Delivering the
best platform for
online grocery
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Ocado Group plc Annual Report and Accounts
for the 52 weeks ended 27 November 2016
www.ocadogroup.com
Stock code: OCDO
slugline
Who?
Established in 2000 and listed on
the London Stock Exchange in July
2010, Ocado is the world’s largest
dedicated online grocery retailer with
over 580,000 active customers. Our
objective is to provide our retail and
corporate customers with the best
proposition in online shopping at
the lowest possible operating cost.
This enables us to build a strong,
sustainable and growing business
designed to deliver 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 retail business
and those of our commercial partners.
Why?
The world is changing fast, driven by
different shopping habits and ever
more advanced technology. Grocery
is the largest of all retail segments
and is increasingly moving online.
In particular, 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
segment1
2
More information on
page 1
More information on
pages 6 and 7
Ideally positioned
to benefit from
continuing
channel shift to
online
Proprietary
intellectual
property creating
significant
competitive
advantages
4
3
More information on
pages 6 to 9
More information on
pages 12 and 13
End-to-end
operating model
gives structural
advantages
Commercialising
intellectual property
offering significant
value creation
from platform
business
5
Superior
customer offering
with leading
service, range and
price proposition
drives growth
7
More information on
pages 20 and 21
More information on
pages 10 and 11
Operational leverage
and virtuous cycle of
growth, investment
and innovation
6
8
More information on
pages 16 and 17
More information on
pages 8 and 9
Proven
management
team driving
strategy and
execution
Actively promoting
responsible
business
behaviour
10
9
More information on
pages 48 and 49
More information on
pages 38 to 41
Our Vision
Mission Statement
Powered by fresh thinking, we strive for new and improved
ways to deliver the world’s most advanced end-to-end
online shopping and delivery solutions.
We are built for this – nobody does it better.
Strategic Objectives
To deliver long-term shareholder value by:
Driving growth
Maximising efficiency
Utilising our proprietary knowledge
Our Brands
Both our corporate identity and our core grocery brand used
for our shop and own-label products.
Our end-to-end online grocery platform solution.
Our dedicated pet store.
Channel Shift
There’s going to be significant growth
across all of the top 10 online grocery
markets . . . The UK has always
been a leader in online grocery, with
both retailers and shoppers keen
to embrace new technology, and we
expect this to continue.”
IGD
“It is much easier and cheaper to shop
online and have it delivered at a time
that suits me.”
Ocado Customer
Online is forecast to be the fastest growing channel in UK grocery over the
next five years with similar trends likely elsewhere (IGD).
Online grocery represents approximately 6% of the UK grocery market, and
is predicted to grow to 9% by 2021. The UK grocery market was estimated
to be worth £179 billion in 2016 (IGD).
UK Online Grocery Market (2016: £10.5bn)
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Source: IGD
Our dedicated kitchen and dining store.
Our premium beauty store in partnership with
Marie Claire.
Global Retail Opportunities
Estimated to contribute to over 50% of all global retail spend, grocery is
the largest retail segment. IGD expects the value of the world’s grocery
market to increase by a third over the next five years, reaching $11.8
trillion by 2020. Grocery retail internationally has undergone a number of
changes, and the adoption of digital technologies, is expected to play an
increasingly important role. This offers huge market opportunities on a
global scale.
2
4
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10
slugline
Uniquely Positioned
to Take Advantage
We have developed an entire end-to-end solution to operate online
in the grocery market, vertically integrated across software and
physical equipment solutions. This enables us to offer a compelling
proposition to consumers including highly attractive service, wider
and fresher ranges and competitive prices, giving us a unique
advantage in the UK grocery retail market to grow our customer
base and take market share.
Ocado Smart Platform, our managed service offering of proprietary
software and equipment solutions, will offer retail partners a faster,
flexible and more cost efficient way of operating online. 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.
Our Progress in 2016
Strategic Highlights
• Opened our latest customer fulfilment centre (CFC) in Andover, UK, which
utilises the first installation of our proprietary equipment solution
• Extension to our agreement with our first commercial customer, Morrisons, to
expand capacity for Morrisons.com
• Developed new IP, with multiple patent applications filed
•
Launched our premium beauty brand, Fabled, in partnership with Marie Claire
• Ongoing discussions with international retailers to use Ocado Smart Platform
Operational Highlights
• Believed to be industry leading service levels maintained with 94.9% on
time deliveries and 99.0% order accuracy
• Range at Ocado.com broadened to over 50,000 SKUs
• Active customers increased to over 580,000
• Mature CFC efficiency improved by 3.5% to 160 units per hour
• Delivery performance increased by 6.3% to 176 deliveries per van per week
• Average order size on Ocado.com declined by 2.7% to £108.10 reflecting
industry deflation
•
Low product waste of 0.7%, believed to be most efficient in the food
retail sector
Financial Highlights
• Gross sales (Group) up 15.1% to £1,386.7 million A
• Gross sales (Retail) up 13.6% to £1,267.4 million A
• Revenue up 14.8% to £1,271.0 million
• EBITDA up 3.3% to £84.3 million A
• Profit before tax up 1.3% to £12.1 million
A
See Alternative Performance
Measures on page 194
CEO Q&A
1
Tim Steiner
Q: 2016 has been characterised by tough
competition, deflation and cost increases.
