Delivering the
best platform
for online grocery
Ocado Group plc
Annual Report and Accounts
for the 52 weeks ended 29 November 2015
www.ocadogroup.com
Stock code: OCDO
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slugline
Who?
Ocado was established in the UK over
15 years ago and listed on the London
Stock Exchange in July 2010. We are
the world’s largest dedicated online
grocery retailer with over 500,000 active
customers shopping with us today. Our
objective is to provide our customers
with the best shopping experience in
terms of service, range and price, which
builds a strong business and delivers
long term value for our shareholders.
How?
We have developed a unique end-
to-end operating solution for online
grocery retail based on proprietary
technology and IP, suitable for
operating our own business 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 opens new
opportunities. We are well positioned
to take advantage of these long-term
structural trends for the benefit of our
customers, partners and shareholders.
Why People Invest
In Us
Largest dedicated
online grocery
supermarket in
the world
Significant market
opportunity
in grocery, the
largest retail
segment
pages 14 & 151
2
More information on
More information on
pages 14 & 15
Ideally positioned
to benefit from
continuing
channel shift to
online
Superior
customer offering
with leading
service, range and
price proposition
More information on
pages 18 & 19
Proprietary
intellectual
property creating
significant
competitive
advantages
4
Operating model
gives structural
advantages
6
More information on
pages 8 & 9
More information on
pages 10 & 11
More information on
pages 20 to 23
Operational leverage
and virtuous
cycle of growth
and investment
expanding margins
Commercialising
intellectual
property offering
significant value
creation from
platform business
More information on
pages 12 & 13
More information on
pages 21 to 23
8
Proven
management
team driving
strategy and
execution
More information on
pages 50 & 51
Actively
promoting
responsible
business
behaviour
10
More information on
pages 42 to 47
3
5
7
9
Our Brands
Our Vision
2 Both our corporate identity and our core
grocery brand used for our shop and
own-label products.
End-to-end online grocery platform solution.
Our dedicated kitchen
and dining store.
Our dedicated pet store.
4
6
8
Mission Statement
Delivering the world’s most advanced
end-to-end online solution, using it to
power our retail businesses and those
of our commercial partners.
Strategic Objectives
To continually develop and utilise our
unique intellectual property, drive
growth and maximise our efficiency to
deliver long-term shareholder value.
Our Beliefs
Learn from
yesterday, deliver
today, innovate
for tomorrow.”
slugline Our Financials
Independent Auditors’ Report (Group)
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of
Changes in Equity
Consolidated Statement of
Cash Flows
Notes to the Consolidated Financial
Statements
Independent Auditors’ Report
(Company)
Company Balance Sheet
Company Statement of Cash Flows
Company Statement of Changes in
Equity
Notes to the Company Financial
Statements
Shareholder Information
Glossary
Five Year Summary
Financial Calendar
Company Information
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Contents
Overview
1. Chief Executive Officer Q&A
2. Chairman’s Statement
Strategic Report
3. Our Retail Operating Model
4. Our Capabilities and Ocado Smart
Platform
5. Our Business Model and Partners
6. Our Marketplace
7. Our Strategy
8. Chief Executive Officer’s Review
9. Chief Finance Officer’s Review
10. Key Performance Indicators
11. How We Manage Our Risks
12. Corporate Responsibility
13. Our People
Governance
14. Board of Directors
15. Chairman’s Governance Introduction
16. Statement of Corporate Governance
17. Audit Committee Report
18. Nomination Committee Report
19. Directors’ Report
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30
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42
46
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52
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63
68
70
Directors’ Remuneration Report
80
20. Directors’ Remuneration Report
Annual Statement from the
Remuneration Committee
Chairman
Description of the Remuneration
Committee
Remuneration Policy Report
Annual Report on Remuneration
— 2015
Annual Report on Remuneration —
Implementation of Policy for 2016
80
82
84
99
115
What’s Inside
Our Retail Operating Model
An introduction to our retail operating model
and the benefits it offers.
Read more about Our Business Operating Model on
pages 8 and 9
Ocado Smart Platform
Learn about Ocado Smart Platform, what it is
and what its applications are
Read more about the Ocado Smart Platform on pages 10 and 11
Our Business Model
An overview of our economic business model for
our retail operations and intellectual property.
Read more about Our Business Model on pages 12 and 13
Our Strategy
An explanation of our strategic objectives for
generating long term shareholder value.
Read more about Our Strategy on pages 16 and 17
Getting Around the Report
View more information within the
Annual Report
View more information online at
ocadogroup.com
01
sluglineStock Code: OCDO www.ocadogroup.comOverview Our Progress in 2015
On Time or Early (%)
Order Accuracy (%)
CFC Efficiency (UPH)
Service Delivery (DPV/Week)
95.3%
99.3%
155
166
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Group Sales (£m)
Retail Sales (£m)
EBITDA (£m)
Net Assets (£m)
1,204
1,116
81.5
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Operational & Strategic Highlights
Financial Highlights
•
Industry leading service levels maintained with 95.3% on time
deliveries and 99.3% order accuracy
• Range at Ocado.com broadened to 47,000 SKUs
• Active customers increased to over 500,000
• Gross sales (Group) up 17.2% to £1,202.9m
• Gross sales (Retail) up 14.7% to £1,115.7m
• Revenue up 16.7% to £1,107.6m
• Average order size on Ocado.com declined by 1.3% to £111.15
• EBITDA up 13.8% to £81.5m
• Mature CFC efficiency improved to 155 units per hour
• Delivery performance increased to 166 deliveries per van per week
• Our first commercial customer, Morrisons.com, progressing well
• Profit before tax of £11.9m (2014: £7.2m)
• Advanced discussions to use Ocado Smart Platform for
Read the Chairman’s Statement on pages 4 and 5
international retailers
• Developed new IP, with multiple patent applications filed
02
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Overview
Tim Steiner
Chief Executive Officer
We will continue to
focus on improving our
proposition to customers
— the more they love
shopping with us, the
more they will shop
with us . . .”
Read about Our Strategy on
pages 16 to 23
See the KPIs that measure the
success of our strategy on page 36
Read the Chief Executive Officer’s
Review on pages 24 to 29
1. Chief Executive Officer
Q&A
Our fourth CFC in Erith in South East London is
also progressing well. The property developer
commenced works at the site in 2015 and we
expect to start our own works at the site later
this year, in line with the scheduled plan to
commence operations by the end of 2017. The
Erith CFC will add over 200,000 orders per week (or
approximately £1.2 billion in annual sales when at
full scale) and, like the Andover CFC, it will use our
proprietary fulfilment solution.
We continue to manage and monitor our future
capacity requirements carefully to ensure
there is sufficient capacity available to meet
our continuing ambitious growth plans. The
modularity and scalability of our infrastructure
equipment solution adds significant flexibility to
the capacity planning for our retail business and
for that of our future platform partners.
Q: Please outline your international aspirations
Can you give us a flavour of your future
ambitions outside the UK and should we
expect to see deals in 2016?
A: We plan to work with international retail
partners with our Ocado Smart Platform solution.
Ocado Smart Platform is an enabling platform
that provides the end-to-end solutions needed
to run online businesses covering e-commerce,
fulfilment and distribution activities. It is
underpinned by our expertise and experience as a
dedicated online operator over 15 years.
While we did not hit our target of signing our first
deal in 2015, we remain confident that there is
significant appetite for our Ocado Smart Platform
among international retailers.
Ocado Smart Platform offers partners a low risk,
entire solution for online retailing, enabling them
to build a scalable, profitable business, but also
where retailers own and can broaden and deepen
their existing customer and supplier relationships.
We continue discussions with multiple retailers
across several geographies and remain confident
of signing multiple agreements in the medium-
term.
Q: 2015 was described by many as challenging
for the UK grocery industry. To what extent
was Ocado affected by industry conditions
and what actions have you taken to navigate
this environment successfully? Do you see
conditions improving?
A: Price competition and deflationary pressures
have created a tough environment for grocery
retailers, intensified by cost inflation. We do not
expect this bleak combination to change quickly.
While Ocado is not immune to these external
market pressures, particularly as we adopt a price
following policy (our price comparison currently
matches against the biggest competitor, Tesco),
our range helps mitigate the impact. We offer a
wider product assortment than our competitors,
and we have a great number of products that are
not sold by other retailers and hence not subject
to the same pricing pressures.
Furthermore, we continue to grow sales and order
volumes, which has a positive impact on our
operational cost efficiencies and helps mitigate
the impact on gross margin.
We will continue to focus on improving our
proposition to customers - the more they love
shopping with us, the more they will shop with
us - and this growth should support improving
efficiencies across the business, further
strengthening our position.
Q: You have previously announced plans for
the next two CFCs. How are these progressing?
Will you require further capacity in the future?
A: Work has progressed well at our third CFC
located in Andover, Hampshire, in the south of
England and we are scheduled to commence
operations there shortly. This CFC incorporates
the first installation of our new proprietary
fulfilment solution.
The Andover CFC will add capacity of around
65,000 orders per week or approximately £350
million in annual sales when at full scale, enabling
us to pursue our growth plans further. The next
generation infrastructure solution employed in
the Andover CFC features our own design and
engineering, which not only carries a lower capital
cost for the fulfilment compared to our earlier
CFCs, but will also be more efficient to operate at
maturity.
03
sluglineStock Code: OCDO www.ocadogroup.comOverview 2. Chairman’s Statement
Lord Rose
Chairman
. . . we remain one of a
small group of grocery
retailers in the UK that
has grown . . .”
Read more about Our Marketplace
on pages 14 and 15
Read the Chairman’s Governance
Introduction on pages 52 and 53
UK Growth
The UK grocery market continued to face
significant challenges over the year, characterised
by falling volumes and price discounting by
major supermarket operators, resulting in margin
pressure in the market. However, the increased
trend for consumers to shop online for groceries,
and particularly using mobile devices, has
continued. Our customer base has extended
further, now with over 500,000 active customers,
and we remain one of a small group of grocery
retailers in the UK that has grown, with Retail sales
increasing by 14.7% to £1,116 million and EBITDA
up by 13.8% to £81.5 million for the period.
Customers and Suppliers
We have improved the quality of what we offer our
customers in terms of service and ease of use, the
range of products we sell, and our commitment
to good value pricing. We plan to launch our next
specialist site in the premium beauty category
in conjunction with Marie Claire later this year,
broadening our offer in this attractive category. At
the same time, we continue to work closely with
our suppliers, providing more opportunities for
them to drive their sales within Ocado, critical to
our respective fortunes and further strengthening
our relationships as suppliers increasingly
embrace the online channel.
Overseas Expansion
In February 2015, we announced our target to sign
our first OSP customer during 2015. We continue
to be in multiple discussions with retailers across
several geographies and although none of these
have yet resulted in a signed deal, we remain
confident of signing multiple deals in the medium
term.
Improving Efficiency and
Expanding Capacity
We strive to operate with ever improving efficiency
and last year we made further progress in our
existing facilities. We will shortly open our latest
CFC in Andover, Hampshire, which will use our
new proprietary fulfilment solution, and which
we expect will be more efficient to operate than
our current facilities. In developing our capacity
further, we expect our fourth CFC in Erith, South
East London, to become operational towards the
end of 2017.
Proprietary Technology and
Intellectual Property
Following the implementation of our first strategic
customer’s business, Morrisons.com, we have
announced our intention to sign agreements
with international retailers to use Ocado Smart
Platform to run their online operations, leveraging
our expertise, infrastructure and technology.
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04
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Overview
As we generate more intellectual property and
technology through innovation and development,
the Board remains committed to signing strategic
customers. We believe this will lead to the creation
of increased long-term shareholder value in the
business.
Corporate Governance
The Board recognises the importance of having
a well-defined corporate governance framework,
especially in a rapidly growing business. As the
Company’s Chairman, I am pleased to note that
the Group continues to foster an innovative
environment, which is protected and enhanced
by strong governance and risk management. A
detailed statement on corporate governance for
2015 can be found on pages 50 to 117.
Board Changes
Throughout my time as Chairman I have been
assisted by the experience and enthusiasm of
David Grigson, our Senior Independent Director.
David has indicated that he will be retiring at our
next AGM, after six years in the role, and I want to
convey my thanks to him and wish him well in his
retirement.
Corporate Responsibility
We continued to develop and implement a
more structured approach to maintaining and
improving responsible and sustainable business
practices. A detailed description of our efforts can
be found on pages 42 to 47.
The Ocado Family
We are extremely fortunate to have exceptionally
talented, entrepreneurial 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
05
sluglineStock Code: OCDO www.ocadogroup.comOverview 06
slugline Strategic Report
3. Our Retail Operating Model
4. Our Capabilities and Ocado Smart Platform
5. Our Business Model and Partners
6. Our Marketplace
7. Our Strategy
8. Chief Executive Officer’s Review
9. Chief Finance Officer’s Review
10. Key Performance Indicators
11. How We Manage Our Risks
12. Corporate Responsibility
13. Our People
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07
slugline 3. Our Retail Operating
Model
The Conventional Way
Conventional store (in-store or online)
Suppliers &
Wholesalers
Regional
Distribution
Centres
Stores
Delivery
(by retailer or
customer)
Customer’s
Home
Delivery
Customer’s
Home
The Ocado Way
(Online only)
Suppliers &
Wholesalers
Central Fulfilment
Centres
Our Process Features
Ordering
Fulfilment Processing
Delivery
• Pure-play focus on easy to navigate web
• Simplified inbound logistics
• Unique hub and spoke delivery solution
interfaces and mobile apps
• Ease of use, convenience and speed
• Complex algorithms to personalise and
enhance the shopping experience
•
Large centralised fulfilment centres
• Market leading route optimisation and driver
• Entire process optimised through use of our
proprietary equipment and software solutions
software
08
sluglineStrategic ReportOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015 Our Approach
We sell groceries and other everyday and
specialist products to consumers placing orders
through our easy to use and convenient interfaces.
We have developed and operate an entirely
unique end-to-end solution for bringing groceries
from our suppliers directly to our customers’
kitchens.
We run large warehouse operations, our
customer fulfilment centres (CFCs), where all
stock is received and held, and all customer
orders are picked. Our operating model is built
on technology and logistics skills rather than
store-based real estate. We have automated many
of the tasks that are performed manually in store-
based retailing to significantly reduce operating
costs in our business.
Through the application of proprietary
technology, software and algorithms, we optimise
our end-to-end operations. This starts with the
front-end user interfaces, through the entire
warehouse operations, to our sophisticated
routing software applied to optimise our delivery
routes.
By combining these elements of scale, automation
and technology, we are able to eliminate or
significantly lower many of the costs incurred in
traditional grocery retail operations.
Where We Operate –
Our Locations and Coverage
Our current delivery area covers over 70% of
the UK population. We fulfil orders from our
centralised CFCs in Hatfield, Hertfordshire and
Dordon, Warwickshire and will soon open our
third CFC in Andover, Hampshire. From these
CFCs we deliver directly around a third of
orders to local catchment customers, while the
remaining two thirds of orders are “trunked”
to spoke sites from which local delivery takes
place.
Read about our Proprietary
Equipment Solution and Andover
CFC on page 21
The Benefits of Our Model
For Our Customers
For Our Business
• Convenience and ease of ordering online,
saving time and effort with “best in class”,
personalised interfaces
• Removes costs of separate distribution
centres as we receive stock from suppliers
and wholesalers directly at our CFCs
•
Leading customer service with high on-time
delivery in self-selected one-hour time slots
• Automated “put away” process
significantly reduces operating costs
• High order accuracy with minimal product
substitutions
• Cost intensive check-out process removed
as we have no physical stores
• Wider choice of products with greater
availability
• Fresher products as the supply chain
from suppliers is generally shorter — we
guarantee the life of our fresh products
• Cost savings we generate as a result of our
model are invested in competitive prices
• Significantly lower property and
occupation costs
• Significantly lower product waste due to
faster stock turn, fewer touch points and
optimised stock rotation leading to cost
savings
Read about Our Business Model
and Partners on pages 12 and 13
View our Ocado Explained video
online at www.ocadogroup.com
CFC Sites
1. CFC 1 – Hatfield
2. CFC 2 – Dordon
3. CFC 3 – Andover (opening 2016)
4. CFC 4 – Erith (opening 2017)
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
15. Milton Keynes
16. West Drayton
*Non-food distribution centre
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sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com 4. Our Capabilities and
Ocado Smart Platform
Commercialising IP and
Ocado Smart Platform
Commercialising intellectual property offers
significant value creation opportunities in the UK
and abroad.
We intend to provide the entire Ocado Smart
Platform as a fully integrated managed service.
Ocado Smart Platform allows a partner to scale
the business in line with sales growth, with
attractive economics and the capability to provide
a superior customer proposition.
There are four key operating cost drivers in grocery
retailing — property, people, waste and energy.
We believe our Ocado Smart Platform solution
requires less of each of these inputs than the
existing bricks and mortar supermarket model
once at scale, and so can lower the overall cost
structure for retailers.
Ocado Smart Platform comprises technology and
infrastructure solutions that have been developed
with the benefit and experience of operating
them as a retailer. Unlike third party providers
of products, services and software, we are a
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.
Our intention is to position our capabilities to sign
multiple deals over the medium term.
Read more about Our Marketplace
on pages 14 and 15
Developing Our Capabilities
Throughout our history, our entire attention has
been on developing the best possible online
grocery operation. This single-minded focus has
enabled us to develop market leading logistics
and physical infrastructure solutions, driven by
proprietary technology and innovation.
Originally developed for the purpose of building
our own leading online grocery operation, we
have added and grown numerous capabilities
within our business to develop and refine our
end-to-end platform solution and we recognised
the potential to utilise the intellectual property
created in other business applications and
markets.
Morrisons became the first customer of our broader
platform, utilising our technology solution and
existing infrastructure facilities to launch and
operate Morrisons.com. It was launched in a very
short time frame with attractive cost economics
and best in class service metrics.
For further details on Morrisons.com,
see case study on page 12
We are looking to further monetise these
capabilities going forward, via our Ocado Smart
Platform, working with partners to enable their
online businesses.
Our End-to-End Technology
Solution
Our proprietary technology enables partners
to operate the entire shopping process for their
customers using integrated software systems.
These include the interfaces with their customers
such as website and mobile apps, management
systems for supply and inventory, management
and control systems for 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 our online retail businesses.
In January 2014 we embarked on a major
project to completely rewrite our end-to-end
e-commerce, fulfilment and logistics solution from
scratch to run in a combination of the public and
private cloud. In the process we are also refreshing
all of our technology stacks.
This new software platform will enable us to
rapidly replicate our solution for Ocado Smart
Platform customers, foster faster experimentation
and development within our engineering teams
and in due course will also be used to replatform
Ocado’s UK businesses, including the service we
operate for Morrisons.
Our Fulfilment Asset Solution
Our current CFCs utilise equipment purchased
from material handling equipment providers,
which we have continually modified and improved
to increase throughput and efficiency. After many
years of iterative learning, we have vertically
integrated our knowledge base into the design
of our own physical infrastructure asset solution.
This is modular, which means that it can be built
to different sizes, and is scalable, allowing it to be
built in multiple phases rather than all at once. It is
space efficient, but supports large ranges through
very dense storage. Fast deployment and high
efficiency in terms of both capital and operating
costs make the solution economically attractive.
The first instance of our new fulfilment asset
solution is in our Andover CFC, which is being
tested and is due to start operations shortly.
The Ocado Smart Platform
Ocado Smart Platform is our proprietary solution
for operating online retail businesses. It combines
our end-to-end software and technology systems
with our physical fulfilment asset solution, both of
which are proprietary and fully integrated.
Ocado Smart Platform will enable us to replicate
our unique capabilities for partners in other
markets with a significantly lower cost than the
alternative options available for these retailers. We
offer Ocado Smart Platform as a managed service
capability to partners internationally, harnessing
the capabilities of our platform with partners’ local
retailing skills and attributes, to enable them to
build sustainable, scalable and profitable online
grocery businesses in their own markets.
Ocado Smart Platform will offer partners a faster,
flexible, more cost efficient and lower-risk way of
launching or improving online grocery businesses
with limited capital investment. By offering the only
fully integrated end-to-end platform available, we
will be uniquely positioned to take advantage of the
growing global trend for online food shopping in
what is the world’s largest retail segment.
10
sluglineStrategic ReportOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015 How Will Ocado Smart Platform Work?
The Shop
Fulfilment
Last Mile Solution
Ocado Smart Platform includes the
e-commerce website and mobile applications
tailored to retailers’ requirements and
including market leading features already
available on Ocado.com. It also includes
all of the back-end systems required to
manage the content of the site and the
algorithms to enable personalised customer
recommendations and other features.
Ocado’s new proprietary physical equipment
solution will be installed in the retailer’s
building, serviced and maintained by Ocado
personnel. It is modular (can be built to any
size), scalable (can be expanded in line with
sales) and is highly productive even at low
volumes.
All software and systems to operate fulfilment
activities are provided under Ocado Smart
Platform.
Ocado Smart Platform includes all the
software required to complete last mile
operations including home delivery or pick-up
services, as used by Ocado in the UK, to plan
optimal delivery routes, minimising costs
to the retailer while maximising the delivery
options for the customer.
Read more about Utilising Proprietary
Knowledge on pages 22 and 23
Retailer’s
suppliers
Ocado powered
supply chain management
Post or
courier
Pick up at
store or
other site
Retailer’s
warehouse
Retailer’s
home delivery
network
Retailer’s
drivers
Retailer’s
online
customers
Ocado powered
webshop, tablet
& mobile apps
Ocado
fulfilment equipment
Ocado powered
routing and
in-van
technology
Ocado
powered
delivery
process
Retailer’s
satisfied
customers
Repeat shop - assisted by targeted advertising, big data analytics and other customer insight, powered by Ocado
11
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com
5. Our Business Model
and Partners
Ocado is a Pure-Play
Online Operator
Ocado is entirely focused on online activities. We
are not burdened by a legacy estate of existing
supermarkets, which are facing declining sales
volumes, margin pressure and less flexibility to
invest in the customer proposition.
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 both our consumer and
corporate customers, delivering continued growth
in the UK market and monetisation opportunities
through international platform partnerships.
Our business comprises retail and platform
operations, both enabled by our proprietary
technology and IP. Creating virtuous cycles and
monetisation benefits from our business is core to
building long-term shareholder value.
Our Retail Operating Model
Our objective is to operate a high quality service at
the lowest possible cost and to create a virtuous
cycle between growth, innovation, efficiency
and investment. We achieve this through
combining three key elements – the aggregation
of scale into single facilities, the automation of
many processes, and application of proprietary
technology – to remove significant costs
commonly incurred by store-based 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 retailing. We utilise our proprietary end-to-
end technology platform to optimise our entire
operation from the user interfaces, the stock and
order processing systems, through to the final
delivery to customers’ homes. Our model enables
us to invest in the proposition to customers
and allows a wider range at competitive prices
together with 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 in the
proposition to encourage more growth. As we
get bigger our relative purchasing position also
improves. The efficiencies inherent in our model
increasingly outweigh any purchasing disadvantage
we may have due to our relative small scale today.
Our Platform Operating Model
Ocado has developed an entire end-to-end
solution for operating online in the grocery market,
vertically integrated across software and physical
solutions. We are able to replicate these capabilities
for partners in other markets at a significantly lower
cost and with higher efficiency than alternative
options available in the market. Morrisons is our
first customer of our broader platform following
the launch of Morrisons.com in January 2014 (see
Case Study).
Ocado Smart Platform is offered as a managed
service capability to 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.
Ocado Smart Platform offers partners a faster,
flexible, lower risk and more cost efficient way
of entering or improving their online grocery
business.
Read more about Ocado Smart
Platform on pages 10 and 11
Suppliers and Operational Partners
We have built strong relationships with our
suppliers, which include global consumer product
companies supplying branded ranges as well
as food producers supplying our private label
selections, and smaller local, niche, international
and specialty suppliers. We currently work with
nearly 2,000 different suppliers spanning large
and small British and international companies to
supply our Ocado, Fetch and Sizzle banners.
In February 2015, we announced a partnership to
develop a premium beauty business alongside Marie
Claire, which we intend to launch later this year.
Waitrose
We enjoy a long-term sourcing agreement to 2020
with the UK retailer Waitrose (part of the John
Lewis Partnership). This combines our respective
product volumes to improve supply terms, and
enables us to sell Waitrose branded products on
Ocado.com. We pay Waitrose a sourcing fee under
the agreement.
Read about Our Strategy on
pages 16 to 23
See the KPIs that measure the
success of our strategy on page 36
Case Study
Morrisons One Year On
• 25 year agreement to provide technology,
infrastructure and operating services
to launch and operate Morrisons.com,
the online business of Wm Morrison
Supermarkets PLC, becoming the first
customer of our broader platform
• Morrisons.com was successfully launched
on 10 January 2014 in a very quick time
frame with attractive cost economics and
best in class service
• Morrisons.com operates from our Dordon
CFC (on a shared basis with our own retail
business) and utilises our technology
platform from the user interfaces to
optimising the delivery and routing
schedules to the customer
• Since launch, Morrisons.com has
developed well, announcing a sales run
rate of £200 million* after just 12 months
of operations and continuing to grow well.
Crucially for Morrisons, the agreement has
enabled them to develop their own online
business, maintaining and enhancing their
relationship with their customers, their data,
and suppliers
• Morrisons.com takes all commercial
decisions regarding marketing, range, price
and promotions. It continues to operate
from our Dordon CFC and utilise many of
our spoke operations.
* Morrisons Annual Report, March 2015
12
sluglineStrategic ReportOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015 Ocado’s Virtuous Cycles
Investment
Efficiency
Growth
Growth
Retail
Customers
Innovation
Corporate
Customers
Our business model framework comprising retail and platform operations
Efficiency
Investment
Proposition
•
“Market leading” service
• End-to-end platform solution to run online grocery
Retail
Platform*
Growth
Drivers
Economic
Model
– Order accuracy
– On time
– Ease of use
• Extensive range and fresh products
• Competitive prices and low delivery fees
operations
• Provided as a “managed service”
• Constantly improving proposition
• Continued channel shift to online gathering pace
•
Innovation and technology led service and usability
improvements
globally
• Competitive threat
•
Investment into range and price competitiveness
• Constantly improving quality of Ocado Smart Platform
• External technology developments (e.g mobile)
proposition
• Service priced to encourage partners online growth
• Product sales
• Supplier income
• Delivery income
• Product margins
• Operating efficiencies
• Fee structure
– One off in nature
– Recurring
• Continually reduce cost of providing the service
* Morrisons agreement terms structured differently to Ocado
Smart Platform but similar principles.
13
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com 6. Our Marketplace
Size of the UK Retail Market
The size of the UK grocery market is substantial.
IGD estimates that in the year to April 2015, UK
grocery sales reached almost £178 billion and
is expected to increase in value by 13% to
£201 billion over the next five years.
The so-called big box stores (supermarkets,
superstores and hypermarkets) still account for
around 60% (IGD) of all grocery sales, but have
continued to report slowing sales, and in many
cases absolute declines.
Growth in grocery retail has traditionally been
driven by the “space race” model for growth,
characterised by the opening of new store space
in the form of new stores or extension of existing
stores. The relatively expensive real estate which
is frequently tied up in long leases requires a
growing customer footfall to be economically
attractive. Recent industry dynamics have
shifted towards the rapid growth of new store
formats, notably hard discount and convenience
stores, growing significantly ahead of traditional
supermarkets by driving a particular element of
the proposition to customers, namely price or
convenience.
There has also been continued significant growth
in online grocery shopping. This shift in channel,
away from physical shops, is potentially the most
significant.
The UK is the world’s most penetrated market
for online grocery (IGD) and set to continue
growing at a rapid pace and innovation. Online
and discount formats are forecast to account for
a combined contribution of 80% of UK industry
growth in the next five years.
Global Retail Opportunities
There are also significant opportunities outside
of the UK. Grocery is the largest segment in
global retail with an estimated global grocery
market size of $9 trillion, growing to $12 trillion
by 2020 (IGD, August 2015). Global grocery retail
has undergone a number of changes, and the
adoption of the digital channel, which historically
has been slower than in the UK, is expected to
play an increasingly important role. This offers
huge market opportunities on a global scale. See
the 10 largest online grocery markets globally on
the opposite page.
Time pressed shoppers are increasingly using
mobile technology, driving global demand for
online grocery shopping, supported by very
fast broadband, wireless and extensive cellular
network coverage.
We believe the attractions of shopping
online should appeal as much to consumers
internationally as those in the UK.
The Continuing Channel Shift
Online was the fastest growing channel for grocery
distribution in 2015 as customers continued to
migrate to online shopping. Research published
by IGD suggests that online will remain the fastest
growing channel in the UK, with sales projected to
almost double by 2020 as consumers increasingly
appreciate the advantages of shopping for groceries
online. IGD estimates that currently around 5% of UK
grocery shopping is online, amounting to £8.9 billion
in sales, and anticipates that this will grow to 8.6% of
the market by 2020.
Technology will continue to shape the future of
grocery, and is playing a major role in accelerating
the channel shift to online as retailers can leverage
technology to satisfy the rising trend of anytime
and anywhere shopping.
The dramatic impact the online channel has had
in other retail segments, such as books, music and
clothing, emphasises the significant opportunities
for online in grocery.
With online, there is the opportunity to improve
every element of the proposition for the customer,
giving the benefits of more convenience, better
service and greater usability, wider choice of
products and strong value for money. With
each element of the proposition improving, and
enabled by ever improving technology advances,
more customers are encouraged to adopt this
growing retail channel.
At Ocado, we are at the forefront of, and benefit
from, this channel shift in the grocery industry.
Read about How Our Retail Model
Operates on pages 8 and 9
Size of the UK Grocery Market
133.6
139.2
146.0
124.6
128.7
152.2
157.3
163.2
169.7
174.5
177.5
%
0
0
.
3.8%
0
0
3.3%
3.8%
4.2%
4.9%
4.3%
3.3%
3.8%
3.7%
2.8%
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
1.7%
5
1
0
2
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
YOY Growth (%)
£bn
YOY Growth
Source: Centre for Retail Research
200
180
160
140
120
100
80
60
40
20
0
£bn
14
sluglineStrategic ReportOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015 However, unless the overall proposition offered
to consumers is relatively more attractive to
customers than the existing store option, then
adoption will be slower. Online requires high
levels of service to be attractive. If customers are
not offered a fast, reliable and accurate service
with high levels of freshness and availability
of products at a similar price to the bricks and
mortar competition, then few are likely to adopt
the online channel.
In the UK, where the proposition online has
become increasingly attractive compared with
the existing store channels, adoption continues
to grow. With Ocado as the clearly focused pure-
play operator in the market taking service to new
levels, others have also had to offer improved
services, usability and interfaces, which in turn
drives market growth.
However, there are great differences in how food is
purchased across the world and grocery retailing
should in many ways be considered 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 local produce
speaks for itself.
Ocado Smart Platform – Uniquely
Positioned to Take Advantage
Ocado Smart Platform offers an entire end-to-
end solution for operating online in the grocery
market, vertically integrated across software and
physical solutions. It is offered as a managed
service capability to partners internationally, with
the intention to harness 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.
The Ocado Smart Platform offers partners a
faster, flexible, lower risk and more cost efficient
way of entering or improving their business in
online grocery. 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.
Read more about Ocado Smart
Platform on pages 10 to 11
Online Retail Sales Europe
(£bn)
2
3
1
:
4
1
0
2
7
5
1
:
5
1
0
2
5
8
1
:
6
1
0
2
Source: Centre for Retail Research
Online Retail Sales US
(£bn)
9
8
1
:
4
1
0
2
5
1
2
:
5
1
0
2
6
4
2
:
6
1
0
2
Source: Centre for Retail Research
Top 10 Online
Grocery Markets
2015
1. China $41bn
2. UK $15bn
3. Japan $12bn
4. US $9bn
5. France $7bn
6. South Korea $7bn
7. Germany $3bn
8. Australia $2bn
9. Belgium $1bn
10. Netherlands $0.5bn
Source: IGD website 2015
2020 (estimate)
1. China $178bn
2. UK $28bn
3. Japan $22bn
4. US $18bn
5. France $16bn
6. South Korea $13bn
7. Germany $6bn
8. Australia $5bn
9. Belgium $2bn
10. Netherlands $2bn
15
10
9
7
2
5
4
6
3
1
8
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com
7. Our Strategy
We build shareholder value by constantly developing our innovative world leading platform for our own grocery and general merchandise businesses, and
those of our commercial partners. Our strategic objectives of delivering growth, maximising efficiency and utilising proprietary knowledge are intended to
deliver long term value creation. We deliver our strategic objectives through a number of complementary actions applicable to each objective. Each of our
objectives and actions are consistent with our focus of delivering the best possible service for our retail and corporate customers at the lowest possible cost.
Objectives
Driving
Growth
Maximising
Efficiency
Utilising
Proprietary
Knowledge
• Constantly strive to improve the
• Continually improving economic and
•
attractiveness of what we offer to our
customers, both consumer and corporate,
and broaden awareness of this to a wider
set of potential customers
operating performance of our business
model through development of technology
and operational knowledge
Leverage intellectual property to constantly
develop competitive advantages across our
business to build long term shareholder
value.
Read more about Driving Growth
on pages 18 and 19
Read more about Maximising
Efficiency on pages 20 and 21
Read more about Utilising Proprietary
Knowledge on pages 22 and 23
16
sluglineStrategic ReportOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015 Enable
Morrisons and
future partners’
online
business
• Formulating the right
commercial platform
proposition to add
significant value for
partners
Actions
Constantly
improve
proposition to
customers
Strengthen our
brands
Develop ever
more capital and
operationally
efficient
infrastructure
solutions
Enhance
end-to-end
technology
systems
• For our retail
• Developing and
• Operating efficiency
• Continually
reinforcing brand
values to the
appropriate customer
groups, retail and
corporate
• Brand strength
supported by strong
execution for existing
customers
customers, this
is centred on the
three core pillars of
the proposition to
customers — service,
range and price
• For our corporate
customers, it
is embedding
improvements to our
retail proposition
into Ocado Smart
Platform
— optimising
fulfilment and
delivery operations,
measured using
appropriate KPIs
• Capital efficiency —
lowering the capital
costs of operating full
service online grocery
operations, improving
our own economics
and enabling us to
offer our platform at
attractive prices
improving the
technology we use
through constant
innovation
• Using the
• Ensure new
innovations used in
our retail business are
embedded into our
platform for partners
developments of our
extensive technology
and engineering
teams to improve our
end-to-end process
used in our own retail
business and our
platform
Read more about Actions in the
CEO’s Review on pages 24 to 29
See the KPIs that measure the
success of our strategy on page 36
Read about How We Manage Our
Risks on pages 38 to 41
17
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com Strategic Report
Ocado Group plc
Annual Report and Accounts for the 52 weeks ended 29 November 2015
7. Our Strategy (continued)
1. Driving Growth
Our Businesses
We believe that our growth is driven by the quality
of the proposition provided to our customers. This
is equally applicable to our retail operations as to
our platform business, providing our technology
and infrastructure solution to other retailers to
enable their online businesses.
The quality of the proposition we offer is enabled
and supported by continuing technology and
engineering developments across our business.
Our Retail Businesses
A positive shopping experience is critical to
encouraging consumers to try our service and to
return to us for future shops. Our focus remains on
improving our customers’ shopping experience
through the quality of our service, the freshness of
our products and breadth and availability of range,
and competitiveness of our prices. We continue
to improve our shopping interfaces, introducing
new functionality and further developing our
personalisation features.
Mobile has continued to grow in importance. In
2015, over 50% of all orders were checked out
using a mobile device, using our latest apps and
browsers.
We have continued focusing on making every
shopping experience, including a customer’s first
time, as easy as possible by offering features such
as offline shopping, PayPal login and favourites
import. These help to reduce causes of friction a
customer may experience when shopping, thereby
encouraging customers to shop with Ocado again.
Service and Ease of Use
We strive to exceed customer expectations of our
service levels, and to remain at the forefront of
the market by delivering an industry leading and
consistent service for our customers.
Consistent order reliability is essential for
customers who expect to receive their shop on
time, delivered as ordered and within a one-hour
time slot of their choice. High stock availability
and minimal substitutions also remain key to
the customer experience. We offer customers
full flexibility by offering one-hour delivery time
slots seven days a week, with a wide number of
slots available from 6am until 11.30pm. Next day
delivery is available to all customers , with same
day delivery slots in some of our catchment areas.
We have always operated our own delivery
fleet, as we feel this is a part of our service too
important to contract out to third parties. We pride
ourselves in having our own Customer Service
Team Members with strong customer service skills
and our own fleet of delivery vans.
Our operating model, combined with our
proprietary optimisation software, underpins
what we believe to be market leading reliability,
with 95.3% on time deliveries and 99.3% order
accuracy.
Convenience and the ease of using our service is
key in developing a leading online proposition
to our existing and future customers, which
we enable through our easy to use interfaces
including our latest mobile apps.
47,000
2014: 43,000
SKUs available at Ocado.com
Average Orders per Week
195,000
2014: 167,000
0
0
0
,
3
2
1
:
2
1
0
2
0
0
0
,
3
4
1
:
3
1
0
2
0
0
0
,
7
6
1
:
4
1
0
2
0
0
0
,
5
9
1
:
5
1
0
2
Active Customers
509,000
2014: 453,000
0
0
0
,
5
5
3
:
2
1
0
2
0
0
0
,
5
8
3
:
3
1
0
2
0
0
0
,
3
5
4
:
4
1
0
2
0
0
0
,
9
0
5
:
5
1
0
2
18
Ocado Annual Report 2015 Front.indd 18
slugline
02/02/2016 11:16:50
Breadth of Range and
Quality of Products
We have continued to broaden our product
range across different price points, providing
customers with a wide choice of products suitable
for their respective spending patterns and taste.
In particular, our Ocado own-label products
continue to be popular with our customers. We
continue to offer our customers the widest range
of branded and private-label products, with 47,000
SKUs available at Ocado.com, which we believe is
the most extensive grocery range in the UK today.
Our operating model and CFC sites allow us to
expand our product offering easily with limited
stock-holding exposure, therefore allowing us to
stock many specialist and niche lines alongside
everyday favourites from a wide variety of small,
medium, large sized and speciality suppliers who
may struggle to get shelf space in a conventional
supermarket. Our wide range drives loyalty
and spend as customers can fulfil their weekly
shopping needs in one store, and encourages
supplier support as they see growth in sales of
their products.
As well as breadth of range, our customers seek
the freshest products possible. Our centralised
operating model enables us to have stock
delivered by our suppliers or wholesalers directly
to our CFCs, often followed by delivery to our
customers on the same or the next day, thereby
removing several stages of the typical grocery
supply chain. This enables us to guarantee the
product life of our fresh food, which gives our
customers confidence that their groceries have
a minimum remaining life when delivered. We
also strive to minimise waste in our business and
help customers organise their food consumption
by listing product use-by dates on customers’
receipts.
Our model has enabled us to expand into general
merchandise categories as well as dedicated
specialist online stores, such as our pet store, Fetch,
and our kitchen and dining store, Sizzle. Each of
these stores carries extensive ranges including
products not typically available in supermarkets.
