
745.3
(1.2)
(1.2)
482.6
97.6
155.5
735.7
(0.5)
(0.5)
482.6
97.6
155.5
735.7
(0.5)
(0.5)
The Company’s exposures to credit risk arise from holdings of cash and cash equivalents and other receivables.
Exposure to credit risk
The carrying value of financial assets, as set out in Note 4.3, represents the maximum credit exposure. No collateral is held as security
against these assets.
Cash and cash equivalents
The Company’s exposure to credit risk on cash and cash equivalents is managed by investing in banks and financial institutions with
strong credit ratings and by regular review of counterparty risk.
Other receivables
Other receivables at the end of both periods consist primarily of amounts due from subsidiary undertakings. Management provides for
irrecoverable debts when there are indicators that a balance may not be recoverable.
The ageing of other receivables at the Balance sheet date is set out below:
Not past due
Past due 0–3 months
Past due 3–6 months
Past due over 6 months
30 November 2014
Gross
£m
Impairment
£m
1 December 2013
Gross
£m
Impairment
£m
203.2
—
—
—
203.2
—
—
—
—
—
155.5
—
—
—
155.5
—
—
—
—
—
Notes
3.3
There were no unimpaired balances at the period end where the Company had renegotiated the terms. Management has not provided
for irrecoverable debts against any of its other receivable balances.
4.5 LIQUIDITY RISK
To manage the working capital needs of the business, the Group entered into a three-year £100 million revolving credit facility with
Barclays, HSBC, RBS and Santander. As at 30 November 2014 the facility remains unutilised. The Company monitors cash flow as part
of its day-to-day control procedures and the Board considers cash flow projections on a monthly basis. For further details on the Group’s
capital management strategy see Note 4.13 in the Consolidated financial statements.
The table below analyses the Company’s financial liabilities into relevant maturity groupings based on the remaining period at the
Balance sheet date to the contractual maturity date. The amounts disclosed in the table are the carrying values and undiscounted
contractual cash flows.
Financial liabilities
Trade payables and other
payables
1 December 2013
Notes
3.5
Carrying
value
£m
Contractual
cash flows
£m
(0.5)
(0.5)
(0.5)
(0.5)
1 year
or less
£m
(0.5)
(0.5)
1–2
years
£m
—
—
2–5
years
£m
More than
5 years
£m
—
—
—
—
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NOTES TO THE COMPANY
FINANCIAL STATEMENTS continued
4.5 LIQUIDITY RISK continued
Carrying
value
£m
Contractual
cash flows
£m
Notes
Financial liabilities
Trade payables and other payables
3.5
30 November 2014
4.6 MARKET RISK
Currency risk
(1.2)
(1.2)
(1.2)
(1.2)
1 year
or less
£m
(1.2)
(1.2)
1–2
years
£m
—
—
2–5
years
£m
More than
5 years
£m
—
—
—
—
The Company engages in foreign currency transactions to a very limited extent. No financial assets are held in foreign currencies. Due to
the Company’s lack of exposure to currency risk, no sensitivity analysis has been performed.
Interest rate risk
The Company has no interest bearing financial liabilities and its interest bearing financial assets consist of only cash and cash equivalents
and certain amounts due from subsidiary undertakings. These financial assets are exposed to interest rate risk as the Company holds
money market deposits at floating interest rates. The risk is managed by investing cash in a range of cash deposit accounts with UK
banks split between fixed-term deposits, notice accounts and money market funds.
At the Balance sheet date the interest rate profile of the Company’s interest bearing financial instruments was:
Fixed rate instruments
Financial assets
Variable rate instruments
Financial assets
Sensitivity analysis
30 November
2014
£m
1 December
2013
£m
33.2
20.2
67.5
30.1
An increase of 100 basis points (1.0%) in interest rates would increase equity and profit or loss by the amounts shown below. A rate of
100 basis points was assessed as being appropriate, considering the current short-term interest rate outlook. The calculation applies the
increase to average floating rate interest bearing borrowings and cash and cash equivalents existing during the period. This analysis
assumes that all other variables remain constant and considers the effect on financial instruments with variable interest rates.