To what extent was Ocado affected by industry
conditions?
A: Similar to retailers across the sector, Ocado has felt the
headwinds from this challenging retail environment. However,
during this time we increased sales and grew our share of
the grocery market. We did this by focusing on improving our
customer proposition to support growth and driving efficiency
through scale, technology and operational improvements.
Together this has helped to mitigate the impact on our gross
margins.
Despite these challenging conditions we have not stopped further
developing our market leading technology and IP to ensure that
we offer a sustainable solution for ourselves and our platform
customers that is resilient in all market conditions.
Q: What is the update regarding your next CFC
in Andover?
A: Our third CFC located in Andover, Hampshire, in the south of
England, commenced operations in November 2016. This CFC
incorporates the first installation of our new proprietary physical
fulfilment solution.
We expect that 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 continue to grow at pace.
This complete “fulfilment in a box” solution is modular and
scalable, adding significant flexibility to the capacity planning
for our own retail business and that of our existing and future
partners. This CFC is expected to be more capital efficient
compared to our earlier CFCs and more efficient to operate.
Read about the Andover and New
Technologies case study on page 19
Q: Please outline your international aspirations.
Should we expect to see deals in 2017?
A: We plan to commercialise our years of learning and innovation
through working with international partners using the Ocado
Smart Platform. We remain confident in our proposition and
continue discussions with multiple retailers across several
geographies with the view of signing multiple agreements in the
medium term.
Read about Ocado Smart Platform on
pages 12 and 13
sluglineStock Code: OCDO | www.ocadogroup.comOverview 1. Contents
2
Strategic Report
Ocado Within the Marketplace
6
Our Business Model
8
Governance
Chairman’s Governance Introduction
Board of Directors
Statement of Corporate Governance
Audit Committee Report
Nomination Committee Report
Our Retail Operating Model
10
Ocado Smart Platform
12
Directors’ Report
Directors’ Remuneration
Report
Annual Statement from the Remuneration
Committee Chairman
46
48
50
59
64
66
76
Description of the Remuneration Committee 78
Our Strategy and Objectives
14
Chief Executive Officer’s Review
22
Remuneration Policy Report
Key Performance Indicators
26
Chief Financial Officer’s Review
28
How We Manage Our Risks
34
Corporate Responsibility
38
Our People
42
Case studies
Annual Report on Remuneration – 2016
Annual Report on Remuneration –
Implementation of Policy for 2017
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 Changes in Equity
Company Statement of Cash Flows
80
97
113
118
125
126
127
128
129
130
174
176
177
178
Ocado Smart Platform: Providing Flexibility for
Notes to the Company Financial Statements 179
Corporate Customers
Fabled
Andover CFC and New Technologies
Morrisons Update
12
17
19
21
Corporate Responsibility
40 and 41
People
43
Additional Information
Glossary
Alternative Performance Measures
Five Year Summary
Financial Calendar
Company Information
192
194
195
196
196
Getting Around the Report
View more information within the
Annual Report
View more information online at
ocadogroup.com
sluglineOverviewOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016
2. Chairman’s
Statement
During the year, we concluded new arrangements
with Morrisons; building on our existing
relationship. As reported, they will benefit from
30% of the capacity of Ocado’s customer fulfilment
centre currently under construction in Erith, South
East London. Additionally, Ocado will licence
to Morrisons the store pick module from the
Ocado Smart Platform. This module will provide
Morrisons with all of the software necessary for
it to fulfil online orders from its stores alongside
those online orders fulfilled by Ocado for
Morrisons from the CFCs.
In August 2016 we launched our premium beauty
and wellness site, Fabled.com, in conjunction with
Marie Claire. Fabled offers a seamless customer
experience, with deliveries in one-hour time slots
and the webshop features bespoke editorial content
drawing on Marie Claire’s expertise. To accompany
the online offering, we have opened a flagship store
in London’s West End.
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. At the same time, we continue
to work closely with our suppliers, providing more
opportunities for them to drive their sales with Ocado
as suppliers increasingly embrace the online channel.
Improving Efficiency and
Expanding Capacity
We opened our latest CFC in Andover, Hampshire at
the end of the year, which uses our new proprietary
fulfilment solution, and which we expect to be
more efficient to operate than our older facilities.