We plan to launch additional destination sites
in the future to offer our customers even more
variety and convenience of shopping. The next
such site will be our premium beauty business in
partnership with Marie Claire, which we expect to
launch during 2016.
Price
The aggregation of scale into larger facilities,
automation of many processes and the
application of proprietary technology, has
enabled us to build a strong operating model
which removes cost and drives efficiency across
all processes. These efficiency gains allow us to
offer our customers competitive pricing. We also
continue to offer market leading promotions
in close collaboration with our suppliers. We
introduced the UK’s first grocery market price
matching initiative in 2008 and continue to remain
price competitive against the market leader. Our
fully transparent price matching communication
to our customers reinforces confidence in our
competitive pricing position.
Our Platform Business
As we build our capabilities in our retail
proposition, these are embedded into our
platform which we offer to corporate customers.
This enables our existing and future corporate
customers to benefit from our innovations and
technology, and furthermore the ability to offer
ever better retail propositions to their own
customers.
Our approach to consistently improving the
capabilities of our platform to make it increasingly
attractive should support long-term growth of our
platform business.
Read more about Ocado Smart
Platform on pages 10 and 11
Case Study
Interface Development
Convenience
Being able to shop anywhere, anytime with
intuitive and easy to use interfaces continued
to be a core focus in 2015. We launched a
mobile website for Ocado.com, complementing
our existing mobile apps, making it easier for
new and existing customers to shop when they
are out and about, or even just in their own
kitchen topping up their shop. Always aiming
to be at the forefront of new developments,
Ocado was the first online grocery app to be
released on the Apple Watch, enabling a whole
grocery shop to be ordered simply from your
wrist.
Making shopping easier
We continued to reduce friction customers
may experience when shopping, in particular
for new customers, enabling customers to log
in with PayPal, reducing the number of steps in
our registration flow on the apps, and making it
possible for customers to start to shop without
the need to log in first. We have continued
making the shopping experience simpler for
our existing customers, for example, through
making it easier for them to find a slot that
suits them by comparing availability and prices
across three days.
Smarter and Personal
Placing an order of over 50 items per week
means that finding and choosing a product
needs to be as simple as possible. We have
continued to make ongoing improvements to
our search engine to make it smarter to ensure
that customers can find the most relevant
items just for them. Providing a personalised
experience has also enabled us to provide
opportunities to delight our customers as we
now offer free gifts to customers as they check
out based on their previous shopping history.
19
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com 7. Our Strategy (continued)
2. Maximising Efficiency
Operational Efficiency
Our objective is to provide industry leading service
levels to our customers at the lowest possible
cost and we continually seek to drive efficiency
throughout our end-to-end operations.
The aggregation of scale into larger single
facilities together with the use of automation
and optimised technology allows us to drive the
overall efficiency of our business. This centralised
approach to fulfilment gives us several significant
service and efficiency benefits.
We have continued to invest in automation
and developed unique fulfilment capabilities to
replace many of the manual tasks in the retail
supply chain and to optimise our operations.
Our existing CFCs continue to operate at high
levels of efficiency and accuracy, allowing us
to provide our customers with a consistent
and timely service. We expect to improve the
operational efficiency – measured in units
processed end-to-end per labour hour in one of
our facilities – of our future CFCs even further.
Our model enables us to carry lower inventory
levels, and despite our relatively high proportion
of sales of fresh and chilled products at over 40%
of sales, we believe we operate with the lowest
product waste in the industry at 0.7% of sales
across our CFCs. This is the case notwithstanding
the freshness of the products we deliver to our
customers and underlines one of the relative
environmental benefits of our operating model.
Critical to our operations is the software that
controls them. This is now almost entirely
developed in-house, and cannot be bought “off
the shelf” on the open market. It gives us the
ability to horizontally optimise and integrate
across our end-to-end solution and it enables
us to collect valuable data. The in-house nature
of our software development allows for rapid
solutions as efficiency improvement opportunities
are identified. This proprietary technology
protects our business, differentiates it, and makes
it more difficult to replicate.
Capital Efficiency
With our existing CFCs in Hatfield and Dordon, which
opened in 2002 and 2013 respectively, we operate
the world’s two largest and most sophisticated single
pick grocery warehouses. Together with our soon to
be opened new CFC located in Andover, Hampshire
in the south of England and our extensive spoke
network, they form a critical part of the unique end-
to-end solution we have developed.
The Andover CFC will be capable of handling over
65,000 orders per week, equivalent to around
£350 million of sales when operating at full
capacity. This is significantly smaller than our
existing CFCs, yet it will be more capital efficient
than our existing capacity and will extend Ocado’s
total sales capacity to over £1.6 billion in 2017.
We have achieved this improved capital
optimisation through the use of our own
proprietary physical infrastructure solution,
which we have been developing over the last few
years. Our Andover CFC has the first installation
of this next generation infrastructure solution.
See Andover case study on opposite page for
more details.
Our infrastructure solution has many important
attributes, making it even more efficient and
resilient than our existing CFCs. It is modular (can
be built to any size), scalable (can be increased
in size) and faster to deploy (shorter build and
commissioning lead times). In addition, it is
expected to achieve higher operational efficiency,
will be more capital efficient, requires less space
and can hold a large range of products. Each of
these attributes is attractive in adding flexibility
to our fulfilment capacity planning for our retail
businesses, and for our platform business,
including for Morrisons.com, offering to future
partners much lower entry points for capacity
commitments.
With control over the IP and the manufacturing
and installation process, we plan to drive the costs
down even further in the future. In February 2015,
we announced plans for our fourth CFC, located in
Erith to the South East of London inside the M25. The
landlord started construction on this site in 2015,
and we will take occupation during 2016, with first
orders from this CFC expected at the end of 2017.
Mature CFC Efficiency (UPH)
155 UPH
2014: 145
1
2
1
:
2
1
0
2
5
3
1
:
3
1
0
2
5
4
1
:
4
1
0
2
5
5
1
:
5
1
0
2
Drops per Van/Week (DPV)
166 DPV/WEEK
2014: 163
2
5
1
:
2
1
0
2
0
6
1
:
3
1
0
2
3
6
1
:
4
1
0
2
6
6
1
:
5
1
0
2
Product Waste (%)
+0.1% V 2014
7
.
0
:
2
1
0
2
0
.
1
:
3
1
0
2
8
.
0
:
4
1
0
2
7
.
0
:
5
1
0
2
20
sluglineStrategic ReportOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015
As with the Andover CFC, the Erith CFC will use our
proprietary infrastructure and will be capable of
handling in excess of 200,000 orders per week or
around £1.2 billion of sales with even better capital
efficiency.
Our CFCs are designed and built to handle the
unique challenges that exist in picking groceries
with speed, accuracy and efficiency. This
complexity arises when you pick a customer
order of on average around 50 items, across three
different temperature zones – ambient, chilled
and frozen. This and having the customer’s order
ready to go on the delivery vehicles in the same
short time window as the other customer orders
for a given van route.
Our infrastructure knowledge and solutions,
combined with our end-to-end technology
systems, provide an entire platform for operating
online retail businesses, capable of handling the
complexities and requirements of grocery retailing
as well as general merchandise categories.
Delivery
We fulfil customer orders through the operation
of a hub and spoke network. All stock is currently
stored and picked in our two existing centralised
fulfilment centres (the hubs) in Hatfield, Dordon or
in our non-food warehouse in Welwyn Garden City
for much of the non-food range. Around one third
of orders are then delivered directly from these
hubs to customer homes in the local catchment
areas and the remaining two thirds are “trunked”
in larger vehicles to one of our 16 spoke sites,
from where local delivery in one of our delivery
vans takes place. Due to increased demand from
existing catchments, we opened additional spokes
during 2015 in Milton Keynes, West Drayton and
Dagenham, and plan to add further spokes to our
network in 2016. We also increased the size of
our spokes in Bristol, Leeds and Oxford. This will
enable us to further develop and optimise our
delivery network to drive efficiency in the long
term.
Case Study
Proprietary Equipment Solution and Andover CFC
Our Proprietary Equipment
Solution
Using the benefit of our many years focused
on online grocery operations, we have now
completed our vertical integration into
mechanical handling equipment (“MHE”) with
the design and development of our proprietary
physical fulfilment solution.
Our MHE solution is now the subject of filed
and planned patent applications and other
intellectual property rights. It is controlled by
proprietary software and algorithms, offers
significant advantages over other physical MHE
available, and has been specifically designed to
cope with the challenges presented by grocery
activities, such as huge volumes of items, multiple
product lines, and irregular demand patterns.
The equipment solution offers very dense and
efficient storage through the use of a 3 dimensional
grid to hold product. This grid can be built to a
much greater scale than existing MHE storage
solutions CFC Erith will have capacity to hold over
700,000 stock holding totes across chilled and
ambient temperature regimes ready for single item
picking.
Very fast mechanised inbound and outbound
processes for moving product and completed orders
into and out of the grid are enabled by our new
proprietary communications system multiple times
faster than existing wifi. Our communications system
can utilise and control thousands of fast, space
efficient, densely located robotic devices that each
occupy just a single location on the top of the grid
and enable very quick and flexible item retrieval of
any product, in any order, stored in the grid.
All product picking into customer baskets
follows a one-to-one goods-to-man approach
where relevant stock items are presented to the
picker at the same time as the order tote. The
combined effect is very fast and highly accurate
product picking across the entire ambient and
chilled ranges (over 600 items per hour), with the
capability of picking an entire customer’s typical
50 item order in under 5 minutes, significantly
shortening order lead times.
Our MHE solution can be retrofitted into
standard warehouse buildings, and is modular
in nature (can be built any size, scalable (can be
increased in size) and faster to deploy (shorter
build and commissioning lead times), providing
significant benefits in better matching capacity
requirements to business demand volumes.
Looking forward, our MHE solution is “future-
proofed” in that all human points of contact sit on
the periphery of the grid, and could be “swapped”
out and replaced by automated or robotic solutions
once technology advances in those particular areas
(for example, robotic arms and fingers one day
picking individual grocery items).
Our single end-to-end solution for online grocery
retailing (combining our MHE solution with our
technology software and systems) places us at the
forefront of rapid change taking place in grocery
distribution, enabling both of our retail businesses
and those of our future international partners.
Andover Fast Facts
• Due to open shortly and required for ongoing
Ocado grocery business growth, Andover
CFC will increase our fulfilment capacity by
around 65,000 orders per week, stocking the
full range of products, or approximately £350
million in sales value.
• The site will house the first implementation
of Ocado’s new, internally developed,
proprietary mechanical handling equipment
and associated software platform solution
• At maturity, the solution will be capable of
delivering significant productivity and fulfilment
benefits in a highly modular and flexible design
• Ocado acquired the 18+ acre site and
associated building in 2014 enabling the
extension and refurbishment programme to
commence, resulting in a 240k sqft building.
• Quicker construction, commissioning
and implementation programme than
experienced with previous sites helps
improve capital efficiency.
See an image of our proprietary
equipment solution on page 23
21
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com 7. Our Strategy (continued)
Case Study
Our Proprietary Communication System
Our new infrastructure solution
encompasses very dense storage suitable
for grocery operations, and multiple
moving robotic devices requiring very fast
wireless communication at a rate of 10
messages per second which need to be
confirmed. We recognised that no existing
telecommunications system provided this
capability.
In order to address this communications
challenge, we assembled a team to design
and develop our own telecommunications
system capable of transmitting large amounts
of data from base stations, located within the
warehousing system, to large numbers of fast
moving, densely packed robotic container-
handling devices operating over a large area.
Conservatively, the current system allows for
data communications with in excess of 1,000
robotic container-handling devices per base
station, each base station being capable of
covering an area of well in excess of 100 metres
radius. We have filed for patent protection
for this new proprietary telecommunications
system.
Read about our Proprietary
Equipment Solution and Andover
CFC on page 21
Read about Morrisons One Year On
on page 12
3. Utilising Proprietary
Knowledge
Our Intellectual Property
In building our retail business we have focused
on developing optimal solutions solely for online
retail operations, specifically centred on the
grocery industry.
Our learnings, together with the solutions we have
developed, provide an end-to-end process for
completing ‘the retail mission’, moving a product
from a supplier into a customer’s home. As part
of our core competence, we develop proprietary
processes, physical infrastructure solutions,
systems and software.
Our software and other technology solutions
are developed in-house by our technology
team (currently over 700 people) together
with our development engineering team. Our
in-house teams enable rapid development and
implementation of new solutions for our business,
and enable the software to be updated without
the need to involve expensive change processes
from multiple software providers.
Patents
We have built our business using proprietary
technology to improve efficiency, productivity and
resiliency of our operations, and to enhance the
user experience for customers. We consider the
building of competitive advantages across our
business and operations key to maintaining our
technological leadership, driving the development
of our customer proposition and economic
improvement. We take careful measures to
protect our intellectual property and inventions.
As we have developed more physical equipment
solutions, we have recognised the value of adding
more protection for some of our developments
through filing patent applications.
As at the end of the period, we had filed patent
applications covering 32 separate innovations,
bringing the cumulative total number of patent
applications filed to 73, of which 25 have so far
been published. Our patent activities are intended
to create a web of protection for our intellectual
property.
Progress in 2015
We have previously set out three requirements
which we would need to deliver to allow us to
progress opportunities to monetise our platform
further with Ocado Smart Platform. They were:
• Operating our first platform deal to the
continued satisfaction of our partner,
Morrisons;
• The replatforming of our IT systems to
enable faster replication, rollout 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.
We have made progress in all these areas.
The commercialisation of our IP and knowledge
platform has already started with our 25-year
agreement with Morrisons to launch and operate
their online business.
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.
This involves migrating our solution to the cloud
and in the process, transforming our technology
stacks. Replatforming enables 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.
The replatforming project commenced in 2014.
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.
Our Andover CFC, which is due to open shortly,
will first implement our new, internally developed,
proprietary mechanical handling equipment and
associated software platform solution.
22
sluglineStrategic ReportOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015
Number of Technology Staff*
Case Study
Expansion of Technology Development Offices in Europe
Technology is at the heart of our business.
We develop and utilise proprietary processes,
systems and software throughout our entire
business to improve efficiency and operations.
Our user interfaces and applications for our
customers are market leading.
As of November 2015, Ocado Technology*
employs over 700 software engineers and IT
specialists, comprising over 50% of our head
office headcount. We expect that the headcount
will continue to grow to around 1,000 by the
end of 2016. We opened our first overseas
development office in Krakow, Poland, in 2012.
Due to its success, we opened a second
technology centre in Wroclaw, Poland, and
at the end of 2015, established a centre in
Sofia, Bulgaria. We plan to open a further
development centre in Southern Europe in
2016. In parallel with this near-shoring, we are
continuing to expand our UK development
centre in Hatfield. Ocado Technology continued
to build its reputation as a global technology
leader, attracting quality professionals to build
the teams underpinning Ocado’s technology
expertise.
* This does not include engineers with specialisms in
mechanics, construction or manufacturing who are
also involved in fulfilment development.
2013
404
2014
546
2015
721
Read more about Our People
on pages 46 and 47
Proprietary equipment solution in Andover
23
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com
Strategic Report
Ocado Group plc
Annual Report and Accounts for the 52 weeks ended 29 November 2015
Tim Steiner
Chief Executive Officer
The validity and
robustness of our retail
business model is
reflected in our 2015
performance.”
Read about Our Strategy on
pages 16 to 23
8. Chief Executive
Officer’s Review
Good progress in a challenging
market environment
The UK grocery market continued to experience
significant challenges throughout 2015. Ongoing
price competitiveness and deflationary pressure
combined with changing customer behaviour,
in particular with continued shifts to discount
stores and online, have been reflected in declining
store volumes at large supermarkets and margin
pressure across the industry.
Notwithstanding this challenging market
environment, we continued to deliver our
strategic objectives, namely, to drive growth,
maximise efficiency and utilise our knowledge,
ideally positioning ourselves to benefit from
the continued channel shift to online grocery
shopping. Our strategic objectives apply equally
to our own retail business and to our existing and
future platform activities.
The validity and robustness of our retail business
model is reflected in our 2015 performance. We
grew our sales ahead of the broader UK online
grocery market and well ahead of the overall
UK grocery market, progressed work on our
two next generation CFCs, continued to deliver
good services to Morrisons.com, and advanced
discussions with multiple potential international
partners for our Ocado Smart Platform.
Progress against our strategic
objectives
We have a number of key complementary actions,
which form a framework to achieve our strategic
objectives for our retail and corporate customers,
intended to deliver long-term shareholder value.
These actions are to:
• Constantly improve the proposition to
customers;
• Strengthen our 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
Offering the best possible proposition to our
customers has remained our core focus and is
central to driving the growth of both our retail and
partner businesses.
In our retail business, we continued to improve
the key elements of our proposition to customers
– our high quality service and user experience, the
broadest selection of products to choose from
and the competitiveness of our pricing.
We improved across all these core elements.
Our customers have continued to recognise the
quality of our service and extensive range of
products, evidenced by the award of Best Online
Supermarket in The Grocer Gold Awards 2015
and Best Online Grocer by Which? Magazine for
the sixth year running. We believe this reflects the
strengthening recognition of our consumer brand.
A consistently positive shopping experience is
essential to encourage consumers initially to try
Ocado and then to return to us for future shops.
We believe that increasingly consumers will seek
to fulfil their grocery shopping requirements
online if they consider it the more compelling
alternative to current store based propositions.
Our focus has remained on improving the
customer experience by enhancing the speed,
convenience and ease of using our service,
allowing customers to be able to shop anywhere,
anytime, across intuitive and easy to use
interfaces.
Our new mobile website for Ocado.com, which
was launched in January 2015 to complement
our existing mobile apps, allows our customers
to shop more easily using their mobile devices
and has proven to be popular especially among
first time users of our service. Mobile continues
to grow in importance for Ocado and the wider
retail sector. In 2015, over 50% of all orders were
checked out using a mobile device, using our
latest apps and browsers.
24
Ocado Annual Report 2015 Front.indd 24
slugline
03/02/2016 15:56:20
Read more about Driving Growth
on pages 18 and 19
With the continued price competitive market
environment, our Low Price Promise (“LPP”)
basket matching scheme ensures that we stay
price competitive against the market leader. This
provides transparency of our pricing strategy to
give our customers confidence in what they are
paying for their shopping. Despite price reductions
and broader food price deflation in the market,
over two thirds of our customers’ baskets were
already cheaper at Ocado when checking for
LPP. The cost of LPP to Ocado in the form of
vouchers used during the period has increased
by less than 5bps and remains low, reflecting
our competitiveness in prices and sustained
promotional activity.
The Ocado Smart Pass, our bundled customer
benefit membership scheme which includes
free delivery, continued to be popular with over
half of sales coming from customers with a pass.
Membership helps to drive customer loyalty,
shopping frequency and ultimately total spend
per customer.
We aim to be at the forefront of new
developments and have continued to focus on
improving elements and features of the customer
interface to enhance the speed, convenience and
usability of our service. In 2015, we launched a
redesigned Android app and our first Apple Watch
app which enabled Apple Watch owners to shop
using their device on the first day of its launch in
the UK.
The retention rate of new customers is important
to support our growth and this has remained in
line with historical trends. We have introduced
features such as Import Your Favourites, reduced
the number of steps in the registration process,
added the ability to start to shop with us without
having to log in first, improved our product
search and introduced payment by PayPal. They
have proved to be beneficial in encouraging new
customers to shop for the first time and then for
subsequent shops.
A reliable and high quality delivery service and
experience is critical to our customers and our
business. We believe our customer delivery
service continues to be market leading. Delivery
on time or early, in the customer selected one-
hour delivery window, remained at a high level
of 95.3% and order accuracy remained at 99.3%.
Our Customer Service Team Members provide the
important quality face-to-face interaction with our
customers.
Customers can now choose from nearly 47,000
SKUs (2014: 43,000 SKUs) when shopping at
Ocado.com. This includes everyday items, the
Ocado and the Waitrose own label products, our
customers’ favourite brands, non-food items and
many specialist and international product ranges.
2015 saw the launch of our vegetarian “shop
in shop” with over 650 vegetarian and vegan
products in one place. The shop has proved
popular with customers due to the extensive
range which includes big brands alongside
niche products from small suppliers, and we
were recognised as the Best Online Retailer for
Vegetarians in the Veggie Awards 2015.
25
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com 8. Chief Executive
Officer’s Review (continued)
Our non-food sales have continued to grow, with
year-on-year growth of over 60% and now on
average one non-food product per basket, despite
current limited investment in technology in that
area. Growth was driven by further development
of the non-food range on Ocado.com and strong
sales growth from our destination sites, Fetch,
our specialist pet store, and Sizzle, our kitchen
and dining store. Both complement our range
at Ocado.com and reflect the convenience of
shopping from a broader general merchandise
product range alongside customers’ regular
grocery shop.
Preparations for our premium beauty business
in partnership with Marie Claire are progressing
well and we expect to launch this in the second
half of 2016. We believe the high quality of service
delivered by our technology and logistics platform
combined with the awareness and relevance
of the Marie Claire brand, should make this an
attractive shopping destination for customers.
As we add improvements to our retail proposition,
this enhances the key features we can apply to
the technology embedded in our platform, thus
benefiting our existing and future corporate
customers.
Strengthen brands
We continued to broaden the awareness, and
reinforce the strength and values of our Ocado,
Fetch and Sizzle brands through our marketing
and promotional activities.
We focused our modest marketing expenditure
on attracting new customers with broader
awareness campaigns with external partners,
as well as limited radio and national newspaper
offers and sponsorship opportunities such as the
food section of the Ideal Home Show. Ocado was
also featured in a number of broadcast media
programmes including BBC’s ‘Tomorrow’s Food’,
BBC One Breakfast at the Autumn Fair and most
recently, on Channel 4’s ‘Journey to the Centre of
my Plate’, a show highlighting food journeys and
ITV’s ‘Tonight’ show.
Following the great success of last year, we
launched our second “Britain’s Next Top Supplier”
competition, an initiative to support and nurture
small British suppliers, who form a significant part
of our supplier base.
Our Ocado own-label reinforces brand recognition
and strength and continues to grow with sales up
16.8% against the equivalent period last year, with
growth constrained by our contractual obligations
with Waitrose. The average customer basket now
contains over five Ocado own-label products. The
popularity of these products is further evidenced
by several awards received for our Ocado own-
label products in 2015. These included awards for
the Ocado own-label organic juicing and organic
small veg boxes by Women’s Fitness as well as
awards for meat products including best lamb
product for Ocado’s Exclusives British lamb leg
steaks by the Meat Management Industry.
Our active customers grew to 509,000 (2014:
453,000), up 12.4% and exceeded the half a
million customers threshold for the first time. 2015
continued to see strong growth in new customer
acquisition, up by over 20% during the period. Our
overall marketing spend, including vouchering,
has remained in line with retail sales percentage
growth.
Our order volumes have grown to an average
of over 195,000 orders per week (“OPW”) (2014:
167,000 OPW), a strong growth of nearly 17% with
the highest number of orders delivered in a week
exceeding 225,000 during the period.
Our customers’ average basket reduced by
2.1% to £109.95 (2014: £112.25) due to both the
competitive environment and from the impact of
increased destination site orders from Fetch and
Sizzle. Excluding the impact of destination site
orders, the average basket value declined by 1.3%
to £111.15 (2014: £112.66). As the number of items
in the average grocery basket was stable, this
decline compares well to the price deflation seen
in the overall UK grocery industry.
Fetch has continued to grow, with strong
customer acquisition reflecting better brand
awareness, and sales driven by specialist pet food
lines. Sizzle has grown more modestly with limited
marketing support, whilst we wait to complete
further usability improvements.
During the year we introduced the Ocado Smart
Platform as a brand to simplify and strengthen
the marketing of our service for international retail
partners.
Develop ever more capital
and operationally efficient
infrastructure solutions
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 labour hour efficiency measure
(“UPH”), the average productivity for the period
in our Mature CFC operations was 155 UPH (2014:
145 UPH), where we consider a CFC to be mature
if it has been open for 12 months by the start of
the half year reporting period. We made good
progress with the construction of our new CFCs
in Andover, Hampshire (“CFC3”) and Erith, South
East London (“CFC4”). We commenced the first
installation of our new proprietary modular,
scalable physical fulfilment solution into our
Andover CFC, and anticipate going live shortly.
CFC3 will add 65,000 OPW at full capacity at
an estimated capital cost of £45 million for the
material handling equipment (“MHE”).
At the Erith site, the developer commenced
building works in H1 2015 and we expect to start
our fit out works at this site in 2016 with the plan
to commence operations at the end of 2017. The
MHE solution in CFC4 is estimated to cost £135
million and will add over 200,000 OPW of capacity
to our operation.
Read about our Our Capabilities
and Ocado Smart Platform on
pages 10 and 11
26
sluglineStrategic ReportOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015 As with CFC3, this CFC will use our proprietary
modular, scalable fulfilment solution, and so the
investment will be phased over time in line with
our capacity requirements. It will also make this
the most capital efficient CFC to be built to date,
lowering the capital costs involved in operating
full service online grocery operations thus
improving our own economics and enabling us
to offer the same solution at attractive pricing to
future corporate customers of our Ocado Smart
Platform offering.
We made a number of enhancements to our
routing system throughout the year, which led
to an improvement to the average deliveries
achieved on a van route and has helped us
increase deliveries per van per week across all
shifts (“DPV”) to 166 (2014: 163). We have also
raised our long term target for DPV from 175 to
190.
We expanded our delivery capacity within our
existing catchments with the opening of three
additional spokes during the period at Dagenham,
West Drayton and Milton Keynes. In addition, we
opened the Park Royal spoke site which replaced
our smaller White City location nearby. In 2014 we
received a one-off compensation payment of £1.2
million from the landlord at the White City spoke
to cover costs of closure and the fit out costs
of the new site, with a further final £3.2 million
received in 2015. The delivery capacity for some
of these new spokes is shared with Morrisons,
reducing the impact of the additional fixed costs
of these operations.
Read about our Our Capabilities
and Ocado Smart Platform on
pages 10 and 11
Enhance our end-to-end
technology systems
The core of our business is our proprietary IP,
knowledge and technology that supports our
market leading proposition to customers and
drives our operating efficiencies. We seek to
continually improve the technology we use and
believe that this innovation creates competitive
advantages across our business. As at the end
of the period, we had filed patent applications
covering 32 separate innovations, bringing the
cumulative total number of patent applications
filed to 73, of which 25 have so far been published.
Our patent activities are intended to create a web
of protection for our intellectual property.
Over time we have developed a proprietary
end-to-end solution for operating grocery online,
from the initial 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 continued to develop our platform with
the rewrite of our IT systems to enable faster
replication and roll out of our technology
internationally, and remain on track with our
plans. This has been supported by the expansion
of our technology team which by the end of
the period employed over 700 developers and
IT professionals, with plans to increase this to
around 1,000 by the end of 2016. Our technology
professionals currently operate from the UK and
Poland, with a new Ocado technology centre
recently established in Bulgaria and another due
to open in Southern Europe.
Our technology team focuses 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
We have built our retail operating business
through developing and utilising proprietary
technology. This gives us opportunities
to generate significant value through
commercialisation as the innovations used in our
own retail operations can be embedded into our
platform for existing and future partners.
Our first commercialisation agreement, with
Morrisons, resulted in the launch of Morrisons.
com in January 2014. Using our existing CFC
infrastructure and technology solutions,
Morrisons.com has continued to develop well. In
March 2015, Morrisons reported that the run rate
of sales after 12 months of trading for Morrisons.
com had reached about £200 million and has
continued to develop well. To our knowledge
this is the fastest ramp up of an online grocery
business globally, and provides evidence of the
effectiveness of combining our platform with
an existing grocery retailers’ brand, customer
awareness and merchandising skills.
We have developed a
proprietary end-to-end
solution for operating
grocery online . . .”
Morrisons.com . . .
provides evidence
of the effectiveness
of combining our
platform with an existing
grocery retailers’ brand,
customer awareness and
merchandising skills.”
For further details on Morrisons.com,
see case study on page 12
27
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com 8. Chief Executive
Officer’s Review (continued)
Using the benefit of our many years focused
on online grocery operations, we have now
completed our vertical integration into
mechanical handling equipment (“MHE”) with
the design and development of our proprietary
physical fulfilment solution now installed in CFC3.
Multiple patent applications have been filed for
the MHE solution. Together with our end-to-end
software and systems based technology, offers
a total solution for efficiently operating online
grocery businesses. We have packaged this into a
single service offering referred to as Ocado Smart
Platform.
During the period, we started to engage and
develop discussions with multiple international
retailers about how we might assist them in
launching or improving online business in their
own markets using Ocado Smart Platform.
We set out a target to sign our first Ocado Smart
Platform agreement in 2015, and although we
have yet to announce a deal, our confidence
in the quality of our commercial proposition
to international grocery retailers remains high,
and we expect to sign multiple deals in multiple
territories in the medium term.
People, awards and CR initiatives
By the end of the period, we employed over
10,000 people, a net addition of over 1,500 new
employees during the year, to further support the
growth of our retail businesses, our Morrisons
platform business and the development of Ocado
Smart Platform.
Read more about Corporate
Responsibility on page 40 to 45
We will continue expanding our talent pool
in 2016, including the addition of around 300
software engineers and IT specialists in the UK
and across Europe.
The energy and commitment of our people
remains central to our success and I want to
once again acknowledge their remarkable efforts
throughout this very busy and exciting period. Our
operating model enables us to provide high levels
of customer service, and customers regularly
highlight the outstanding service they receive, in
particular that provided by our Customer Service
Team Members who deliver their orders.
The efforts of our people were again recognised
by a number of awards received during 2015,
including the ‘Best Online Grocer’ by Which?
Magazine (Members’ Annual Satisfaction Survey),
‘Online Supermarket of the Year’ by The Grocer
Gold Awards, ‘Best Online Retailer for Vegetarians’
by The Veggie Awards and ‘Best Retailer – Gold’ by
the Healthy Food and Drink Awards.
We believe that the ability to code software will
be a vital life skill for the next generation, akin
to what literacy is to ours. Our “Code for Life” IT
programme, which we launched in September
2014, today counts more than 44,000 users taking
advantage of the free resource “Rapid Router”
aimed at teaching primary school children across
the UK to code. The programme is also being used
in schools overseas, such as in the US, Australia,
Spain, Portugal and Guatemala.
We launched a ‘Donate Food with Ocado’ scheme
during the year, a virtual food bank that allows
customers to donate a sum of money to buy
food for the food banks we support. Customers
donated nearly £100,000 during the period, and
these donations were matched with groceries
provided by Ocado.
28
sluglineStrategic ReportOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015 Our business model has been built around driving
efficiency and low waste in our aim of becoming
the UK’s greenest, most innovative and best
value grocery retailer. We have operated plastic
carrier bag recycling since 2007 and introduced a
‘Bag Recycling Bonus’ in September 2015, which
incentivises customers to return bags to us for
recycling by paying them 5p for every bag (from
Ocado or other retailers) they hand back to us. Our
Bag Recycling Bonus will also help us to meet the
aims of the new carrier bag charging legislation
in England, by helping to increase recycling and
reduce plastic bag litter.
Outlook statement
We reported gross sales (retail) growth of 14.7%
for the period. We expect to continue growing
ahead of the online market.
We anticipate that capital expenditure in 2016
will be approximately £150 million, including the
expenditure for CFCs 3 and 4, and the increased
costs for further development to our infrastructure
and technology solutions. The capital expenditure
requirements for any Ocado Smart Platform deals
signed are not expected to be significant in 2016.
. . . we expect to sign
multiple deals in
multiple territories in the
medium-term.”
Read more about Our People
on pages 46 to 47
Read more about Governance
on pages 50 to 117
29
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com Strategic Report
Ocado Group plc
Annual Report and Accounts for the 52 weeks ended 29 November 2015
Duncan Tatton-Brown
Chief Financial Officer
We maintained double-
digit sales growth in a
highly challenging and
competitive grocery
environment.”
9. Chief Financial
Officer’s Review
For the period to 29 November 2015, we maintained double-digit sales growth in a highly challenging
and competitive grocery environment. At Group level, sales were driven primarily by growth in our retail
business with the remainder from our agreement with Morrisons.
Continued growth in retail sales was supported by improvements to our proposition to customers and
an increase in the number of active customers in the period. These factors drove strong order growth
to the current average orders of 220,000 per week at the period end. Operating profitability continued
to strengthen in comparison to the prior period due to more efficient operational fulfilment mainly at
CFC Dordon. This was offset by lower margins reflecting the competitive and deflationary pressures in
the market, our sustained investment in a number of strategic initiatives to support future growth of the
business and higher depreciation and amortisation arising from CFC Dordon, vehicles and additional
spokes to support current and future business growth.
Revenue1
Gross profit
EBITDA
Operating profit before share of result from JV and
exceptional items
Profit before tax
EBITDA
Less Morrisons MHE JVCo impact2
Add Share based management incentive charges
Underlying EBITDA
FY 2015
£m
1,107.6
375.1
81.5
19.1
11.9
FY 2015
£m
81.5
(13.5)
7.8
75.8
FY 2014
£m
948.9
312.9
71.6
14.2
7.2
FY 2014
£m
71.6
(11.3)
5.0
65.3
Variance
16.7%
19.9%
13.8%
34.5%
65.3%
Variance
13.8%
21.2%
54.5%
16.1%
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. Morrison MHE JVCo impact includes the income arising from the leasing arrangements with Morrisons for MHE
assets and share of results from joint venture
Revenue
Retail
Morrisons recharges
Morrisons fees
Total revenue
FY 2015
£m
1,033.7
55.1
18.8
1,107.6
FY 2014
£m
903.8
27.8
17.3
948.9
Variance
14.4%
98.2%
8.7%
16.7%
Revenue increased by 16.7% to £1,107.6 million
for the period. Revenue from retail activities was
£1,033.7 million, an increase of 14.4%, which we
believe to be ahead of the online grocery market.
Revenue growth was driven by a 16.8% year-on-
year increase in the full year average orders per
week to 195,000. This was offset by a reduction
in average order size, down 2.1% from £112.25
in 2014 to £109.95 in 2015, primarily due to
deflation in the average item price as experienced
across the grocery industry. During the period
we continued to build on the strong growth from
the prior year of our non-food business with
revenue increasing by over 60% year-on-year.
There was a dilutive effect on the average basket
from an increased mix of standalone destination
site orders as they typically have smaller basket
values.
The Morrisons arrangement contributed £73.9
million of revenue in 2015 (2014: £45.1 million).
The main growth in revenue was driven by
increased income from recharges for services
provided to support the on-going expansion of
the Morrisons.com business. The fee income
remained broadly in line with the prior year
and was comprised of the annual licence fees
for services, technology support, research and
development and management fees.
30
Ocado Annual Report 2015 Front.indd 30
slugline
02/02/2016 10:20:43
Gross profit
Retail
Morrisons recharges
Morrisons fees
Total gross profit
FY 2015
£m
301.4
54.9
18.8
375.1
FY 2014
£m
267.8
27.8
17.3
312.9
Variance
12.6%
97.5%
8.7%
19.9%
Gross profit rose by 19.9% year-on-year to £375.1
million (2014: £312.9 million). Gross profit margin
was 33.9% of revenue (2014: 33.0%), ahead of
2014 due to additional gross profit attributable to
the Morrisons arrangement in the period. Retail
gross margin reduced to 29.2% (2014: 29.6%) as a
result of increased price competition. Gross profit
from our arrangement with Morrisons was £73.7
million, an increase from £45.1 million in 2014,
driven mainly by the growth in the Morrisons.com
business.
Other income increased to £49.0 million, a 24.4%
increase on year-on-year (2014: £39.4 million).
Media income of £30.0 million was 2.9% of retail
revenue (2014: 2.8%). We continue to grow our
income from media related activities ahead of
the rate of increase in revenue as we increasingly
engage our suppliers in media opportunities
on our customer interfaces (including website,
mobile apps and mobile websites). Other income
also included £11.2 million (2014: £8.9 million)
of income arising from the leasing arrangements
with Morrisons for MHE assets and £2.5 million
(2014: £2.5 million) of rental income relating to
the lease of CFC Dordon. This income, for the
MHE assets, is generated from charging MHE
lease costs to Morrisons, when combined with
the share of results from joint venture, 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
comprised a second and final payment of £3.2
million for the surrender of the lease at our former
White City operations which were transferred to a
new build site nearby at Park Royal.
Operating Profit
Distribution costs1,2
Administrative expenses1,2
Costs recharged to Morrisons3
Depreciation and amortisation4
Total distribution costs and administrative expense
1. Excluding chargeable Morrisons costs, depreciation, amortisation and impairment charges
£2.4 million of reported administrative expenses in 2014 are now included as distribution costs
2.
3. Morrisons costs include both distribution and administrative costs
4.
Included within depreciation and amortisation for the period is a £1.8 million impairment charge (2014: £2.6 million)
Operating profit before the share of result from the
joint venture and exceptional items for the period
was £19.1 million (2014: £14.2 million).
Distribution costs and administrative expenses
included costs for both the Ocado and Morrisons
picking and delivery operations. Total distribution
costs and administrative expenses including
costs recharged to Morrisons grew by 19.8%
year-on-year. Excluding Morrisons, costs grew by
12.9% year-on-year, below the growth in average
orders per week of 16.8%. The costs relating to the
Morrisons operations are recharged and included
in revenue.
At £216.6 million, distribution costs increased by
10.7% compared to 2014, lower than the growth
in retail revenue of 14.4%. Operational efficiency
improved at both CFC Hatfield and CFC Dordon.
Overall mature CFC UPH (for CFC Hatfield and CFC
Dordon combined) was 155 in 2015 compared
with 145 in 2014. The improvement in mature
CFC UPH for the period was driven mainly by the
productivity at CFC Dordon which had grown by
nearly 20 UPH to 165 UPH for the full year 2015
and regularly exceeded 170 UPH by the end of the
period. Deliveries per van per week have risen to
166 (2014: 163) as customer density improved.
FY 2015
£m
216.6
73.4
54.9
60.1
405.0
FY 2014
£m
195.6
59.7
27.8
55.0
338.1
Variance
10.7%
23.1%
97.5%
9.3%
19.8%
During the period the Group opened three new
spokes in Dagenham, West Drayton and Milton
Keynes and moved an inner London spoke at
White City to Park Royal. We also completed the
expansion of the Bristol spoke by 50%. As a result
of these new spoke openings, spoke fixed costs as
a percentage of sales increased in the period.
31
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com 9. Chief Financial
Officer’s Review (continued)
Central costs – other1,2
Central costs – share based management incentive charges
Marketing costs (excluding vouchers)
Total administrative expenses
1. Excluding chargeable Morrisons costs, depreciation, amortisation and impairment
2.
£2.4 million of reported administrative expenses in 2014 are now included as distribution costs
FY 2015
£m
55.1
7.8
10.5
73.4
FY 2014
£m
44.7
5.0
10.0
59.7
Variance
23.3%
54.5%
5.0%
22.8%
Total administrative expenses excluding depreciation, amortisation and costs recharged to Morrisons increased to £73.4 million, a 22.8% increase from 2014
and was 7.1% as a percentage of retail revenue (2014: 6.9%). Some of the cost increases were due to additional costs to operate the Morrisons services which
are not recharged to Morrisons but for which the Group earns fees. In addition we continued to invest in our strategic initiatives to support future growth in our
non-food business and Ocado Smart Platform. Share based management incentive costs increased due to the introduction of the third award under the long
term incentive plan (“LTIP”) for 2015. Share based management incentive costs are likely to stabilise in 2016 as the costs for the 2016 LTIP award (which are
spread over 2016, 2017 and 2018) will be offset by the drop out of costs for the first LTIP award made in 2013 (which was spread over 2013, 2014 and 2015).