30 November
2014
£m
1 December
2013
£m
—
0.2
—
0.2
Equity
Gain
Income
Gain
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4.7 FINANCIAL INSTRUMENTS BY CATEGORY
The Company has categorised its financial instruments as follows:
As at 1 December 2013
Financial assets
Investments
Cash and cash equivalents
Other receivables
Total
Trade and other payables
Total
As at 30 November 2014
Financial assets
Investments
Cash and cash equivalents
Other receivables
Total
Trade and other payables
Total
4.8 CAPITAL MANAGEMENT
Available-
for-sale
£m
Loans and
receivables
£m
Other
financial
liabilities at
amortised cost
£m
482.6
—
—
482.6
—
—
—
97.6
155.5
253.1
—
—
—
—
—
—
(0.5)
(0.5)
Available-
for-sale
£m
Loans and
receivables
£m
Other financial
liabilities at
amortised cost
£m
488.7
—
—
488.7
—
—
—
53.4
203.2
256.6
—
—
—
—
—
—
(1.2)
(1.2)
Notes
3.1
3.4
3.3
3.5
Notes
3.1
3.4
3.3
3.5
Total
£m
482.6
97.6
155.5
735.7
(0.5)
(0.5)
Total
£m
488.7
53.4
203.2
745.3
(1.2)
(1.2)
The Board’s objectives and policies for the Company are consistent with those of the Group. Full details are provided in Note 4.13 in
the Consolidated financial statements.
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NOTES TO THE COMPANY
FINANCIAL STATEMENTS continued
SECTION 5 — OTHER NOTES
5.1 SUBSIDIARIES
The subsidiary undertakings of the Company are set out below. A schedule of interests in all undertakings is filed with the annual return.
Ocado Holdings Limited
Ocado Retail Limited (formerly Ocado Limited)
Ocado Information Technology Limited
Ocado Polska Sp. Z.o.o
Ocado Innovation Limited
Ocado Operating Limited
Ocado Central Services Limited
Speciality Stores Limited
Newco Beauty Limited
Jalapeno Partners Limited
Last Mile Technology Limited
Paws & Purrs Ltd
Ocado Cell in Atlas Insurance PCC Limited
Principal activity
Holding company
Retail
Intellectual property
Technology
Technology
Logistics and Distribution
Business services
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Retail
Insurance company
Proportion of
share capital
held
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Country of incorporation
England and Wales
England and Wales
Republic of Ireland
Poland
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Malta
In addition to the companies shown above, the Company also holds an investment in one other subsidiary undertaking, which in the
Directors’ opinion does not significantly affect the figures in the Consolidated financial statements. In accordance with Section 410(2)(a)
of the Companies Act, a full list of subsidiaries was annexed to the 2013 annual return and submitted to Companies House. A full list of
subsidiaries will be submitted to Companies House in the 2014 annual return.
The Group has effective control over the financial and operating activities of the Ocado Cell and therefore consolidates the Ocado Cell
in its financial statements in accordance with SIC 12 “Consolidation — Special Purpose Entities”. The Group uses the Ocado Cell to
provide self-insurance for its vehicle fleet and public and product liability claims.
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5.2 RELATED PARTY TRANSACTIONS
Key management personnel
Only the Executive and Non-Executive Directors are recognised as being key management personnel. It is the Board which has
responsibility for planning, directing and controlling the activities of the Company. Executive and Non-Executive Directors did not receive
any remuneration for their services to the Company.
Directors’ interests in ordinary shares of the Company are disclosed in the Directors’ remuneration report in the Consolidated financial
statements on pages 91 to 129.
There were no material transactions or balances between the Company and its key management personnel or members of their close
family. At the end of the period, key management personnel did not owe the Company any amounts.
Subsidiaries
The Company enters into loans with its subsidiaries. Interest income of £6,000 was earned on these loans at market-related interest rates
during the period (2013: £6,000).
Transactions with subsidiaries
Group share-based payments
Increase/(decrease) in loans made to subsidiary undertakings
Increase in amounts due to subsidiary undertakings
Year-end balances arising from transactions with subsidiaries
Receivables
Loans and receivables due from subsidiaries
Payables
Loans and payables due to subsidiaries
5.3 POST BALANCE SHEET EVENTS
52 weeks
ended
30 November
2014
£m
52 weeks
ended
1 December
2013
£m
6.1
47.8
0.8
3.3
(32.5)
9.2
30 November
2014
£m
1 December
2013
£m
203.2
155.4
0.8
—
There were no events after the Balance sheet date which require adjustment to or disclosure in these financial statements.