In developing our capacity further, we expect our
fourth CFC in Erith, South East London, to become
operational in financial year 2018.
Lord Rose
Chairman
Performance and market
The UK grocery retail sector continued to face
significant challenges. Customers look for greater
range, convenience and speed, and added to this,
the industry has seen continuing ongoing pressures
from falling volumes and price competition, as well
as the continued growth of the discount retailers,
which has resulted in margin pressure in the market.
However, the increased trend for consumers to shop
online for groceries, and particularly using mobile
devices, has remained, with over 55% of Ocado
orders now being placed on a mobile device. Our
customer base has grown, now with over 580,000
active customers. We remain one of a small group of
significant grocery retailers in the UK that has grown,
with Gross Sales (Retail) A increasing by 13.6% to
£1,267.4 million and EBITDA A up by 3.3% to £84.3
million for the period.
The fall in the Pound since the UK referendum to leave
the European Union (EU), has led to greater input
cost inflation, and most likely to the start of selling
price inflation. Other consequences of leaving the EU
for the Group are more difficult to determine at this
early stage of the exit process, but management and
the Board will continue to monitor the position and
work collaboratively with trade organisations and the
UK government in its stated aim to achieve the best
possible business outcome.
Strategy
Overseas expansion has continued to be a
focus for the Group and we continue to be in
multiple discussions with retailers across several
geographies. Although none of these has yet
resulted in a signed deal, we remain confident of
signing multiple deals in the medium term.
Share Price Chart
Share price for Ocado on London Stock Exchange: 30 November 2011 to 27 November 2016
3
Board Changes
As the business continues to transform, so too has
the Board. As part of its succession plans, Emma
Lloyd was appointed as a Non-Executive Director
with effect from 1 December 2016 and I am
pleased to welcome her experience to the Board.
Following the period end, the Company
announced that Robert Gorrie will step down from
the position of Non-Executive Director with effect
from the Annual General Meeting on 3 May 2017.
We thank Robert for his immense contribution to
Ocado for almost 17 years and wish him well in his
retirement.
These changes follow the appointment of Andrew
Harrison in early 2016 and resignation of David
Grigson at the 2016 annual general meeting. Alex
Mahon, who has sat on the Board since 2012,
was appointed Senior Independent Director as
successor to David Grigson.
We note the increasing demands placed on our
Non-Executive Directors, particularly the growing
workloads of those who chair or are members of
our Board committees. We need to consider the
requirements of these roles, both as we make new
appointments and when we review Non-Executive
Director remuneration in future years.
Lord Rose
Chairman
31 January 2017
A
See Alternative Performance
Measures on page 194
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sluglineStock Code: OCDO | www.ocadogroup.comOverview
4
slugline Strategic Report
3. Ocado Within the Marketplace
4. Our Business Model
5. Our Retail Operating Model
6. Ocado Smart Platform
7. Our Strategy
8. Our Strategic Objectives
9. Chief Executive Officer’s Review
10. Key Performance Indicators
11. Chief Financial Officer’s Review
12. How We Manage Our Risks
13. Corporate Responsibility
14. Our People
6
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26
28
34
38
42
5
slugline 3. Ocado Within the
Marketplace
6
Market
The UK Grocery Market
• Grocery is the largest of all retail segments, representing over 50% of
Trends
Grocery Market Size
retail sales globally.
• The size of the UK grocery market is substantial, estimated to be worth
£179 billion in 2016 and forecast to increase to £211 billion by 2021
(IGD).
• The grocery industry is characterised by high volumes but low
margins.
.
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3.2% 3.5%
4.2%
3.8%
3.5% 3.4%
1.6%
1.3%
0.6%
0.4%
Impact on Retailers
opportunities for retailers.
• The immense size of the grocery market results in significant
• We seek to gain share in this largest retail segment.
• Despite the market size, British supermarkets have faced another
tough year, with challenging market conditions.
lower operating costs.
• Our core focus is to take actions to drive growth and
increase scale, while striving to improve efficiencies to
What This Means for Ocado
• Given the low margins in the industry, exacerbated by price deflation,
it is important for retailers to be cost efficient.
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
(
%
)
Y
o
Y
g
r
o
w
t
h
Price and Cost Dynamics
• The continued growth of hard-discount stores and enhanced
Price Deflation
CPI - 01 Food & non-alcoholic bevearage YoY %
• Many retailers, including Ocado, adopt a price matching approach
• A number of factors have however helped us in
which has the effect of broad industry prices falling in a deflationary
navigating these challenging conditions:
1
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Market value (bn)
YOY% Change
Source: IGD
competition from new entrants to food distribution has put pressure
on supermarkets, stimulating price deflation and competition across
the industry, resulting in margin pressure.