Marketing costs excluding voucher spend were marginally higher at £10.5 million (2014: £10.0 million) but lower as a percentage of retail revenue at 1.0% (2014:
1.1%). Despite this lower marketing spend as a percentage of retail revenue we continued to increase our new customer acquisitions per week, up over 20%
versus 2014.
Total depreciation and amortisation costs were £60.1 million (2014: £55.0 million), an increase of 9.3% year-on-year and includes an impairment charge of £1.8
million (2014: £2.6 million). The higher depreciation and amortisation is primarily from the increased investment required for the development of CFC Dordon,
which includes depreciation on assets jointly owned with Morrisons, and from the increased number of vans and LGVs required to support business growth.
The impairment charges are due to the write off of certain assets at CFC Hatfield and as a result of a detailed review of our legacy systems due to the rewrite a
number of key systems as part of our replatforming.
Share of result from joint venture
MHE JVCo Limited (“MHE JVCo”) was incorporated
in 2013 on the completion of the Morrisons
agreement, with Ocado owning a 50% equity
interest in this entity. MHE JVCo holds CFC Dordon
assets which are leased to Ocado to service its and
Morrisons’ businesses. The income generated by
MHE JVCo comprises interest income on finance
leases granted to Ocado, offset by administration
charges and depreciation on minor assets not
subject to lease charges. The Group share of MHE
JVCo profit after tax in the period amounted to
£2.3 million (2014: £2.4 million).
Exceptional items
No exceptional items were reported in the period
(2014: £0.3 million charge).
Profit before tax
Profit before tax and exceptional items for the
period was £11.9 million (2014: £7.5 million).
Net finance costs
Net finance costs of £9.5 million (2014: £9.1
million) exclude £0.9 million (2014: nil) of
prepaid commitment fees which were incurred
in connection with the £210.0 million Revolving
Credit Facility (“RCF”) and £1.6 million of
additional arrangement fees. The small increase
year-on-year of net finance costs recognised in
the income statement was attributable to lower
interest income on bank deposits.
Taxation
The Group provided for £0.1 million of corporation
tax for one of its legal entities that does not have
available prior year losses or capital allowances.
Ocado has approximately £287.8 million (2014:
£285.3 million) of unutilised carried forward
tax losses at the end of the period. During 2015
Ocado incurred £36.2 million (2014: £29.1 million)
in a range of taxes including fuel duty, PAYE and
Employers’ National Insurance and business rates.
Earnings per share
Basic earnings per share was 2.01p (2014: 1.24p)
and diluted earnings per share was 1.91p (2014:
1.18p).
Read more about Our Financials on
pages 127 to 189
32
sluglineStrategic ReportOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015 Capital expenditure
Capital expenditure for the period was £122.1 million (2014: £86.4 million) and comprised the following:
EBITDA (£m)
Mature CFCs
New CFCs
Delivery
Technology
Fulfilment Development
Other
Total capital expenditure1, 2 (excluding share of MHE JVCo)
Total capital expenditure3 (including share of MHE JVCo)
81.5
2014: 71.6
FY 2015
£m
FY 2014
£m
3.2
52.9
25.3
23.0
13.3
4.4
122.1
126.5
10.9
16.5
22.1
16.8
16.3
3.8
86.4
98.1
1. Capital expenditure includes tangible and intangible assets
2. Capital expenditure excludes assets leased from MHE JVCo under finance lease arrangements
3. Total capital expenditure includes Ocado share of the MHE JVCo of £4.4 million in 2015 and of £11.7 million in 2014
5
.
4
3
:
2
1
0
2
8
.
5
4
:
3
1
0
2
6
.
1
7
:
4
1
0
2
5
.
1
8
:
5
1
0
2
Profit/(Loss) before Tax and
Exceptional Items (£m)
11.9
2014: 7.5
8
.
1
:
2
1
0
2
5
.
7
:
4
1
0
2
9
.
1
1
:
5
1
0
2
)
1
.
5
(
:
3
1
0
2
transfer of one site to a new location; Dagenham,
West Drayton, Milton Keynes and Park Royal
respectively. In addition to these new spokes we
also completed the expansion of the Bristol spoke
in the period. In total Delivery capital expenditure
was £25.3 million (2014: £22.1 million).
We continued to develop our own proprietary
software and £18.1 million (2014: £14.1 million)
of internal development costs were capitalised
as intangible assets in the period, with a further
£4.9 million (2014: £2.7 million) spent on
computer hardware and software. Our technology
headcount grew to over 700 staff at the end of the
period (2014: 550 staff) as increased investments
were made to support our strategic initiatives,
including the major replatforming of Ocado’s
technology and migration of most of our 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 invested internal technology resources as part
of developing capital projects for Dordon CFC
phase two and the further development of the
Morrisons proposition.
Fulfilment development capital expenditure of
£13.3 million was incurred to further develop our
next generation fulfilment solution which will
be used in our new CFCs and for Ocado Smart
Platform customers.
Total investment in Mature CFCs was £7.6 million,
which includes the capital expenditure relating
to MHE JVCo of £4.4 million. The investment was
on resiliency projects (for example improving
our pick aisles and upgrading some of our oldest
conveyors) in CFC Hatfield, on improvement
projects (for example bagging machines in both
CFCs and the installation of a new pick aisle
to increase capacity in CFC Dordon) and the
purchase of operational totes in both CFCs.
We continue to build our new CFCs located in
Andover and Erith. CFC Andover will be smaller
than our existing CFCs (expected capacity of
65,000 OPW), and will utilise the first example
of our proprietary MHE which is designed in the
long term to be faster to install and more cost and
capital efficient than the system in the current
CFCs.
In January 2015, we announced plans for our
latest CFC located in Erith, South East London.
CFC Erith will be larger than our existing CFCs
(expected capacity of over 200,000 OPW). We
expect our site fit out to commence in 2016 and
for the site to go live towards the end of 2017.
We have invested less than £5m in 2015 on third
party professional fees, construction insurance
and internal staff costs supporting design and
development.
Investment in new vehicles, including vans,
trailers and tractors, which are typically on five
year financing contracts, was higher than the
prior year to support the business growth and
the replacement of existing vehicles at the end
of their term. Delivery capital expenditure also
included investments for new spokes and the
33
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com
Strategic Report
Ocado Group plc
Annual Report and Accounts for the 52 weeks ended 29 November 2015
Operating profitability
continued to strengthen
in comparison to the
prior period . . .”
. . . we continued to
invest in our strategic
initiatives to support
future growth . . .”
9. Chief Financial
Officer’s Review (continued)
Other capital expenditure of £4.4 million included investment in further capacity in the NFDC to support
our non-food business growth, further investment to support the growth of our non-food destination
sites and other various head office capital expenditure projects.
At 29 November 2015, capital commitments contracted, but not provided for by the Group, amounted
to £22.3 million (1 December 2014: £22.9 million). We expect capital expenditure in 2016 to be
approximately £150 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.
Cash Flow
EBITDA
Working capital movement
Exceptional items
Other non-cash items1
Finance costs paid
Operating cash flow
Capital investment
Dividend from joint venture2
Decrease in debt/finance obligations3
Proceeds from share issues net of transaction costs
Decrease in cash and cash equivalents
FY 2015
£m
FY 2014
£m
81.5
2.3
—
8.7
(9.7)
82.8
(99.1)
8.1
(26.8)
4.5
(30.5)
71.6
9.9
(0.3)
4.0
(9.7)
75.5
(78.8)
—
(34.6)
3.7
(34.2)
1. Other non-cash items include movements in provisions, share of result from MHE JVCo and share based payment
charges
2. Dividend received from MHE JVCo of £8.1 million (2014: nil)
3.
Includes financing fees paid
During the year the Group generated improved
operating cash flow after finance costs of £82.8
million, up from £75.5 million in 2014, as above.
The operating cash flow increased by £7.3 million
during the year primarily as a result of an increase
in EBITDA of £9.9 million. The positive working
capital movement of £2.3 million includes a £19.1
million increase in trade receivables primarily due
to an increase in receivables from Morrisons and
MHE JVCo. This is offset by a £23.7 million increase
in trade and other payables due to increased trade
accruals.
We continue to reinvest our cash for future growth
and as a result the cash outflows due to capital
investment increased to £99.1 million comprising
investments in CFC Andover, development of our
next generation fulfilment solution and spend on
spoke sites.
In the period £26.8 million (2014: £34.6 million) of
cash was utilised for the net repayment of debt,
financing obligations and financing arrangement
fees.
Balance sheet
The Group had cash and cash equivalents of £45.8
million at the period end (2014: £76.3 million) with
the decrease mainly owing to a net cash outflow
from investing activities in the period.
External gross debt at the period end, which excludes
finance leases payable to MHE JVCo, was £53.3
million (2014: £44.9 million). The increase of £8.4
million is driven by £13.7 million of additional vehicle
and property debt, offset by net repayments of £5.3
million of other asset backed finance borrowings.
Gross debt at the period end of £172.8 million
(2014: £175.7 million) and includes amounts owing
to MHE JVCo of £119.5 million (2014: £130.8 million).
Net external debt at the period end was £7.5
million (2014: Net external cash £31.4 million).
Increasing financing flexibility
During the period, the £100 million unsecured
revolving credit facility was increased to
£210 million with improved covenant levels
and extended by 2 years to 1 July 2019. The
participating banks continue to be Barclays, HSBC,
RBS and Santander and we believe this new facility
enhances our flexibility to exploit the increasing
growth opportunities available to our business. The
facility remained undrawn throughout the period.
34
Ocado Annual Report 2015 Front.indd 34
slugline
03/02/2016 15:02:49
Key performance indicators
The following table sets out a summary of selected unaudited operating information for 2015 and 2014:
FY 2015
(unaudited)
FY 2014
(unaudited)
Variance
%
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 (%)
195,000
109.95
155
166
0.7
99.3
95.3
167,000
112.25
145
163
0.8
99.3
95.3
16.8%
(2.1)%
6.9%
1.8%
(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 destination site
orders) per order
2. Measured as units dispatched from the CFC per variable hour worked by CFC Hatfield and CFC Dordon 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
Value of products purged for having passed Ocado’s “use by” life guarantee divided by retail revenue
3.
4. Percentage of all items delivered exactly as ordered, i.e. the percentage of items neither missing nor substituted
35
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com 10. 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 16 (using the strategic link icons shown).
Average Orders per Week
Average Order Size (£)
Why we use this measure
Measures order growth in our retail
businesses
2015 performance
+16.8% v2014
Strategic link
1
.
2
1
1
:
2
1
0
2
5
.
3
1
1
:
3
1
0
2
3
.
2
1
1
:
4
1
0
2
0
.
0
1
1
:
5
1
0
2
Why we use this measure
Measures aggregate impact on
average shopping basket
2015 performance
-2.1% v2014
Strategic link
0
0
0
,
3
2
1
:
2
1
0
2
0
0
0
,
3
4
1
:
3
1
0
2
0
0
0
,
7
6
1
:
4
1
0
2
0
0
0
,
5
9
1
:
5
1
0
2
CFC Efficiency (UPH)
Average Deliveries per Van per Week (DPV/WEEK)
Why we use this measure
Measures CFC operational efficiency
2015 performance
+6.9% v2014
Strategic link
2
5
1
:
2
1
0
2
0
6
1
:
3
1
0
2
3
6
1
:
4
1
0
2
6
6
1
:
5
1
0
2
Why we use this measure
Measures efficiency of our service
delivery operation
2015 performance
+1.8% v2014
Strategic link
1
2
1
:
2
1
0
2
5
3
1
:
3
1
0
2
5
4
1
:
4
1
0
2
5
5
1
:
5
1
0
2
Product Waste (%)
Items Delivered Exactly as Ordered (%)
Why we use this measure
Measures efficiency of our operations
in terms of waste minimisation: the
lower the better
2015 performance
+0.1% v2014
Strategic link
%
0
.
8
9
:
2
1
0
2
%
0
.
9
9
:
3
1
0
2
%
3
.
9
9
:
4
1
0
2
%
3
.
9
9
:
5
1
0
2
Why we use this measure
Measures order accuracy (pre
substitution)
2015 performance
+0.0% v2014
Strategic link
7
.
0
:
2
1
0
2
0
.
1
:
3
1
0
2
8
.
0
:
4
1
0
2
7
.
0
:
5
1
0
2
Read about Our Strategy on
pages 16 to 23
Read about How We Manage Our
Risks on pages 38 to 41
36
sluglineStrategic ReportOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015
Deliveries on Time or Early (%)
Why we use this measure
Measures timeliness of our delivery
operations
2015 performance
+0.0% v2014
Strategic link
Why we use this measure
Measures growth in our core
customers who shopped in the last
12 weeks
2015 performance
+12.4% v2014
Strategic link
%
7
.
2
9
:
2
1
0
2
%
2
.
5
9
:
3
1
0
2
%
3
.
5
9
:
4
1
0
2
%
3
.
5
9
:
5
1
0
2
Active Customer Base
0
0
0
,
5
5
3
:
2
1
0
2
0
0
0
,
5
8
3
:
3
1
0
2
0
0
0
,
3
5
4
:
4
1
0
2
0
0
0
,
9
0
5
:
5
1
0
2
SKU Count (Hypermarket)
Why we use this measure
Measures growth in range offered at
Ocado.com, not including standalone
sites
2015 performance
+9.3% v2014
Strategic link
0
0
0
,
8
2
:
2
1
0
2
0
0
0
,
4
3
:
3
1
0
2
0
0
0
,
3
4
:
4
1
0
2
0
0
0
,
7
4
:
5
1
0
2
37
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com
The Risk Management
Framework
Ocado’s risk management process is designed to
improve the likelihood of delivering our business
objectives, protect the interests of our key
stakeholders, enhance the quality of our decision
making, and 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.
1.
Set
Strategy
11. How We Manage
Our Risks
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 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 a 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; and
• other control measures outlined elsewhere
in this Annual Report including legal and
regulatory compliance and health and safety.
What We Addressed in 2015
The process described on this page 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.
During 2015, Ocado continued to enhance its
approach to risk management. This included
the introduction of a revised risk management
policy at the start of the year, implementation of
working practices to support this policy, and the
enhancement of our capability for information
security and business continuity.
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
oversees risk control processes and risk analysis from
each part of the business, and 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 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.
4.
Review
Risks
Risk
Management
2.
Evaluate
Risks
3.
Implement
Mitigation
38
sluglineStrategic ReportOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015 During 2015, we continued to implement the
Corporate Responsibility strategy across the
business with integration of our four pillars
strategy across the relevant departments
(refer to page 42). We established a Corporate
Responsibility Committee to provide a governance
structure for all corporate responsibility risks. This
is comprised of senior management personnel
from areas of the business impacted by or able
to influence corporate responsibility, including
Management Committee members.
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 significant controls including
financial, operational, compliance controls, and
risk management systems.
For further information on the review of financial
reporting, refer to page 64 of the Audit Committee
report.
What We will be Looking at in 2016
Activities to improve our strategic, programme and
operational risk management capabilities, including
business continuity and information security, will
continue in 2016. Our trading strategy is reviewed
and amended as necessary to reflect the increasingly
competitive grocery trading environment.
2016 will see corporate responsibility publish
a standalone report, providing more detailed
content on issues of continued interest to
stakeholders.
The Internal Audit & Risk function will continue
to provide independent and objective assurance
and advisory services designed to add value and
improve the operations of the business. Its scope
encompasses the examination and evaluation
of the adequacy and effectiveness of Ocado’s
governance, risk management and internal
control processes.
The Directors rely on a number of existing processes to justify their viability
assessment. The annual budget, which provides a greater level of certainty of outcome
than the longer-term plans, is used to set targets for the Group and is used by the
Remuneration Committee to set performance targets for the annual incentive plan.
A longer term business model provides less certainty of outcome, but provides a
sensible planning tool against which strategic decisions can be made. This plan
contemplates the input of a number of different strategic initiatives, including possible
Ocado Smart Platform transactions, possible trials of new technology, possible
participation of Morrisons in new CFCs and potential increases in CFC capacity. The
plans make assumptions about the business including projected capital expenditure,
financing requirements, available finance and compliance with any financial
covenants.
To assist the Directors’ assessment, the financial projections in the longer term
business model were subject to severe but plausible stress tests whereby certain key
assumptions were adjusted downwards, notably a material decline in the rate of sales
growth and lower gross margins or increase in operating costs and a combination
thereof. The tests were intended to show various outcomes including the impact
on the Group’s net debt and cash flow over the three years and an assessment on
the impact on the financial covenants in the revolving credit facility, all of which are
relevant to assessing the solvency and liquidity of the Group in this context. A decline
in sales growth or margins or increase in operating costs can result from a range
of principal risks in the retail business including failure by the Group to maintain
a competitive pricing position, a decline in customer service levels and a delay in
implementing new capacity. The Directors assessment also took into account the
other principal risks that could have an impact on the future performance of the Group
and those that would threaten its business model, solvency or liquidity and also the
likely effectiveness of any proposed mitigating actions (see pages 40 and 41).
The above considerations form the basis of the Board’s reasonable expectations that
the Group will be able to continue in operation and meet its liabilities as they fall due
over the three year period from approval of this Annual Report.
The external auditors have reviewed these statements and have nothing to report (see
the Independent Auditors’ report on pages 120 to 126).
For more information see the Audit Committee Report
on pages 63 to 67
Assessment of the Group’s prospects
The Directors have assessed the Group’s prospects, both as a going concern and its
viability longer term. This assessment informs the following distinct statements:
1. The Directors considered it appropriate to adopt the going concern basis of
accounting in the preparation of the Company’s and Group’s financial statements.
2. The Directors have a reasonable expectation that the Company and the Group will
be able to continue in operation and meet its liabilities as they fall due over the
period of their assessment.
Both assessments are closely linked to the Directors’ robust assessment of the principal
risks facing the Group (including those that would threaten its business model, future
performance, solvency or liquidity), which is outlined on pages 40 and 41.
Going concern statement
Accounting standards require that the directors satisfy themselves that it is reasonable
for them to conclude whether it is appropriate to prepare financial statements on a
going concern basis. There has been no material uncertainty identified which would
cast significant doubt upon the Group’s ability to continue using the going concern
basis of accounting for the 12 months following the approval of this Annual Report.
In assessing going concern, the Directors take into account the Group’s cash flows,
solvency and liquidity positions and borrowing facilities. At period end, the Group
had cash and cash equivalents of £45.8 million, external gross debt (excluding finance
leases payable to MHE JVCo of £53.3 million) and net current liabilities of £(59.5)
million. The Group has a mix of short and medium term finance arrangements and
has an unutilised £210 million revolving credit facility which contains typical financial
covenants and runs until July 2019. The Group forecasts its liquidity requirements,
working capital position and the maintenance of sufficient headroom against the
financial covenants in its borrowing facilities (see below). The financial position of the
Group, including information on cash flow, can be found in Our Financials on pages
120 to 189. In determining whether there are material uncertainties, the Directors
consider the Group’s business activities, together with factors that are likely to affect its
future development and position (see Section 7 (Our Strategy) on pages 16 to 23) and
the Group’s principal risks and the likely effectiveness of any mitigating actions and
controls available to the Directors (see pages 40 and 41).
Viability statement
In addition to the going concern assessment, the Directors have considered the
viability of the business.
The Code requires that the Directors assess the prospects of the Group over an
appropriate period of time selected by them. The Directors have considered whether
the Group will be able to continue in operation and meet its liabilities as they fall due
over the three year period from approval of this Annual Report. Although the Group’s
strategic plan forecasts beyond three years, the Directors took into account the impact
on forecast outcomes of the rapid growth of the business and its changing strategic
opportunities (among other factors) in concluding that three years was the most
appropriate period for assessing the Group’s prospects.
39
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com 11. How We Manage
Our Risks (continued)
Key:
Risk has Increased
Risk has Decreased
No Change
Not applicable
Strategic
Objective
Driving Growth
Risks
Mitigation Action/Control
Failure to maintain competitive
pricing position
• Continuation of our LPP basket matching price comparison
• Maintaining a competitive number of promotional offers and increased availability
Change during
the Year
of free delivery slots for price sensitive customers
• Creation of a choice of tiered price points within each category
Due to increased competition
in the market
Risk of decline in high service levels • Weekly monitoring of the key indicators and the underlying drivers against
published targets
Failure to develop retail
proposition to appeal to broader
customer base and sustain growth
rates
• 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 considered in the event that the Waitrose sourcing
relationship terminates
• Continuation of investment and optimisation of the marketing channels to acquire
new customers
• Continued improvement of webshop and apps
Failure to develop sufficient
management and technology
capability or bandwidth to deliver
on all our strategic priorities
Risk of not signing multiple OSP
deals in the medium term
•
•
•
•
•
Second and third overseas technology centres opened
Improved IT prioritisation process
Investment in our platform which enables OSP is also required for Ocado’s
expanding Retail business. Initial deployment will be in CFC Andover
and CFC Erith
Impact of not signing multiple OSP deals in the medium term is restricted to the
lost opportunity to increase our earnings from our Platform business
The amount of capital invested in our platform is carefully controlled and we have
the ability to reduce costs by scaling back the speed of the development
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
• New capacity in development at CFC Andover and CFC Erith
• Regular Executive Board steering and full Board reporting of new technology
Future new capacity is reliant
on new, unproven technology
projects
Technological innovation
supersedes our own and offers
improved methods of food
distribution to consumers
•
•
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
Failure to protect our IP
• Processes to identify patentable inventions and to apply for patents
•
Established Ocado Innovation Committee to review our patent portfolio and
discuss other IP issues
Failure to ensure that our
technology can be freely operated
without infringing a third party’s IP
• Conducting “freedom to operate” searches on selected technologies
Multiple patents now filed
although the value of IP has
increased, so increasing the
value to others
Maximising
Efficiency
Utilising
Proprietary
Knowledge
40
sluglineStrategic ReportOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015 Strategic
Objective
Operational
Risks
Mitigation Action/Control
A risk of a food safety or product
safety incident
•
•
•
Experienced legal, food and product technology professionals monitor compliance
against policies and procedures
Supplier approval and certification process
Food and product safety policies and quality management with appropriate
operational procedures
Change during
the Year
Supplier and product
numbers have increased and
the market has become more
sensitive to food and product
safety issues
A risk of changes in regulations
impacting our retail business
model or the viability of OSP deals
• Regular monitoring of regulatory developments to ensure that changes are
identified
• Monitoring operational performance to minimise environmental impact
• Regulatory due diligence carried out at appropriate stages in the OSP process
Risk of major cyber-attack or data
loss
IT systems are structured to operate reliably and securely
•
• Denial of service protection service is in place
•
• No customer payment card data is held in Ocado’s databases
•
The security of our IT systems is regularly tested by third parties
Access to customer personal data is restricted to those who need this information
as part of their job
Business interruption
IT systems are structured to operate reliably and securely
•
• 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
A risk of unintentional
infringement of competition
legislation
•
•
Issued a revised competition compliance policy in 2014
Tailored learning tools rolled out (with annual refresher) for all personnel involved
in accessing Morrisons data or providing services to Morrisons
• Physical and technical firewalls installed to ensure Ocado’s Retail business is
protected and kept separate from the operational teams providing services to
Morrisons
For further information on the financial risks, see page 158 of the notes to the financial statements.
Read more about financial risks on
page 158
Read about Our Strategy on
pages 16 to 23
See the KPIs that measure the
success of our strategy on page 36
41
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com
12. Corporate
Responsibility
During the period we continued to implement “The Ocado Way: 2020 Vision” across the business, and achieved a number of significant deliverables which are
described below.
The four strategic pillars of Education, Entrepreneurship, Environment and Eating Well continue to drive the direction of our Corporate Responsibility strategy,
and we have placed the recently launched Ocado Foundation at the heart of our employee engagement.
The Ocado Way: 2020 Vision
Education
Entrepreneurship
Environment
Eating well
2015 also saw the launch of the Ocado Foundation.
The Ocado Foundation
The Ocado Foundation was established
to support our employees in their personal,
charitable fundraising and volunteering efforts,
and also be the vehicle for all Ocado fundraising.
We believe that many
small actions make a
big difference
We focus on areas
where we have a
related interest or
expertise
42
We target our
efforts at a local,
personal level
We are focused on
actions where the
results can be measured
We look after the
many over the few
sluglineStrategic ReportOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015 Beating off stiff competition from hundreds of
entrants, the 2015 winner was Manfood, founded
by Andre and Jon Dang in Cambridgeshire, who
produce a chunky pickle made entirely from local
ingredients.
Staying close to our entrepreneurial roots,
the competition further demonstrates our
commitment to doing more for small, British
suppliers and encourages other retailers and
consumers to do the same.
Environment
For the 2015 financial year, we partnered with
Ecometrica, a sustainability consultancy, to
develop our data management systems and
improve the transparency of our carbon footprint.
As a result, we have strengthened our position to
effectively maintain accuracy and accountability
for our impact on the environment.
Greenhouse Gas Emissions
For the reported period, our CO2 emissions
increased relative to the previous year. As
illustrated throughout this report, the business
Scope 1 – Direct
Scope 2 – Indirect
Total Emissions
Intensity measures:
Tonnes CO2e / 100,000 orders
has continued to grow significantly, highlighted by
a rise in order volumes of more than 30% at both
Ocado.com and Morrisons.com.
The carbon efficiencies implemented however,
has meant that despite our substantial growth
we have successfully achieved a three-year trend
of improving energy efficiency, culminating in a
11.9% efficiency gain relative to our 2013 baseline
year. Our progress is illustrated in the table below.
PwC has carried out a limited assurance
engagement on selected GHG emissions data
(table below) in accordance with the International
Standard on Assurance Engagements 3410
‘Assurance engagements on greenhouse
gas statements’ (ISAE 3410), issued by the
International Auditing and Assurance Standards
Board and, in respect of the intensity measure, in
accordance with the International Standard on
Assurance Engagements 3000 (Revised) ‘Assurance
engagements other than audits or reviews of
historical financial information’ (ISAE 3000
(Revised)). A copy of the limited assurance report
is available in the “Our Responsibilities” section of
the Company’s corporate website.
GHG Emissions (Tonnes CO2e)
2012/13
39,530
21,613
61,143
2013/14
50,198
26,493
76,691
2014/15
63,151
28,602
91,753
823.4
815.1
725.4
Education
Using our knowledge and expertise to benefit
schools and colleges continues to be a key
driver for Ocado, demonstrated by our strong
commitment to technology and road safety.
Code for Life
September 2015 saw our “Code for Life”
programme turn one year old. To date, more
than 44,000 users are taking advantage of the
free resource “Rapid Router”, aimed at teaching
primary school children across the UK how to
code. The programme has been extremely well
received in UK schools and is also being used
globally in schools across the US, Australia, Spain,
Portugal and Guatemala.
Road Safety
Ocado is an industry leader in road safety. Using
this position, we continue to support other
companies in their development of employee road
safety strategies. Our strong relationship with both
BRAKE and the Road Victims Trust continues to
flourish with Ocado repeatedly invited to speak at a
number of industry events throughout the year.
Entrepreneurship
Britain’s Next Top Supplier 2015
We launched our annual search for Britain’s
Next Top Supplier in January 2015. Backed by
Chairman Lord Rose and Chef Tom Kerridge, the
competition sets out to find the next big British
success story in food and drink.
Britain’s Next Top Supplier 2015
43
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com 12. Corporate
Responsibility (continued)
The largest share of our emissions are attributable
to vehicle usage (62%), followed by the operation
of our premises (37%); mirroring the findings of our
previous two years’ greenhouse gas reports. As a
result, developing the fuel-efficiency technologies
within our operation and addressing the energy
efficiency of our CFCs continues to be the focus of
our carbon reduction strategy.
Waste
We continue to monitor our waste closely and
we remain confident that our waste volumes are
very low when compared to the industry. The
partnership with Ecometrica includes analysis of
waste, and we look forward to reporting on this in
more detail in future years.
Bag Recycle Bonus Scheme
Recycling has always been a key driver for Ocado.
Our business model is built around efficiency
and low waste and for many years we’ve been
operating a plastic carrier bag recycling scheme.
Since 2007, Ocado has been collecting plastic bags
from customers, and recycling them into carrier
bags to be used again. This all takes place within
the UK, keeping “supply chain miles” and carbon
emissions to a minimum.
September saw Ocado continue its commitment
to recycling by introducing the ‘Bag Recycling
Bonus Scheme’, a scheme incentivising customers
to recycle more bags by paying them 5p for every
bag they hand back to us. We do this for both
Ocado and other retailers’ bags.
With our aim of becoming the UK’s greenest, most
innovative and best value grocery retailer, this
scheme seeks to reward customers for helping us
to help the environment.
With regard to minimising the environmental
impact of the fleet, we are continuously
evolving the design of our vehicles to improve
aerodynamics, capacity, and trialling fuel-
efficient technology developed in-house.
Further, our strategic geographical expansion
is in part designed to alleviate the use of fuel
in our operations, opening new spokes to
reduce the overall mileage of our delivery vans.
Environmentally-conscious customers may also
select ‘green van slots’, saving fuel and reducing
emissions by having a delivery at a similar time
to another customer local to them. Through
implementing a range of initiatives, investments
in our fleet have positively contributed to our
substantial company-wide improvement in energy
efficiency.
The Group’s reported emissions have been
prepared and calculated with reference to
environmental reporting guidelines (2015), issued
by Defra and using conversion factors published by
DECC/Defra May 2015.
For further details about data and
preparation go to ocadogroup.com
Case Study
Ocado Foundation
April 2015 saw the launch of The Ocado Foundation. This was established to
support our employees in their personal charitable fundraising and volunteering
efforts and also to be the vehicle for all Ocado fundraising.
In its first seven months, £17,570 of match-funding was provided to charities
across the country, as a result of employees undertaking all manner of
fundraising efforts. More than £22,000 has also been fundraised for the Ocado
Foundation in the same seven months, this money has been distributed across the
Ocado network amongst local charities in the communities where employees live and work.
Case Study: Ocado Foundation
London to Paris bike ride
A team of six cyclists from Ocado’s Planning &
Supply Chain Department were able to enjoy
springtime in Paris when they completed the
300 mile London to Paris bike ride and in the
process raised over £12,000 for Macmillan
Cancer Support. The Ocado Foundation
added a further £2,000.
The team, led by Director of Planning & Supply
Chain, Mark Watson said: “I’m extremely
proud of our achievement in completing the
challenge and for raising such a huge amount
of money for Macmillan Cancer Support. As
well as supporting one another as a team, it
was great to have the backing of Ocado and I’d
like to thank everyone who sponsored us. This
has been a phenomenal experience and one
that I will never forget. It was quite wet when
we got over to France which made things a bit
more challenging but we all got through it in
one piece. I think the highlight for me though,
was cycling into Paris and trying to compete
with six lanes of traffic as we went around the
Arc de Triomphe – it certainly gets your heart
beating a bit faster!”
44
sluglineStrategic ReportOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015 Eating Well
Food and nutrition is at the heart of the Eating
Well pillar. We use sustained promotions on fresh
fruit and vegetables to try and encourage healthy
eating and become a positive nutritional influence
on our customers.
At the start of the financial year, we committed
to always having at least 100 different fruit and
vegetables on promotion at any one time, and
during the period, we consistently exceeded this
target.
At the start of the financial year we also launched
“Donate Food with Ocado”. This scheme has been
incredibly popular with customers, donating £96,913
during the 2015 financial year. This scheme differs
from others in the industry, as customers make a
financial donation that is matched with groceries
from Ocado. We work closely with our food bank
partners to discuss their needs, and then tailor the
food we donate on a week by week basis to meet the
requirements of the different people they support.
No donations were made by the Group to any
political party, organisation or candidate during
the period (2014: nil).
Ocado is committed to the upholding of human
rights. We require our suppliers to operate in a fair
and honest way towards their employees and with
those whom they do business. We ask all our “Own
Brand” suppliers to be members of Sedex, a global
supplier ethical database, and to ensure that they
have an ethical auditing programme in place.
Through sales of fruit and vegetables, we continue
to support farmers in South Africa and Kenya by
donating to the Waitrose Foundation. We made
donations totalling £30,000 during the period of
this report.
During the period we also made a donation
of £145,000 to the Prince of Wales’s Charitable
Foundation, through sales of Duchy branded
products.
Fresh Fruit/Vegetables on Promotion Each Month
6
0
4
3
8
3
5
1
3
8
9
2
9
2
3
0
3
3
600
400
200
0
4
1
0
2
r
e
b
m
e
c
e
D
5
1
0
2
y
r
a
u
n
a
J
5
1
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2
y
r
a
u
r
b
e
F
5
1
0
2
h
c
r
a
M
5
1
0
2
l
i
r
p
A
5
1
0
2
y
a
M
5
1
0
2
e
n
u
J
5
1
0
2
y
l
u
J
5
7
4
0
7
4
6
7
4
3
3
4
5
1
0
2
t
s
u
g
u
A
9
7
3
1
7
3
5
1
0
2
r
e
b
m
e
t
p
e
S
5
1
0
2
r
e
b
o
t
c
O
5
1
0
2
r
e
b
m
e
v
o
N
Items on promotion
Target items on promotion (100)
Case Study
Eating Well and Reducing Food Waste
Ocado’s support has also freed us up to use
our other charitable funds to provide much
needed 1:1 support to our residents and to
provide them with opportunities to take part
in confidence and skills-building activities
to help prepare them for future independent
living.”
Sharon Boyall, DENS Food Bank Manager
“Having received generous donations from Ocado
every Christmas for the last ten years, we were
approached by the Ocado Corporate Responsibility
team who asked if they could extend their support.
We worked together to find a way of delivering fresh
food to our foodbank clients along with food parcels
of non-perishable items. DENS have since opened
The Elms so we have been able to extend the support
further by using the food donations to provide meals
at both the Elms and our Day Centre.
Ocado have been generous supporters of both
projects providing weekly donations of fresh food,
including meat, vegetables, bakery and other
assorted food stuffs. This donation has provided
fantastic fresh quality produce which enables our
residents to enjoy a healthy diet. During the period
May to November 2015, a total of 6,308 meals have
been cooked for vulnerable, homeless people.
45
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com
People Values
We’re
in it
together
Value
each
person
Love
what
we do
We can
be even
better
All Employees
6
3
5
,
5
:
2
1
0
2
9
0
7
,
6
:
3
1
0
2
9
8
5
,
8
:
4
1
0
2
1
8
1
,
0
1
:
5
1
0
2
* Number of employees as at period end.
Case Study
Kristina Krikscikaite, Operations
Manager, Hatfield CFC
I joined Ocado in November 2008 as a personal
shopper in the CFC warehouse. I grasped
things quickly and my managers spotted my
potential. I worked hard and soon applied
for a Team Manager position. Six months
into this new role I wanted more so I was
offered a trial as a Stand-up Section Manager,
followed quickly by a Flow Manager’s job. One
year in this role gave me a lot of operational
experience and I really enjoyed taking on more
and more responsibility. I put my heart into
what I was doing which my line managers
appreciated and from there my colleagues
encouraged me to apply for an Operations
Manager’s role.
I’m now in this role and would only change it for
my boss’s chair! It’s challenging, absorbing and
no day is ever the same. More importantly, I get to
work with many interesting people from different
parts of the world, with varying backgrounds, and
different motivations driving them. What most of
us have in common is commitment, appreciation
and love of what we do.
46
13. Our People
diverse range of stories in a tone of voice that’s
relevant to our people. We’re also developing our
online communications with employees through
the development of mobile apps and social
media.
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. Five years since the Council’s
inception, we’ve refreshed our
‘Charter’ to ensure it reflects
the business we are now and
continues to be fit for purpose
for the next five years.
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.
We Develop Our People
Training and developing employees is a vital part
of enabling them to forge their career with Ocado.
We place strong emphasis on developing our
talent across the business and further embedding
appraisals as a development tool . Using talent
matrix mapping we also identify potential successors
for every middle and senior management role.
Through our Apprenticeship and Graduate
Programmes we attract a valuable source of
talented individuals. It’s a great way to get bright
but inexperienced people into the business, and
instil in them the knowledge and experience they
need to fulfil their potential.
Developing people is exciting, but also a challenge
when growing a business as fast as we are. 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.
We Value Our People
We are a business that values our people. We
listen to their opinions on customer service,
operational efficiency and what it means to be
an Ocado employee. We aim to understand
our employees as well as we understand our
customers and innovate and change together
to match the pace of growth and diversification
required in our markets.
We Recruit Talent
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 hiring the new
employees needed for our continuous growth.
In November 2015 we reached a significant
milestone – total employee numbers crossed
10,000 for the first time, cementing our place as a
significant employer and creator of new jobs.
We opened three new spokes in 2015 and moved
another to new premises, increasing our spokes
from 16 to 20. This makes our delivery driver
team the largest in the business. We call them
our Customer Service Team Members, and their
job title describes how they are essential to the
success of Ocado.
With our third CFC opening in Andover and more
expansion planned across our network in 2016,
we plan to create even more opportunities for
existing and new employees in the coming year.
Diversity
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.
The charts opposite 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 by number and gender.
Engaging Our People
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
sluglineStrategic ReportOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015
Retaining Our People
We invest a significant amount of time and
resources in recruiting the right people and
developing their skills, so retaining our employees
is vitally important to the business. This means
designing work environments and benefits
packages that are in tune with what different
groups of employees want. 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.
Recognition and Reward
To make Ocado an employer of choice our
comprehensive employee benefits package
includes pension schemes with employer
contribution, life assurance, private medical
insurance, income protection and an employee
assistance programme.
Case Study
Will Bronson, SD Council Rep
and CSTM at Leeds spoke
I made myself available for the post of Council
Rep to support and help my colleagues and
to be part of the management structure at the
spoke. That means I get calls at 6am in the
morning on days off when drivers are having
a problem, or when I’m on days out. Just
because you have a day off, it doesn’t mean
that the people who elected you do and I’m
quite happy with that.
I have a great working relationship with the
management team. I know that I can raise
issues with them and have no qualms that I’m
not being listened to. I’ve never had a situation
to deal with where I haven’t believed that I
have their full support.
My way of looking at the role is that hopefully
I can take away some of the pressures and
questions being asked on the frontline
because I know the answers. Colleagues feel
confident coming directly to me as they know
I’ll listen and will do all I can to resolve their
problems. I feel that I’ve really accomplished
something in the year that I’ve had this role.
There is also a range of traditional benefits and
an industry-leading 15% employee discount on
all shopping with Ocado, and our destination
sites Fetch and Sizzle. 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. For the
second year running we also gave free shares
equivalent to 1% of basic pay to all employees
with six months or more service.
In 2016 we will be celebrating the 15th anniversary
of our first online deliveries, and a significant
number of our original employees are still with
Ocado.