203
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FRESHNESS
“Our product life
guarantee gives
confidence to customers
that their groceries have
a minimum remaining life
when delivered”
204
23698-04 29-01-2015 PROOF 9 SHAREHOLDER
INFORMATION
206 Glossary
208
IBC
IBC
Five-Year Summary
Financial Calendar
Company Information
View more information about our financial
calendar on the Inside Back Cover
View more information online at
www.ocadogroup.com
205
23698-04 15-12-2014 PROOF 3
GLOSSARY
2012 Code — means the UK Corporate
Governance Code published by the FRC in
September 2012, as amended from time
to time.
with registered number 07098618 whose
registered office is at Titan Court, 3 Bishops
Square, Hatfield Business Park, Hatfield,
Hertfordshire, AL10 9NE.
EBT Trustee — means the trustee from time to
time of the employee benefit trust established
for the purposes of the JSOS, currently
Appleby Trust (Jersey) Limited.
2014 Code — means the UK Corporate
Governance Code published by the FRC in
September 2014, as amended from time
to time.
2014 ESOS — means the Ocado 2014
Executive Share Option Scheme.
Active customers — means customers who
have shopped with Ocado in the previous
12 weeks.
Administrative expenses — means all IT
costs, advertising and marketing expenditure,
employment costs of all head office functions,
which include legal, finance, human
resources, marketing and procurement, rent
and other property-related costs for the head
office, all fees for professional services and
the depreciation, amortisation and impairment
associated with head office IT equipment,
software, fixtures and fittings and expenses
relating to the Group’s share schemes.
Admission — means the admission of the
ordinary shares of the Company to the
premium listing segment of the Official
List and to trading on the London Stock
Exchange’s main market for listed securities
which occurred on 26 July 2010.
AGM — means the Annual General Meeting
of the Company, which will be held on
15 May 2015 at 11 am at Peterborough
Court, 133 Fleet Street, London, EC4A 2BB.
Annual Incentive Plan or AIP — means the
Executive Director incentive plan for the Group
applicable to a particular financial year.
Articles — means the articles of association
of the Company.
Board — means the board of directors of the
Company or its subsidiaries from time to time
as the context may require.
Block Listing Facilities — means the facilities
whereby a number of shares have been block
listed but will only be allotted when various
share scheme options have been exercised.
Chairman’s Share Matching Award —
means a one-off award of shares to Lord
Rose, made in May 2013.
Companies Act — means the Companies Act
2006.
Company — means Ocado Group plc, a
company incorporated in England and Wales
206
Corporate website — means www.
ocadogroup.com.
CR — means Corporate Responsibility.
CSTM — means Customer Service Team
Member, the title given to our customer facing
delivery drivers.
Customer Fulfilment Centre or CFC — means
a dedicated highly automated warehouse
used for the operation of the business. There
are three CFCs: CFC1 in Hatfield, CFC2 in
Dordon and CFC3 in Andover. A planned
CFC4 will be located in Erith.
Deloitte — means Deloitte LLP.
Directors — means the directors of the
Company whose names are set out on pages
62 and 63, or the directors of the Company’s
subsidiaries from time to time as the context
may require.
Directors’ remuneration policy – means the
remuneration policy which was approved
by shareholders at the 2014 annual general
meeting and is set out on pages 96 to 110.
Disclosure and transparency rules — means
the disclosure rules and transparency rules
made under Part VI of the Financial Services
and Markets Act 2000 (as amended).
Distribution costs — means all the costs
incurred, excluding product costs, to the point
of sale, usually the customer’s home. This
includes the payroll-related expenses for the
picking, dispatch and delivery of product sold
to the point of sale, the cost of making those
deliveries, including fuel, tolls, maintenance of
vehicles, the operating costs of the properties
required for the picking, dispatch and onward
delivery operations and all associated
depreciation, amortisation and impairment
charges, call centre costs and payment
processing charges.
DPV — means deliveries per van per week.
EBITDA — means the non-GAAP measure
which Ocado has defined as earnings before
net finance costs, taxation, depreciation,
amortisation, impairment and exceptional
items.
EBT — as relating to the Income statement,
means earnings before tax. As relating to
share schemes, means employee benefit trust.
ESOS — means the HMRC-approved Ocado
2001 Executive Share Option Scheme and
the Ocado 2001 Non-HMRC approved
Executive Share Option Scheme.
Exceptional items — means items that due to
their material and non-recurring nature have
been classified separately in order to draw
them to the attention of the reader of the
financial statements.
Executive Directors — means Tim Steiner,
Neill Abrams, Duncan Tatton-Brown and Mark
Richardson.
Financial period — means the 52 week
period, or 53 week period where
relevant, ending the closest Sunday to
30 November.
Financial year or FY — see Financial period.
FRC — means the Financial Reporting
Council.
GAAP – means generally accepted
accounting principles.