• The industry is experiencing input cost inflation driven from both the
introduction of the national living wage and the fall in the value of sterling
following the EU referendum, making product imports more expensive.
• The combination of price deflation and cost inflation has led to
compounded pressure at this time of intense competition.
• Over the year there has also been a dramatic decline and by the end of
the period a partial recovery of oil prices, which has impacted the UK
economy as a whole.
The Changing Shape of UK Grocery
• Recent industry dynamics have seen retail growth shifting away from
the “space race” model, whereby market share is captured by opening
additional real estate, towards alternative store formats including hard
discounters and convenience stores, which differentiate on price and
consumer convenience to capture market growth.
• One of the most material structural changes in the UK has been the
shift away from physical stores to online, particularly mobile, driven
both by shoppers’ increasing appetite for convenience and digital
connectivity, and service enhancements in online operations.
•
It is estimated by IGD that by 2021 this channel will be worth £17.6
billion, a 68% increase from 2016.
• Aside from incumbents’ online offerings we are also seeing new
entrants in the UK market. This includes the launch of Amazon Fresh,
as well as the convenience market being further supplemented by
alternative online options, such as meal kit providers and delivery
services for prepared food.
The Global Grocery Market
• Global grocery retail has historically been slower to adopt the online
channel than in the UK but is building momentum.
• Kantar Worldpanel forecasts that global grocery e-commerce will grow
to 9% of the market and be worth $150 billion by 2025.
• As illustrated by the UK market, as competition increases and
technology develops to enhance the online experience, global
demand for online grocery is expected to accelerate.
8%
6%
4%
2%
0%
-2%
-4%
Aug ‘11
Feb ‘12 Aug ‘12
Feb ‘13 Aug ‘13
Feb ‘14 Aug ‘14
Feb ‘15 Aug ‘15
Feb ‘16 Aug ‘16
the future.
Source: National statistics, Datastream
% YoY 12 week growth
20%
15%
10%
5%
0%
-5%
*
Discounters
Overall market
Big 4
June ‘15
Sept ‘15
Dec ‘15
Feb ‘16
(12 weeks ending)
May ‘16
Aug ‘16
Note: * Equivalent Ocado Quarterly YoY results
Source: Kantar Worldpanel, Press Releases, Ocado
Grocery Retail Sales (US$ bn)
Region
Asia
Europe
Africa and Middle East
North America
Latin America
Oceania
2016
3,011
2,178
902
1,196
912
110
2021
4,084
2,591
1,457
1,424
1,220
141
Source: IGD
• The shift to online creates a challenge to incumbent players in the low
• We are well placed to benefit from the fastest growing
environment.
• Traditionally, rising product costs are reflected by higher consumer
prices but because of the intense price competition prevalent within
the industry, retailers have been more reluctant to respond quickly,
exacerbating the price deflation-cost inflation gap.
• While supermarkets have been one of the main beneficiaries of
the declining oil price through the reduction of food input prices,
transportation and energy costs, this may to some extent reverse in
margin grocery industry.
• Online involves retailers providing more services for customers at
greater cost but the same price.
• As the online channel expands, driven by more competitive
propositions, technology and services, this encourages UK consumers
to shift more of their grocery spend online, accelerating the pace of
the channel shift further.
• We have continued to grow, enabling operating
leverage and natural margin expansion with better
purchasing power.
• The vast majority of our employees were already at
or above the new National Living Wage levels when
introduced, limiting the short-term impact.
• The operational efficiency of our model means
energy costs are a comparatively small part of our
costs.
channel in UK grocery and, unlike traditional bricks and
mortar players, we are not restricted by capital intensive
stores.
• We continue to build momentum in the online grocery
market and as the segment expands we have the
opportunity to capture market share through our
superior customer offering.
• The pace of the channel shift and the opportunities to
capture this advancing market share are key drivers for
our growth.
• Our growth enables further investment into improving
our proposition through our industry leading
technology and software developments.
• The size of the global grocery market presents a huge opportunity, but also
• We believe that we will be able to leverage our IP
a challenge, for retailers globally, as consumers choose to shop more online.
through Ocado Smart Platform which will position us
• The pace of the channel shift will depend on a retailer’s appetite to
well for this channel shift on a global level.
embrace and invest in online capabilities to gain first mover advantage
• The enhanced propositions within the online arena
increase customer awareness and adoption, which
in turn grows the market and accelerates the channel
shift – we believe we are well positioned to capitalise on
these growing global trends.
within their territory.
• Today, outside of a few markets, online grocery is still too small a
segment to be disruptive. However, as more retailers invest in this
space they may act as catalysts, pushing others to seriously consider
their online offerings.
• Retailers adopt different strategies reflecting either a defensive approach,
where they develop in line with the market in order to retain market share,
or an offensive strategy, where they proactively seize the opportunity to
grow ahead of the market by enhancing their proposition.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report
Market
The UK Grocery Market
retail sales globally.