All Employees
Male: 8,491
Female: 1,690
Senior Managers
Strategic Report
The Company’s Strategic Report is set out on
pages 8 to 47.
Male: 8
Female: 1
Approved by the Board and signed on its behalf by
Neill Abrams
Group General Counsel and Company Secretary
Ocado Group plc
2 February 2016
Case Study
Claude Willis, Damages & Quality
Manager, Hatfield CFC
I joined Ocado back in 2003 as a personal
shopper and have not looked back. I’ve
worked in various roles, and have moved
through the ranks into management positions
along the way.
The experience and the personal development
I have gained through these roles has been
invaluable. I give credit to those that gave me
the support and opportunity to progress but
also to my own drive to work hard and achieve
better. Every day I learn something new and
my current role has opened my eyes to a
whole different side of our business. I have the
privilege of working with an even bigger team
now, including almost all departments in the
company. Ocado has a huge abundance of
talented and gifted individuals and I am proud
to have been a part of Ocado’s history, and
most importantly, the team.
Directors
Male: 9
Female: 2
1. Number of employees as at period end.
2. Senior Managers means the Management Committee
excluding Executive Directors.
Read more about Board Diversity
on page 58
47
sluglineStrategic ReportStock Code: OCDO www.ocadogroup.com
48
slugline Governance
14. Board of Directors
15. Chairman’s Governance Introduction
16. Statement of Corporate Governance
17. Audit Committee Report
18. Nomination Committee Report
19. Directors’ Report
50
52
54
63
68
70
49
slugline 14. Board of Directors
Lord Rose
Chairman, 66
Appointment to the Board
11 March 2013
Committee Membership
Nomination
External Appointments
Chairman of Fat Face Group Limited; Chairman of Oasis
Healthcare Limited; Chairman of Stylemania Limited, trading
as Dressipi; Non-Executive Director of RM2 International S.A.,
listed on AIM; 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 recently appointed chairman of the Britain Stronger
in Europe campaign, which aims to keep Britain in the EU.
Lord Rose was knighted in 2008 for services to the retail
industry and corporate social responsibility, and granted a life
peerage in August 2014.
Tim Steiner
Chief Executive Officer, 46
Duncan Tatton-Brown
Chief Financial Officer, 50
Appointment to the Board
13 April 2000
Appointment to the Board
1 September 2012
Relevant Experience
Tim is the founding Chief Executive Officer of Ocado, which
he started in 2000. 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.
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
Chief Operations Officer, 51
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, customer service, 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.
Neill Abrams
Group General Counsel and
Company Secretary, 51
Appointment to the Board
8 September 2000
External Appointments
Non-Executive Director of Mr Price Group Limited, 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 spent nine years at Goldman Sachs in London in the
investment banking and legal departments. Neill holds BA
and LLB degrees from the University of the Witwatersrand
in Johannesburg and a master’s degree in Law from Sidney
Sussex College, Cambridge. He is a member of the Bar of
England and Wales, the New York Bar and a South Africa
Advocate.
David Grigson
Non-Executive Director and
Senior Independent Director, 61
Appointment to the Board
9 March 2010
Committee Membership
Audit, Remuneration, Nomination (Chairman)
External Appointments
Chairman of Trinity Mirror plc; Chairman of Investis Limited;
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.
50
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Governance Ruth Anderson
Non-Executive Director, 62
Douglas McCallum
Non-Executive Director, 49
Alex Mahon
Non-Executive Director, 42
Appointment to the Board
9 March 2010
Appointment to the Board
3 October 2011
Committee Membership
Audit (Chairman), Remuneration, Nomination
Committee Members
Remuneration (Chairman), Nomination
Appointment to the Board
1 June 2012
Committee Membership
Audit, Nomination
External Appointments
Non-Executive Director of Travis Perkins plc; Non-Executive
Director of Coats Group plc; Non-Executive Director of The
Royal Parks, an executive agency of the Department of
Culture, Media and Sport; Director and Trustee of The Duke of
Edinburgh’s Award
Relevant Experience
Since retiring from KPMG seven years ago Ruth has gained
non-executive director experience at three UK listed
companies and chairs the audit committee at all three. She
was a vice-chairman of the accounting and advisory firm
KPMG in the UK from 2004 to 2009 and a member of the KPMG
UK board from 1998 to 2004, where she was a member of the
audit committee and chaired the nomination committee. At
KPMG she advised many UK and international businesses
and she is a fellow of the Institute of Chartered Accountants in
England and Wales and a member of the Chartered Institute
of Taxation.
External Appointments
Chairman of Trainline.com Limited, trading as trainline;
Chairman of Photobox Holdco Limited, trading as photobox;
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.
External Appointments
Chief Executive Officer of the Foundry Visionmongers Limited,
trading as The Foundry; Non-Executive Director of the
Edinburgh TV Festival
Relevant Experience
Alex was appointed the Chief Executive Officer of the leading
design and visual effects software firm, the Foundry, in
November 2015. Alex was previously CEO of Shine Group, a
global television content production company that is now
part of a joint venture between 21st Century Fox and Apollo
Global. Before Shine Group, 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, 55
Robert Gorrie
Non-Executive Director, 56
Appointment to the Board
13 March 2003
Committee Membership
Nomination
External Appointments
Group Board Member of Tetra Laval, and Chairman of its
Remuneration Committee; Board Member of Alfa Laval AB;
Board Member of DeLaval Holdings AB
Relevant Experience
Jörn has over 25 years’ experience in corporate development
and international mergers and acquisitions. Jörn holds a
degree in Business Administration from Lund University,
Sweden.
Appointment to the Board
1 April 2000
Committee Membership
Nomination
External Appointments
Chairman of Tyres on the Drive Limited
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.
51
sluglineStock Code: OCDO www.ocadogroup.comGovernance Governance
Ocado Group plc
Annual Report and Accounts for the 52 weeks ended 29 November 2015
Lord Rose
Chairman
The Board remains
focused on good
corporate governance
as we believe that it
provides a foundation
for the creation of
long-term value of the
Group.”
Read the Chairman’s Statement on
pages 4 and 5
Read more on Engagement with
Shareholders on pages 61 and 62
15. Chairman’s Governance
Introduction
Dear Shareholder,
On behalf of the Board, I am delighted to present
Ocado’s Statement of Corporate Governance.
The Board remains focused on good corporate
governance as we believe that it provides a
foundation for the creation of long-term value
of the Group. While the Board recognises the
importance of Ocado’s entrepreneurial culture
to help with the rapid growth of the business
and to enable the business to lead the online
grocery retail market, the Board considers that
the Group’s robust governance framework and
its culture and values help sustain the Company’s
success. A challenge for the Board is to adapt to
the rapidly changing UK retail market, and as it
begins to grow the platform business, to respond
to the challenges of, and to take advantage of the
opportunities presented by the international retail
and technology markets.
Leadership and Adapting
to the Strategy
As well as providing entrepreneurial leadership
and overseeing our strategy we have overall
responsibility for the Group’s performance and
mitigating the business risks we, and the industry
more broadly, face.
To ensure the Board is equipped to fulfil those
obligations successfully we need to ensure
that the Board has a diverse range of skills
and experiences which collectively are both
complementary and directly relevant to Ocado’s
strategy. This year, as part of the annual Board
performance review, the Board conducted a
review of its skills and experience. This review
formed the basis of Board discussions about
succession plans and the desired make-up of the
Board for the future needs of the business. On
28 January 2016 we announced some changes
to the Board. Firstly, the appointment of Andrew
Harrison, as Non-Executive Director with effect
from 1 March 2016. This appointment brings fresh
insight to the Board and we will benefit from his
significant technology and retail experience. In
addition, David Grigson will step down from the
position of Senior Independent Director with
effect from the AGM on 4 May 2016. David has
made a significant contribution to the Board over
the last six years, and he leaves with our sincere
thanks and best wishes. Further details are set out
in the report on the activities of the Nomination
Committee found on pages 68 and 69.
It is also important to ensure that all of the
Directors develop a good understanding of the
Group’s operations and are best placed to make
informed decisions. The report outlines many of
the topics of Board discussion on page 60.
Accountability
While the Executive Directors are responsible for
the day-to-day management of the business,
the entire Board leads the Group and provides
the debate and constructive challenge to
management necessary to create accountability
and drive performance. The Audit Committee
has played an important role in overseeing
the implementation of risk and assurance
systems in the Group, including in relation to
strategically important projects such as the
Ocado Smart Platform and the new CFCs. While
crucial to delivering value to shareholders,
monetising intellectual property and expansion
of the platform business into overseas markets
present risks to the business, including those
risks associated with the implementation of
unproven technology and systems. With the
support of management, the Board and the
Audit Committee discussed these principal risks
and their mitigants as well as the processes for
identifying and managing the risks and assurance
actions. Understanding the Group’s principal risks
and related mitigating actions is an important
part of the assessment made by the Directors with
regards to the Group’s viability over the longer
term. We make a viability statement for the first
time in this Annual Report (see page 39). Further
information on accountability is provided in the
Audit Committee Report on pages 63 to 67.
52
Ocado Annual Report 2015 Middle.indd 52
slugline
03/02/2016 15:08:43
Stock Code: OCDO
www.ocadogroup.com
Governance
Remuneration and Engagement
with Shareholders
Our Executive Director remuneration
arrangements are intended to support the
achievement of our business objectives. With
the support of the Remuneration Committee
oversight, we continue to believe that the current
remuneration packages help to appropriately
incentivise management to sustain long-
term value for shareholders. The Directors’
Remuneration Policy put in place in 2014, with
its emphasis on long-term incentives, aims to
reward achievement of core financial objectives
and outstanding growth in the value of the Group
relative to the FTSE 100 over the longer term. The
Directors’ Remuneration Report on pages 80 to
117 contains further details.
It is important that our shareholders remain
supportive including with regards to the Directors’
Remuneration Policy. We believe, based on
shareholder feedback sought and the results of
voting at general meetings, that the vast majority
of shareholders consider that our remuneration
arrangements are the most appropriate way to
incentivise the Executive Directors and senior
management to create and sustain long-term
value. I welcome the opportunity to discuss
remuneration, governance and other matters
with shareholders as this provides important
feedback to the Company about its direction and
performance.
Annual General Meeting
Our Annual General Meeting will be held at 11 am
on 4 May 2016 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
Ocado Annual Report 2015 Middle.indd 53
slugline
53
02/02/2016 12:04:47
16. Statement of Corporate
Governance
Introduction
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 80 to 117. The Group’s risk management and
internal control framework and the Group’s principal risks and uncertainties are described on pages 38 to 41. These sections form part of this Statement of
Corporate Governance. The Directors’ Remuneration Report on pages 80 to 117, the Directors’ Report on pages 70 to 77 and the going concern and viability
statements on page 39 also contain information required to be included in this Statement of Corporate Governance, and so are incorporated into this
statement by reference.
Compliance with the Code
This Statement of Corporate Governance explains how the Company applies the main principles and complies with all relevant provisions set out in the UK
Corporate Governance Code, September 2014 issued by the Financial Reporting Council (the “Code”), as required by the Listing Rules of the Financial Conduct
Authority and meets other relevant requirements including provisions of the Listing Rules and Disclosure and Transparency Rules of the Financial Conduct
Authority.
The Company’s obligation is to state whether it has complied with the relevant provisions of the Code, or to explain why it has not done so. The Company has
applied the principles and complied with the provisions of the Code, except for provisions D.1.1 and D.2.2. These areas of non-compliance are explained below.
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.
Code Provision
D.1.1 and Schedule A
Area
Design of performance-related remuneration
D.2.2
Senior management remuneration
Explanation
As explained on page 105, Directors are not required to retain shares from share
incentive schemes for a holding period after vesting or exercise or for a period
after leaving the Company.
As explained on page 83, the Remuneration Committee monitors, but does not
make recommendations concerning, the level and structure of remuneration
for senior management of the Company.
Board Approval of the Statement of Corporate Governance
This separate Statement of Corporate Governance is approved by the Board and signed on behalf of the Board by its Chairman and the Group General
Counsel and Company Secretary. Certain parts of this Statement of Corporate Governance have been reviewed by the Company’s external auditors, PwC, for
compliance with the Code, to the extent required.
Further information on the Code can be found at www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance.aspx
54
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Governance 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
Principal Executive
Committees
Board
Committees
Management
Committee
Safety
Steering
Committee
Risk
Committee
Information
Security
Committee
Treasury
Committee
Capital
Expenditure
Group
Audit
Committee
Remuneration
Committee
Nomination
Committee
Board Responsibilities
The Board is collectively responsible for the long-term success of the Company. Subject to its 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 some of 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.
y
t
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b
i
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n
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e
R
d
o
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p
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t
g
n
i
r
u
d
s
n
o
i
t
c
a
c
i
f
i
c
e
p
S
Strategy, performance
and financing
Reporting, risk
management and
accountability controls
Oversight of the Group’s
operations and
technology development
People, governance and
corporate responsibility
Annual strategy conference to
review and set the Group’s
strategy.
Annual review of key risks and risk
appetite and reviewing reports of
risk management. Review of
reports on specific risk areas
including cyber security.
Approving the annual budget,
the business plan for the Group
and individual capital
expenditure projects.
Overseeing the Group’s strategy
for monetising its IP and
technology and Ocado Smart
Platform negotiations.
Review and approve the Group’s
regulatory results announcements
and reports.
Receiving reports on and
discussing the Group’s marketing
and commercial initiatives.
Receiving reports from senior
management on trading, business
performance and financing.
Approving new financing including
the terms of the amended
and extended existing unsecured
£210 million revolving
credit facility.
Reviewing reports on health,
safety and environment, litigation,
investor relations and legal
and company secretarial matters.
Site visit to Andover CFC and to the
technology testing facility to assist
in understanding the operational
and technology issues the business
faces. Receiving regular reports on
key projects including the new
technology, the IT replatforming
and the Andover and Erith CFCs.
Approving a new corporate
responsibility vision statement and
plan and the establishment of the
Ocado Foundation charity.
Receiving a report on corporate
responsibility initiatives.
Receiving report on people issues.
Discussing management succession
plans and Board composition.
Reviewing report on IT
resourcing plans.
Receiving various reports on
governance and regulatory
changes.
55
sluglineStock Code: OCDO www.ocadogroup.comGovernance
16. Statement of Corporate
Governance (continued)
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 50 and
51. 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 Group General
Counsel
Lord Rose
Tim Steiner
David Grigson
Ruth Anderson, Robert
Gorrie, Jörn Rausing, Alex
Mahon, Douglas McCallum
Neill Abrams
• Leadership of the Board
• Ensuring the Board’s
effectiveness and
governance
• Influencing the Board’s
agenda
s
e
i
t
i
l
i
b
i
s
n
o
p
s
e
R
•
•
•
•
Day-to-day management
of the Group’s operations
Operations and results of
the Group
Executing the strategy once
agreed by the Board
Making proposals for the
Group’s strategy to the Board
•
•
•
Providing a sounding board
for the Chairman
Serving as an intermediary
between the other Directors
when necessary
Being available to discuss
any concerns with
shareholders
•
•
Constructively challenge
the Executive Directors
Monitor the delivery of the
Group’s strategy within the
risk and control framework
set by the Board
•
•
•
Ensuring that Board
procedures are followed
Governance matters
Ensuring that information
flows between the Board
and its committees
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
Membership
Minimum Number of
Meetings per Year
Committee Report
on pages
Required Under 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 and Risk 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.
Nomination
Undertakes an annual review of succession planning and
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.
At least three members.
Three
63 to 67
All members should
be independent Non-
Executive Directors.
At least three members.
Two
80 to 117
All members should
be independent Non-
Executive Directors.
At least three members.
Two
68 and 69
All members should be Non-
Executive Directors with a
majority of independent
Non-Executive Directors.
56
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Governance
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.
View more information online at
ocadogroup.com
Other Committees
Certain detailed aspects of the Board’s responsibilities are delegated to the Executive Directors. The Executive Directors carry out some of these responsibilities
through executive-led committees. These committees, whose roles are set out below, formally report into the Executive Directors, and may provide reports to
the Audit Committee from time to time. The Management Committee, comprising the Executive Directors and nine members of management, implements and
oversees operational matters.
e
e
t
t
i
m
m
o
C
Risk
Committee
Information Security
Committee
Treasury
Committee
Safety Steering
Committee
Capital Expenditure
Group
Overseeing the
Group’s risk register,
risk control processes
and disaster
recovery planning.
Monitoring the
Group’s information
security measures
and overseeing
changes to
security systems.
Overseeing the
treasury policy
concerning the
Group’s cash and
deposits, investments,
foreign exchange
and applicable
interest rates.
Overseeing the
Group’s health,
safety and
environment
management systems
and monitoring the
progress of
safety plans.
Reviewing and
authorising capital
expenditure projects,
overspends and
property
expenditure, in
accordance with
agreed limits.
Board Attendance
The attendance record of the Directors at scheduled Board meetings during the period is set out in the chart below. The Board scheduled nine meetings during
the period. 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.
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
8
8
7
Tim Steiner
Duncan
Tatton-Brown
Neill Abrams Mark Richardson
Lord Rose
(Chairman)
David Grigson
Jörn Rausing
Ruth Anderson
Robert Gorrie Douglas McCallum Alex Mahon
Executive Directors
Non-Executive Directors
Actual meetings attended
Possible meetings the Director could have attended
1. Where a Director has not attended a Board meeting, it was due to a conflicting prior commitment or illness.
57
sluglineStock Code: OCDO www.ocadogroup.comGovernance 16. Statement of Corporate
Governance (continued)
Composition of the Board
Board Changes
Following the period end, the Company announced that David Grigson will step down from the position
of Senior Independent Director with effect from the AGM on 4 May 2016. The Company announced also
the appointment of Andrew Harrison, as Non-Executive Director with effect from 1 March 2016. As a
result of the Board changes, the Nomination Committee agreed some changes to the composition of the
Board committees, as outlined in the respective committee reports.
Andrew Harrison has been Deputy Chief Executive Officer of Dixons Carphone plc since August 2014.
Prior to this, Andrew built his career at Carphone Warehouse, holding a number of different roles from
1995, and becoming a member of the board in 2006. In 2010, Andrew was appointed Chief Executive
Officer of Best Buy Europe, a joint venture between Best Buy Co., Inc. and Carphone Warehouse plc.
Following this, he was appointed Group Chief Executive of Carphone Warehouse plc. Andrew is a trustee
of both Techknowledge for Schools and Get Connected.
Review of Board and Board Committee Composition
The Board changes were a result of a review carried out during the period by the Board and the
Nomination Committee of the composition of the Board and the Board committees. Details of this
review can be found in the Nomination Committee report on pages 68 and 69. The review takes into
account various considerations including length of Director tenure, Board diversity, independence and
the mix of skills and experience of the Directors. These considerations are outlined below.
Board Diversity
The Board seeks to ensure that its composition, and that of its committees, is appropriate to discharge
its duty 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. This includes Ridgeway Partners, who were engaged to help the
Company secure a new Non-Executive Director for the Group. The Nomination Committee monitors
these objectives.
The Board remains 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. Further, diversity was
an active consideration when changes were made to the Board’s composition, and this will remain the
case. 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 the Group’s
employees, see the Our People section on pages 46 and 47. The chart on the left illustrates the diversity
of the Board in terms of gender.
Board Tenure
The Board also takes into account the length of tenure of existing Directors when considering
reappointment and succession planning. Ruth Anderson has served six years (in March 2016) as a
Director and both Jörn Rausing and Robert Gorrie have served as Directors for over 12 years and
accordingly their reappointments to the Board are subject to particular scrutiny. The Board took into
account the importance of maintaining Board continuity given other changes made to the Board. The
chart on the left illustrates the tenure of Directors.
Gender Diversity
9
5
4
2
2
0
Executive
Non-
Executive
Whole
Board
Male
Female
Length of Tenure of Chairman
and Non-Executive Directors
4
:
s
r
a
e
y
6
-
3
1
:
s
r
a
e
y
3
-
0
2
:
s
r
a
e
y
+
0
1
0
:
s
r
a
e
y
0
1
-
6
58
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Governance
Levels of Knowledge and
Experience on the Board
12
10
8
6
4
2
0
l
i
a
t
e
R
l
y
g
o
o
n
h
c
e
T
s
n
o
i
t
a
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e
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O
l
a
n
o
i
t
a
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e
t
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I
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e
m
m
o
C
-
E
/
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F
i
g
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Limited knowledge and/ or experience
General knowledge and/ or experience
Specialist knowledge and/ or experience
Board Independence
55%
36%
9%
Executive Director
Chairman
Independent Non-Executive Director
Mix of Skills and Experience
During the period, each Director assessed the current mix of skills and experience on the Board. The
chart on the right provides an outline of some of the results from this 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 pages 68 and 69.
Independence
The 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 right illustrates the current
composition of the Board in respect of the independence of its members.
Similarly, the composition of the Audit Committee, Nomination Committee and Remuneration
Committee comply in all respects with the independence provisions of the Code.
Scrutiny by the Board
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.
Jörn Rausing
Jörn Rausing has been a Director for almost 13 years, although less than six 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 Group
and supports the principles of the Code. His significant international business experience at Tetra Laval
enhances the balance of skills and experience on the Board, especially at a time when the Group is
starting to expand outside of the UK, and reinforces the long-term perspective of the Board’s decision
making.
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 by shareholders.
Robert Gorrie
Robert Gorrie has been a Director for almost 16 years, but less than six 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 £6,000 fee during the period for performing this role (2014:
£7,100). 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 Group’s complex IT and logistics operations
is of benefit to the Board in assisting it to formulate the Group’s strategy, including its strategy for
international expansion, and his prior experience of running a logistics operation in the USA is helpful
in monitoring the execution of that strategy. The Board does not consider that the Ocado Council
constitutes a material business relationship with the Group, nor the additional consultancy fee 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 by shareholders.
59
sluglineStock Code: OCDO www.ocadogroup.comGovernance 16. Statement of Corporate
Governance (continued)
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 2015 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. One questionnaire asked questions to assess performance in a range of areas
including Board strategy, leadership and culture and sought to gauge the extent of perceived progress of the Board and the Board committees in the areas of
development identified in the external Board review from 2013 (which had been carried out by Independent Audit Limited). An assessment of each individual
Director was also carried out using an online questionnaire.
The findings of the review were evaluated by the Company Secretary and the Chairman, and a Board evaluation report was provided to the Board. The results
were benchmarked against those from the 2014 and 2012 Board evaluations to help assess progress. The Board discussed the results of the review, which
indicated that the consensus view of the Board was that the Board performance was generally equivalent to, or stronger than that of prior years, in the areas
assessed. However, while no areas of significant weakness were identified by Directors, the Board needed to spend more time discussing people development
and succession plans. Directors were asked to identify areas of Board focus for 2016 and common among these were the importance of discussing the
Group’s Ocado Smart Platform strategy, opportunities and risks, and monitoring a number of important major projects including new CFCs and technology
development. The Board concluded that it had operated effectively throughout the year. The Chairman of each of the Board committees separately discussed
the Board review as it pertained to their committee. No actions were identified from these reviews. The Chairman separately reviewed the results of the
individual Director performance evaluations.
The Board intends to continue to conduct annual performance reviews, with external oversight of the review scheduled for 2016.
Director Election
Each Director is required under the Articles to retire at every annual general meeting (each Director may offer himself or herself for re-appointment by the
members at such meeting). At the last annual general meeting on 15 May 2015, all of the current Directors stood for re-appointment, and were duly elected
with a range of 90% to 99% of votes cast by shareholders in favour of re-appointment.
All Directors, except David Grigson, will retire and seek re-election at the AGM. New Non-Executive Director, Andrew Harrison, whose appointment takes effect
on 1 March 2016, will also retire and seek re-election at the AGM. 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 re-appointed. 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 of the Chairman (led by the Senior Independent Director) and of the Executive
Directors 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) during the period).
The rules that the Company has about the appointment and replacement of Directors are described in the Directors’ Report on page 71.
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 or committee chairman. 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 received training from the
Company’s auditors, PwC, on corporate reporting, including the new viability statement requirements in the Code and on important technology risk areas,
namely information security and data governance. Members of the Audit Committee receive written technical updates from PwC to keep them abreast of the
latest accounting, auditing, tax and reporting developments. The Company Secretary also provides updates to the Board and the committees on governance
and regulatory changes impacting the Group (for example, the new Modern Slavery Act reporting requirements).
60
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Governance 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 50 and 51.
Director
Douglas McCallum
David Grigson
Alex Mahon
Alex Mahon
Change in Commitment
Appointed Chairman of Photobox Holdco Limited, trading as photobox
Resigned as Non-Executive Director of Standard Life Plc
Resigned as Chief Executive Officer of Shine Group
Appointed Chief Executive Officer of the Foundry Ironmongers Limited
Effective Date of Change
5 May 2015
12 May 2015
11 February 2015
10 November 2015
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.
Lord Rose, the Chairman, and David Grigson, the Senior Independent Director, are available to the Company’s shareholders for discussions. The Chairman met
with some of the Company’s shareholders during the period to discuss various matters including corporate governance and executive remuneration.
The Group also engages with shareholders in the event of a substantial vote against a resolution proposed at an annual general meeting.
Changes to the Company’s Resolution Regarding the Authority to Allot Shares
At the 2015 annual general meeting, the Company’s resolution seeking authority to allot shares received significant opposition, with 21.38% of votes against the
resolution. The Company sought feedback from shareholders to understand the reasons behind the opposition. As a result the Group has revised the allotment
resolution that it is seeking. At the 2016 AGM, the Directors will seek an authority to allot shares under two separate resolutions, rather than one, as in previous
years. While the substance of each resolution will remain the same, the new structure will allow shareholders to more clearly express their views on the constituent
elements of the previous, single, allotment resolution. For more information on the resolutions, please refer to the Directors’ Report on pages 70 to 77.
The Directors’ Remuneration Report also received a significant shareholder vote against at the annual general meeting in 2015. The Company sought feedback
from shareholders to understand the reasons behind the dissent. For an explanation of this, see page 116 of the Directors’ Remuneration Report.
61
sluglineStock Code: OCDO www.ocadogroup.comGovernance 16. Statement of Corporate
Governance (continued)
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 these documents, including this Annual Report and other information concerning the Company
on its corporate website. All shareholders can choose to receive an Annual Report in paper or electronic form.
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 76 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 enable them to ensure that the information
presented in this Annual Report complies with the disclosure requirements including those 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:
•
•
review of and feedback on iterations of the Annual Report by the Executive Directors and the full Board;
focused review of specific sections of the Annual Report by the relevant Board committees;
• 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 64);
• Board and Audit Committee review of management reports on assessments on going concern and viability;
•
•
the Audit Committee regularly reporting to the Board on the discharge of its responsibilities;
input from both internal and external legal advisers and other advisers to cover relevant regulatory and governance obligations;
• discussions between contributors and management to identify relevant and material information;
• detailed debates and discussions concerning the principal risks and uncertainties;
•
•
review and approval by the external auditors; and
separate approval by the Group General Counsel, 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 120 to 126.
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 4 May 2016 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 78.62% to 100%.
The Company’s Statement of Corporate Governance (which is set out on pages 54 to 62) is approved by the Board and signed on its behalf by
Neill Abrams
Group General Counsel and Company Secretary
Lord Rose
Chairman
Ocado Group plc
Registered in England and Wales,
number 07098618
2 February 2016
62
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Governance 17. Audit Committee
Report
Ruth Anderson
Audit Committee Chairman
Our report provides
information concerning
our oversight of the
Company’s assurance
framework, internal
controls and financial
reporting.”
Dear Shareholder,
I am pleased to present the report of the Audit
Committee for the financial year ended
29 November 2015.
Our report provides information concerning our
oversight of the Company’s assurance framework,
internal controls and financial reporting.
We considered the significant accounting
matters and issues in relation to the financial
statements and in this report we explain why the
issues are considered significant, which provides
additional context for understanding the Group’s
accounting policies and financial statements for
the period. This is the first year the Directors are
required to make a viability statement and so the
Audit Committee has spent time reviewing the
Company’s new viability statement (see page 39)
and in particular understanding the analysis which
was prepared by management and supports the
Board’s view that the Company will be able to
continue in operation and meet its liabilities as
they fall due over the longer period assessed.
We continued our role of overseeing the
relationship with the external auditors,
PricewaterhouseCoopers LLP, and were satisfied
that they remain effective, independent and
objective. However, in light of impending
regulatory changes, we agreed to tender the role
of external auditor in 2016, the result of which
would be put to a shareholder vote at the 2017
annual general meeting. This timing aligned
with the required rotation of the current audit
engagement partner in 2017.
These matters as well as its other key
responsibilities are outlined in more detail below.
I will be available at the AGM to answer any
questions about our work.
Ruth Anderson
Audit Committee Chairman
2 February 2016
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
Number of meetings: 4
Number attended: 3
David Grigson
Alex Mahon
Audit Committee
member since 9 March 2010
Number of meetings: 4
Number attended: 4
Audit Committee
member since 1 June 2012
Number of meetings: 4
Number attended: 4
Ruth Anderson missed an Audit Committee meeting which took place shortly after she had surgery.
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. Alex Mahon’s
appointment to the Audit Committee was renewed during the period, effective from June 2015. The biography of each member of the Audit Committee is set
out in the Board of Directors section on pages 50 and 51.
Regular attendees at the Audit Committee meetings include the Chief Financial Officer, the Group General Counsel and the Company Secretary, the Finance
and Risk Director, the Deputy Company Secretary, the Head of Internal Audit and 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.
Since period end, the Company announced that the Audit Committee composition will change as a result of the retirement of David Grigson at the AGM and
the appointment of new Non-Executive Director, Andrew Harrison. Andrew Harrison will become a member of the Audit Committee with effect from 1 March
2016.
During the period, the Audit Committee met with the Head of Internal Audit and Risk, without management present.
63
sluglineStock Code: OCDO www.ocadogroup.comGovernance 17. Audit Committee
Report (continued)
Key Areas of Focus for the Audit Committee
The responsibilities of the Audit Committee are set out in its terms of reference. 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. 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. The Board ensures 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 62 of the Statement of Corporate Governance.
Accounting Judgements and Issues: The Audit Committee has assessed whether suitable accounting policies have been adopted and whether management
has made appropriate judgements and estimates.
The Audit Committee reviewed and discussed reports from management on accounting issues and estimates in relation to this Annual Report. The Audit
Committee sought to assess the reasonableness of the assumptions and judgements underlying the accounting issues.
The Audit Committee considers that the Company has adopted appropriate accounting policies and made appropriate estimates and judgements. The table
on the following page summarises those significant issues which received particular focus from the Audit Committee in relation to the financial statements
for the period and how these issues were addressed. The list is not a complete list of all accounting issues, estimates and policies but highlights the most
significant ones in the opinion of the Audit Committee. The areas of assessment concerning revenue recognition and exceptional items, although set out in the
notes to the consolidated financial statements (see note 1.4), were not significant to the Group’s results for the period and so did not warrant particular Audit
Committee focus. The accounting treatment of all significant issues and judgements was subject to review by the external auditors. For further information on
the Company’s critical accounting estimates and assumptions refer to the notes to the consolidated financial statements on pages 132 to 174. For a discussion
of the areas of particular audit focus by the external auditors, refer to pages 120 to 124 of the Independent Auditors’ Report.
Impact on Financial Information
and Disclosure in Financial
Statements
See notes 2.1 and 3.8 to the
consolidated financial statements
on pages 132 and 174.
Area
Cost of Sales
— Commercial
Income
Issue and Nature of Judgement
The main categories of commercial income
are identified as promotional support,
media income and volume rebates.
Commercial income is an area of focus
due to the quantum of income recorded
and its significance to the results of the
period. Some parts of commercial income
require management to apply judgement to
ascertain the amounts and timing of income
to be recognised where it relates to supplier
transactions that span the period end. The
amounts due from suppliers in relation to
promotional activity and volume related
sales targets are material.
Factors and Reasons Considered
and Conclusion
The Audit Committee assessed the
judgements made by management
regarding volume rebate estimates for
supply agreements negotiated by Waitrose.
These volume rebates arise from annual
agreements with many suppliers which
include a financial reward for achieving
pre-agreed volumes. These agreements are
negotiated on behalf of the Group by its
supply partner, Waitrose and the contract
period typically spans the year end. The
Audit Committee reviewed the basis of the
judgements made by management and
concluded that these were appropriate. This
income is included in cost of sales (page
135).
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sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Governance Area
Intangible Assets
— Capitalisation
of Internal
Development
Costs
Issue and Nature of Judgement
The capitalisation of internal development
costs is material and involves management
judgements as to whether the costs incurred
meet the criteria in accounting standards
for capitalisation, including the technical
feasibility of the project and the likelihood
of the project delivering sufficient future
economic benefits.
Share Options
and other Equity
Instruments
The Group has multiple share schemes
with differing methods of settlement and
vesting criteria. The accounting for these
schemes can be complex and typically
requires management judgement, including
assumptions with respect to transfer
restrictions, share price volatility, leaver
numbers and the likelihood of performance
criteria being met.
Factors and Reasons Considered
and Conclusion
Details of material technology projects which
are being capitalised along with the rationale
for capitalisation were presented to and
reviewed by the Audit Committee. The criteria
for identification of projects which may be
treated as intangible assets and the process to
capture the costs of these technology projects
were discussed by the Audit Committee. The
Audit Committee also discussed the need for
any impairment of the existing carrying values
of capitalised software and systems recognised
as a result of the development of new software
and systems.
The methodology, key assumptions and
vesting criteria for the key share-based
payment arrangements , as presented by
management, were discussed and agreed by
the Audit Committee.
Impact on Financial Information
and Disclosure in Financial
Statements
The amount of £24.1 million of
internal development costs have
been capitalised within intangible
non-current assets, as set out
in note 3.1 to the consolidated
financial statements on pages 142
and 143.
The amount of £9.8 million for
share-based payments is included
in operating expenses.
The methodology and key
assumptions are set out in note
4.10 to the consolidated financial
statements on pages 162 to 170.
Recognition of
Deferred Tax
Asset
The estimates used to support the future
business profitability and recognised
deferred tax asset require management
judgement.
The basis of estimates of future taxable
profits of the Group and the process used to
calculate the deferred tax asset recognised
were reviewed by the Audit Committee.
Details of the deferred tax asset
are set out in note 2.8 to the
consolidated financial statements
on page 139.
Revenue: The Audit Committee considered the treatment adopted by management for accounting for charges to customers for plastic carrier bags and agreed
that it be recorded as a deduction from revenue.
Going Concern and Viability Assessments: The Audit Committee and the Board reviewed the Group’s going concern and viability statements (as set out on
page 39). The external auditor reviewed management’s assessment and discussed this review with the Audit Committee.
Segment Reporting: 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.
Tax Review: 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.
Internal Audit and Risk: Internal Audit and Risk provides objective assurance and advisory services designed to add value and improve the operations of the
Group. Its scope encompasses 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 goals and objectives. The Head of Internal Audit and Risk is supported by internal resources and where necessary
third party resources or specialist expertise including in technology.
Part of the assurance provided to the Audit Committee when reviewing the effectiveness of the Group’s systems of internal control comes from Internal Audit
and Risk. The internal audit plan, which is developed by Internal Audit and Risk with input from management and the external auditors, takes into account the
Group’s objectives and the activities of the external auditors. It seeks to ensure that it addresses key areas of risk. The Internal Audit and Risk plan, which was
approved by the Audit Committee in January 2015, set out a number of activities for the period and the 2016 financial year, including assurance programmes
for key projects such as the new CFCs and the Ocado Smart Platform. Recommendations from Internal Audit and Risk are communicated to the relevant
business area for implementation of appropriate actions. The results are reported to the Audit Committee alongside progress against the Internal Audit and
Risk plan. As well as reporting at each Audit Committee meeting on governance, risk management and the control environment, Internal Audit and Risk reports
on any cases of whistleblowing, fraud and bribery.
A review of the effectiveness of Internal Audit and Risk was carried out during the period by way of questionnaire completed by members of management, the
Audit Committee and the external auditors. Having considered the results of this review and informal feedback from management and the external auditors
provided during the period, the Audit Committee concluded that Internal Audit and Risk was effective.
65
sluglineStock Code: OCDO www.ocadogroup.comGovernance 17. Audit Committee
Report (continued)
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 relies on a number of different sources to carry out this review including an assessment report by management, Internal Audit and Risk assurance
and assurance provided by the external auditors and other third parties. No significant failings or weaknesses were identified in this review.
The Audit Committee is supported by a number of sources of internal assurance from within the Group. Members of the Group’s operations team presented
to the Audit Committee in areas of key risks identified in the Group risk register, notably food safety, information security and data governance. This is
complemented by monitoring and updated reports conducted by Internal Audit and Risk. The Audit Committee reviewed reports from management on key
risk programmes concerning technology projects including its new technology platform. Given the importance of technology to the Group’s strategy, both the
Board and the Audit Committee discussed reports from management on the Group’s technology security arrangements including with respect to protection
of customer and employee data and of its systems from cyber attacks. In early 2016, the Group received a report concerning an information security audit
conducted by Internal Audit and Risk and a report on the results of an information security review by KPMG.
Further details of the risk review and the Group’s risk management and internal control systems, including financial controls, are set out in the “How We
Manage Our Risks” section on pages 38 to 41, where the Audit Committee’s work in this area is highlighted.
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 60, the Audit Committee
carried out a review of its terms of reference. No changes were made to the terms of reference.
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 120 to 126). The Audit Committee also considered the audit scope and
materiality threshold. The Audit Committee met with PwC at various stages during the period, including without management present, to discuss their remit
and any issues arising from the audit.
Auditor Re-appointment Overview
The Audit Committee considered the re-appointment of PwC as external auditors. This review took into account the factors below.
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 PwC 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 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 external
auditors’ 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
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
Approver
Chief Financial Officer
Chief Financial Officer and Audit Committee Chairman
Audit Committee
66
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Governance An additional protection is provided by way of a non-audit services fee cap. The Audit Committee (or the Company) may not approve an engagement of the
external auditors if annual non-audit services fees would exceed 70% of the average audit fees (not including fees for audit related services) charged in the
previous three years. 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. “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 total of non-audit fees, audit fees and audit-related services fees paid to PwC during the period is set
out in Note 2.5 of the consolidated financial statements on page 137. Of the non-audit services fees paid to PwC, most related to advice on the suitable location
for a technology centre in Southern Europe and assurance work on the Group’s carbon disclosures.
The Audit Committee received a 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 (being 12.9% of the audit fees) charged had any impact on its independence as statutory auditors. The Audit
Committee was satisfied this was the case and so the auditors’ independence from the Group was not compromised.
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 £287,000 (2014: £244,000)) was appropriate and that an effective audit could be conducted for such a fee. 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 2015. At the annual general meeting in 2015, 99.98% of votes cast by shareholders were in favour of granting the
Directors this authority.
Recommendation to Re-appoint: Following its consideration, the Audit Committee recommended to the Board the re-appointment of PwC as external
auditors. The Board has accepted this recommendation and a resolution for its re-appointment for a further year will be put to the shareholders at the AGM.
At the annual general meeting in 2015, 99.56% of votes cast by shareholders were in favour of re-appointing PwC as external auditors.