GHG — means greenhouse gas(es).
GIP — means the Growth Incentive Plan.
Gross sales — means sales (net of returns),
including charges for delivery, before
deducting relevant vouchers, offers and value
added tax. Gross sales also includes income
received pursuant to the Morrisons agreement.
Relevant vouchers and offers include money-
off coupons, conditional spend vouchers and
multi-buy offers, such as buy three for the price
of two.
Gross sales (Retail) — means sales of the
Group’s retail operation being Ocado.com,
fetch.co.uk and sizzle.co.uk
Group — means Ocado Group plc and its
subsidiaries.
HMRC — means Her Majesty’s Revenue &
Customs.
IAS — means International Accounting
Standard(s).
IFRIC — means International Financial
Reporting Standards Interpretations
Committee.
IFRS — means International Financial
Reporting Standard(s).
IGD — means the Institute of Grocery
Distribution.
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 IP — means Intellectual Property.
ISA (UK & Ireland) — means International
Standard on Auditing in the UK and Ireland.
John Lewis — means John Lewis plc, the parent
company of Waitrose, incorporated in England
and Wales with registered number 233462
whose registered office is at 171 Victoria Street,
London, SW1E 5NN.
comprised principally of bank interest and
other interest. Finance costs are comprised
of interest on bank loans and overdrafts,
interest on finance leases and interest on other
financing arrangements.
NFDC — means the Non-Food Distribution
Centre in Welwyn Garden City, a dedicated
highly automated warehouse used for the
operation of the business.
JSOS — means the Group’s Joint Share
Ownership Scheme. It comprises three issues
called JSOS1, JSOS2 and JSOS3.
KPI — means key performance indicators.
Non-Executive Directors — means the
non-executive Directors of the Company
designated as such on pages 62
and 63.
Revenue. Relevant vouchers and offers include
money-off coupons, conditional spend vouchers
and multi-buy offers, such as buy three for the
price of two.
SaaS — means software as a service.
Sharesave Scheme or SAYE Scheme —
means the Ocado employee savings-related
share option plan approved by HMRC.
SAYE1 means the first invitations made under
the scheme in 2010, SAYE2 means the
second invitations made under the scheme in
2012 and SAYE3 means the third invitations
made under the scheme in 2013.
KPMG— means KPMG LLP.
LIBOR — means the London Interbank
Offered Rate.
Life guarantee — means the minimum product
life guaranteed by Ocado.
Listing Rules — means the Listing Rules made
by the UK Listing Authority under Part VI of the
Financial Services and Markets Act 2000 (as
amended).
LPP — means Low Price Promise, the Ocado
vouchering scheme which entitles customers
to receive discount vouchers where their
shopping basket has cost more than it would
have at selected competitors.
LTIP — means the Company’s Long Term
Incentive Plan for Executive Directors and
selected senior managers.
Management Committee — means senior
management responsible for managing the
day-to-day affairs of the business.
MHE — means mechanical handling
equipment.
MHE JVCo — means MHE JVCo Limited, a
company incorporated in England and Wales
with registered number 8576462, whose
registered office is at Titan Court, 3 Bishops
Square, Hatfield Business Park, Hatfield,
Hertfordshire, AL10 9NE. MHE JVCo is jointly
owned by the Company and Morrisons.
Morrisons — means Wm Morrison
Supermarkets PLC, a company incorporated
in England and Wales with registered number
353949, whose registered office is at
Hilmore House, Gain Lane, Bradford, West
Yorkshire, BD3 7DL.
Morrisons.com — means Morrisons’ online
retail business.
Net finance costs — means finance income
less finance costs. Finance income is
Notice of Meeting — means the notice of the
Company’s AGM.
Shareholder — means a holder for the time
being of ordinary shares in the Company.
Ocado.com — means the Group’s online
retail business.
Ocado Council — means the Ocado forum
used to consult with our employees.
Ocado Smart Platform (or OSP) — means
the end-to-end solution for operating online
in the grocery market, which has been
developed by the Group.
OPW — means orders per week.
Other income — means primarily revenue
for advertising services provided by Ocado
to suppliers and other third parties on the
Webshop, commission income and sublease
payments. Other income is recognised in
the period to which it relates on an accruals
basis.
Participants — means eligible staff who
participate in one of the Company’s staff
share schemes.
Prospectus — means the Company’s
prospectus dated 6 July 2010 prepared in
connection with the Company’s Admission.
PwC — means PricewaterhouseCoopers LLP,
the Group’s statutory auditors.