(IGD).
margins.
• Grocery is the largest of all retail segments, representing over 50% of
• The size of the UK grocery market is substantial, estimated to be worth
£179 billion in 2016 and forecast to increase to £211 billion by 2021
• The grocery industry is characterised by high volumes but low
Trends
Grocery Market Size
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3.5% 3.4%
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Market value (bn)
YOY% Change
Source: IGD
Price and Cost Dynamics
Price Deflation
• The continued growth of hard-discount stores and enhanced
CPI - 01 Food & non-alcoholic bevearage YoY %
• Over the year there has also been a dramatic decline and by the end of
Aug ‘11
Feb ‘12 Aug ‘12
Feb ‘13 Aug ‘13
Feb ‘14 Aug ‘14
Feb ‘15 Aug ‘15
Feb ‘16 Aug ‘16
the period a partial recovery of oil prices, which has impacted the UK
Source: National statistics, Datastream
competition from new entrants to food distribution has put pressure
on supermarkets, stimulating price deflation and competition across
the industry, resulting in margin pressure.
• The industry is experiencing input cost inflation driven from both the
introduction of the national living wage and the fall in the value of sterling
following the EU referendum, making product imports more expensive.
• The combination of price deflation and cost inflation has led to
compounded pressure at this time of intense competition.
economy as a whole.
The Changing Shape of UK Grocery
• Recent industry dynamics have seen retail growth shifting away from
the “space race” model, whereby market share is captured by opening
additional real estate, towards alternative store formats including hard
discounters and convenience stores, which differentiate on price and
consumer convenience to capture market growth.
• One of the most material structural changes in the UK has been the
shift away from physical stores to online, particularly mobile, driven
both by shoppers’ increasing appetite for convenience and digital
connectivity, and service enhancements in online operations.
•
It is estimated by IGD that by 2021 this channel will be worth £17.6
billion, a 68% increase from 2016.
• Aside from incumbents’ online offerings we are also seeing new
entrants in the UK market. This includes the launch of Amazon Fresh,
as well as the convenience market being further supplemented by
alternative online options, such as meal kit providers and delivery
services for prepared food.
The Global Grocery Market
8%
6%
4%
2%
0%
-2%
-4%
20%
15%
10%
5%
0%
-5%
June ‘15
Sept ‘15
Dec ‘15
Feb ‘16
May ‘16
Aug ‘16
(12 weeks ending)
Note: * Equivalent Ocado Quarterly YoY results
Source: Kantar Worldpanel, Press Releases, Ocado
Grocery Retail Sales (US$ bn)
• Global grocery retail has historically been slower to adopt the online
channel than in the UK but is building momentum.
• Kantar Worldpanel forecasts that global grocery e-commerce will grow
to 9% of the market and be worth $150 billion by 2025.
Region
Asia
Europe
• As illustrated by the UK market, as competition increases and
technology develops to enhance the online experience, global
demand for online grocery is expected to accelerate.
Africa and Middle East
North America
Latin America
Oceania
2016
3,011
2,178
902
1,196
912
110
2021
4,084
2,591
1,457
1,424
1,220
141
Source: IGD
Impact on Retailers
• The immense size of the grocery market results in significant
opportunities for retailers.
• Despite the market size, British supermarkets have faced another
tough year, with challenging market conditions.
• Given the low margins in the industry, exacerbated by price deflation,
it is important for retailers to be cost efficient.
What This Means for Ocado
• We seek to gain share in this largest retail segment.
• Our core focus is to take actions to drive growth and
increase scale, while striving to improve efficiencies to
lower operating costs.
7
• Many retailers, including Ocado, adopt a price matching approach
• A number of factors have however helped us in
which has the effect of broad industry prices falling in a deflationary
environment.
• Traditionally, rising product costs are reflected by higher consumer
prices but because of the intense price competition prevalent within
the industry, retailers have been more reluctant to respond quickly,
exacerbating the price deflation-cost inflation gap.
• While supermarkets have been one of the main beneficiaries of
the declining oil price through the reduction of food input prices,
transportation and energy costs, this may to some extent reverse in
the future.
navigating these challenging conditions:
• We have continued to grow, enabling operating
leverage and natural margin expansion with better
purchasing power.
• The vast majority of our employees were already at
or above the new National Living Wage levels when
introduced, limiting the short-term impact.
• The operational efficiency of our model means
energy costs are a comparatively small part of our
costs.
% YoY 12 week growth
• The shift to online creates a challenge to incumbent players in the low
• We are well placed to benefit from the fastest growing
*
Discounters
Overall market
Big 4
margin grocery industry.
• Online involves retailers providing more services for customers at
greater cost but the same price.