Proposed Tender of External Audit
PwC has audited the Group’s accounts since 2001 and the previous audit engagement partner rotated in 2012. A formal tender of the external audit contract
has not been carried out since PwC was first engaged in 2001.
During the period the Audit Committee considered the timing of a formal tender of the external audit contract. Although the Group would not be required
to execute a tender process or an auditor rotation for a considerable number of years under the new European and UK regulations, the Audit Committee
recommended to the Board that a competitive tender process take place in 2016, with the outcome to be put to shareholders for approval at the 2017 annual
general meeting. The Audit Committee believes this timing is in the best interests of the Company’s shareholders as it would coincide with the timing of the
rotation of PwC’s audit engagement partner, due in 2017, under professional standards and because a tender has not been conducted since 2001. The Audit
Committee plans to oversee this tender process and plans to agree a timetable and tender document in 2016, to be prepared in accordance with relevant
requirements. Full details of the process will be set out in the 2016 Annual Report. There are no contractual obligations which restrict the Committee’s choice of
statutory auditor.
Review of External Auditor Appointment Policy: In conjunction with the external audit tender review, the Audit Committee reviewed the Group’s policy on
auditor appointment and independence. It agreed to changes to the policy to address the new legislative requirements, including restrictions on the provision
of non-audit services by the external auditors (noted above) and mandated Audit Committee duties for auditor reappointment. The Audit Committee expects
to keep this policy under review, in light of ongoing consultations by the Competition and Markets Authority and the Financial Reporting Council in this area.
67
sluglineStock Code: OCDO www.ocadogroup.comGovernance 18. Nomination Committee
Report
David Grigson
Nomination Committee
Chairman
During the year, the
Nomination Committee
has undertaken a
number of activities, the
results of which led to
... some changes to the
Board.”
Dear Shareholder,
I am pleased to present the report of the
Nomination Committee for the financial year
ended 29 November 2015.
During the year, the Nomination Committee has
undertaken a number of activities, the results of
which led to the Company’s announcement on
28 January 2016 concerning some changes to
the Board. We appointed Andrew Harrison, with
effect from 1 March 2016. This provides a period of
continuity until my retirement from the Board at
the AGM on 4 May 2016.
This report outlines the work of the Nomination
Committee in reviewing Board composition and
succession plans and overseeing the Director
recruitment process.
I will be available at the AGM to answer any
questions about the work of the Nomination
Committee.
David Grigson
Nomination Committee Chairman
2 February 2016
Read the Chairman’s Governance
Introduction on pages 52 and 53
Read more about the Board of
Directors on pages 50 and 51
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: 2
Number of meetings: 2
Number of meetings: 2
Number of meetings: 2
Number of meetings: 2
Number of meetings: 2
Number of meetings: 2
Number attended: 2
Number attended: 2
Number attended: 2
Number attended: 1
Number attended: 2
Number attended: 2
Number attended: 2
The appointment of Alex Mahon was renewed for a further three-year period from June 2015. The biography of each member of the Nomination Committee is
set out in the Board of Directors section on pages 50 and 51.
Since the period end, the Company announced that the Nomination Committee composition will change as a result of the retirement of David Grigson at
the AGM and the appointment of new Non-Executive Director Andrew Harrison with effect from 1 March 2016. Andrew Harrison will become a member of the
Nomination Committee with effect from 1 March 2016. Lord Rose will become Chairman of the Nomination Committee with effect from the AGM.
Other attendees at the Nomination Committee meetings include the Chief Executive Officer, the People Director and the Deputy Company Secretary.
68
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Governance Principal Activities of the Nomination Committee During 2015
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 the People Director reported to the Nomination
Committee the progress made on the succession plans for the Group. The Nomination Committee’s focus is on ensuring that the business has appropriate
plans for responding to the changing needs of the business given its rapid growth in technology and potential overseas expansion with the Ocado Smart
Platform. The Nomination Committee was assured that appropriate succession and development plans are in place for senior management.
Reviewing Board Composition: The Nomination Committee undertook a review of the Board’s size and composition with a view to refreshing the Board’s
succession plans. The review of Board composition 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 pages 54 to 62.
The Nomination Committee is 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. Diversity considerations and the Board’s diversity policy were taken into account
when reviewing the Board’s succession plans. For further information on Board diversity refer to the Statement of Corporate Governance on page 58 and on
employee diversity refer to page 46 of the Our People section.
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 to support the Company’s strategic objectives in the future. This review
was carried out by way of a self-assessment questionnaire which was prepared by the Company Secretary and completed by all Directors. A summary of the
findings of the review was presented and discussed by the Board. Some of the review results are set out in the Statement of Corporate Governance on page 58.
The skills review formed 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. When considering the skills and experience that could be added to the Board it concluded that it would
be valuable for a prospective Non-Executive Director to have experience in a number of areas, including the technology sector, e-commerce experience and
international operations. This reflected the changing emphasis of the Group’s strategy to monetising its technology and intellectual property and selling the
Ocado Smart Platform to international retailers.
Non-Executive Director Succession: Following its review of Board composition, the Board agreed a plan for Director recruitment. The Board agreed to seek
one or more candidates for the role of Non-Executive Directors.
The Group carried out a recruitment process to identify suitable candidates, with the support of Ridgeway Partners. Ridgeway Partners, an external and
independent executive search consultant (without connections to the Company), was appointed to carry out recruitment searches, following a competitive
tender process. Ridgeway Partners is an accredited firm under the Enhanced Voluntary Code of Conduct for Executive Search Firms.
Potential candidates were compiled by Ridgeway Partners based on an agreed Non-Executive Director role description. From this list, the Chairman compiled
a list for interview. Initial interviews were conducted with the Chairman, the Chief Executive Officer and the Chief Financial Officer. A shortlist of candidates was
compiled and these final candidates were interviewed by most of the remaining Directors. The Nomination Committee recommended that the Board appoint
Andrew Harrison as an independent Non-Executive Director. For information concerning Andrew Harrison’s remuneration arrangements, refer to the Directors’
Remuneration Report on pages 80 to 117.
As part of the Board changes, current Senior Independent Director, David Grigson, will retire from the Board with effect at the AGM on 4 May 2016. This will
allow time for an orderly handover of responsibilities from David Grigson. The Nomination Committee recommended that Alex Mahon take up the role of
Senior Independent Director with effect from 4 May 2016. The Chairman, Lord Rose, will assume responsibility for chairman of the Nomination Committee
at the same time. The Nomination Committee also recommended some changes to the composition of the Board committees, as outlined in the respective
committee reports.
Annual Review: In addition to its annual performance evaluation, discussed in the Statement of Corporate Governance on page 60, 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.
69
sluglineStock Code: OCDO www.ocadogroup.comGovernance 19. Directors’ Report
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 8 to
47) which includes the Corporate Responsibility
Report (pages 42 to 45), and the Statement of
Corporate Governance (defined in the index below
as the “CG Statement”) (pages 54 to 62), 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 (*).
Amendment of the Articles
Appointment and replacement of Directors
Board of Directors
Change of control
Community
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 and viability*
Greenhouse gas emissions
Independent auditors
Long term incentive plans under Listing Rule 9.4.3*
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
71
71
CG Statement, 50–51
74
Corporate Responsibility, 42–45
72
CG Statement, 60
76–77
76
Our People, 46
Our People, 46–47
76
Strategic Report, 8–47
Strategic Report, 39
Corporate Responsibility, 43
76
Directors’ Remuneration Report, 80–117
Corporate Responsibility, 45
76
73
CG Statement, 55
76
Strategic Report, 8–47
72–73
72
38–41
158–170
72
75
74
74
CG Statement, 54–62
8–47
72
This Directors’ Report
should be read in
conjunction with the
Strategic Report.”
Read more about the Statement
of Directors’ Responsibilities
on pages 76 and 77
View more information online
at Ocadogroup.com
70
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Governance 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 and creates value over the longer term and the strategy for delivering the objectives of the Group. The
Companies Act requires that the Strategic Report must:
•
contain a fair review of the Group’s business and contain a description of the principal risks and uncertainties facing the Group; and
• 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 8 to 47.
The Company has chosen to include some of the information required to be disclosed in the Directors’ Report within the Strategic Report (pages 8 to 47), 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 70.
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 54 to 62 and the Directors’ responsibility statement on page 76.
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 re-appointment.
Retirement of Directors: At every annual general meeting of the Company, each Director shall retire from office and may offer himself for re-appointment by
the members.
Removal of Directors by Special Resolution: The Company may by special resolution remove any Director before the expiration of his 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 pages 54 to 62.
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sluglineStock Code: OCDO www.ocadogroup.comGovernance 19. Directors’ Report (continued)
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.
Share Capital
The Company’s authorised and issued ordinary share capital as at 29 November 2015 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 2016, being the latest practicable date prior to publication of this report, the Company’s issued share capital consisted of 625,456,843 issued
ordinary shares, compared with 621,005,986 issued ordinary shares per the 2014 annual report. Details of movements in the Company’s issued share capital
can be found in Note 4.9 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 4.10 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, 34,770,981 (2014: 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 34,770,981 ordinary shares, although it may at the request of a participant vote in respect of 33,240,664 ordinary shares
which have vested under the JSOS and remain in the trust at period end. The total of 34,770,981 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 34,770,981 ordinary shares held by the EBT Trustee. Note 4.9(a) 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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sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Governance 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 Buy Back its Shares
The Company was authorised by shareholders on 15 May 2015, 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.
Powers for the Company to Issue its Shares
The Directors were granted authority at the previous annual general meeting on 15 May 2015, 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. These authorities apply until the end of the AGM (or, if earlier, until the close of business on 15 August
2016). During the period, the Directors did not use their power to issue shares under the authorities provided by the shareholder resolution passed on 15 May
2015, but did satisfy options and awards under the Company’s option and incentive schemes.
Following shareholder dissent to the Company’s share allotment resolution at the 2015 annual general meeting, the Company will, at the AGM, seek a modified
share allotment authority under two separate resolutions. The first resolution will seek authority to allot shares up to one-third of the Company’s issued
share capital and the second resolution will seek authority to allot shares up to two-thirds of the Company’s issued share capital in connection with a rights
issue only and subject to allotments or grants made under the first resolution. The substance of each allotment resolution will remain the same as at the
2015 annual general meeting and is in line with the Investment Association guidelines (formerly guidance issued by the Association of British Insurers) on the
allotment of shares. However, by proposing two separate resolutions, shareholders will now be able to more clearly express their views on the constituent
elements of the previous, single allotment resolution. The Directors have no present intention to exercise the authorities sought under either resolution,
but the Directors wish to ensure that the Company has maximum flexibility in managing the Company’s capital resources. However, if they do exercise the
authorities, the Directors intend to follow the Investment Association guidelines concerning its use.
Accordingly, at the AGM, shareholders will be asked to grant an authority to allot shares in the Company under two resolutions: resolution 1: up to one-third of
the Company’s issued share capital; and resolution 2: comprising equity securities up to two-thirds of the Company’s issued share capital but after deducting
any allotments or grants made under resolution 1 in connection with an offer by way of a rights issue. These authorities will apply until the end of the next
annual general meeting or until the close of business on 4 August 2017.
The Directors were granted authority at the previous annual general meeting on 15 May 2015, 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
applies until the end of the AGM (or, if earlier, until the close of business on 15 August 2016). During the period, the Directors did not use their power to issue
shares under this authority.
A new special resolution will be proposed at the AGM to renew the Directors’ powers to disapply pre-emption rights. The new resolution, which follows the
Pre-emption Group’s revised Statement of Principles on disapplying pre-emption rights (the “PEG Principles”), will seek an authority to disapply pre-emption
rights over 10% of the Company’s issued ordinary share capital (not 5%, as previously). The Directors intend to only allot shares representing more than 5% of
the issued ordinary share capital of the Company under this authority, where that allotment is in connection with an acquisition or specified capital investment
(within the meaning given in the PEG Principles) which is announced contemporaneously with the allotment, or which has taken place in the preceding
six-month period and is disclosed in the announcement of the allotment. The Directors intend to follow the PEG Principles regarding cumulative usage of
authorities within a rolling 3-year period where the principles provide that usage in excess of 7.5% of issued ordinary share capital of the Company (excluding
treasury shares) should not take place without prior consultation with shareholders, except in connection with an acquisition or specified capital investment as
referred to above. The power will expire at the earlier of 4 August 2017 and the conclusion of the annual general meeting of the Company held in 2017.
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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 & Amsterdam Trust Company Limited
Capital Group Companies Inc
Morgan Stanley (Institutional Securities Group and Global Wealth Management)
Norges Bank
Number of
Ordinary
Shares/Voting
Rights
81,804,512
61,938,208
34,668,871
26,532,851
Percentage of
Issued Share
Capital
13.08
9.91
5.88
4.50
Nature of
Holding
Direct/Indirect
Indirect
Direct & QFI
Direct & QFI
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 30 November 2015 and 20 January 2016
(being not more than one month prior to the date of the Notice of Meeting), except as set out in the table below:
Morgan Stanley (Institutional Securities Group and Global Wealth Management)
The Goldman Sachs Group, Inc
Deutsche Bank AG
Number of
Ordinary
Shares/Voting
Rights
56,491,313
25,008,723
31,320,431
Percentage of
Issued Share
Capital
9.57
3.99
5.31
Nature of
Holding
Direct & QFI
Indirect & QFI
Direct & QFI
These figures represent the number of shares and percentage held as at the date of notification to the Company.
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 pages 80 to 117.
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sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Governance 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 more than 50% 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.
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.
Revolving Credit Facility Agreement: The Group has an unsecured £210 million revolving credit facility with Barclays Bank PLC, HSBC Bank plc, The Royal
Bank of Scotland plc and Abbey National Treasury Services plc (Santander) 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.
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sluglineStock Code: OCDO www.ocadogroup.comGovernance 19. Directors’ Report (continued)
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
customer interfaces, 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 8 to 47.
Future Developments of the Business
The Group’s likely future developments including its strategy are described in the Strategic Report on pages 8 to 47.
Employees with disabilities
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.
Profit and Dividends
The Group’s results for the period are set out in the consolidated income statement on page 127. The Group’s profit before tax for the period amounted to £11.9
million (2014: £7.2 million).
The Directors do not propose to pay a dividend for the period (2014: nil).
Post-Balance Sheet Events
There have been no material events after the balance sheet date of 29 November 2015 to the date of this Annual Report.
Independent Auditors
The Company’s auditors, PwC, have indicated their willingness to continue their role as the Company’s auditors. Resolutions concerning the re-appointment
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 re-appointment of the auditors, refer to page 66 of the Statement of Corporate Governance.
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 50 and 51 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 (the “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.
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sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Governance 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 50 and 51 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 71) 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.
Forward-Looking Statements
Certain statements made in this Annual 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 Annual 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 Directors’ Report is approved by the Board and signed on its behalf by
Neill Abrams
Group General Counsel and
Company Secretary
Ocado Group plc
Registered in England and Wales
Number 07098618
2 February 2016
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slugline Directors’ Remuneration
Report
20. Directors’ Remuneration Report
Annual Statement from the Remuneration Committee Chairman
Description of the Remuneration Committee
Remuneration Policy Report
Annual Report on Remuneration — 2015
Annual Report on Remuneration — Implementation of Policy for 2016
80
80
82
84
99
115
79
slugline 20. Directors’ Remuneration
Report
Annual Statement from the Remuneration Committee Chairman
Dear Shareholder,
Key Changes to Executive
Director Remuneration
On behalf of the Board, I am pleased to present
the Directors’ Remuneration Report for 2015.
We believe that the remuneration of the Executive
Directors appropriately and fairly reflects the
performance of the Group. In 2015, the retail
business grew formidably in a turbulent retail
environment. The business performance is aligned
with the relatively high achievement in the period
against the AIP objectives and over the previous
three years for the LTIP objectives.
Relationship Between Pay
and Performance
We have, in accordance with the Directors’
Remuneration Policy and the rules of the 2015 AIP,
recommended a bonus payment based on 65%
to 67% achievement against objectives under the
plan for the period. This echoes the strong growth
of the retail business, with the Group’s Gross Sales
(Retail) for the period increasing 14.7% and the
Group’s EBITDA increasing 13.8%.
During the period, we reviewed the performance
against the 2013 LTIP awards, which had a
performance period ending at the end of the
financial year. Based on the 2015 results, the
Directors achieved 100% against the performance
condition, EBIT. The Group’s earnings before
interest and tax and exceptional items for the
period was £21.4 million, an increase of 28.9% on
2014. The 2013 LTIP awards are expected to vest in
March 2016.
We believe that our remuneration framework
helps support and drive our strategy, and ensures
the Group retains a management team with
the skills and expertise necessary to deliver our
long-term commercial priorities. In addition to
determining fixed elements of remuneration,
we seek to ensure that the AIP, the LTIP and the
GIP contain specific performance measures
that support the strategy and objectives of high
business growth.
Base salaries of the Executive Directors were
reviewed and increased by 2% in April 2015 which
is in line with employee salary increases.
During the financial year, we undertook a review
of the Executive Director AIP structure and
concluded that the financial measures of EBITDA
and Gross Sales (Retail) remained aligned with
the Company’s strategy and should be retained
for 2016 in order to encourage continued strong
retail business growth. The proportion allotted
to individual objectives for the 2015 AIP has
been maintained at 30%, to reflect the increased
importance of delivering key strategic objectives in
2016, notably the Ocado Smart Platform.
The performance measures for the 2015 and 2016
LTIP awards are intended to reward financial
performance through the financial targets, but
also to reward delivery of economic efficiency of
the new proprietary infrastructure solution. The
Board is looking to drive the cost and operational
efficiency of the new infrastructure solution to
help support the success of the Ocado Smart
Platform business over the coming years.
Douglas McCallum
Remuneration Committee
Chairman
We are focused on
providing clear
reporting on past
remuneration and
future policy, and
we welcome
your feedback.”
Read the Chairman’s Governance
Introduction on pages 52 and 53
Read the Statement of Corporate
Governance on pages 54 to 62
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sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report Changes to Non-Executive Director
Remuneration
The Non-Executive Directors’ annual fees were
reviewed and remained unchanged from the
previous year.
Directors’ Remuneration Policy
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 as we believe that the policy
continues to remain both appropriate and
effective. All of our decisions regarding executive
remuneration for the period have been made in
line with the policy.
Shareholder Feedback and
Remuneration Disclosure
Each year, we review how shareholders voted
on the remuneration report, together with any
feedback received. We are aware of shareholders’
concerns regarding transparency of performance-
related remuneration given that to date, this has
not been published. To enhance our reporting of
performance we have included in this year’s report
actual performance targets for incentive schemes.
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
2 February 2016
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sluglineStock Code: OCDO www.ocadogroup.comDirectors’ Remuneration Report 20. Directors’ Remuneration
Report (continued)
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
Remuneration Committee
member since 3 October 2011
Number of meetings: 4
Number attended: 4
Ruth Anderson
David Grigson
Remuneration Committee
member since 9 March 2010
Number of meetings: 4
Number attended: 4
Remuneration Committee
member since 5 February 2013
Number of meetings: 4
Number attended: 4
The biography of each member of the Remuneration Committee is set out in the Board of Directors section on pages 50 and 51.
Other attendees at the Remuneration Committee meetings included the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer, the
People Director, 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.
Since the period end, the Company announced that the Remuneration Committee composition will change as a result of the retirement of David Grigson at
the AGM and the appointment of new Non-Executive Director, Andrew Harrison. Andrew Harrison will become a member of the Remuneration Committee with
effect from 1 March 2016.
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
Services Provided to the
Remuneration Committee
Executive remuneration advice including assisting in a
benchmarking review of Executive Director remuneration.
Slaughter
and May
Company
None
Deloitte LLP reappointment review
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 vesting of the LTIP and
the Chairman’s Share Matching Award.
The Remuneration Committee considered the reappointment of Deloitte LLP. This review took into account Deloitte’s effectiveness, independence, period
of appointment and fees.
The Remuneration Committee reviewed the performance of Deloitte LLP based on feedback from members of the Remuneration Committee and
management. The criteria for assessing their effectiveness included their understanding of business issues and risks, their knowledge and expertise and their
ability to manage expectations. The Remuneration Committee concluded that the performance of Deloitte LLP remained effective.
82
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report The Remuneration Committee considered the independence and objectivity of Deloitte LLP. Deloitte LLP have provided assurances to the Remuneration
Committee that they have effective internal processes in place to ensure that they are able to provide remuneration consultancy services independently
and objectively. 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, £32,000 in advisory fees were paid or payable to Deloitte LLP for services provided to the Remuneration Committee.
Deloitte LLP were appointed by the Remuneration Committee in 2012 following a tender process led by the then Remuneration Committee Chairman.
Following review by the Remuneration Committee, it was agreed that Deloitte LLP should be re-appointed.
Other Support for the Remuneration Committee
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 People Director 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.
Principal Activities of the Remuneration Committee During 2015
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 56. In line with its terms of reference, the following key matters were considered by the Remuneration Committee during the period:
• approving the 2014 Directors’ Remuneration Report;
•
reviewing performance under the 2014 AIP and consideration of any bonuses payable;
• approving the 2015 AIP performance targets;
• approving the 2015 LTIP awards and performance targets;
•
•
•
•
•
•
•
•
reviewing performance against LTIP awards;
consideration of changes to the performance measures for the 2016 LTIP awards;
receiving a report from Deloitte LLP on Executive Director remuneration benchmarking and approving increases in the Executive Director base salaries;
receiving a report on Group-wide and management remuneration for 2015;
consulting the Chief Executive Officer and the Chairman on performance and remuneration of the Executive Directors;
receiving reports from Deloitte on senior executive pay, market themes and trends;
receiving a report on the Group’s share schemes and plans for 2016;
receiving a report on shareholder feedback on the 2014 annual report and 2015 annual general meeting;
• approving a new invitation under the Sharesave scheme for 2016;
• approving minor amendments to the JSOS scheme rules;
•
•
reviewing the Remuneration Committee’s performance and terms of reference; 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.
This approach still gives the Remuneration Committee necessary visibility of senior management remuneration to enable it to formulate appropriate policy
and make decisions regarding Executive Director remuneration, but allows the Chief Executive Officer, who is best placed to make remuneration decisions
about the management team, the flexibility to do so. The Remuneration Committee believes this practice is beneficial to the Company and supports the Code
principle D.2.
The Remuneration Committee carried out a review of its terms of reference during the period, which did not result in any changes.
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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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 and it is in the form approved by shareholders at the
annual general meeting which took place on 7 May 2014, except: (i) for this introduction; (ii) to reflect shareholder approval of the GIP and 2014 ESOS; (iii)
references to Jason Gissing, former director; and (iv) minor amendments such as page or cross references and changed defined terms.
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 in the short and medium term (for example, EBITDA and
sales growth targets) and the objectives of creating long-term success and 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.
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 97. The Remuneration Committee introduced 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.
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sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report Base
Salary
Reflects the value of the individual, their role, skills,
experience and contribution to the business.
Fixed
Benefits
Aligned with all other employee arrangements.
Pension
Ensures remuneration is comprehensive.
Annual
Incentive
Plan
Deferred
Bonus
Under AIP
Long-
Term
Incentives
One-Off
Plans
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
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.
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Report (continued)
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
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
AIP
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
LTIP
Y
Y
Y
Y
Y
Y
Y
Y
Y
N
Y
JSOS
Y
Y
Y
N
Y
Y
Y
N
Y
N
N
GIP
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.
Development of Directors’ Remuneration Policy
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.
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sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report Employee Context
The Directors’ Remuneration Policy is designed in line with the remuneration principles outlined on page 84, 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.
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:
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.
How it Operates
Performance Conditions
Maximum Opportunity
Not performance linked.
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, 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.
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.
Recovery or
Withholding
No contractual
provisions for
clawback or
malus.
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Recovery or
Withholding
No contractual
provisions for
clawback or
malus.
No contractual
provisions for
clawback or
malus.
How it Operates
Performance Conditions
Maximum Opportunity
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.
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.
Not performance linked.
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.
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.
Purpose and Link
to Strategy
Benefits
Attract and retain
the right calibre of
senior executive
required to support
the long-term
interests of the
business.
Pension
Attract and retain
the right calibre of
senior executive
required to support
the long-term
interests of the
business.
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Withholding
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.
Clawback and
malus provisions
may be applied
to LTIP awards
in certain
exceptional
circumstances.
Purpose and Link
to Strategy
How it Operates
Performance Conditions
Maximum Opportunity
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.
Incentivise the
achievement
of outstanding
results aligned
to the business
strategy.
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.
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.
Variable Pay: Longer-Term Incentives
Long Term
Incentive
Plan (“LTIP”)
Attract, retain and
incentivise senior
executives.
Align the interests
of the senior
executives and the
shareholders.
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.
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.
The maximum bonus is 200%
of base salary.
For the 2015 performance year,
the maximum bonus is 100%
of base salary for the Executive
Directors and 125% for the
Chief Executive Officer.
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.
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 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.
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.
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.
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How it Operates
Performance Conditions
Maximum Opportunity
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.
Recovery or
Withholding
Certain leaver
provisions
described on
page 96 allow
the Company
to recover share
interests in certain
circumstances.
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.
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.
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.
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.
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.
Purpose and Link
to Strategy
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.
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.
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sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report Purpose and Link
to Strategy
How it Operates
Performance Conditions
Maximum Opportunity
Recovery or
Withholding
All-Employee Share Plans
Not performance linked.
Options may be granted at
a maximum discount to the
market price up to a maximum
amount in line with HMRC
limits.
The scheme
rules do not
provide for malus
or clawback
provisions.
Employees are limited to
saving a maximum in line with
these HMRC limits.
Not performance linked.
Maximum opportunity for
awards will be in line with
HMRC limits.
The scheme
rules do not
provide for malus
or clawback
provisions.
Sharesave
Provide all
employees,
including Executive
Directors, the
opportunity to
voluntarily invest
in Company shares
and be aligned
with the interests
of shareholders.
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.
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 exercised in a six
month period three or five years
from the date of grant, subject to
continued service.
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.
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How it Operates
Performance Conditions
Maximum Opportunity
Recovery or
Withholding
The scheme
rules do not
provide for malus
or clawback
provisions.
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.
For threshold performance, up to
25% of the maximum opportunity
would be received.
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.
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.
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.
Same as for ESOS described above.
Same as for ESOS described
above.
Same as for ESOS
described above.
Purpose and Link
to Strategy
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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sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report The Directors’ Remuneration Policy as it applies to Non-Executive Directors consists of the elements set out in the table below:
Purpose and Link to Strategy
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.
How it Operates
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 96 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 104.
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 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 2015 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.
4.
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.
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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sluglineStock Code: OCDO www.ocadogroup.comDirectors’ Remuneration Report 20. Directors’ Remuneration
Report (continued)
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
Executive Directors
Shareholding Requirement
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.
Recruitment of Non-Executive Directors
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.
94
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report 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’s 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
96 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 96 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.
95
sluglineStock Code: OCDO www.ocadogroup.comDirectors’ Remuneration Report 20. Directors’ Remuneration
Report (continued)
Good Leavers
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.
Share Scheme Leaver Provisions
Remuneration
Element
JSOS
LTIP
Bad Leavers
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.
GIP
Deferred Shares Under
the AIP
All-Employee Share
Plans
Chairman’s Share
Matching Award
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.
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.
96
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report Change of Control
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 pro-rating would be
inappropriate in the particular circumstances) pro-rating 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 pages 74 to 75.
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 98 provide estimates of the potential future reward opportunity for each of the Executive Directors based on the Directors’
Remuneration Policy outlined on pages 84 to 98.
AIP
Performance is below threshold on each metric.
Minimum
Target or at Expectation Threshold performance is reached on each metric.
Maximum performance is achieved on each metric.
Maximum
LTIP
Performance is below threshold on each metric.
Threshold performance is reached on each metric.
Maximum performance is achieved on each metric.
Base Salary,
Benefits and
Pension
Fixed
Fixed
Fixed
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sluglineStock Code: OCDO www.ocadogroup.comDirectors’ Remuneration Report 20. Directors’ Remuneration
Report (continued)
The figures use the 2013 base salary and pension (see 2013 annual report on pages 88 and 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 and 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 (£m)
Mark Richardson, Chief Operations Officer (£m)
Minimum
93%
7%
Target
34%
25% 38%
3%
Maximum
23%
29%
46%
2%
Minimum
93%
7%
3%
Target
39%
24% 34%
2%
Maximum
28%
28%
42%
0
0.5
1
1.5
2
0
0.5
1
1.5
Salary and benefits
Pension
AIP
LTIP
Salary and benefits
Pension
AIP
LTIP
Duncan Tatton-Brown, Chief Financial Officer (£m)
Neill Abrams, Group General Counsel (£m)
Minimum
97%
3%
1%
Target
39%
25% 35%
Maximum
2%
28% 28%
42%
Minimum
93%
7%
3%
Target
39% 24% 34%
2%
Maximum
28% 28% 42%
0
0.5
1
1.5
0
0.5
1
1.5
Salary and benefits
Salary and benefits
Pension
AIP
LTIP
Pension
AIP
LTIP
98
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report Annual Report on Remuneration — 2015
Introduction
This part of the Directors’ Remuneration Report sets out the Directors’ remuneration paid in respect of the 2015 financial year. It sets out the payments to
Directors and details of 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 82 and 83 constitutes the Annual Report on Remuneration, and will be subject to an advisory shareholder vote
at the Company’s AGM.
Highlights for 2015 (audited)
This table briefly summarises the highlights of the Directors’ remuneration arrangements for the financial year.
Base Pay and Benefits
Base pay increase of 2% for
the Executive Directors, in
line with other employees.
No pay increases for the
Non-Executive Directors in
period.
No change to taxable
benefits.
Further Information:
See page 100.
Pension
Company contributions
to pensions for Executive
Directors in line with the
Directors’ Remuneration
Policy.
AIP
Total bonus earned by
Executive Directors for 2015
based on 65% to 67% of
target achievement was
£1,115,370 (2014: £912,415)
Long-Term Incentives
Awards were granted under
the LTIP.
100% of target achievement
for the 2013 LTIP awards,
which are due to vest in
March 2016.
All-Employee Schemes
No awards or options
vested under any all-
employee share schemes
during the period.
Certain options exercised
under ESOS during period,
where options were due to
expire.
Ongoing participation in
the SIP and Sharesave
schemes.
See page 101.
See page 101.
See page 103.
See pages 110 - 112.
Total Director Remuneration (audited)
The total remuneration paid to all of the Directors during the period was £13,205,000. The detailed remuneration breakdown for the Executive Directors and the
Non-Executive Directors is set out separately.
9999
sluglineStock Code: OCDO www.ocadogroup.comDirectors’ Remuneration Report 20. Directors’ Remuneration
Report (continued)
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 cash-based remuneration paid to the Executive
Directors was £2,814,000 in 2015, which was 4.5% higher than in 2014 (£2,692,000). The prior year figure includes remuneration paid to former Executive
Director Jason Gissing in that period (see note 3 to the Total Remuneration table).
Tim Steiner
Neill Abrams
Duncan
Tatton-Brown
2014
£’000
2015
£’000
2014
£’000
2015
£’000
2014
£’000
Mark Richardson
2014
2015
£’000
£’000
517
37
41
595
385
980
289
1
23
313
194
507
282
1
23
306
156
462
345
1
19
365
232
597
337
1
19
357
184
541
345
1
28
374
231
605
337
1
27
365
187
552
2015
£’000
557
44
45
646
459
1,105
Total
2015
£’000
1,536
47
115
1,698
1,116
2014
£’000
1,473
40
110
1,623
912
2,814
2,535
—
5,503
—
2,227
—
2,937
—
2,562
—
13,229
4,775
—
—
—
—
—
4,775
—
5,880
—
—
—
—
—
—
5,503
—
6,483
1,061
—
—
—
—
—
1,061
—
1,568
—
—
—
—
—
—
2,227
—
2,689
2,387
—
—
—
—
—
2,387
—
2,984
—
—
—
—
—
—
2,937
—
3,478
1,634
—
—
—
—
—
1,634
—
2,239
—
—
—
—
—
—
2,562
—
3,114
9,857
—
—
—
—
—
9,857
—
12,671
—
—
—
—
—
—
13,229
—
15,764
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
1. The value of LTIP awards for 2013 has been estimated based on 100% vesting and the three-month average share price from 1 September 2015 to 27 November 2015 of 348.02
pence per share, as these awards are not capable of vesting until after the end of the period, on 31 March 2016. This value assumes no dividends will be payable. The value
assumes that the participant will not be required to pay an amount to acquire the conditional shares, being the nominal price of 2 pence per share. These estimated figures will
be restated in next year’s annual report.
2. Tim Steiner’s taxable benefits have been restated for 2014 in relation to the use of a chauffeur-driven car. Total remuneration for both Tim Steiner and the Executive Directors for
3.
2014 has been restated accordingly.
Former Executive Director Jason Gissing, who retired from the Board on 7 May 2014, received the following remuneration during the prior period which is not included in the
table (£’000): salary - 144; taxable benefits - 1; pensions - 12; total fixed pay - 157; total remuneration in cash - 157; JSOS - theoretical gain - 3,669; total for share plans - 3,669; total
remuneration - 3,826.
An explanation of each element of remuneration paid in the table is set out in the following section.
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 this report.
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 be increased. The following table shows the change in
each Executive Director’s salary.
Director
Tim Steiner
Neill Abrams
Mark Richardson
Duncan Tatton-Brown
100
Salary 2015
(£)
Salary 2014
(£)
561,000
290,700
346,800
346,800
550,000
285,000
340,000
340,000
Effective from
1 April 2015
1 April 2015
1 April 2015
1 April 2015
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report The changes to base salary were made in line with the Directors’ Remuneration Policy. The Executive Directors received an increase in base pay of 2% which
was in line with the percentage salary increases for the monthly paid employees of the Group in the period. 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, travel insurance and use of a chauffeur-driven car.
The Executive Directors also received other benefits, which are not taxable, including income protection insurance, 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, but the directors have access to a chauffeur-driven car. This service was used almost exclusively by Tim Steiner during the period and accordingly is
shown as a taxable benefit in the Total Remuneration table.
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 7% of base salary up to 31 December 2015, in accordance with the 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.
Pension contributions can be made to the Executive Directors (and any other employee) as a cash allowance where the Executive Director has reached either
the HMRC annual limit or HMRC lifetime allowance limit for pension contributions as provided for in the Directors’ Remuneration Policy. In accordance with this
policy, Duncan Tatton-Brown has elected to receive his pension contributions as an equivalent cash allowance.
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 2015 AIP was based on the performance targets and weightings set out below. Financial performance measures, namely Gross
Sales (Retail) and EBITDA, were the primary targets, with 70% 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, 30% related to individual objectives for each
of the Directors, largely independent of the financial objectives. The weighting of the individual objectives increased from 20% in 2014 to 30% in 2015 in order
to align incentives with the Company’s increased emphasis on achieving certain strategic objectives. The Remuneration Committee has agreed “threshold”
and “maximum” conditions that must be achieved. A bonus is not payable unless a “threshold” level of the performance condition has been achieved. At
“threshold” performance for a financial performance measure, 8.75% of total bonus is payable and at “maximum” performance, 35% of total bonus is payable.
A straight line sliding scale will apply in relation to the intermediate points between the “threshold” and “maximum”. 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 (Retail) (% of total target)
Individual objectives
(% of total target)
Examples of business area objectives
35
35
30
1.
2.
3.
Drive efficiency and
progress key projects
including new CFCs.
Develop and drive long
term strategy.
35
35
35
35
30
30
Develop strategic plans under Ocado Smart Platform.
Improve performance
and capacity in line with
annual order growth.
35
35
30
Develop Group’s patent
function.
Prepare and execute
financing strategy to
include UK and
international
requirements.
Continue to operate
an efficient and
effective finance
function.
Deliver Andover CFC
ahead of its capacity
being required and in line
with budget.
Continue oversight of
legal, HR, CR and Risk
functions.
101
sluglineStock Code: OCDO www.ocadogroup.comDirectors’ Remuneration Report 20. Directors’ Remuneration
Report (continued)
Financial Targets and Individual Targets
Each Executive Director had between four and six 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 with the Ocado Smart Platform. 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
judgment on a report by the Chief Executive Officer and the Chairman.
The Group’s Gross Sales (Retail) for the period were £1,115.7 million, which was above the ‘‘threshold” of £1,104.6 million set under the 2015 AIP. The Group’s
EBITDA (pre-exceptional items) for the period was £81.5 million, which was above the “threshold” of £75.5 million set under the 2015 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. All Executive Directors met to some extent their individual objectives, with achievement
between 75% and 80% of maximum.
Gross Sales (Retail)
EBITDA
Financial Targets
Individual Objectives
Total Payment
Director
Threshold Maximum
Actual % bonus % salary Threshold Maximum
Actual % bonus % salary
% bonus % salary % salary
Target
Performance
Achievement
Target
Performance
Achievement
Performance
Achievement
14.2% 17.8%
£75.5m
£83.5m
£81.5m
28.7%
35.9%
Note 1
22.5% 26.9%
81.8%
14.2% 14.2%
£75.5m
£83.5m
£81.5m
28.7% 28.7%
Note 1
24.0% 24.0%
14.2% 14.2%
£75.5m
£83.5m
£81.5m
28.7% 28.7%
Note 1
23.8% 23.8%
66.9%
66.7%
£’000
£459
£232
£194
£1,104.6m £1,158m £1,115.7m
Tim Steiner
Duncan
Tatton-Brown £1,104.6m £1,158m £1,115.7m
Neill Abrams
Mark
Richardson
£1,104.6m £1,158m £1,115.7m
£1,104.6m £1,158m £1,115.7m
14.2% 14.2%
£75.5m
£83.5m
£81.5m
28.7% 28.7%
Note 1
23.6% 23.6%
66.5%
£231
1.
2.
There is no threshold or maximum target set for the individual objectives. Each objective is weighted and scored to provide a total score out of 30. Performance may range from
zero to 30.
The applicable salary used for calculating the bonus payment under the rules of the 2015 AIP is the applicable base salary on the date of payment.
Disclosure of Targets
Following a change in policy agreed by the Remuneration Committee, the threshold and maximum targets and achievement against the targets have been
disclosed in respect of the financial targets for the AIP. A broad description of some of the Executive Directors’ individual objectives has been provided,
but specific details concerning the individual objectives and performance against them has not been disclosed in this report. Although the Remuneration
Committee is conscious of the regulations and the Code requirement that performance targets should be transparent, it considers that the individual
objectives were and remain commercially sensitive to the Company and if disclosed could damage the Company’s commercial interests. These individual
objectives mostly relate to important business plans and actions and consequently could hinder the progress of the business or the Group’s competitive
advantage if publicly 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.
102
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report Summary of Bonus Earned
The Remuneration Committee has, in accordance with the Directors’ Remuneration Policy and the rules of the 2015 AIP, recommended an aggregate bonus
payment of £1,115,370 (2014: £912,415) under the plan for the period. The Remuneration Committee believes that this 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.
The table above summarises the bonus payments for each Executive Director for the 2015 AIP. The cash payments are expected to be made in February
2016. 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.