R&D — means Research and Development.
Regulations — means Schedule 8 of the
Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations
2008 as amended by the Large and Medium-
sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013.
Revenue — means online sales (net of returns)
through the Webshop and Ocado on the Go,
including charges for delivery, but excluding
relevant vouchers, offers and value added tax.
The recharge of costs to Morrisons and fees
charged to Morrisons are also included in
SIP — means the Share Incentive Plan.
SKU — means a “stock keeping unit”, that is
each line of stock
Smart Pass (previously Saving Pass) — means
the Ocado pre-pay membership scheme
which includes the delivery pricing scheme
previously known as Delivery Pass and the
discount membership scheme formerly known
as Saving Pass.
Sourcing agreement — means the various
sourcing and branding agreements between
Ocado, Waitrose and John Lewis.
Spoke — means the trans-shipment sites used
for the intermediate handling of customers’
orders.
Substitution — means an alternative product
provided in place of the original product
ordered by a customer.
TSR — means total shareholder return – the
growth in value of a shareholding over a
specified period, assuming that dividends are
reinvested to purchase additional units of the
stock.
UPH — means average units processed per
labour hour.
USDAW — means the Union of Shop,
Distributive and Allied Workers.
Waitrose — means Waitrose Limited, a
company incorporated in England and Wales
with registered number 00099405, whose
registered office is at 171 Victoria Street,
London, SW1E 5NN.
Webshop — means the customer facing
internet-based virtual shop accessible via the
website www.ocado.com, www.fetch.co.uk
and www.sizzle.co.uk.
207
Shareholder InformationStock Code: OCDOwww.ocadogroup.com23698-04 29-01-2015 PROOF 9 FIVE YEAR SUMMARY
The following table sets out a summary of selected unaudited operating information for the business:
Trading weeks
Gross sales
Revenue
Gross profit
EBITDA
Adjusted operating profit/(loss)1
1. Adjusted to exclude exceptional items.
52 weeks to
30 November
2014
£m
52
1,026.5
948.9
312.9
71.6
7.5
52 weeks to
1 December
2013
£m
52
852.4
792.1
247.5
45.8
1.0
53 weeks to
25 November
2012
£m
53
731.9
678.6
207.3
34.5
5.4
52 weeks to
27 November
2011
£m
51
642.8
598.3
184.7
27.9
1.1
52 weeks to
28 November
2010
£m
52
551.1
515.7
161.6
22.0
(1.8)
The following table sets out a summary of selected unaudited key performance indicators for the business:
Average orders per week
Average order size (£)
CFC efficiency (UPH)1
Average deliveries per van per week (DPV/week)
Product waste (%)
Items delivered exactly as ordered (%)
Deliveries on time or early (%)
52 weeks to
30 November
2014
167,000
112.25
145
163
0.8
99.3
95.3
52 weeks to
1 December
2013
143,000
113.53
135
160
1.0
99.0
95.2
53 weeks to
25 November
2012
123,000
112.13
121
152
0.7
98.0
92.7
52 weeks to
27 November
2011
110,000
112.15
111
145
0.7
98.3
92.3
52 weeks to
28 November
2010
93,000
114.06
121
133
0.6
99.0
94.9
1 Mature CFC operations (CFC is considered mature if it had been open 12 months by the start of the half year reporting period).
208
Ocado Group plcAnnual Report and Accounts for the 52 weeks ended 30 November 201423698-04 29-01-2015 PROOF 9 Stock Code: OCDO
www.ocadogroup.com
Shareholder Information
FINANCIAL CALENDAR
Date
10 March 2015
15 May 2015
30 June 2015
15 September 2015
10 December 2015
2 February 2016
Event
Q1 Trading Statement
Annual General Meeting
Half Year Results Announcement
Q3 Trading Statement
Q4 Trading Statement
Final Results Announcement
COMPANY INFORMATION
Registered office:
Titan Court
3 Bishops Square
Hatfield Business Park
Hatfield
Hertfordshire
AL10 9NE
Company number:
07098618
Independent auditors:
Registrars:
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
10 Bricket Road
St Albans
Hertfordshire
AL1 3JX
Capita Registars
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
23698-04 29-01-2015 PROOF 9 Ocado Group plc
Titan Court,
3 Bishops Square,
Hatfield Business Park,
Hatfield,
AL10 9NE,
United Kingdom
tel: +44(0) 1707 227800
fax: +44(0) 1707 227999
www.ocadogroup.com
23698-04 29-01-2015 PROOF 9