• As the online channel expands, driven by more competitive
propositions, technology and services, this encourages UK consumers
to shift more of their grocery spend online, accelerating the pace of
the channel shift further.
• The size of the global grocery market presents a huge opportunity, but also
a challenge, for retailers globally, as consumers choose to shop more online.
• The pace of the channel shift will depend on a retailer’s appetite to
embrace and invest in online capabilities to gain first mover advantage
within their territory.
• Today, outside of a few markets, online grocery is still too small a
segment to be disruptive. However, as more retailers invest in this
space they may act as catalysts, pushing others to seriously consider
their online offerings.
• Retailers adopt different strategies reflecting either a defensive approach,
where they develop in line with the market in order to retain market share,
or an offensive strategy, where they proactively seize the opportunity to
grow ahead of the market by enhancing their proposition.
channel in UK grocery and, unlike traditional bricks and
mortar players, we are not restricted by capital intensive
stores.
• We continue to build momentum in the online grocery
market and as the segment expands we have the
opportunity to capture market share through our
superior customer offering.
• The pace of the channel shift and the opportunities to
capture this advancing market share are key drivers for
our growth.
• Our growth enables further investment into improving
our proposition through our industry leading
technology and software developments.
• We believe that we will be able to leverage our IP
through Ocado Smart Platform which will position us
well for this channel shift on a global level.
• The enhanced propositions within the online arena
increase customer awareness and adoption, which
in turn grows the market and accelerates the channel
shift – we believe we are well positioned to capitalise on
these growing global trends.
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report
4. Our Business
Model
Ocado’s Virtuous Cycle
Innovation
Investment
Shareholder
Value
Efficiency
Growth
Retail
Platform
Our objective is to create a virtuous cycle between growth, innovation, efficiency and investment. This is
enabled by our end-to-end solution, utilising proprietary technology and removing significant costs incurred
by store-based retailers. The resultant cost benefits and profits enable us to reinvest into our business and
drive growth. The virtuous cycle drives both our retail operating model and platform business.
Any improvements we make to our retail operations naturally translate to the Ocado Smart Platform. The
investment we make into innovation improves our proposition, both for retail and corporate customers.
As an online focused retailer we have the flexibility
to expand and grow faster in the market than
our bricks and mortar peers. As we improve our
proposition we attract a larger and more diverse
range of customers, and with this increased scale
we benefit from improved efficiencies.
To enhance our retail proposition further, we have
extended our range into general merchandise
categories. This comprises both products that
can be purchased through our Ocado.com
hypermarket as well as our specialist destination
sites – Fetch, Sizzle and Fabled – which focus on
sector-specific segments of the retail market.
Our Platform Operating Model
We have developed a complete end-to-end
platform solution for online grocery retail. This has
been created through years of operating our own
online retail model and we have sought to optimise
operational efficiency in every aspect of the online
grocery cycle.
We recognise that success within the grocery
market requires an understanding of operating
within the local retail environment. This
understanding includes aspects such as brand
knowledge, consumer intelligence and local
merchandising agreements. Ocado Smart Platform
has been developed as an enabler for a retailer’s
online business – platform partners will choose
how to run their online operations and the best
methods to serve their customers, whilst we will
provide the vertically integrated software and
physical solutions using our online capabilities and
experience.
In January 2014 Morrisons became our first
customer to adopt our platform offering with the
successful launch of Morrisons.com. Since then,
Morrisons has extended its partnership with us to
enable further growth of its online operations.
Read about Morrisons Update
case study on page 21
8
Ocado is Focused Online
From the start we have built our business to take
advantage of the ongoing channel shift in grocery
retailing and our business model exploits the link
between retail and digital technology. We are an
entirely online-focused operator and strive for
new and improved ways to deliver the world’s
most advanced end-to-end online shopping and
delivery solutions.
We innovate to redefine the ways in which people
complete their weekly shop. Our strengths lie
within our compelling customer proposition,
which harnesses our years of learning in a live
retail environment to deliver leading customer
service metrics, powered by
our proprietary technology.
Our business comprises our retail and platform
operations, both fundamentally enabled by our
technology solutions and IP. By creating virtuous
cycles within and between these interlinked
businesses, enhanced by continued technology
development, we improve our capabilities with the
intention of driving long-term shareholder value.
Our intention to commercialise our proprietary
technology and platform gives us an opportunity
to participate internationally as globally customers
increasingly shop online.
Our Retail Operating Model
Our online retail operating model is designed
to deliver a best-in-class service in the most
operationally efficient way to drive growth and
long-term profitability. We have developed this
by applying three core principles – automation,
centralisation and the utilisation of our
proprietary technology – to our customer focused
approach. To achieve this our retail operating
model functions via customer fulfilment centres
(CFCs) developed with the constraints and
attributes of grocery shopping in mind to reduce
or eliminate many of the costs commonly incurred
by store-based retailers. Our CFC operations
encompass everything from the inbound delivery
of goods from suppliers to the final placement of
picked and packed customer orders onto vehicles
for the final mile of delivery.