Share Plans
Awards granted under long-term incentive plans only count towards the total remuneration figure for the period in which they vest or where achievement of
performance targets is determined in the period. 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
There are no JSOS interests that vested during the period, therefore no value is shown in the total remuneration table for the period. The fourth and final
tranche of JSOS shares vested on 1 January 2014. For a detailed description of the valuation of the JSOS in the 2014 column of the table, see page 112 of the
2014 annual report.
LTIP
The LTIP is the primary long-term incentive for the Executive Directors. The LTIP awards help retain and reward the Executive Directors for the delivery of long-
term business objectives.
The three year performance period for the 2013 LTIP award expired at the end of the Financial Year. The Remuneration Committee reviewed the performance
against the 2013 LTIP performance target, which was the Group’s earnings before interest and tax and pre-exceptional items and prior to the cost of the LTIP
awards for management, for the financial year. As noted on page 127 of this Annual Report, the Group’s earnings before interest and tax and exceptional
items for the period was £21.4 million, which was an increase of 28.9% on 2014. The performance target also takes into account the share based management
incentive charges which were £7.8 million (see page 138). The Group’s earnings before interest and tax and pre-exceptional items and before the LTIP
award costs for management was £29.2 million, which exceeded the maximum performance target of £25.2 million for the 2013 LTIP awards. Accordingly,
achievement against the performance condition was 100%. Details of performance against the EBIT target is set out in the table below. The value of the 2013
LTIP awards in the total remuneration table is estimated based on the average Company share price for the final three months of the period.
The expected vesting date of the 2013 LTIP award is 31 March 2016. Subject to the continued satisfaction of the award conditions, final vesting will be
determined.
Director
Tim Steiner
Duncan Tatton-Brown
Neill Abrams
Mark Richardson
EBIT
Target
Performance
Achievement
Threshold
£17.5m
Maximum
£25.2m
Actual % of maximum
100%
£29.2m
£17.5m
£17.5m
£17.5m
£25.2m
£25.2m
£25.2m
£29.2m
£29.2m
£29.2m
100%
100%
100%
1.
25% of an award vests for threshold performance with full vesting for achieving or exceeding maximum performance. Vesting is a straight line between these two points.
2. Details of the number of conditional shares awarded to each Director for the 2013 LTIP awards are shown in the table on page 108.
Recovery of Sums Paid (audited)
No sums paid or payable to the Executive Directors were sought to be recovered by the Group.
103
sluglineStock Code: OCDO www.ocadogroup.comDirectors’ Remuneration Report 20. Directors’ Remuneration
Report (continued)
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 112) 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.
Non-Executive
Director
Lord Rose
David Grigson
Ruth Anderson
Robert Gorrie
Jörn Rausing
Douglas McCallum
Alex Mahon
Fees
Taxable
Benefits
2015
£’000
2014
£’000
2015
£’000
2014
£’000
Pension
Entitlements
2014
2015
£’000
£’000
Annual Bonus
2014
2015
£’000
£’000
Long-Term
Incentives
Recovery of
Sums Paid
2015
£’000
2014
£’000
2015
£’000
2014
£’000
Total
Remuneration
2014
2015
£’000
£’000
200
70
60
48
48
60
48
200
67
57
45
45
56
45
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
200
70
60
48
48
60
48
200
67
57
45
45
56
45
The remuneration arrangements for the Non-Executive Directors (except the Chairman) were reviewed by the Executive Directors and the Chairman during the
period and remained unchanged.
The review was carried out by the Executive Directors and Chairman in accordance with the Directors’ Remuneration Policy and accordingly took into account
the responsibility and time commitments of the roles of the Non-Executive Directors and Board committee chairmen, the 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 Group.
The Chairman’s fees were not subject to review in 2015 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.
Other Remuneration for the Non-Executive Directors (audited)
In addition to the fees, the Non-Executive Directors are entitled to a staff shopping 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 112.
Robert Gorrie chairs the meetings of the Ocado Council and occasionally provides advice on various employee matters, 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
Executive Directors’ Service Contracts (audited)
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).
104
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report Non-Executive Directors’ Letters of Appointment (audited)
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 Executive Directors are available for inspection at the Company’s registered office.
Deferral or Holding Periods (audited)
The Executive Director share schemes do not contain any requirements for share deferral or additional holding periods except the Company operates deferred
remuneration under the AIP to the extent that the minimum shareholding requirement for the Director has not been met. However, 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 from the Executive Directors and strong alignment with
shareholders, as envisaged by Code principle D.1.
Director Retirement Arrangements (audited)
As noted on page 68, David Grigson will retire from the Board at the Company’s AGM on 4 May 2016. As announced on 28 January 2016, it was determined
in accordance with the Directors’ Remuneration Policy that the arrangements set out below should apply in relation to David Grigson’s remuneration on
retirement.
Element of Remuneration
Remuneration Payments
Payment for Loss of Office
Share Schemes
Treatment
All outstanding fees will be paid up to 4 May 2016 in accordance with the
terms of David Grigson’s letter of appointment.
No payments are expected after the date of retirement.
No payment for loss of office or other remuneration payment was made or is
expected to be made.
David Grigson has never participated in a Group share scheme.
Director Appointment Arrangements (audited)
As announced on 28 January 2016, Andrew Harrison was appointed to the Board as a Non-Executive Director with effect from 1 March 2016. Andrew Harrison’s
remuneration is in line with the approved recruitment policy detailed on page 94. On appointment, Andrew Harrison’s basic annual fee is £48,000. Andrew
Harrison will not receive any other benefits or payments in line with the Directors’ Remuneration Policy.
Payments to Past Directors
The Company does not have any arrangements for payments to any former Directors of the Company.
Enforcing the Directors’ Remuneration Policy
The Company has not made any payments to a Director outside of the Directors’ Remuneration Policy. All of the Remuneration decisions regarding executive
remuneration for the period have been made in line with the Directors’ Remuneration Policy.
No Director has options over Company shares outside one of the Company’s recognised share schemes.
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 is 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 £62,500 per annum.
In addition to his role as Executive Director of the Company, Mark Richardson is a non-executive director of Paneltex Limited. This role does not involve any
remuneration paid or payable to Mark.
105
sluglineStock Code: OCDO www.ocadogroup.comDirectors’ Remuneration Report 20. Directors’ Remuneration
Report (continued)
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:
Director
Tim Steiner
Lord Rose
Robert Gorrie
Neill Abrams
Douglas McCallum
Duncan Tatton-Brown
Ruth Anderson
David Grigson
Alex Mahon
Jörn Rausing
Mark Richardson
Ordinary Shares of 2 Pence
each held at 29 November 2015
Ordinary Shares of 2 Pence
each held at 30 November 2014
Direct Holding
Indirect Holding
Direct Holding
Indirect Holding
14,478,423
750,000
415,660
597,007
20,000
97,865
80,000
35,000
11,099
–
–
14,291,200
–
–
1,314,339
–
60,650
–
–
–
69,015,602
694
14,404,145
750,000
415,660
560,054
10,000
97,865
80,000
35,000
11,099
–
–
14,291,314
–
–
1,313,853
–
60,163
–
–
–
69,015,602
208
1.
2.
3.
The indirect holding for Neill Abrams includes holdings of Caryn Abrams (wife of Neill Abrams) who holds 79,745 (2014: 79,745) ordinary shares, and as a discretionary beneficiary
of a trust holding 133,100 (2014: 133,100) ordinary shares.
The indirect holding for Duncan Tatton-Brown includes a holding by Kate Tatton-Brown (wife of Duncan Tatton-Brown) who holds 60,000 (2014: 60,000) ordinary shares.
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 110. There have been no changes in the Directors’ beneficial interests in trusts holding ordinary
shares of the Company.
4. No Director had an interest in any of the Company’s subsidiaries at the beginning or end of the period.
5. 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 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.
6. Where applicable, the above indirect holdings include SIP Partnership Shares held under the SIP, which are held in trust.
Director Shareholding Requirement (audited)
The table below shows current compliance with the Director shareholding requirements in the Directors’ Remuneration Policy as at the date of this Annual
Report. All Directors comply with the Director shareholding requirements.
Minimum Shareholding
Requirement (% of Base Salary
or Fee)
150
100
100
100
100
100
100
100
100
100
100
Complied with Shareholding
Requirement?
Yes
Yes
Yes
Yes
Yes
Yes
Yes
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
Director
Tim Steiner
Duncan Tatton-Brown
Neill Abrams
Mark Richardson
Lord Rose
Robert Gorrie
Douglas McCallum
Ruth Anderson
David Grigson
Alex Mahon
Jörn Rausing
106
sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report 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 2016
(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
265 pence per share on 20 January 2016), of the relevant shareholdings.
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
Type of interest
Date of issue
Number of
share interests
Hurdle Price
(£)
Vesting Date
Joint interest in shares
Joint interest in shares
Joint interest in shares
Joint interest in shares
Joint interest in shares
Joint interest in shares
Joint interest in shares
Joint interest in shares
Joint interest in shares
Joint interest in shares
Joint interest in shares
Joint interest in shares
Joint interest in shares
Joint interest in shares
Joint interest in shares
Joint interest in shares
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
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
1.91
2.08
2.28
1.73
1.91
2.08
2.28
1.70
1.80
1.73
1.91
2.08
2.28
1.70
1.80
01/01/11
01/01/12
01/01/13
01/01/14
01/01/11
01/01/12
01/01/13
01/01/14
01/01/13
01/01/14
01/01/11
01/01/12
01/01/13
01/01/14
01/01/13
01/01/14
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. 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. The Executive Directors would lose their investment if the share price
were not to exceed the hurdle price. For a detailed description of the JSOS scheme refer to pages 249 to 252 of the Prospectus.
Vested: No JSOS share interests vested during the period.
Sold: No JSOS share interests have been sold by an Executive Director since inception of the scheme.
Lapsed: No JSOS share interests lapsed during the period.
107
sluglineStock Code: OCDO www.ocadogroup.comDirectors’ Remuneration Report 20. Directors’ Remuneration
Report (continued)
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
Conditional shares
Conditional shares
Conditional shares
Conditional shares
Date of Grant
23/07/13
05/02/14
13/03/15
23/07/13
05/02/14
13/03/15
23/07/13
05/02/14
13/03/15
23/07/13
05/02/14
13/03/15
Basis on
Which Award
is made (% of
Salary)
400
200
200
280
150
150
200
120
120
300
150
150
Number of
Shares
1,371,951
174,588
291,005
469,512
96,023
134,920
304,878
64,016
90,476
685,975
96,023
134,920
Face Value
(£)
1,800,000
900,000
1,100,000
616,000
495,000
510,000
400,000
330,000
342,000
900,000
495,000
510,000
End of
Performance
Period
29/11/15
27/11/16
03/12/17
29/11/15
27/11/16
03/12/17
29/11/15
27/11/16
03/12/17
29/11/15
27/11/16
03/12/17
Expected
Vesting Date
31/03/16
31/03/17
13/03/18
31/03/16
31/03/17
13/03/18
31/03/16
31/03/17
13/03/18
31/03/16
31/03/17
13/03/18
1.
2.
3.
4.
5.
The LTIP awards are conditional awards under the rules of the LTIP, which is a right to receive free shares in the Company, subject to the achievement of performance conditions
over a three-year performance period.
The 2013 LTIP award was determined based on a price of 131.2 pence per share. The 2013 LTIP awards have one performance condition which is the Company’s earnings before
interest and tax (“EBIT”) pre-exceptional items for the financial year ended 29 November 2015. At “threshold” performance, 25% of an LTIP award will vest and at “maximum”
performance, 100% of an LTIP award will vest. Vesting will be on a straight-line basis between the “threshold” and the “maximum”.
The 2014 LTIP award was determined based on a price of 515.5 pence per share. The 2014 LTIP award is subject to two equally weighted performance conditions, which are
the levels of diluted and adjusted earnings per share and Group Revenue, for the 2015/2016 financial year. At “threshold” performance, 25% of an LTIP award will vest and at
“maximum” performance, 100% of an LTIP award will vest. Vesting will be on a straight-line basis between the “threshold” and the “maximum”.
The 2015 LTIP award is outlined below.
The 2013 LTIP awards are not capable of vesting until after the end of the period, on 31 March 2016.
Granted: LTIP awards were made in respect of 2015 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 378 pence per share, being the volume weighted average price of the Company’s ordinary shares
on the three trading days prior to 13 March 2015 (being the LTIP grant date).
The 2015 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 four equally weighted performance conditions for the 2016/2017 financial year, being the third year of a three-year performance period. The performance
metrics relate to the retails business and the platform business. The Remuneration Committee believes that these performance conditions encourage the
delivery of crucial strategic objectives of the Group, and provide a better basis for assessing performance for the performance period than the two measures
that were used for the 2014 LTIP awards. The performance conditions concerning the financial performance of the Group, both earnings before tax and
revenue, will be focused on the Group’s retail business performance and will be weighted 25% each. The new proprietary infrastructure solution performance
conditions will each have a 25% weighting. The first concerns the operational efficiency of the Andover CFC in the 2016/2017 financial year and the second
concerns the capital cost for an Ocado Smart Platform module.
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sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report The rationale for, and basis of measurement of, the performance metrics was as follows:
Performance target
Retail business (50%)
Platform business (50%)
Commercial rationale
Rewards top line sales growth for the retail business in
line with the Group’s strategy and the creation of financial
returns to shareholders.
Rewards progress and achievement with the proprietary
infrastructure solution, which is a key strategy objective.
Basis of measurement
Group Revenue and earnings before tax for the retail
business for the 2016/2017 financial year.
Operational efficiency of Andover CFC and the capital cost
per Ocado Smart Platform modules for the 2016/2017
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 for a performance target, 6.25% of an LTIP award will vest and at “maximum”
performance, 25% of an LTIP award will vest. Vesting will be on a straight-line basis between the “threshold” and the “maximum”. Each target is discrete and
can be earned separately. Full vesting will only occur where exceptional performance levels have been achieved and significant shareholder value created.
The performance conditions for the 2015 LTIP awards will be tested in relation to the financial year ending in 2017 to determine what percentage of the LTIP
awards has been achieved, and will vest during 2018 to the extent that the performance conditions have been achieved.
The specific 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 performance conditions after the end of the performance period, to the extent that the targets
are not considered commercially sensitive at the time.
Vested: No awards under the LTIP vested during the period, though the performance period for the 2013 LTIP awards finished (as noted above).
Sold: As no awards under the LTIP have vested, no shares held under the LTIP have been sold by an Executive Director.
Lapsed: No LTIP awards lapsed during the period.
GIP (audited)
At the end of the period the Executive Directors’ total GIP awards were as follows:
Director
Tim Steiner
Mark Richardson
Duncan Tatton-Brown
Type of interest
Option with nil exercise price
Option with nil exercise price
Option with nil exercise price
Date of
grant
08/05/14
08/05/14
08/05/14
Number
of share
options
4,000,000
1,000,000
1,000,000
Face value
(£)
12,744,000
3,186,000
3,186,000
End of
performance
period
08/05/19
08/05/19
08/05/19
Exercise period
08/05/19 – 31/05/24
08/05/19 – 31/05/24
08/05/19 – 31/05/24
1.
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. 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. Both 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
Granted: No awards under the GIP were granted during the period.
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: No awards under the GIP have been exercised or sold by an Executive Director.
Lapsed: No awards under the GIP lapsed during the period.
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sluglineStock Code: OCDO www.ocadogroup.comDirectors’ Remuneration Report 20. Directors’ Remuneration
Report (continued)
ESOS (audited)
At the end of the period, the Executive Directors held options under the ESOS as follows:
Director
Mark Richardson
Duncan Tatton-Brown
Type of
interest
Option
Option
Date of Grant
31/05/09
12/08/13
Number of
share options
70,000
9,923
Exercise Price
(£)
1.20
3.02
Face value
(£)
84,000
29,967
Exercise Period
31/05/12 – 30/05/19
08/07/16 – 07/07/23
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 then new appointee Director, Duncan Tatton-Brown). None of the grants of ESOS options to the Executive Directors are
subject to performance conditions.
Vested: No awards under the ESOS vested during the period. Accordingly, no value is shown in the total remuneration table for the period.
Sold: Tim Steiner and Neill Abrams exercised ESOS options during the period. Had the options not been exercised they would have expired at the end of the
exercise period, on 15 May 2015. Both Directors also sold sufficient of the resulting shares to cover the cost of the exercise and the tax liabilities due. The details
of each ESOS option exercise and resulting share sale are set out below.
Director
Tim Steiner
Neill Abrams
Date of Grant
16/05/05
16/05/05
16/05/05
Number of Options
Exercised
200,000
50,000
50,000
Exercise Price
(£)
1.15
1.15
1.15
Date of
Exercise and
Sale
13/05/2015
08/05/2015
13/05/2015
Shares Sold on
Exercise
125,722
31,616
31,431
Share Sale
Price (£)
3.8735
3.785
3.8735
Shares
Retained on
Exercise
74,278
18,384
18,569
Lapsed: No options under the ESOS lapsed during the period.
2014 ESOS (audited)
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.
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
486
487
486
486
Matching
Shares
Awarded in
the Year
69
69
70
70
Free Shares
Awarded in
the Year
1,068
1,029
1,029
863
Total Face Value of
Free Shares and
Matching Shares
Awarded in the Year (£)
3,852
3,721
3,725
3,166
Total SIP
Shares Held
29/11/2015
2,914
2,868
2,919
2,575
SIP Shares
that Became
Unrestricted
in the Period
–
–
–
–
Total
Unrestricted
SIP Shares
Held at
29/11/2015
–
–
–
–
1. Unrestricted shares 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 Directors continued their SIP participation during the period. The SIP scheme is 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 2015 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.
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sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report
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.
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 2016, 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
101
101
101
101
Matching
shares
awarded
15
15
14
14
Free shares
awarded
–
–
–
–
Total face
value of free
shares
and matching
shares (£)
45
45
41
41
Total SIP
shares held at
20/01/2016
3,030
2,984
3,034
2,690
Vested: No awards under the SIP vested during the period. 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 2015 was the second 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. Accordingly, no value is shown in the total
remuneration table for the period.
Sold: No shares held under the SIP have been sold by an Executive Director.
Lapsed: No shares held by an Executive Director under the SIP lapsed during the period.
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
Mark Richardson
Type of
Interest
Options
Options
Options
Options
Options
Options
Options
Date of Grant
01/10/13
01/04/15
01/10/13
01/04/15
01/10/13
01/04/15
01/04/15
Number of
share options
2,987
2,777
2,987
2,777
2,987
2,777
5,555
Exercise Price
(£)
3.01
3.24
3.01
3.24
3.01
3.24
3.24
Face Value
(£)
8,997
8,998
8,997
8,998
8,997
8,998
17,998
Exercise Period
01/12/16 – 31/05/17
01/05/18 – 01/11/18
01/12/16 – 31/05/17
01/05/18 – 01/11/18
01/12/16 – 31/05/17
01/05/18 – 01/11/18
01/05/18 – 01/11/18
Granted: The Executive Directors elected to participate in the 2015 invitation under the Ocado Sharesave Scheme, where the Directors were granted options
to purchase ordinary shares of 2p each in the Company on the same terms as all other employees, at an exercise price of £3.24 per ordinary share, as set out in
the table above.
Vested: No awards matured under the Sharesave scheme during the period. Accordingly, no value is shown in the total remuneration table for the period.
Exercised: No awards under the Sharesave were exercised or sold by the Executive Directors during the period.
Lapsed: No Sharesave awards lapsed during the period.
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sluglineStock Code: OCDO www.ocadogroup.comDirectors’ Remuneration Report 20. Directors’ Remuneration
Report (continued)
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
Restricted shares
Date of Grant
17/05/13
Number of
Shares
452,284
Face Value
(£)
400,000
End of Vesting
Period
10/05/2016
1.
2.
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.
The award is not subject to any performance conditions other than continued service.
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 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 being 20 January 2016, 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
Actual
4.87%
Limit
10.00%
Discretionary Share Plans
Actual
2.94%
Limit
5.00%
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sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report 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 five financial years.
Year
2015
2014
2013
2012
2011
2010
Chief
Executive
Officer
Total
Remuneration
(including JSOS)
(£’000)
5,880
6,483
1,011
483
987
599
AIP or Bonus
Payment as
a Percentage
of Target
Achievement
(%)
65.0
56.0
98.3
29.7
0
n/a
Value of
AIP or Bonus
Payment
(£’000)
459
385
528
104
0
220
Long-Term
Incentives as
a Percentage
of Maximum
Opportunity
(%)
100
100
0
0
100
0
1.
2.
3.
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 that 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 so is
estimated for the 2015 Total Remuneration table. 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 in the 2014 Annual Report.
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 2014 to 2015
Percentage change in taxable benefits from 2014 to 2015
Percentage change in AIP earned from 2014 to 2015
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.
Chief
Executive
Officer
2%
18.9%
19.2%
All UK
employees
2.4%
14.7%
0%
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sluglineStock Code: OCDO www.ocadogroup.comDirectors’ Remuneration Report 20. Directors’ Remuneration
Report (continued)
Relative Importance of Spend on Pay
The following table shows the Company’s profit 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 – Group profit before tax taken from the table on page 127 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 138 of the financial statements.
Profit before tax
Total gross employee pay
Company Share Price
29 November
2015
(£m)
30 November
2014
(£m)
11.9
239.9
7.2
190.5
The closing market price of the Company’s shares as at 27 November 2015, being the last trading day in the period ended 29 November 2015, was 366.50 pence
per ordinary share (2014: 325.00 pence) and the share price range applicable during the period was 312.60 pence to 470.80 pence per ordinary share.
Total Shareholder Return
The following graph shows the 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.
Ocado Group plc
FTSE 250
26 Nov 2010
27 Nov 2011
2 Dec 2012
1 Dec 2013
30 Nov 2014
29 Nov 2015
350
300
250
200
150
100
50
0
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sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report Annual Report on Remuneration — Implementation of Policy for 2016
Introduction
This part of the Directors’ Remuneration Report sets out implementation of the Directors’ Remuneration Policy for 2016.
Summary of Changes for Executive Directors
This table briefly summarises the proposals for the Directors’ remuneration arrangements for 2016 when compared to the arrangements for the period.
Base Salary and Benefits
Base salary will be subject
to annual review.
Pension
No changes proposed
outside of the policy.
AIP
No change to the maximum
opportunity, measures or
structure of 2016 AIP.
Long-Term Incentives
No change to the maximum
opportunity or measures for
2016 LTIP awards.
All-Employee Schemes
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 2016, 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 for the Executive Directors are expected to remain in line with the Directors’ Remuneration Policy.
2016 AIP
The Remuneration Committee approved the implementation of an AIP for the Executive Directors applicable to the 2015/2016 financial year. This plan broadly
reflects the framework of the 2015 AIP and is line with 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 2015 AIP.
The weighting of objectives in the 2016 AIP is the same as the 2015 plan, with 35% for a Gross Sales target, 35% for a Group EBITDA target and 30% for
performance measured against role-specific objectives. 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 2015. For an explanation, see the Annual Report on
Remuneration on page 101.
The actual performance targets 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 achievement against the targets after the end of the performance period, provided such disclosure is not
considered commercially sensitive at the time.
2016 LTIP Awards
The Remuneration Committee approved the making of awards under the LTIP for the Executive Directors for the 2015/2016 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 2015 LTIP awards and in line with the
Directors’ Remuneration Policy.
As with the 2015 LTIP awards, the Remuneration Committee proposes to make 2016 LTIP award grants subject to earnings before tax and Revenue performance
conditions in respect of the retail business, as well as two measurable financial targets linked to the economic efficiency of the new proprietary infrastructure
solution. Each performance condition will have a 25% weighting.
No LTIP award will vest unless a “threshold” level of performance condition has been achieved. At “threshold” performance for a performance target, 6.25% of
an LTIP award will vest and at “maximum” performance, 25% 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 targets 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 achievement against targets after the end of the performance period, provided such disclosure is not
considered commercially sensitive at the time.
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sluglineStock Code: OCDO www.ocadogroup.comDirectors’ Remuneration Report 20. Directors’ Remuneration
Report (continued)
SIP
The Executive Directors are expected to continue their participation in the SIP scheme in 2016.
Sharesave
The Executive Directors will be invited to participate in the next offer of Sharesave, expected to be made in 2016.
Changes for Non-Executive Directors and Chairman
The review of remuneration of the Non-Executive Directors and the Chairman will be finalised in line with the timing of pay reviews for all of the Group’s
employees.
Shareholder Approval and Votes at AGM
The 2015 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 received significant shareholder votes against it (19.39%) at the annual general meeting in May 2015 (see the table on
the opposite page for the voting outcomes for the resolutions regarding remuneration at the previous annual general meeting). The Chairman had consulted
with many of the Company’s larger shareholders on the Directors’ Remuneration Policy and other key remuneration changes prior to the 2015 annual general
meeting. Accordingly, the Company was aware of some shareholders’ ongoing primary concerns with the Company’s remuneration arrangements, including
transparency of the AIP and LTIP performance conditions. The Remuneration Committee reviewed its policy concerning target disclosure and agreed to
provide additional target disclosure. The Remuneration Committee agreed to a new policy, namely that the Company provide retrospective disclosure of
actual targets for Executive Director incentive schemes, provided that such disclosure did not comprise commercially sensitive targets. The Company Secretary
sought feedback from a number of larger shareholders who had voted against the Directors’ Remuneration Report resolution at the annual general meeting in
May 2015, on the proposal to provide greater share scheme target transparency. The additional target disclosure is set out in this Annual Report.
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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sluglineOcado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Directors’ Remuneration Report The table below sets out the actual voting in respect of resolutions regarding remuneration at the three previous annual general meetings.
Resolution text
2015 AGM
Approve the 2014 Directors’ Remuneration Report
2014 AGM
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
Basis of Preparation and Audit Review
Votes for
% For
Votes Against
% Against
Total Votes Votes Withheld
377,215,710
80.61
90,709,506
19.39
476,384,487
8,459,271
399,764,910
365,970,183
481,882,997
349,776,432
360,235,983
384,380,959
80.04
73.24
97.10
76.54
86.40
83.30
99,701,426
133,721,017
14,373,969
107,184,194
56,698,838
77,037,220
19.96
26.76
2.90
23.46
13.60
16.70
499,693,161
499,693,271
499,692,971
461,418,179
461,418,179
461,418,179
226,825
2,071
3,436,005
4,457,553
44,483,358
0
This report is a Directors’ Remuneration Report for the 52 weeks ended 29 November 2015, 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 Code, the Regulations, the Listing Rules and the Disclosure
and Transparency Rules.
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
2 February 2016
117
sluglineStock Code: OCDO www.ocadogroup.comDirectors’ Remuneration Report Our Financials
Independent Auditors’ Report (Group)
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Independent Auditors’ Report (Company)
Company Balance Sheet
Company Statement of Cash Flows
Company Statement of Changes in Equity
Notes to the Company Financial Statements
120
127
128
129
130
131
132
175
177
178
179
180
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119
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 29 November 2015 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
The financial statements, included within the Annual Report and Accounts (the “Annual Report”), comprise:
•
•
•
•
•
the Consolidated Balance Sheet as at 29 November 2015;
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, 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
Context
Our 2015 audit was planned and executed having regard to the fact that the operations of Ocado were largely unchanged from the prior year albeit the level of
capital expenditure, particularly in relation to developing the platform, continued to be significant. In addition we had regard to the continued tough trading
environment in the UK grocery market, whilst noting that Ocado continued to grow its customer base and revenues, and the potential impact this might have
on cash flow projections used to support asset carrying values. In light of this our overall audit approach in terms of scoping and areas of focus was largely
unchanged with continued scrutiny over the development and technical feasibility of key capital projects and the assessed economic return that these were
anticipated to achieve.
• Overall group materiality: £4.5m which represents 0.41% of revenue.
Materiality
• The complete financial information of 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.
• The UK engagement team also audited the group’s joint venture with Wm Morrisons Supermarkets Plc (“Morrisons”).
Audit scope
• Commercial income.
• Capitalisation of internal development costs.
Areas
of focus
• Share based payments.
• Deferred tax asset.
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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Ocado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Our Financials
Area of focus
Commercial income
How our audit addressed the area of focus
Promotional support and media income
As described in the Audit Committee Report on page 64 and in
the critical accounting estimates and judgements and accounting
policies sections in the notes to the accounts (page 135), Ocado has
three main streams of commercial income; promotional support;
media income; and volume rebates.
This remains an area of focus due to the judgments involved and
the quantum of income recorded under these arrangements and its
significance in relation to the result for the period. 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
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.
Volume rebates
Volume rebates is the stream of commercial income 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
12 and on arrangements with direct suppliers to Ocado. Rebates
earned under Waitrose managed supply arrangements are material
to the group’s results whilst rebates earned from direct suppliers are
becoming more significant. Entitlement to income under Waitrose
supply arrangements is based on the level of purchasing activity
made by Ocado under the Waitrose sourcing agreement and the
specific contractual terms negotiated with various suppliers by
Waitrose.
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 information provided by
Waitrose in relation to 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 information provided by
Waitrose.
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.
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 a direct confirmation
from Waitrose at the period end of the data used by Ocado to estimate the year end
accrued income generated from supplies sourced through Waitrose. We reperformed
the calculation undertaken by Ocado using this data to determine the year end
accrued income and concluded the amounts recognised were reasonable.
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.
In respect of income due under direct supply arrangements we circularised a number
of suppliers to confirm directly the amount of accrued income that Ocado should
recognise at the year end. We received confirmations from all suppliers circularised
with no issues of note arising.
Overall commercial income
In relation to the overall amounts recognised for all material commercial income
streams, we analysed the total amounts recognised quarterly for each stream, and
compared these amounts to the equivalent month in the previous year, 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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121
Stock Code: OCDO www.ocadogroup.comOur Financials Independent Auditors’ Report (continued)
to the members of Ocado Group plc
Area of focus
Capitalisation of internal development costs
As explained on pages 20 and 22, 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 note 3.1 £29.7m 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 had been met, particularly:
• The technical feasibility of the project; and
• The likelihood of the project delivering sufficient future economic
benefits.
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 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 had particular regard to the fact that the group has continued
to invest 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.
• 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 £1.8m 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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Ocado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Our Financials 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 4.10.
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.
Whilst there were no new schemes introduced during the year there
were a number of grants under pre-existing schemes. We focussed
on understanding the details of each grant and the associated
accounting in relation to such grants as well as existing schemes
where measurement criteria, impacting the accounting, needed to be
reassessed in the year.
Deferred tax asset
As set out in note 2.8 Ocado recognise a deferred tax asset of £10m.
This was an enhanced area of focus in the current year as the group
now has recorded a profit in each of the last two years raising the
prospect of potentially recognising a larger element of available tax
losses as an asset on the balance sheet. Determining an appropriate
level of deferred tax asset to recognise requires some judgement
particularly in relation to the assessed future profitability of the
business and the risk adjustment factors applied to these profit
projections by management as described on page 139.
How our audit addressed the area of focus
For all new grants 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 performed
sensitivity tests around the projected achievement levels. We also compared the
future projections used by management, to determine the accounting charge, 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 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.
We obtained the detailed tax computation produced for the group and tested the
computation of accelerated capital allowances and tax losses available to offset
against current and future taxable profits.
In addition we tested the arithmetic accuracy of the model used by management to
derive the level of deferred tax asset to recognise as well as validating that the inputs
to the model were appropriate and consistent, where appropriate, with projections
used elsewhere in the business. No issues of note arose from this work.
We further considered the appropriateness of the risk adjustment factor applied to
the calculation having regard to the continued profitability of the business and the
wider challenges and opportunities facing Ocado as set out in the strategic report on
pages 14 and 15 and CEO’s review on pages 24 to 29. On balance we concluded that
the level of risk adjustment was appropriate given the current and forecast trading
performance of the business, the market place it operates in and the current status of
international expansion plans.
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 geographic 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 9 to 11, 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 currently
undertaken in the UK.
The group’s retailing, logistics and technology development operations are held in 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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Stock Code: OCDO www.ocadogroup.comOur Financials Independent Auditors’ Report (continued)
to the members of Ocado Group plc
Materiality
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 on the individual financial statement
line items and disclosures and in evaluating 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 We have applied revenue as a benchmark for determining materiality as we considered that this provides us with a
£4.5m (2014: £4m).
0.41% of revenue.
consistent year-on-year basis for determining materiality, reflecting the group’s growth and investment actions aimed at
delivering enhanced levels of future 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 £225,000 (2014: £200,000) as well as
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 39, in relation to going concern. We have nothing to report having
performed our review.
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the directors’ statement
about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements. We have nothing material to add or to
draw attention to.
As noted in the directors’ statement, the directors have concluded that it is appropriate to adopt the going concern basis in preparing the financial statements. 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.
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Ocado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Our Financials •
•
•
Report on the group financial statements
Consistency of other information
Companies Act 2006 opinion
In our opinion:
•
In our opinion, the information given in the Strategic Report and the Directors’ Report for the financial year 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 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.
•
the statement given by the directors on page 62, in accordance with provision C.1.1 of the UK Corporate Governance
Code (the “Code”), that they consider the Annual Report taken as a whole to be fair, balanced and understandable and
provides the information necessary for members to assess the group’s and parent company’s performance, business
model and strategy is materially inconsistent with our knowledge of the group and parent company acquired in the
course of performing our audit.
the section of the Annual Report on pages 63 to 67, 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.
We have no exceptions to report.
We have no exceptions to report.
The directors’ assessment of the prospects of the group and of the principal risks that would threaten the solvency or liquidity
of the group
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to:
•
the directors’ confirmation on page 62 of the Annual Report, in accordance with provision C.2.1 of the Code, that they
have carried out a robust assessment of the principal risks facing the group, including those that would threaten its
business model, future performance, solvency or liquidity.
the disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
the directors’ explanation on page 39 of the Annual Report, in accordance with provision C.2.2 of the Code, as to how
they have assessed the prospects of the group, over what period they have done so and why they consider that period
to be appropriate, and their statement as to whether they have a reasonable expectation that the group will be able to
continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing material to add
or to draw attention to.
We have nothing material to add
or to draw attention to.
We have nothing material to add
or to draw attention to.
Under the Listing Rules we are required to review the directors’ statement that they have carried out a robust assessment of the principal risks facing the group
and the directors’ statement in relation to the longer-term viability of the group. Our review was substantially less in scope than an audit and only consisted
of making inquiries and considering the directors’ process supporting their statements; checking that the statements are in alignment with the relevant
provisions of the Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit. We
have nothing to report having performed our review.
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 this responsibility.
Corporate governance statement
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further provisions of the Code. We have
nothing to report having performed our review.
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Stock Code: OCDO www.ocadogroup.comOur Financials Independent Auditors’ Report (continued)
to the members of Ocado Group plc
Responsibilities for the financial statements and the audit
Our responsibilities and those of the directors
As explained more fully in the Directors’ Responsibilities Statement set out on pages 76 and 77, 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 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 29 November 2015 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
2 February 2016
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Ocado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Our Financials Consolidated Income Statement
for the 52 weeks ended 29 November 2015
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
Finance income
Finance costs
Profit before tax
Taxation
Profit for the period
Profit per share
Basic profit per share
Diluted profit per share
52 Weeks
Ended
29 November
2015
£m
52 Weeks
Ended
30 November
2014
£m
1,107.6
(732.5)
375.1
49.0
(309.4)
(95.6)
19.1
2.3
—
21.4
0.2
(9.7)
11.9
(0.1)
11.8
pence
2.01
1.91
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
pence
1.24
1.18
Notes
2.3
2.4
2.5
2.5
3.4
2.7
2.5
4.5
4.5
2.8
2.9
2.9
Non-GAAP measure: Earnings before interest, taxation, depreciation, amortisation, impairment and exceptional items (EBITDA)
Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Amortisation expense
Impairment of property, plant and equipment
Impairment of intangible assets
Exceptional items
EBITDA
52 Weeks
Ended
29 November
2015
£m
52 Weeks
Ended
30 November
2014
£m
21.4
45.1
13.2
1.0
0.8
—
81.5
16.3
40.0
12.4
1.1
1.5
0.3
71.6
Notes
3.2
3.1
3.2
3.1
2.7
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127
Stock Code: OCDO www.ocadogroup.comOur Financials
Consolidated Statement of Comprehensive Income
for the 52 weeks ended 29 November 2015
Profit for the period
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Cash flow hedges
— Losses arising on hedging contracts
— Gains transferred to property, plant and equipment
Foreign exchange loss on translation of foreign subsidiary
Other comprehensive income for the period, net of tax
Total comprehensive income for the period
52 Weeks
Ended
29 November
2015
£m
52 Weeks
Ended
30 November
2014
£m
11.8
7.3
(0.7)
—
—
(0.7)
(0.7)
11.1
(0.4)
0.3
(0.1)
(0.2)
(0.2)
7.1
128
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Ocado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Our Financials
Stock Code: OCDO
www.ocadogroup.com
Our Financials
Consolidated Balance Sheet
as at 29 November 2015
Non-Current Assets
Intangible assets
Property, plant and equipment
Deferred tax asset
Financial assets
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
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
29 November
2015
£m
30 November
2014
£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
4.9
4.9
4.9
4.9
4.9
52.9
327.3
10.0
2.9
62.0
455.1
29.9
60.8
45.8
136.5
591.6
(164.4)
(1.6)
(26.5)
(0.7)
(2.8)
(196.0)
(59.5)
(7.7)
(137.0)
(6.3)
(2.7)
(153.7)
241.9
12.6
258.7
(50.9)
(116.2)
(0.8)
138.5
241.9
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
The notes on pages 132 to 174 form part of these financial statements.
The Consolidated financial statements on pages 127 to 174 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)
2 February 2016
Ocado Annual Report 2015 Back.indd 129
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129
05/02/2016 14:33:43
Consolidated Statement of Changes in Equity
for the 52 weeks ended 29 November 2015
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
Profit for the period
Other comprehensive income:
Cash flow hedges
— Gains arising on forward contracts
— Losses arising on commodity swaps
— Gains arising on interest rate swaps
Translation of foreign subsidiary
Total Comprehensive Income/(Expense)
for the Period Ended 29 November 2015
Transactions with owners:
— Issues of ordinary shares
— Share-based payments charge
— Reacquisition of interests in treasury
shares
— Disposal of treasury shares
Total Transactions with Owners
Balance at 29 November 2015
Notes
Share
Capital
£m
12.4
—
Share
Premium
£m
251.5
—
Treasury
Shares
Reserve
£m
(52.4)
—
Reverse
Acquisition
Reserve
£m
(116.2)
—
Other
Reserves
£m
(0.1)
—
Retained
Earnings
£m
107.2
7.3
Total
Equity
£m
202.4
7.3
4.9
4.9
4.9
4.9
4.9
4.9
4.9
4.9
4.9
—
—
—
—
0.1
—
—
0.1
12.5
—
—
—
—
—
0.1
—
—
—
0.1
12.6
—
—
—
—
3.6
—
—
3.6
255.1
—
—
—
—
—
4.4
—
—
—
—
—
—
—
0.6
0.6
(51.8)
—
—
—
—
—
—
—
(0.8)
—
3.6
258.7
0.8
0.1
0.9
(50.9)
—
—
—
—
—
—
—
—
(116.2)
—
—
—
—
—
—
—
—
—
—
(116.2)
(0.4)
0.3
(0.1)
(0.2)
—
—
—
—
(0.3)
0.2
(0.7)
—
—
—
—
—
7.3
—
4.4
—
4.4
118.9
11.8
—
—
—
—
(0.4)
0.3
(0.1)
7.1
3.7
4.4
0.6
8.7
218.2
11.8
0.2
(0.7)
—
—
(0.5)
11.8
11.3
—
—
—
—
—
(0.8)
—
7.8
—
—
4.5
7.8
—
0.1
7.8
138.5
12.4
241.9
130
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Ocado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Our Financials
52 weeks
Ended
29 November
2015
£m
52 weeks
Ended
30 November
2014
£m
Consolidated Statement of Cash Flows
for the 52 weeks ended 29 November 2015
Cash Flows from Operating Activities
Profit 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
Purchase of intangible assets
Dividend received from joint venture
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 borrowings
Repayment of borrowings
Repayments of obligations under finance leases
Payment of financing fees1
Settlement of cash flow hedges
Net Cash Flows from Financing Activities
Net Decrease in Cash and Cash Equivalents
Cash and cash equivalents at the beginning of the period
Cash and Cash Equivalents at the end of the Period
Notes
3.1, 3.2
3.11
3.4
2.6
4.5
3.9
11.9
60.1
3.2
(2.3)
7.8
—
9.5
(2.3)
(19.1)
23.7
92.5
(9.7)
82.8
(70.7)
(28.4)
8.1
0.2
(90.8)
4.5
8.2
(5.6)
(26.9)
(2.5)
(0.2)
(22.5)
(30.5)
76.3
45.8
1
£1.2 million in relation to financing fees paid in the prior year has been reclassified from movement in trade and other receivables to payment of financing fees.
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7.2
55.0
1.9
(2.4)
4.4
0.1
9.1
(3.6)
(0.3)
13.8
85.2
(9.7)
75.5
(53.0)
(25.8)
—
0.5
(78.3)
3.7
—
(2.9)
(30.5)
(1.2)
(0.5)
(31.4)
(34.2)
110.5
76.3
131
Stock Code: OCDO www.ocadogroup.comOur Financials
Notes to the Consolidated Financial Statements
Section 1 — Basis of Preparation
1.1 General Information
Ocado Group plc (hereafter “the Company”) is a listed company incorporated in England and Wales under the Companies Act 2006 (Registration number
07098618). 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 29 November 2015. The prior financial period represents the 52 weeks ended 30 November 2014.
The principal activities of the Group are described in the Strategic Report on pages 8 to 47.
1.2 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 30 November 2014 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 considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements of the Group and Company.
Standards, Amendments and Interpretations Adopted by the Group in 2014/15 or Issued that are Effective
The Group has considered the following new standards, interpretations and amendments to published standards that are effective for the Group for the
financial year beginning 1 December 2014 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 12
IAS 19
IAS 27
IAS 32
IAS 36
IAS 39
Consolidated Financial Statements*
Disclosure of Interests in Other Entities*
Employee Benefits
Separate Financial Statements
Financial Instruments: Presentation
Impairment of Assets
Financial Instruments: Recognition and Measurement
Effective Date
1 January 2014
1 January 2014
1 July 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
*The amendments for investment entities which are effective in IFRS 10, IFRS 12 and IAS 27, above, are not relevant for the Group. Amendments regarding
the application of the consolidation exception for IFRS 10 and IFRS 12 are effective from 1 January 2016, and amendments regarding the reinstatement of the
equity method as an accounting option for investments in subsidiaries, joint ventures and associates in an entity’s separate financial statements are effective
from 1 January 2016, and are included in the table below.
Standards, Amendments and Interpretations Issued that are not Effective, and which have not been Early
Adopted by the Group
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 1 December 2014 and have not been adopted early:
IFRS 9
IFRS 10
IFRS 11
IFRS 12
IFRS 15
IAS 1
IAS 16
IAS 27
IAS 28
IAS 38
Various
Financial Instruments
Consolidated Financial Statements
Joint Arrangements
Disclosure of Interests in Other Entities
Revenue from Contracts with Customers
Presentation of Financial Statements
Property, Plant and Equipment
Separate Financial Statements
Investments in Associates and Joint Ventures
Intangible Assets
Amendments to various IFRSs and IASs including those arising from the IASB’s annual improvements project.
The following new standards are not yet effective and the impact on the Group is currently under review:
Effective Date
1 January 2018
1 January 2016
1 January 2016
1 January 2016
1 January 2018
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
Various
- IFRS 16 “Leases” provides guidance on the classification, recognition and measurement of leases to help provide useful information to the users of financial
statements. The main aim of this standard is to ensure all leases will be reflected on the balance sheet, irrespective of substance over form. The new standard
will replace IAS 17 “Leases” and is effective for annual periods beginning on or after 1 January 2019 unless adopted early. The Group is currently reviewing the
impact of IFRS 16.
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Ocado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Our Financials 1.3 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. This ability enables the Company to affect the amount of
economic benefit generated from the entity’s activities. This is evident for all of the Group’s subsidiaries per Note 5.1.
With the exception of Ocado Polska Sp. Z.o.o. all subsidiaries have a year end of 29 November 2015. The Poland Accounting Act requires a financial year to be
twelve full calendar months from the prior year end date. Therefore Ocado Polska Sp. Z.o.o has a year end of 30 November 2015.
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.
1.4 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. Significant accounting policies, estimates and assumptions, and judgements are provided below.
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Stock Code: OCDO www.ocadogroup.comOur Financials Notes to the Consolidated Financial Statements (continued)
Accounting policies that are significant due to the nature of business:
Area
Revenue
recognition
Estimate
Revenue comprises the fair value of consideration received or receivable for the sale of goods and services. 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 from the rendering of services is recognised over
the period in which services are rendered.
Significant Estimates and Assumptions:
Area
Estimate
Cost of Sales
Share options
and other equity
instruments
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. Confirmation of some amounts due is often only received three to six months after the period end.
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. Estimates applied or used in a valuation model in order to calculate the cost include, but are not limited to,
the expected life of the award, the number of awards that will ultimately vest and the expected volatility of the Company’s share price.
Significant Judgements:
Area
Judgement
Recognition of
deferred tax
assets
Intangible assets
(capitalisation of
software costs)
Exceptional
items
Share options
and other equity
instruments
Going concern
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 cost of internally generated assets is 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.
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.
The selection of valuation models, such as the Black–Scholes model, and parameters used in order to determine the fair value of
certain share awards requires judgement.
In order to assess whether it is appropriate for the Group to be reported as a going concern, the Directors apply judgement, having undertaken
appropriate enquiries and having considered the business activities and the Group’s principal risks and uncertainties as set on pages 38 to 41.
In arriving at this judgement there are a large number of assumptions and estimates involved in calculating these future cash flow
projections. This includes management’s expectations of revenue, EBITDA, timing and quantum of future capital expenditure and
estimates and cost of future funding.
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). The Directors judge that under the Group’s current operating structure,
the lowest level at which cash flows can be assessed is for the Group as a whole.
Note
2.1
Note
2.1
4.10
Note
2.8
3.1
2.7
4.10
1.5
Other estimates, assumptions and judgements are applied by the Group. These include, but not limited to, depreciation and amortisation on tangible and
intangible assets respectively, and provisions. These estimates, assumptions and judgements are also evaluated on a continual basis but are not significant.
1.5 Going Concern Basis including its Effect on the Impairment of Assets
Accounting standards require that directors satisfy themselves that it is reasonable for them to conclude whether it is appropriate to prepare financial statements on a
going concern basis. There has been no material uncertainty identified which would cast significant doubt upon the Group’s ability to continue using the going concern
basis of accounting for the 12 months following the approval of this Annual Report.
In assessing going concern, the Directors take into account the Group’s cash flows, solvency and liquidity positions and borrowing facilities. At period end, the Group had
cash and cash equivalents of £45.8 million, external gross debt (excluding finance leases payable to MHE JVCo) of £53.3 million and net current liabilities of £(59.5) million. The
Group has a mix of short and medium term finance arrangements and has an unutilised £210 million revolving credit facility which contains typical financial covenants and
runs until July 2019. The Group forecasts its liquidity requirements, working capital position and the maintenance of sufficient headroom against the financial covenants in
its borrowing facilities (see below). The financial position of the Group, including information on cash flow, can be found in Our Financials on pages 127 to 131. In determining
whether there are material uncertainties, the Directors consider the Group’s business activities, together with factors that are likely to affect its future development and
position (see section 7 on pages 16 to 23) and the Group’s principal risks and the likely effectiveness of any mitigating actions and controls available to the Directors (see pages
38 to 41).
Further details of the Group’s considerations are provided in the Group’s Viability and Going Concern Statement on page 39.
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.
134
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Ocado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Our Financials Section 2 – Results for the Year
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 and carrier bag 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. For deliveries
performed by Ocado recognition of revenue is upon delivery of the goods to the customer’s home. For goods which are delivered by third party couriers,
revenue is recognised when the items have been transferred to the third party for onward delivery to the customer. 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.
Commercial Income
The Group continues to have agreements with suppliers whereby promotional allowances and volume-related rebates are received in connection with the
promotion or purchase of goods for resale from those suppliers. The allowances and rebates are included in cost of sales. In FY15 promotional allowances
represent 85% of commercial income, with volume-related rebates representing 15%.
Promotional Allowances
Cost of sales also includes monies received from suppliers in relation to the agreed funding of selected items that are sold by the Group 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, in most cases, are less than one month and the invoicing for the activity occurs on a regular basis
shortly after the promotions have ended.
Volume-Related Rebates
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 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 current performance, 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 Group’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.
Uncollected Commercial Income
Uncollected commercial income as at balance sheet date is classified within trade and other receivables. Where commercial income has been earned, but not
yet invoiced at the balance sheet date, the amount is recorded in accrued income.
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.
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2.1 Profit Before Tax (continued)
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.
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 (“CODM”) and for which discrete information is available. Operating segments are reported in a manner consistent with the internal
reporting provided to the CODM, as required by IFRS 8. The CODM, 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 CODM’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:
52 Weeks
Ended
29 November
2015
£m
52 Weeks
Ended
30 November
2014
£m
1,107.6
82.4
14.4
1,204.4
948.9
66.3
11.3
1,026.5
Revenue
VAT
Marketing vouchers
Gross sales
136
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2.4 Other Income
A breakdown of other income is as follows:
Media and other income
Rental income
Other income
2.5 Operating Expenses
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
Impairment of intangible assets, included in:
— Administrative expenses
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
— Non-audit fees
— Audit related services
Notes
2.6
3.1
3.2
3.2
3.1
3.8
52 Weeks
Ended
29 November
2015
£m
52 Weeks
Ended
30 November
2014
£m
35.3
13.7
49.0
28.0
11.4
39.4
52 Weeks
Ended
29 November
2015
£m
52 Weeks
Ended
30 November
2014
£m
715.3
212.8
13.2
45.1
1.0
1.0
—
0.8
0.8
10.3
0.3
—
621.1
168.9
12.4
40.0
1.1
1.0
0.1
1.5
0.5
9.4
0.5
(0.2)
52 Weeks
Ended
29 November
2015
£’000
52 Weeks
Ended
30 November
2014
£’000
57
230
37
30
354
60
184
35
28
307
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Notes to the Consolidated Financial Statements (continued)
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
29 November
2015
£m
52 Weeks
Ended
30 November
2014
£m
206.8
18.1
5.1
9.9
239.9
(21.3)
(5.8)
212.8
7,453
1,241
8,694
165.8
14.6
4.1
6.0
190.5
(17.3)
(4.3)
168.9
6,001
1,004
7,005
*
Included in the share-based payment expense is the IFRS 2 charge of £7.8 million (2014: £4.4 million) and an additional provision of £2.1 million (2014: £1.6 million) for the
payment of amounts due to participants of the Cash LTIP and employer’s NIC upon allotment of the share awards.
2.7 Exceptional items
Corporate Restructure
Prior Year
Corporate Restructure
52 Weeks
Ended
29 November
2015
£m
52 Weeks
Ended
30 November
2014
£m
—
—
(0.3)
(0.3)
During the prior 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.
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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.
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:
Origination and reversal of temporary differences
Total Deferred Tax
Income Tax Expense/(credit)
52 Weeks
Ended
29 November
2015
£m
52 Weeks
Ended
30 November
2014
£m
0.1
(0.1)
0.1
0.1
—
—
—
0.1
—
0.1
(0.3)
(0.2)
0.3
(0.2)
0.1
(0.1)
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Notes to the Consolidated Financial Statements (continued)
2.8 Taxation (continued)
The tax on the Group’s profit 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 before tax
Effective tax credit at the UK tax rate of 20.3% (2014: 21.7%)
Effect of:
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
Prior year adjustments
Income Tax Charge/(credit) for the Period
52 Weeks
Ended
29 November
2015
£m
52 Weeks
Ended
30 November
2014
£m
11.9
2.4
—
1.8
0.6
—
—
(4.8)
0.1
0.1
7.2
1.5
(0.2)
1.8
—
(0.4)
0.3
(3.1)
—
(0.1)
As enacted in Finance Act 2014, the standard rate of corporation tax in the UK changed from 21% to 20% with effect from 1 April 2015. Accordingly, the effective
rate for the period is 20.3%.
Taxation — Balance Sheet
Movement in the deferred tax asset is as follows:
As at 1 December 2013
Recognised through the income statement
As at 30 November 2014
Effect of change in UK corporation tax rate
Recognised through the income statement
As at 29 November 2015
52 Weeks
Ended
29 November
2015
£m
Tax Losses
Carry Forwards
7.9
1.5
9.4
(0.9)
1.5
10.0
As enacted in the Finance Act (No.2) 2015, it will change to 19% from 1 April 2017 and to 18% from 1 April 2018. Deferred tax has been provided at the rate
enacted at the balance sheet date.
Movement in the unrecognised deferred tax asset is analysed below:
As at 1 December 2013
Potential movement in the period unrecognised through:
— Income statement
As at 30 November 2014
Effect of change in UK corporation tax rate
Potential movement in the period unrecognised through:
— Income statement
As at 29 November 2015
Tax Losses
Carried
Forward
£m
Accelerated
Capital
Allowances
£m
Other Short-
Term Timing
Differences
£m
48.3
(0.7)
47.6
(4.8)
(1.1)
41.7
17.0
(2.0)
15.0
(1.5)
(8.0)
5.5
—
0.5
0.5
—
(0.5)
—
Total
£m
65.3
(2.2)
63.1
(6.3)
(9.6)
47.2
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2.8 Taxation (continued)
As at 29 November 2015 the Group had approximately £287.8 million of unutilised tax losses (2014: approximately £285.3 million) available for offset against
future profits. A deferred tax asset of £10.0 million (2014: £9.4 million) has been recognised in respect of £55.6 million (2014: £47.0 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 £10.0 million (2014: £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 1 December 2013
Recognised through the income statement
As at 30 November 2014
Effect of change in UK corporation tax rate
Recognised through the income statement
As at 29 November 2015
£m
(0.4)
(1.6)
(2.0)
0.2
(0.9)
(2.7)
For the year ended 29 November 2015 the Group has recognised a deferred tax liability of £2.7 million (2014: £2.0 million). Of this amount, £2.3 million (2014:
£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.
In a prior period, the Group recognised a deferred tax liability of £1.7 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 Per Share
Basic profit per share is calculated by dividing the profit 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 on an allocated basis which are accounted for as treasury shares.
Diluted profit 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 (2014: two) classes of instruments that are potentially dilutive, namely share options and shares held pursuant to
the JSOS.
Basic and diluted profit 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 attributable to the owners of the Company
Basic profit per share
Diluted profit per share
52 Weeks
Ended
29 November
2015
Number of
Shares (m)
52 Weeks
Ended
30 November
2014
Number of
Shares (m)
586.1
2.2
—
—
588.3
31.1
619.4
£m
11.8
pence
2.01
1.91
582.5
2.1
0.3
—
584.9
29.4
614.3
£m
7.3
pence
1.24
1.18
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 16,754 share options under the company ESOS scheme, 2,903 share options under the SAYE3 scheme and the issue of 28,463 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 fifteen years, with the majority of such assets having 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 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
3–15 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, 19% (2014:20%) relates to asset additions within property, plant and equipment.
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.
Where the right to use land has been granted, the period over which the amortisation is charged is the lower of the estimated useful economic life and the
lease expiry date.
142
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Ocado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Our Financials 3.1 Intangible Assets (continued)
Cost
At 1 December 2013
Additions
Internal development costs capitalised
Disposals
At 30 November 2014
Additions
Internal development costs capitalised
Disposals
At 29 November 2015
Accumulated amortisation
At 1 December 2013
Charge for the period
Impairment
Disposals
At 30 November 2014
Charge for the period
Impairment
Disposals
At 29 November 2015
Net book value
At 30 November 2014
At 29 November 2015
The net book value of intangibles 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
58.0
—
17.3
(9.7)
65.6
—
24.1
(6.7)
83.0
(33.3)
(11.5)
(1.5)
9.7
(36.6)
(12.4)
(0.8)
6.7
(43.1)
29.0
39.9
13.4
8.0
—
(8.2)
13.2
4.4
—
—
17.6
(11.1)
(0.9)
—
8.2
(3.8)
(0.8)
—
—
(4.6)
9.4
13.0
71.4
8.0
17.3
(17.9)
78.8
4.4
24.1
(6.7)
100.6
(44.4)
(12.4)
(1.5)
17.9
(40.4)
(13.2)
(0.8)
6.7
(47.7)
38.4
52.9
52 Weeks
Ended
29 November
2015
£m
52 Weeks
Ended
30 November
2014
£m
13.8
(9.3)
4.5
13.2
(7.2)
6.0
For the 52 weeks ended 29 November 2015, internal development costs capitalised represented approximately 85% (2014: 68%) of expenditure on intangible
assets and 19% (2014: 15%) of total capital spend including property, plant and equipment.
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Notes to the Consolidated Financial Statements (continued)
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.
Property, plant and equipment represents 55% of the total asset base of the Group in 2015 (2014: 51%). 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, because it 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 including CFC3.
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
Land is held at cost and not depreciated.
25 years, or the lease term if shorter
5–10 years, or the lease term if shorter
3–20 years, or the lease term if shorter
2–7 years, or the lease term if shorter
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 on assets with indefinite useful lives. Those which do not have indefinite useful lives are subject to an annual
depreciation or amortisation charge. These assets 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 1 December 2013
Additions
Disposals
At 30 November 2014
Additions
Disposals
At 29 November 2015
Accumulated Depreciation
At 1 December 2013
Charge for the period
Impairment
Disposals
At 30 November 2014
Charge for the period
Impairment
Disposals
At 29 November 2015
Net Book Value
At 30 November 2014
At 29 November 2015
Land and
Buildings
£m
Fixtures,
Fittings, Plant
and Machinery
£m
Motor
Vehicles
£m
42.3
13.2
(0.3)
55.2
25.5
—
80.7
(16.7)
(1.8)
(0.3)
0.3
(18.5)
(1.9)
(0.1)
—
(20.5)
36.7
60.2
296.8
67.2
(11.9)
352.1
54.3
(3.1)
403.3
(119.0)
(30.0)
(0.8)
11.0
(138.8)
(33.4)
(0.9)
3.1
(170.0)
213.3
233.3
38.9
12.6
(4.1)
47.4
18.4
(10.6)
55.2
(18.0)
(8.2)
—
4.0
(22.2)
(9.8)
—
10.6
(21.4)
25.2
33.8
Total
£m
378.0
93.0
(16.3)
454.7
98.2
(13.7)
539.2
(153.7)
(40.0)
(1.1)
15.3
(179.5)
(45.1)
(1.0)
13.7
(211.9)
275.2
327.3
Included within property, plant and equipment is capital work-in-progress for land and buildings of £31.9 million (2014: £15.4 million) and capital work-in-
progress for fixtures, fittings, plant and machinery of £57.5 million (2014: £20.1 million).
The net book value of non-current assets held under finance leases is set out below:
At 30 November 2014
Cost
Accumulated depreciation and impairment
Net book value
At 29 November 2015
Cost
Accumulated depreciation and impairment
Net Book Value
Land and
Buildings
£m
Fixtures,
Fittings, Plant
and Machinery
£m
30.3
(16.3)
14.0
30.3
(17.9)
12.4
203.7
(73.9)
129.8
207.0
(92.7)
114.3
Motor
Vehicles
£m
46.5
(21.6)
24.9
54.5
(20.8)
33.7
Total
£m
280.5
(111.8)
168.7
291.8
(131.4)
160.4
Property, plant and equipment with a net book value of £18.8 million (2014: £13.3 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 Financial Assets
Accounting Policies
Financial Assets
Financial assets comprise available-for-sale financial assets and prepaid fees in relation to financing activities.
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.
Prepaid fees in relation to financing activities are recognised when incurred. The prepaid fees are amortised in proportion to the draw down and utilisation of
the underlying facility. Amortisation will commence when the underlying facility is first utilised through to the earlier of the expected refinancing date or end of
the term. Any residual of the prepaid fee which is not amortised when the facility is refinanced or repaid will be charged to the Income Statement.
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
29 November
2015
£m
30 November
2014
£m
0.4
0.4
The unlisted equity investment comprises a 25% interest in Paneltex Limited (“Paneltex”), a company incorporated in the UK, 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.
Prepaid financing fees
The prepaid financing fees are in relation to financing facilities entered into during the year. The non-current portion of prepaid finance costs relate to amounts
capitalised during the year which will not be amortised to the Income Statement within the next twelve months. As the facility has not been utilised there has
been no amortisation in the year.
Prepaid financing fees
29 November
2015
£m
30 November
2014
£m
2.5
—
3.4 Investment in Joint Ventures
Accounting Policies
The Group has assessed the nature of its joint arrangement under IFRS 11 “Joint Arrangements” and determined it to be a joint venture.
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. 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.
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3.4 Investment in Joint Ventures (continued)
Investment in Joint Ventures
The Group has a 50% equity interest valued at £62.0 million (2014: £67.8 million) in MHE JV Co, a joint venture company, incorporated in the UK, in which
Morrisons and Ocado Operating Limited, a subsidiary in the Group are the sole investors. In the current year the Group received a dividend of £8.1 million from
MHE JVCo (2014: £nil). In the prior year the Group injected a £6.5 million capital contribution into MHE JV Co to finance the acquisition of CFC2 fixed assets.
The Group’s share of profit after tax for the year is detailed as follows:
Group share of revenue
Group share of expenses, inclusive of tax
Group Share of Profit after Tax
29 November
2015
£m
30 November
2014
£m
3.1
(0.8)
2.3
2.7
(0.3)
2.4
At the period end the Group’s share of the net assets of MHE JVCo were valued at £62.0 million (2014: £67.8 million) which is arrived at by taking into account
the £2.3 million Group share of profit after tax and £8.1 million dividend paid by MHE JVCo to the Group.
For the 52 weeks ended 29 November 2015 the entity, MHE JVCo Limited, has recognised net interest income of £6.2 million (2014: £5.4 million). Costs incurred
by MHE JVCo include depreciation of £1.2 million (2014: £0.6 million) and a tax charge of £0.4 million (2014: £nil). Material amounts held on its balance sheet
as at 29 November 2015 include of finance lease receivables of £119.4 million (2014: £130.8 million), £8.9 million of property, plant and equipment (2014: £4.8
million), £0.5 million of cash and cash equivalents (2014: £2.7 million), and £5.6 million of trade and other payables (2014: £3.5 million), contributing towards
net assets of £124.4 million. Other than as a finance lessor to the Group, MHE JVCo has no other significant operations. The principal place of business is the
same as for Ocado Group plc, details of which are provided on page 132.
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.
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 is the excess of consideration transferred
over the fair value of the identifiable net assets acquired.
There were no investments in new subsidiaries during the 52 weeks to 29 November 2015. In the prior year Speciality Stores Limited, a Group subsidiary,
acquired 100% of the issued share capital of Paws & Purrs Ltd, obtaining control of the entity for consideration of £15,000, resulting in goodwill of £10,000.
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 general merchandise 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 obsolescence. 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.
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Notes to the Consolidated Financial Statements (continued)
3.6 Working Capital (continued)
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 are included in “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.
Any provision made against an impaired receivable is recognised in the income statement within administrative expenses. Subsequent recoveries of amounts
previously written off are credited against this same financial statement caption.
The outcome of an impaired receivable 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.
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
29 November
2015
£m
30 November
2014
£m
29.4
0.5
29.9
27.1
0.5
27.6
Write-back of inventories recognised as a credit amounted to £0.2 million (2014: expense of £0.2 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
29 November
2015
£m
30 November
2014*
£m
31.0
(1.7)
29.3
4.8
10.7
16.0
60.8
12.6
(3.0)
9.6
7.3
6.6
19.6
43.1
* Accrued income with a value of £14.4 million as at 30 November 2014 has been reclassified from other receivables to accrued income.
Included within trade receivables is a balance of £5.6 million (2014: £0.8 million) owed by MHE JV Co.
Included in trade receivables is £4.3 million (2014: £5.0 million) due from suppliers in relation to commercial and media income. As at 22 January 2016 £3.8
million has been received. Included in accrued income is £9.5 million (2014; £8.9 million) to be invoiced to suppliers in relation to supplier funded promotional
activity and £5.5 million (2014: £7.9 million) to be invoiced to suppliers in relation to volume-related rebate amounts. As at 22 January 2016 £12.9 million of
accrued income has been invoiced.
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3.8 Trade and Other Receivables (continued)
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
29 November 2015
30 November 2014
Gross
£m
43.8
8.0
—
—
51.8
Impairment
£m
—
(1.7)
—
—
(1.7)
Gross
£m
30.9
6.7
1.3
0.6
39.5
Impairment
£m
(2.0)
(0.3)
(0.2)
(0.5)
(3.0)
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.
Trade receivables that are past due but not impaired amount to £6.3 million (2014: £7.6 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
29 November
2015
£m
30 November
2014
£m
6.3
—
—
6.3
6.4
1.1
0.1
7.6
29 November
2015
£m
30 November
2014
£m
45.8
76.3
£4.7 million (2014: £2.3 million) of the Group’s cash and cash equivalents are held by the Group’s captive insurance company to maintain its solvency
requirements. A further £0.1 million (2014: £nil) is held by the trustee of the Group’s employee benefit trust in relation to the Ocado Group Sharesave Scheme
for employees in Poland. 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 and other payables
Deferred income
29 November
2015
£m
30 November
2014
£m
63.6
5.8
74.8
20.2
164.4
61.3
4.8
46.6
23.8
136.5
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 are recognised in line with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”. 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. Any difference between expectations and the actual future liability will be accounted
for in the period when this is determined. In assessing the likely outcome, management base their assessment on historical experience and other factors that
are believed to be reasonable in the circumstances.
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Notes to the Consolidated Financial Statements (continued)
3.11 Provisions (continued)
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.
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 Long Term Incentive Plan (“LTIP”), the Chairman’s Share Matching Award, the Growth Incentive Plan (“GIP”) and unapproved
Executive Share Ownership Scheme (“ESOS”). For more details on these schemes, refer to note 4.10.
In the prior 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.
Insurance
Claims
£m
Dilapidations
£m
Employee
Incentive
Schemes
£m
0.8
0.3
—
(0.2)
0.9
0.9
(0.4)
—
—
1.4
2.9
0.4
(0.1)
(0.1)
3.1
0.9
—
(0.1)
0.1
4.0
—
1.6
—
—
1.6
2.1
—
—
—
3.7
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
Total
£m
3.7
2.3
(0.1)
(0.3)
5.6
3.9
(0.4)
(0.1)
0.1
9.1
Total
£m
0.4
5.2
5.6
Provisions
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
Charged/(credited) to the income statement
— additional provision
— unused amounts reversed
Used during the period
Unwind of discount
As at 29 November 2015
Analysis of total provisions as at 30 November 2014
Current
Non-current
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3.11 Provisions (continued)
Analysis of total provisions as at 29 November 2015
Current
Non-current
Insurance
Claims
£m
Dilapidations
£m
0.5
0.9
1.4
0.2
3.8
4.0
Employee
Incentive
Schemes
£m
2.1
1.6
3.7
Total
£m
2.8
6.3
9.1
Insurance Claims
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 £0.5 million claims will be settled within 12 months of the
balance sheet date, the exact timing of utilisation of the provision is uncertain.
Dilapidations
The dilapidations provision is based on the future expected repair costs required to restore the Group’s leased buildings and vehicles to their fair condition at
the end of their respective lease terms.
The CFC1 lease expires in 2032, the CFCF2 lease expires in 2038, head office leases expire between 2016 and 2019, with leases for the spokes expiring up to
2068. Contractual amounts are due to be incurred at the end of the respective lease terms.
Leases for vehicles run for five years, with the contractual obligation per vehicle 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, and valued with reference to the year-end share price. 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 4.10 (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 allocated to participants. Vesting will occur
between 2016 and 2019.
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Notes to the Consolidated Financial Statements (continued)
Section 4 — Capital Structure and Financing Costs
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.
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.
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.
4.2 Borrowings and Finance Leases
29 November
2015
£m
30 November
2014
£m
Notes
4.2
4.3
4.2
4.3
1.6
26.5
28.1
7.7
137.0
144.7
172.8
4.4
26.5
30.9
2.3
142.5
144.8
175.7
Current Liabilities
Borrowings
Obligations under finance leases
Non-Current Liabilities
Borrowings
Obligations under finance leases
Total Borrowings and Finance Leases
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4.2 Borrowings and Finance Leases (continued)
Borrowings
As at 30 November 2014
Secured loans
Total Borrowings
As at 29 November 2015
Secured loans
Total Borrowings
The secured loans outstanding at period end can be analysed as follows:
Principal amount
£m
8.0
1.5
1.5
2.8
2.6
2.5
8.2
Disclosed as:
Current
Non-current
Inception
May—07
Dec—06
Feb—09
Dec—09
Jul—12
Jul—12
Sept—15
Secured
over
Current
interest rate
Property, plant
and equipment
Freehold property
Freehold property
Freehold property
Freehold property
Property, plant
and equipment
Freehold Property
Clearing bank
base rate + 3.0%
LIBOR + 2.75%
LIBOR + 2.75%
LIBOR + 2.75%
LIBOR + 2.75%
9.12% †
Less than
one year
£m
Between
one year and
two years
£m
Between
two years and
five years
£m
4.4
4.4
1.6
1.6
Instalment
frequency
Quarterly
Quarterly
Quarterly
Quarterly
Quarterly
Monthly
1.8
1.8
1.5
1.5
Final
payment
due
Feb—15
Feb—15
Feb—15
Dec—15
Jul—15
Jul—17
Total
£m
6.7
6.7
9.3
9.3
0.5
0.5
6.2
6.2
Carrying
amount as at
29 November
2015
£m
Carrying
amount as at
30 November
2014
£m
—
—
—
—
—
1.1
8.2
9.3
1.6
7.7
9.3
0.8
0.4
0.6
1.5
1.9
1.5
—
6.7
4.4
2.3
6.7
LIBOR + 1.5%
Quarterly
Sept—18
‡ Calculated as the effective interest rate, the calculation of which includes an optional balloon payment at the end of the term.
In the prior year a three-year £100 million revolving credit facility was entered into with Barclays, HSBC, RBS and Santander. In the current year the Group
amended and extended this unsecured RCF. The facility was increased to £210 million and extended by two years to 1 July 2019. As at 29 November 2015
the facility remains unutilised. The facility contains typical restrictions concerning dividend payments and additional debt and leases.
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
29 November
2015
£m
30 November
2014
£m
26.5
23.8
62.1
51.1
163.5
26.5
22.4
56.0
64.1
169.0
External obligations under finance leases are £44.0 million (2014: £38.2 million) excluding £119.5 million (2014: £130.8 million) payable to MHE JV Co, a joint
venture company.
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Notes to the Consolidated Financial Statements (continued)
4.3 Obligations Under Finance Leases (continued)
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
29 November
2015
£m
30 November
2014
£m
34.8
30.3
75.0
55.3
195.4
(31.9)
163.5
26.5
137.0
163.5
34.9
29.3
70.4
71.0
205.6
(36.6)
169.0
26.5
142.5
169.0
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
29 November
2015
£m
30 November
2014
£m
Notes
3.9
4.1
4.1
4.1
4.1
45.8
(1.6)
(26.5)
(28.1)
(7.7)
(137.0)
(144.7)
(127.0)
76.3
(4.4)
(26.5)
(30.9)
(2.3)
(142.5)
(144.8)
(99.4)
Net debt is £7.5 million (2014: net cash £31.4 million), excluding finance lease obligations of £119.5 million (2014: £130.8 million) payable to MHE JVCo, a joint
venture company. £4.8 million (2014: £2.3 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 increase/(decrease) in cash and cash equivalents
Net (increase)/decrease in debt and lease financing
Non-cash movements:
— Assets acquired under finance lease
Movement in Net Debt in the Period
Opening net debt
Closing Net Debt
29 November
2015
£m
30 November
2014
£m
(30.5)
24.3
(21.4)
(27.6)
(99.4)
(127.0)
(34.2)
33.4
(47.7)
(48.5)
(50.9)
(99.4)
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4.5 Finance Income and Costs
Accounting Policies
Borrowing Costs
Borrowing costs which are directly attributable to the acquisition or construction of qualifying assets are capitalisable. 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
Fair value movement in derivative
Fair value movement on provisions
Finance Costs
Net Finance Costs
52 Weeks
Ended
29 November
2015
£m
52 Weeks
Ended
30 November
2014
£m
0.2
0.2
(8.8)
(0.6)
(0.2)
(0.1)
(9.7)
(9.5)
0.4
0.4
(8.7)
(0.9)
0.1
—
(9.5)
(9.1)
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 29 November 2015 the Group’s derivative financial instruments consist of commodity swap contracts which are designated
as cash flow hedges of highly probable transactions. At 30 November 2014 the Group’s derivative financial instruments consisted of forward foreign exchange
contracts.
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 of the Group’s cash flow hedges were effective and there is therefore no ineffective portion recognised in profit or loss.
Derivative Liability
Commodity swap contracts
Forward foreign exchange contracts (cash flow hedges)
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29 November
2015
£m
30 November
2014
£m
(0.7)
—
(0.7)
—
(0.2)
(0.2)
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Notes to the Consolidated Financial Statements (continued)
4.6 Derivative Financial Instruments (continued)
Commodity Swap Contracts
The notional principal amounts of the outstanding commodity swap contracts at 29 November 2015 were £3.2 million (2014: £nil). The hedged highly probable
forecast transactions are expected to occur at various dates during the next twelve months. Cumulative gains and losses of £1.1 million have been recognised
in the hedging reserve within other comprehensive income of which £0.7 million is the balance at year end. These losses are recognised in the income
statement in periods during which the hedged forecast transaction affects the income statement.
Forward Foreign Exchange Contracts
There were no outstanding forward foreign exchange contracts at 29 November 2015. The notional principal amounts of the outstanding forward foreign
exchange contracts at 30 November 2014 were €3.8 million. The corresponding amount in sterling as at 30 November 2014 was 2014: £3.2 million.
There are no cumulative gains and losses recognised in the hedging reserve within other comprehensive income (2014: £0.4 million of losses).
These gains were recognised in the income statement in periods during which the hedged forecast transaction affected the income statement, which for
property, plant and equipment is over the useful life of the asset (3 to 10 years).
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.
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.
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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)
Non-current financial assets
Total financial assets
Financial Liabilities
Trade payables
Accruals and other payables
Borrowings
Finance lease obligations
Derivative liabilities
Total financial liabilities
29 November 2015
30 November 2014
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
45.8
29.3
20.8
2.8
98.7
(63.6)
(74.8)
(9.3)
(163.5)
(0.7)
(311.9)
45.8
29.3
20.8
2.8
98.7
(63.6)
(74.8)
(9.3)
(163.5)
(0.7)
(311.9)
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)
The derivative liabilities relate to forward commodity and 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%
(2014: 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 30 November 2014
Financial Assets as per the Balance Sheet
Cash and cash equivalents
Trade and other receivables (excluding prepayments)
Financial assets
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
Notes
Financial
Liabilities at
Amortised Cost
£m
Financial
Liabilities at Fair
Value Through
Profit and Loss
£m
3.9
3.8
3.3
3.10
3.10
4.2
4.3
4.6
—
—
0.4
0.4
—
—
—
—
—
—
76.3
36.5
—
112.8
—
—
—
—
—
—
—
—
—
—
(61.3)
(46.6)
(6.7)
(169.0)
—
(283.6)
—
—
—
—
—
—
—
—
(0.2)
(0.2)
Total
£m
76.3
36.5
0.4
113.2
(61.3)
(46.6)
(6.7)
(169.0)
(0.2)
(283.8)
157
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Total
£m
45.8
50.1
2.8
98.7
(63.6)
(74.8)
(9.3)
(163.5)
(0.7)
(311.9)
Notes to the Consolidated Financial Statements (continued)
4.7 Financial Instruments (continued)
Available-
for-Sale
£m
Loans and
Receivables
£m
Notes
Financial
Liabilities
at Amortised
Cost
£m
Financial
Liabilities
at Fair Value
Through
Profit and Loss
£m
As at 29 November 2015
Financial Assets as per the Balance Sheet
Cash and cash equivalents
Trade and other receivables (excluding prepayments)
Financial assets
Total
Financial Liabilities as per the Balance Sheet
Trade payables
Accruals and other payables
Borrowings
Obligations under finance leases
Derivative liabilities
3.9
3.8
3.3
3.10
3.10
4.2
4.3
4.6
—
—
2.8
2.8
45.8
50.1
—
95.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(63.6)
(74.8)
(9.3)
(163.5)
—
(311.2)
—
—
—
—
(0.7)
(0.7)
Total
4.8 Financial Risk Management
Overview
The Group’s financial instruments comprise trade receivables and payables, borrowings and finance leases, cash and cash equivalents, and derivatives. The
main financial risks faced by the Group relate to the risk of default by counterparties following financial transactions, the availability of funds for the Group to
meet its obligations as they fall due and fluctuations in interest and foreign exchange rates.
The management of these risks is set out below.
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. 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
29 November
2015
£m
30 November
2014
£m
Notes
(3.0)
(0.9)
1.6
0.6
(1.7)
(0.5)
(2.5)
(0.5)
0.5
(3.0)
3.8
The Group has adequate cash resources to manage the short-term working capital needs of the business. In the prior year a 3-year £100 million revolving
facility was entered into with Barclays, HSBC, RBS and Santander. In the current year the facility was extended by a further two years and the amount of the
facility was increased to £210 million. As at 29 November 2015 the facility remained unutilised. The Group regularly reviews its financing arrangements. For
further details of the review please refer to the Group’s Viability Statement on page 39.
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4.8 Financial Risk Management (continued)
The Group monitors its liquidity requirements to ensure it has sufficient cash to meet operational needs. For further details see Note 4.11.
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.