By developing our centralised approach, it allows
us to maximise efficiency and drive down operating
costs, enabling further investment in our customer
proposition. We pride ourselves with what we
believe to be industry leading service metrics on
range, punctuality and accuracy and are constantly
looking for ways to advance our proposition further,
both for our existing and for new customers.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report 9
Innovation
Retail Operating Model
• We have developed a unique end-to-end technology
solution which we believe will have market leading
functionality for operating online in the grocery market
• Our solution is optimised to seek to provide the customer
with the best possible retail experience from the user
interfaces, the stock and order processing system, through to
the final delivery to customers’ homes
• We protect our innovations through patent activity to
safeguard our IP for future success
Platform Operating Model
• We have started to commercialise our capabilities and years
of learning derived from our retail experience. The platform
we offer comprises an end-to-end software and physical
infrastructure solution for corporate customers globally
• We have embedded flexibility into our platform by developing
a store pick module allowing corporate customers flexibility
to choose how they wish to service their customers
•
•
Efficiency
• Automation within our infrastructure allows for lower
• Ocado Smart Platform provides what we believe will be
product waste, faster stock turn, fewer human touchpoints
and reduced labour requirements
the fastest, most capital efficient, flexible and sustainable
method to operate online for corporate retail partners
• Our centralised CFCs utilise significantly less real estate – we
do not require the use of regional distribution centres or
physical stores as used in conventional store based models
• Our CFCs use dense storage facilities to make best use of the
space and reduce unnecessary transportation time around
the warehouse
• The solution is being continually developed in a “live retail”
environment, meaning all innovations created and tested
in our own retail operations will also be used to drive
efficiencies for our platform customers
Growth
•
•
• Using cost savings through efficiency gains and underlying
profits generated to constantly improve the customer
proposition, enhance customer loyalty and deliver
continued growth in our UK retail market
• We offer a superior shopping experience with high order
accuracy, minimal substitutions, fresher products due to
shorter supply chains, high levels of on time delivery, higher
predictability of stock, an extensive range and competitive
prices
•
Improvements in our retail proposition will, we hope, drive
monetisation opportunities through international platform
partnerships
• Our Ocado Smart Platform solution will enable us to
partner with retailers who have established brands, supplier
relationships, existing customers and local market knowledge
• Our solution aligns to the needs of the retailer through its
modular and scalable design
•
•
Investment
• With increasing scale, we benefit from improved efficiencies
and expanding margins, which we can use to invest further
into our proposition to customers
• Continued investment in our technology enhances our
platform solution, allowing us to provide more efficient and
flexible solutions to potential partners
• We use the cash generated from our retail operations to
• We have significantly enhanced our technology and
invest in further innovations of our technology to drive further
growth faster
engineering teams to support our retail and Ocado Smart
Platform offerings
The Best Platform
Ocado Smart Platform will provide partners with a
complete, flexible and scalable solution to initiate
or enhance their online presence, powered by our
technology at what we believe will be significantly
lower cost and a greater efficiency than alternative
options.
We design and build the technology solutions
that power our retail and platform businesses.
This comprises everything from our award-
winning websites and mobile apps to delivery
route optimisation software, automation and
robotics. By internally developing our software and
infrastructure it gives us the ability to optimise and
integrate across our end-to-end solution and it
enables us to collect and use valuable data, for the
benefit of our customers.
Read our Ocado Smart Platform case
study on page 12
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report 5. Our Retail
Operating Model
10
Ordering
Interface
Order
Processing
Fulfilment
Last Mile Solution
010100010010010101010
001001001110001010101000100
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1
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Overview
Order Interface
Easy to navigate web interfaces
and mobile/tablet applications
enhance the customer shopping
experience
KPIs
• Average order size: £108.10
• Active customer base: 580,000
Value
Proposition
to Customer
Growth
Drivers
• Proprietary algorithms and
•
data analytics personalise the
customer experience
Innovative webshop features
from our extensive range of
shop-in-shops (over 60) to help
customers access products from
niche suppliers to calorie saver
options, which allows customers
to switch out orders for healthier
options at check out
• Our dedicated destination sites
(Fetch, Sizzle and Fabled) allow
for range extension beyond
traditional grocery segments
• Constantly improving the customer
proposition through technology
innovations – utilising big data
analysis and AI to personalise the
customer experience
• Keeping abreast of alternative
mediums to complete shop (e.g.