Notes
3.10
3.10
4.2
4.3
4.6
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)
Carrying
Value
£m
Contractual
Cash Flows
£m
(63.6)
(74.8)
(9.3)
(163.5)
(0.7)
(311.9)
(63.6)
(74.8)
(9.7)
(195.4)
(0.7)
(344.2)
1 Year
or Less
£m
(61.3)
(46.6)
(4.5)
(34.9)
(0.2)
(147.5)
1 Year
or Less
£m
(63.6)
(74.8)
(1.8)
(34.8)
(0.7)
(175.7)
1-2
Years
£m
—
—
(1.9)
(29.3)
—
(31.2)
1-2
Years
£m
—
—
(1.7)
(30.3)
—
(32.0)
2-5
Years
£m
—
—
(0.5)
(70.4)
—
(70.9)
2-5
Years
£m
—
—
(6.2)
(75.0)
—
(81.2)
More Than
5 Years
£m
—
—
—
(71.0)
—
(71.0)
More Than
5 Years
£m
—
—
—
(55.3)
—
(55.3)
Financial Liabilities
Trade payables
Accruals
Borrowings
Obligations under finance leases
Derivative liabilities
30 November 2014
Financial Liabilities
Trade payables
Accruals and other payables
Borrowings
Obligations under finance leases
Derivative liabilities
29 November 2015
Market Risk
Currency Risk
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, primarily in relation to the Euro, Polish Zloty and US Dollar. Bank
accounts are maintained in these foreign currencies in order to minimise the Group’s exposure to fluctuations in the currency relating to current and future
purchases of plant and equipment.
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 - PLN
Trade payables at period end - USD
Derivative (liability)/asset (forward foreign exchange contracts) - EUR
29 November
2015
£m
30 November
2014
£m
0.4
0.4
(0.2)
(0.1)
(0.2)
—
0.3
0.7
0.3
(0.4)
—
(0.1)
(0.2)
0.3
The table below shows the Group’s sensitivity to changes in foreign exchange rates on its financial instruments denominated in foreign currencies.
10% appreciation of the above foreign currencies
10% depreciation of the above foreign currencies
29 November 2015
30 November 2014
Increase/
(decrease)
in Income
£m
(0.1)
0.1
Increase/
(decrease)
in Equity
£m
—
—
Increase/
(decrease)
in Income
£m
(0.1)
0.1
Increase/
(decrease)
in Equity
£m
0.3
(0.3)
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Notes to the Consolidated Financial Statements (continued)
4.8 Financial Risk Management (continued)
A movement of the euro, as indicated, against sterling at 29 November 2015 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:
Fixed Rate Instruments
Financial assets
Financial liabilities
Variable Rate Instruments
Financial assets
Financial liabilities
Sensitivity Analysis
29 November
2015
£m
30 November
2014
£m
41.6
(163.4)
4.2
(9.2)
50.8
(169.0)
25.5
(6.7)
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
29 November
2015
£m
30 November
2014
£m
—
—
—
0.1
4.9 Share Capital and Reserves
Accounting Policy
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Share Capital and Reserves
As at 29 November 2015, the number of ordinary shares available for issue under the Block Listing Facilities was 14,620,308 (2014: 19,094,500). 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 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
Issues of ordinary shares
Reacquisition of interest in treasury shares
Allotted in respect of share option schemes
At 29 November 2015
160
Ordinary
Shares
Number of
Shares
(million)
617.7
0.5
—
2.7
620.9
0.6
—
3.9
625.4
Ordinary
Shares
£m
Share
Premium
£m
12.4
—
—
0.1
12.5
—
—
0.1
12.6
251.5
0.1
0.2
3.3
255.1
0.5
(0.8)
3.9
258.7
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Ocado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Our Financials
4.9 Share Capital and Reserves (continued)
Included in the total number of ordinary shares outstanding above are 34,770,981 (2014: 34,810,561) ordinary shares held by the Group’s employee benefit trust
(see Note 4.10(b)). 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 per share calculation in
Note 2.9 as basic profit per share is calculated using the weighted average number of ordinary shares in issue during the period, excluding treasury shares.
The movements in reserves other than share premium are set out below:
At 1 December 2013
Movement on derivative financial instrument
Disposal of treasury shares
At 30 November 2014
Movement on derivative financial instrument
Disposal of treasury shares
Reacquisition of interests in treasury shares
At 29 November 2015
(a) Treasury Shares Reserve
Treasury
Shares
Reserve
£m
Reverse
Acquisition
Reserve
£m
Fair Value
Reserve
£m
(52.4)
—
0.6
(51.8)
—
0.1
0.8
(50.9)
(116.2)
—
—
(116.2)
—
—
—
(116.2)
(0.1)
(0.2)
—
(0.3)
(0.5)
—
—
(0.8)
Notes
4.9(b)
4.9(a)
4.9(b)
4.9(a)
4.9(a)
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 not accounted for as treasury shares. See Note 4.10(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 commodity swaps and foreign currency
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
29 November 2015 has been presented as if the Company had always been the parent company of the Group.
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161
Stock Code: OCDO www.ocadogroup.comOur Financials
Notes to the Consolidated Financial Statements (continued)
4.10 Share Options and Other Equity Instruments
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.
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 £9.8 million (2014: £6.0 million), of which £7.7 million (2014: £4.4
million) related to equity-settled share-based payment transactions and £2.1 million (2014: £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).
162
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At each respective balance sheet date the outstanding options were as follows:
Approved
Year of
Issue
29 November
2015
Exercise
Price (£)
30 November
2014
Exercise
Price (£)
Exercise Period
2005
2005
2006
2006
2007
2008
2008
2009
2009
2010
2011
2011
2012
2012
2012
2013
2013
2014
2014
2014
2015
2015
2015
2005
2007
2009
2012
2014
2014
2014
2015
2015
2015
—
—
2,298
4,920
59,901
24,134
28,123
34,121
140,097
191,579
78,221
200,629
186,535
297,763
571,661
532,640
156,894
53,553
415,951
—
459,138
22,980
45,448
3,506,586
—
50,833
122,600
124,126
12,030
29,962
24,516
30,901
18,622
19,649
433,239
3,939,825
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
3.77
4.46
4.39
1.15
1.50
1.20
1.05
3.27
3.36
4.84
3.77
4.46
4.39
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
354,150
50,833
122,600
135,166
13,512
29,962
25,756
—
—
—
731,979
5,158,305
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
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
— 13/03/15–12/03/25
— 01/07/15–30/06/25
— 10/07/15–09/07/25
1.15
1.50
1.20
1.05
3.27
3.36
4.84
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
— 13/03/15–12/03/25
— 01/07/15–30/06/25
— 10/07/15–09/07/25
Total Approved Options
Non-Approved
Total Unapproved Options
Total
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163
Stock Code: OCDO www.ocadogroup.comOur Financials
Notes to the Consolidated Financial Statements (continued)
4.10 Share Options and Other Equity Instruments (continued)
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:
Total options subject to performance criteria
29 November 2015
30 November 2014
Year of
Issue
Number of
Share Options
Exercise
Price (£)
Number of
Share Options
Exercise
Price (£)
Exercise
Period
2005
2009
—
139,600
139,600
1.15
1.20
31,116
139,600
170,716
1.15
1.20
31/05/08 – 30/05/15
31/05/12 – 30/05/19
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
29 November 2015
30 November 2014
Number of
Share Options
5,158,305
638,176
(366,445)
(1,490,211)
3,939,825
2,117,541
Weighted
Average
Exercise
Price (£)
1.73
3.88
2.29
1.18
2.24
1.32
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
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 £3.89 (2014: £4.64).
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
Weighted average risk-free interest rate
Expected dividend yield
29 November
2015
30 November
2014
£3.88
£3.88
0.40
3.00
0.8%
0.0%
£4.75
£4.75
0.40
3.00
1.2%
0.0%
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, apart from employer’s
NIC due on unapproved ESOS awards which is treated as cash-settled.
164
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4.10 Share Options and Other Equity Instruments (continued)
The weighted average remaining contractual lives for outstanding share options under the ESOS are as follows:
29 November 2015
30 November 2014
Weighted
Average
Remaining
Contractual
Life
(years)
Exercise Price
(£)
Number of
Share Options
Weighted
Average
Remaining
Contractual Life
(years)
Exercise Price
(£)
Number of
Share Options
0.85
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
3.77
4.39
4.46
4.84
5.10
186,535
—
297,763
695,787
—
184,844
532,640
164,231
2,298
115,654
191,579
78,221
200,629
156,894
12,030
29,962
490,039
65,097
41,602
440,467
53,553
3,939,825
6.6
—
6.2
6.3
—
3.4
7.3
3.8
0.5
1.5
4.6
5.6
5.2
7.6
8.7
8.7
9.3
9.6
9.6
8.3
8.2
0.85
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
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 34,770,981 (2014: 34,810,561) ordinary shares which represents 5.6% (2014: 5.6%) of the
issued share capital of the Company. Of these ordinary shares, 1,994,071 (2014: 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.
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 prior periods, 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
1 (2011)
2 (2012)
3 (2013)
4 (2014)
Vesting
Date
Jan—11
Jan—12
Jan—13
Jan—14
Hurdle
Value
£1.73
£1.91
£2.08
£2.28
%
of issue
Price
115%
127%
139%
152%
Tranche
1 (2012)
2 (2013)
3 (2014)
4 (2015)
Vesting
Date
Jun—12
Jun—13
Jun—14
Jun—15
Hurdle
Value
£1.96
£2.15
£2.36
£2.59
%
of Issue
Price
115%
127%
139%
152%
Tranche
1 (2013)
2 (2014)
—
—
Vesting
Date
Jan—13
Jan—14
—
—
Hurdle
Value
%
of Market
Price
£1.70
230% — 265%
£1.80
244% — 280%
—
—
—
—
165
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Notes to the Consolidated Financial Statements (continued)
4.10 Share Options and Other Equity Instruments (continued)
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%
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
29 November 2015
30 November 2014
Number of
Interests in
Shares
33,357,307
—
(540,817)
(39,580)
32,776,910
32,776,910
Weighted
Average
Exercise Price
(£)
2.00
—
2.29
2.32
1.99
1.99
Number of
Interests in
Shares
33,795,922
—
—
(438,615)
33,357,307
33,503,642
Weighted
Average
Exercise Price
(£)
1.99
—
—
2.02
2.00
1.98
166
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4.10 Share Options and Other Equity Instruments (continued)
(c) Non-Employee Share Options
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:
Jan – 04
Outstanding at the end of the period
29 November 2015
30 November 2014
Number of
Share Options
Exercise Price
(£)
Number of
Share Options
Exercise Price
(£)
Exercise Period
435,300
435,300
1.03
435,300
435,300
1.03
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
29 November 2015
30 November 2014
Number of
Share Options
435,300
—
—
—
435,300
435,300
Weighted
Average
Exercise
Price (£)
1.03
—
—
—
1.03
1.03
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
The weighted average remaining contractual lives for outstanding non-employee share options are as follows:
29 November 2015
30 November 2014
Exercise Price
(£)
Number of
Share Options
1.03
435,300
435,300
Weighted
Average
Remaining
Contractual Life
(years)
Exercise Price
(£)
Number of
Share Options
2.1
1.03
435,300
435,300
Weighted
Average
Remaining
Contractual Life
(years)
3.1
Outstanding at the end of the period
(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; 90% of the market value in the case of the Group’s
Sharesave Schemes SAYE2, SAYE3 and SAYE4.
At 29 November 2015 employees of the Company’s subsidiaries held 2,273 (2014: 1,528) contracts in respect of options over 3,549,479 (2014: 3,789,044) 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
29 November 2015
30 November 2014
Number of
Share Options
3,789,044
2,621,201
(458,162)
(2,402,604)
3,549,479
18,607
Weighted
Average
Exercise
Price (£)
1.67
3.24
3.02
0.91
3.16
2.82
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
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Notes to the Consolidated Financial Statements (continued)
4.10 Share Options and Other Equity Instruments (continued)
(e) Long Term Incentive Plan
In 2013, 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 November 2016. For the 2015 LTIP, there are four equally weighted performance
conditions, which are operational efficiency and capital efficiency metrics related to the retails business and the platform business, the Group’s retail business
revenue and Group’s retail business profit per share for the financial year ending December 2017.
The number of awards issued, adjusted to reflect the achievement of the performance conditions, will then vest during 2016 for the 2013 LTIP, 2017 for the 2014
LTIP and 2018 for the 2015 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 29 November 2015 and changes during the year is presented below:
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
29 November
2015
Number of
Share A wards
30 November
2014
5,087,848
988,773
—
6,076,621
4,948,576
672,808
(533,536)
5,087,848
There were no awards exercisable as at 29 November 2015 nor at 30 November 2014.
The Group recognised an expense of £6.1 million (2014: £3.8 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.
(f) Chairman’s Share Matching Award
In 2013, 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 29 November 2015 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
29 November
2015
Number of
Share Awards
30 November
2014
452,284
—
452,284
452,284
—
452,284
The Group recognised an expense of £0.4 million (2014: £0.4 million) related to this award in the Consolidated income statement during the year.
(g) Growth Incentive Plan
During the prior 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.
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4.10 Share Options and Other Equity Instruments (continued)
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
£ 3.19
6,389.25
29%
40%
16%
5.0
1.96%
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.
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 29 November 2015 and changes during the year is presented below:
Outstanding at 1 December 2013
Granted during the year
Outstanding at 30 November 2014
Granted during the year
Outstanding at 29 November 2015
Number of
Share Awards
—
6,000,000
6,000,000
—
6,000,000
There were no awards exercisable as at 29 November 2015 (30 November 2014: None).
The Group recognised an expense of £1.3 million (2014: £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 prior 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 six months’ service as at the grant date.
For Partnership Shares, eligible employees are those with three months’ service. 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.
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Notes to the Consolidated Financial Statements (continued)
4.10 Share Options and Other Equity Instruments (continued)
A summary of the status of the SIP as at 29 November 2015 and changes during the year is presented below:
Outstanding at 1 December 2013
Awarded during the period
Forfeited during the period
Released during the period
Outstanding at 30 November 2014
Unrestricted at 30 November 2014
Outstanding at 30 November 2014
Awarded during the period
Forfeited during the period
Released during the period
Outstanding at 29 November 2015
Unrestricted at 29 November 2015
Partnership
Shares
Matching
Shares
—
53,410
—
(696)
52,714
52,714
—
7,283
(94)
—
7,189
—
Partnership
Shares
Matching
Shares
52,714
139,790
—
(19,346)
173,158
173,158
7,189
19,968
(2,661)
(46)
24,450
—
Free
Shares
—
400,258
(17,115)
(54)
383,089
—
Free
Shares
383,089
452,018
(88,642)
(2,459)
744,006
654
Number of
Share Awards
Total
—
460,951
(17,209)
(750)
442,992
52,714
Number of
Share Awards
Total
442,992
611,776
(91,303)
(21,851)
941,614
173,812
In the year, the Group recognised an expense of £0.3 million (2014: £0.1 million) related to these awards. The expectation of meeting the holding period was
taken into account when calculating this expense.
4.11 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 £241.9 million (2014: £218.2
million) and it had net debt of £127.0 million (2014: £99.4 million).
The main areas of capital management revolve around working capital management and compliance with externally imposed financial covenants. The
Group’s objectives when managing capital are to safeguard its ability to continue as a going concern and balance the needs of the Group to grow, whilst
operating with sufficient headroom within its bank covenants.
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.
In the prior period, the Group entered into a new unsecured three-year Revolving Credit Facility (RCF) with Barclays, HSBC, RBS and Santander. During the
current period the facility was extended by a further two years, the amount was increased from £100 million to £210 million and certain covenants were
loosened. 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 and the operation of MHE JVCo, a Company jointly owned with Morrisons, discussed in Note 5.4.
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.
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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
29 November
2015
£m
30 November
2014
£m
409.6
(172.8)
236.8
45.8
282.6
288.7
(175.7)
113.0
76.3
189.3
†
In the prior period, there were £1.1 million of capitalised transaction costs relating to the £100 million revolving credit facility entered into with Barclays, HSBC, RBS and
Santander. In the current period transaction costs of £2.5 million relating to the facility amendment are capitalised.
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Notes to the Consolidated Financial Statements (continued)
Section 5 – Other notes
5.1 Subsidiaries
The subsidiary undertakings and significant undertakings of the Company as at period end are set out below. A schedule of interests in all undertakings is filed
with the annual return.
Name
Ocado Holdings Limited
Ocado Retail Limited (formerly Ocado Limited)
Ocado Information Technology Limited
Ocado Polska Sp. Z.o.o.
Ocado Innovation Limited (formerly Ocado Technology Limited)
Ocado Operating Limited
Ocado Central Services Limited
Ocado Innovation Holdings Limited
Jalapeno Partners Limited
Last Mile Technology Limited
Speciality Stores Limited (formerly Specialty Stores Limited)
Marie Claire Beauty Limited (formerly Newco Beauty Limited)
Paws & Purrs Limited
MHE JVCo Limited
Paneltex Limited
Principal Activity
Holding company
Retail
Intellectual property
Technology
Technology
Logistics and Distribution
Business Services
Non-trading company
Non-trading company
Non-trading company
Trading company
Retail
Retail
Trading company
Manufacturing
Proportion of
Share Capital Held
(direct/indirect)
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
25%
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
England and Wales
England and Wales
England and Wales
In accordance with Section 410(2)(a) of the Companies Act, a full list of the then subsidiaries was annexed to the 2014 annual return and submitted to
Companies House. In accordance with the exemption under Section 479A of the Companies Act the standalone financial statements for a subsidiary, Paws & Purrs
Limited, are not to be audited for the year ended 29 November 2015, but are included in the Group’s consolidated financial statements in the period.
The Group has effective control over the financial and operating activities of the Ocado Cell in Atlas Insurance PCC Limited, an insurance company
incorporated in Malta and therefore consolidates the Ocado Cell in its financial statements in accordance with IFRS 10 “Consolidated Financial Statements”.
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
29 November
2015
£m
30 November
2014
£m
3.4
18.9
22.3
2.9
20.0
22.9
Of the total capital expenditure committed at the current period end, £14.4 million relates to new CFCs, £1.5 million to existing CFCs, £1.5 million to fleet costs
and £1.2 million relates to technology related projects.
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 29 November 2015 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
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29 November
2015
£m
30 November
2014
£m
14.2
44.8
136.7
195.7
12.0
34.6
123.7
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Ocado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Our Financials
5.3 Contingent Liabilities
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
29 November
2015
£m
30 November
2014
£m
3.2
—
5.6
8.8
3.0
0.2
3.7
6.9
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 80 to 117.
Other related party transactions with key management personnel made during the period related to the purchase of professional services and amounted to
£6,000 (2014: £15,000). 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 (2014: None).
There were no other material transactions or balances between the Group and its key management personnel or members of their close family.
Investment
The following transactions were carried out with Paneltex Limited, a company incorporated in the UK 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
29 November
2015
£m
30 November
2014
£m
0.1
0.5
0.6
—
0.4
0.4
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 £12.2million (2014: £7.2 million). At period end, the Group owed Paneltex £31,000 (2014: £19,000).
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Notes to the Consolidated Financial Statements (continued)
5.4 Related Party Transactions (continued)
Joint Venture
The following transactions were carried out with MHE JV Co, a joint venture company, incorporated in the UK, in which the Group holds a 50% interest:
Capital contributions made to MHE JVCo
Dividend received from 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
29 November
2015
£m
30 November
2014
£m
—
8.1
6.1
3.0
14.3
6.2
6.5
—
34.9
31.0
15.7
5.4
During the period the Group paid lease instalments (including interest) of £20.5 million (2014: £21.1 million) to MHE JVCo.
Of the £20.5 million, £10.6 million (2014: £8.9 million) was recovered directly from Morrisons in the form of Other Income and a further £8.1 million (2014: £nil)
was received from MHE JVCo by way of a dividend. The remaining £1.8 million (2014: £12.2 million) represents capital expenditure requirements of MHE JVCo
for which no additional funding was required from Ocado. The net result is the termination of £14.3 million of MHE JVCo debt during the period (2014: £15.7
million) with no corresponding net cash outflow.
In the current period, the Group made no capital contributions to MHE JVCo (2014: £6.5 million).
Included within trade and other receivables is a balance of £5.6 million owed by MHE JVCo (2014: £3.5 million). £1.0 million of this relates to a finance lease
accrual which is included within other receivables (2014: £2.7 million). £4.6 million (2014: £0.8 million) relates to capital recharges.
Included within trade and other payables is a balance of £1.0 million owed to MHE JVCo (2014: £0.8 million).
Included within obligations under finance leases is a balance of £119.5 million owed to MHE JVCo (2014: £130.8 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 29 November 2015.
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Independent Auditors’ Report
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 29 November 2015 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
The financial statements, included within the Annual Report and accounts (the “Annual Report”), comprise:
•
•
•
•
the Company Balance Sheet as at 29 November 2015;
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, 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 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.
Directors’ remuneration
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.
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Ocado Group plc
Annual Report and Accounts for the 52 weeks ended 29 November 2015
Independent Auditors’ Report (continued)
to the members of Ocado Group plc
Responsibilities for the financial statements and the audit
Our responsibilities and those of the directors
As explained more fully in the Directors’ Responsibilities Statement set out on pages 78 and 79, 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 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 29 November 2015.
Andrew Latham (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
St Albans
2 February 2016
176
Ocado Annual Report 2015 Back.indd 176
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Company Balance Sheet
as at 29 November 2015
Non-Current Assets
Investments
Current Assets
Other receivables
Cash and cash equivalents
Total Assets
Current Liabilities
Trade and other payables
Provisions
Net Current Assets
Non-Current Liabilities
Provisions
Net Assets
Equity
Share capital
Share premium
Retained earnings
Total Equity
29 November
2015
£m
30 November
2014
£m
Notes
3.1
3.3
3.4
3.5
3.6
3.6
4.1
4.1
498.5
498.5
240.4
18.9
259.3
757.8
(0.2)
(2.1)
(2.3)
257.0
(1.6)
(1.6)
753.9
12.6
259.0
482.3
753.9
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
The notes on pages 180 to 189 form part of these financial statements.
The Company financial statements on pages 177 to 189 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)
2 February 2016
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Company Statement of Cash Flows
for the 52 weeks ended 29 November 2015
Cash Flow From Operating Activities
Loss before income tax
Adjustments for:
— Finance income
Changes in working capital:
— Movement in other receivables
— Movement in trade and other payables
Net Cash Outflow From Operating Activities
Cash Flow From Investing Activities
Interest received
Net Cash From Investing Activities
Cash Flow From Financing Activities
Proceeds from issue of ordinary share capital net of transaction costs
Net Cash From Financing Activities
Net Decrease in Cash and Cash Equivalents
Cash and cash equivalents at beginning of period
Cash and Cash Equivalents at End of Period
52 Weeks
Ended
29 November
2015
£m
52 Weeks
Ended
30 November
2014
£m
Notes
(0.8)
(0.2)
(37.4)
(0.8)
(39.2)
0.2
0.2
4.5
4.5
(34.5)
53.4
18.9
(0.3)
(0.4)
(47.7)
0.6
(47.8)
0.4
0.4
3.2
3.2
(44.2)
97.6
53.4
3.4
178
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Company Statement of Changes in Equity
for the 52 weeks ended 29 November 2015
Balance at 1 December 2013
Loss for the period
Total Comprehensive Income 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
Loss for the period
Total Comprehensive Income for the Period Ended
29 November 2015
Transactions with owners:
— Issue of ordinary shares
— Share-based payments charge
Total Transactions with Owners
Balance at 29 November 2015
Notes
4.1
4.1
Share
Capital
£m
12.4
—
Share
Premium
£m
251.5
—
Retained
Earnings
£m
471.3
(0.3)
Total
Equity
£m
735.2
(0.3)
—
0.1
—
0.1
12.5
—
—
0.1
—
0.1
12.6
—
(0.3)
(0.3)
3.1
—
3.1
254.6
—
—
4.4
—
4.4
259.0
—
4.4
4.4
475.4
(0.8)
3.2
4.4
7.6
742.5
(0.8)
(0.8)
(0.8)
—
7.7
7.7
482.3
4.5
7.7
12.2
753.9
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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 29 November 2015 (prior period
52 weeks ended 30 November 2014).
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. They have been prepared under the
historical cost convention, except for financial instruments that have been measured at fair value.
The Directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements of the Company.
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 £0.8 million (2014: loss £0.3 million).
Standards, Amendments and Interpretations Adopted by the Company in 2014/15 or Issued that are
Effective
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 1 December 2014 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:
IFRS 10
IFRS 12
IAS 19
IAS 27
IAS 32
IAS 36
IAS 39
Consolidated Financial Statement*
Disclosure of Interests in Other Entities*
Employee Benefits
Separate Financial Statements
Financial Instruments: Presentation
Impairment of Assets
Financial Instruments: Recognition and Measurement
Effective Date
1 January 2014
1 January 2014
1 July 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
* The amendments for investment entities which are effective in IFRS 10, IFRS 12 and IAS 27, above, are not relevant for the Group. Amendments regarding the application of the
consolidation exception for IFRS 10 and IFRS 12 are effective from 1 January 2016, and amendments regarding the reinstatement of the equity method as an accounting option
for investments in subsidiaries, joint ventures and associates in an entity’s separate financial statements are effective from 1 January 2016, and are included in the table below.
Standards, amendments and interpretations issued that are not effective, and which have not been early
adopted by the Company
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 1 December 2014 and have not been adopted early:
IFRS 9
IFRS 10
IFRS 11
IFRS 12
IFRS 15
IAS 1
IAS 16
IAS 27
IAS 28
IAS 38
Various
Financial Instruments
Consolidated Financial Statements
Joint Arrangements
Disclosure of Interests in Other Entities
Revenue from Contracts with Customers
Presentation of Financial Statements
Property, Plant and Equipment
Separate Financial Statements
Investments in Associates and Joint Ventures
Intangible Assets
Amendments to various IFRSs and IASs including those arising from the IASB’s annual improvements project.
Effective Date
1 January 2018
1 January 2016
1 January 2016
1 January 2016
1 January 2018
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
Various
The following new standards are not yet effective and the impact on the Group is currently under review:
- IFRS 16 “Leases” provides guidance on the classification, recognition and measurement of leases to help provide useful information to the users of financial
statements. The main aim of this standard is to ensure all leases will be reflected on the balance sheet, irrespective of substance over form. The new standard
will replace IAS 17 “Leases” and is effective for annual periods beginning on or after 1 January 2019 unless adopted early. The Group is currently reviewing the
impact of IFRS 16.
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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.
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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 (2014: £0.06 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.
Section 3 – Assets and Liabilities
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
29 November
2015
£m
30 November
2014*
£m
476.5
1.1
20.9
498.5
476.5
1.1
11.1
488.7
*
The presentation of the carrying value between cost and contributions to subsidiaries at 30 November 2014 has been corrected. There is no impact to the carrying value of
investments as at 30 November 2014.
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.
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3.3 Other Receivables
Accrued income
Amounts due from subsidiary undertakings
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
29 November
2015
£m
30 November
2014
£m
—
240.4
240.4
0.2
203.0
203.2
29 November
2015
£m
30 November
2014
£m
18.9
53.4
29 November
2015
£m
30 November
2014
£m
0.2
—
0.2
0.4
0.8
1.2
3.6 Provisions
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 Company is liable to pay employer’s NIC upon allotment of the share awards.
Unapproved schemes are the Long Term Incentive Plan (“LTIP”), the Chairman’s Share Matching Award, the Growth Incentive Plan (“GIP”) and unapproved
Executive Share Option Scheme (“ESOS”). For more details on these schemes, refer to note 4.10 to the consolidated financial statements.
In the prior 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.
Provisions
As at 1 December 2013
Charged to the income statement
— additional provision
— unused amounts reversed
Used during the period
As at 30 November 2014
Charged to the income statement
— additional provision
— unused amounts reversed
Used during the period
As at 29 November 2015
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Employee
Incentive
Schemes
£m
—
1.6
—
—
1.6
2.1
—
—
3.7
183
Stock Code: OCDO www.ocadogroup.comOur Financials
Notes to the Company Financial Statements (continued)
3.6 Provisions (continued)
Analysis of Total Provisions as at 30 November 2014
Current
Non-current
Analysis of Total Provisions as at 29 November 2015
Current
Non-current
Employee
Incentive
Schemes
£m
—
1.6
1.6
Employee
Incentive
Schemes
£m
2.1
1.6
3.7
Employee Incentive Schemes
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. and valued with reference to the year end share price. 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 4.10 (g) in the consolidated financial statements).
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 allotted to participants. Vesting will occur between
2016 and 2019.
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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 34,770,981 (2014: 34,810,561) ordinary shares held by the Group’s employee benefit
trust (see Note 4.10(b) 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 per share calculation in Note 2.9 of the Consolidated financial
statements, as basic profit per share is calculated using the weighted average number of ordinary shares in issue during the period, excluding treasury shares.
At 29 November 2015, the number of ordinary shares available for issue under the Block Listing Facilities was 14,620,308 (2014: 19,094,500). 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:
Ordinary
Shares
Number (m)
Ordinary
Shares
£m
Share
Premium
£m
Notes
At 1 December 2013
Issues of ordinary shares
Allotted in respect of share option schemes
At 30 November 2014
Issues of ordinary shares
Allotted in respect of share option schemes
4.2
At 29 November 2015
4.2 Share-Based Payments
For more information on the Group’s share schemes, see Note 4.10 to the consolidated financial statements.
617.7
0.5
2.7
620.9
0.6
3.9
625.4
12.4
—
0.1
12.5
—
0.1
12.6
251.5
0.1
3.0
254.6
0.5
3.9
259.0
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.
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Notes to the Company Financial Statements (continued)
4.3 Financial Instruments (continued)
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.
Financial Assets
Investments
Cash and cash equivalents
Other receivables
Total financial assets
Financial Liabilities
Trade and other payables
Total financial liabilities
29 November 2015
30 November 2014
Carrying Value
£’000
Notes
Fair Value
£’000
Carrying Value
£’000
Fair Value
£’000
3.1
3.4
3.3
3.5
498.5
18.9
240.4
757.8
(0.2)
(0.2)
498.5
18.9
240.4
757.8
(0.2)
(0.2)
488.7
53.4
203.2
745.3
(1.2)
(1.2)
488.7
53.4
203.2
745.3
(1.2)
(1.2)
4.4 Credit Risk
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
29 November 2015
30 November 2014
Gross
£’000
240.4
—
—
—
240.4
Impairment
£’000
—
—
—
—
—
Gross
£’000
203.2
—
—
—
203.2
Impairment
£’000
—
—
—
—
—
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 in the prior period. During the current period the facility was extended by two years to 2019 and the amount was increased to £210 million. As at 29
November 2015 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 4.11 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.
Carrying
Value
£m
Contractual
Cash Flows
£m
Notes
1 Year or Less
£m
1–2 Years
£m
2–5 Years
£m
More Than
5 Years
£m
Financial Liabilities
Trade payables and other payables
3.5
30 November 2014
186
(1.2)
(1.2)
(1.2)
(1.2)
(1.2)
(1.2)
—
—
—
—
—
—
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4.5 Liquidity Risk (continued)
Carrying
Value
£m
Contractual
Cash Flows
£m
Notes
1 Year or Less
£m
1–2 Years
£m
2–5 Years
£m
More Than
5 Years
£m
Financial Liabilities
Trade payables and other payables
3.5
(0.2)
(0.2)
(0.2)
(0.2)
(0.2)
(0.2)
—
—
—
—
—
—
29 November 2015
4.6 Market Risk
Currency Risk
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
29 November
2015
£m
30 November
2014
£m
17.9
1.0
33.2
20.2
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
deemed 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
29 November
2015
£m
30 November
2014
£m
—
—
—
0.2
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Notes to the Company Financial Statements (continued)
4.7 Financial Instruments by Category
The Company has categorised its financial instruments as follows:
As at 30 November 2014
Financial Assets
Investments
Cash and cash equivalents
Other receivables
Total
Financial Liabilities
Trade and other payables
Total
As at 29 November 2015
Financial Assets
Investments
Cash and cash equivalents
Other receivables
Total
Financial Liabilities
Trade and other payables
Available-
For-Sale
£m
Loans and
Receivables
£m
Notes
Other Financial
Liabilities at
Amortised Cost
£m
3.1
3.4
3.3
3.5
488.7
—
—
488.7
—
—
—
53.4
203.2
256.6
—
—
—
—
—
—
(1.2)
(1.2)
Available-
For-Sale
£m
Loans and
Receivables
£m
Notes
Other Financial
Liabilities at
Amortised Cost
£m
3.1
3.4
3.3
3.5
498.5
—
—
498.5
—
18.9
240.4
259.3
—
—
—
—
—
—
—
—
(0.2)
(0.2)
Total
£m
488.7
53.4
203.2
745.3
(1.2)
(1.2)
Total
£m
498.5
18.9
240.4
757.8
(0.2)
(0.2)
Total
4.8 Capital Management
The Board’s objectives and policies for the Company are consistent with those of the Group. Full details are provided in Note 4.11 in the Consolidated financial
statements.
Section 5 — Other Notes
5.1 Subsidiaries
The subsidiary undertakings and significant undertakings of the Company as at period end 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 (formerly Ocado Technology Limited)
Ocado Operating Limited
Ocado Central Services Limited
Ocado Innovation Holdings Limited
Jalapeno Partners Limited
Last Mile Technology Limited
Speciality Stores Limited (formerly Specialty Stores Limited)
Marie Claire Beauty Limited (formerly Newco Beauty Limited)
Paws & Purrs Limited
MHE JVCo Limited
Paneltex Limited
Principal Activity
Holding company
Retail
Intellectual property
Technology
Technology
Logistics and Distribution
Business Services
Non-trading company
Non-trading company
Non-trading company
Trading company
Retail
Retail
Trading company
Manufacturing
Proportion of Share
Capital Held
Country of Incorporation
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
25%
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
England and Wales
England and Wales
England and Wales
In accordance with Section 410(2)(a) of the Companies Act, a full list of the then subsidiaries was annexed to the 2014 annual return and submitted to Companies
House. In accordance with the exemption under Section 479A of the Companies Act the standalone financial statements for a subsidiary, Paws & Purrs Limited, are
not to be audited for the year ended 29 November 2015, but are included in the Group’s consolidated financial statements in the period.
188
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Ocado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Our Financials
5.1 Subsidiaries (continued)
The Group has effective control over the financial and operating activities of the Ocado Cell in Atlas Insurance PCC Limited, an insurance company
incorporated in Malta, and therefore consolidates the Ocado Cell in its financial statements in accordance with IFRS 10 “Consolidated Financial Statements”.
The Group uses the Ocado Cell to provide self-insurance for its vehicle fleet and public and product liability claims.
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 80 to 117.
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 £10,000 was earned on these loans at market-related interest rates during the period
(2014: £6,000).
Transactions with Subsidiaries
Group share-based payments
Increase in loans made to subsidiary undertakings
(Decrease)/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 receivables due to subsidiaries
5.3 Post balance sheet events
There were no events after the balance sheet date which require adjustment to or disclosure in these financial statements.
52 Weeks
Ended
29 November
2015
£m
52 Weeks
Ended
30 November
2014
£m
9.8
37.2
(0.6)
6.1
47.8
0.8
29 November
2015
£m
30 November
2014
£m
240.4
203.2
0.2
0.8
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189
Stock Code: OCDO www.ocadogroup.comOur Financials 190
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Shareholder Information
Glossary
Five Year Summary
Financial Calendar
Company Information
192
194
195
195
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191
Shareholder Information
Glossary
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 4 May 2016 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.
Chairman’s Share Matching Award — means
a one-off award of shares to Lord Rose, made in
May 2013.
Cash LTIP — means the Company’s cash-based
Long Term Incentive Plan for senior employees.
Code — means the UK Corporate Governance
Code published by the FRC in September 2014, as
amended from time to time.
Companies Act — means the Companies Act
2006.
Company — means Ocado Group plc, a company
incorporated in England and Wales with registered
number 07098618 whose registered office is at
Titan Court, 3 Bishops Square, Hatfield Business
Park, Hatfield, Hertfordshire, AL10 9NE.
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.
192
Customer Fulfilment Centre or CFC — means
a dedicated highly automated warehouse used
for the operation of the business. The CFCs
are: CFC1 in Hatfield, CFC2 in Dordon, CFC3 in
Andover (under testing) and CFC4 in Erith (under
construction).
Executive Directors — means Tim Steiner,
Neill Abrams, Duncan Tatton-Brown and Mark
Richardson.
Fetch.co.uk — means the Group’s dedicated
online pet store.
Deloitte — means Deloitte LLP.
Directors — means the directors of the Company
whose names are set out on pages 50 and 51, 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 84 to 98.
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.
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.
EPS — means earning per share.
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.
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 (Group) — 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, its subsidiaries,
significant undertakings and affiliated companies
under its control or common control.
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.
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.
JSOS — means the Group’s Joint Share Ownership
Scheme. It comprises three issues called JSOS1,
JSOS2 and JSOS3.
KPI — means key performance indicators.
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Ocado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015 Shareholder Information
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.
KPMG — means KPMG LLP.
LIBOR — means the London Interbank Offered
Rate.
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 operations 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 a Group subsidiary
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 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.
Non-Executive Directors — means the non-
executive Directors of the Company designated as
such on pages 50 and 51.
Notice of Meeting — means the notice of the
Company’s AGM.
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 or the Group’s advisers
in respect of non-audit services.
R&D — means Research and Development.
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 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.
Shareholder — means a holder for the time being
of ordinary shares in the Company.
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, SAYE3 means the third invitations
made under the scheme in 2013 and SAYE4 means
the fourth invitations made under the scheme
in 2015.
SIP — means the Share Incentive Plan.
Sizzle.co.uk — means the Group’s dedicated
online kitchen and dining store.
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.
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193
Stock Code: OCDO www.ocadogroup.com Five Year Summary
Trading Weeks
Gross Sales
Revenue
Gross Profit
EBITDA
Adjusted operating profit/(loss)1
1. Adjusted to exclude exceptional items and share of result from joint venture
Average orders per week
Average orders size (£)
CFC Efficiency (UPH)1
DPV/week
Product waste (%)
Items delivered exactly as ordered
Deliveries on time or early (%)
52 Weeks to
29 November
2015
£m
52
1,204.4
1,107.6
375.1
81.5
19.1
52 Weeks to
30 November
2014
£m
52
1,026.5
948.9
312.9
71.6
14.2
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
29 November
2015
52 Weeks to
30 November
2014
52 Weeks to
1 December
2013
53 Weeks to
25 November
2012
52 Weeks to
27 November
2011
195,000
109.95
155
166
0.7
99.3
95.3
167,000
112.25
145
163
0.8
99.3
95.3
143,000
113.53
135
160
1.0
99.0
95.2
123,000
112.13
121
152
0.7
98.0
92.7
110,000
112.15
111
145
0.7
98.3
92.3
1. Mature CFC operations (CFC is considered mature if it had been open 12 months by the start of the half year reporting period)
194
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Ocado Group plc Annual Report and Accounts for the 52 weeks ended 29 November 2015Shareholder Information Financial Calendar
15 March 2016
4 May 2016
28 June 2016
13 September 2016
8 December 2016
31 January 2017
Q1 Trading Statement
Annual General Meeting
Half Year Results Announcement
Q3 Results Announcement
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: PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
10 Bricket Road
St Albans
Hertfordshire
AL1 3JX
Registrars:
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4ZF
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195
Stock Code: OCDO www.ocadogroup.comShareholder Information
196
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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
slugline