Apple watch applications)
Ocado believes to be industry leading
Order Processing
Powered by fresh thinking,
we provide simple and
convenient order processing
to encourage repeat
purchases
• Average orders per week:
230,000
• Order Accuracy: 99.0%
• Precise one-hour delivery
slots for customers to
choose from (and now
trialling even earlier
options from 5:30am)
• Customised features
such as PayPal logins
and favourites imports
to speed up order
processing
•
Innovation and
technology-led
service and usability
improvements
Fulfilment
Our entire fulfilment process
is optimised through the use
of our proprietary equipment
and software solutions and
is operated through our large
customer fulfilment centres
• CFC efficiency: 160 UPH
• Product waste: 0.7%
• Ocado.com SKU count:
>50,000
• Automation and software
throughout CFCs drives
accuracy of pick
• Operational efficiency
means cost savings can
be reinvested in customer
proposition
• Proprietary communications
systems enables very fast
automation communications
for rapid order fulfilment
• Management control
systems coordinate supply
and inventory ordering
systems, minimising waste
• Continuously innovating
to drive efficiencies
throughout the fulfilment
process
Last Mile Solution
Our hub and spoke delivery
network drives efficiency in our
last mile solution and customer
choice of delivery slots
• Average deliveries per van
per week: 176
• Delivery Punctuality: 94.9%
• Extensive delivery fleet
ensures precise delivery
slots can be selected and
accommodated
• Market leading route
optimisation and driver
software
• Delivery vehicles are
optimised to ensure
maximum delivery capacity
and fuel efficiency
• Proprietary software
is utilised to ensure
coordination of customer
orders with contact centres
•
Last mile delivery optimised
by expansion of CFC and
spoke network
• Competitive prices on
delivery proposition
• Ocado Smart Pass provides
a bundled customer benefit
membership scheme to
encourage frequency of shop
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report Ordering
Interface
Order
Processing
Fulfilment
Last Mile Solution
010100010010010101010
001001001110001010101000100
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0
1
0
1
010101000010010111001001
1000010111000
00010101011
11
Operating Model Delivers
Leading Performance
Our focus is placed on offering a compelling
proposition to customers while driving the
efficiency of our operations. Our model facilitates
these two objectives and enables, what we
believe to be, industry leading service metrics.
Suppliers and Operational
Partners
We take pride in giving customers a huge
selection of products from a vast range of
brands. We aim to have an increasing number of
products in each of our baskets that you cannot
buy in any other supermarket. We are able to
provide this best in class range because of the
strength of our relationships with our suppliers,
which vary from large multi-nationals to our
private label selections, and smaller niche,
international and speciality players. We currently
work with around 2,000 different suppliers to
service our Ocado, Fetch and Sizzle banners.
In August 2016 we launched our premium beauty
site, Fabled, in partnership with Marie Claire. The
strength of the Marie Claire brand helps us to
work with suppliers spanning the beauty world,
covering a large proportion of the luxury names
within the premium beauty market.
We enjoy a long-term sourcing agreement with
Waitrose (part of the John Lewis Partnership)
that runs to 2020. 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 and deal directly with
suppliers for the majority of the range.
Where We Operate – Our
Locations and Coverage
Our current delivery area covers over 70%
of UK households. We deliver as far north as
York and as far west as Cardiff. We fulfil orders
from our three centralised CFCs in Hatfield,
Hertfordshire; Dordon, Warwickshire and our
newly opened facility in Andover, Hampshire,
which commenced operations in November
2016. We plan to open our fourth CFC in Erith,
South London in FY2018. From these CFCs we
deliver directly around a third of orders to local
catchment customers, while the remaining
orders are “trunked” to cross dock spoke sites
from which local delivery takes place. We have
17 spoke sites; two were opened in FY16 which
primarily service existing geographies. Around a
third of our geography have same-day delivery
slot availability.
CFC Sites
1. CFC 1 – Hatfield
2. CFC 2 – Dordon
3. CFC 3 – Andover
4. CFC 4 – Erith (opening 2018)
General Merchandise
Distribution Centres
A. GMDC – Welwyn Garden City
Spoke Sites
1. Leeds
2. Knowsley
3. Manchester
4. Sheffield
5. Oxford
6. Bristol
7. Peterborough
8. Weybridge
9. Wimbledon
10. Park Royal
11. Ruislip
12. Enfield
13. Dartford
14. Dagenham
15. Milton Keynes
16. West Drayton
17. Crawley
2
3
6
1
4
2
5
3
15
7
1
11
10
12
16
9
8
17
14
A
13
4
Read about Our Strategy on
pages 14 to 21
Ocado delivery covers over 70%
of the UK population
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report 6. Ocado Smart
Platform
12
Ocado Smart Platform is our proprietary solution
which will enable the operation of online retail
businesses. It fully integrates our end-to-end
software and technology systems with our
physical fulfilment solution, both of which are
developed in-house and tested in our live retail
environment of Ocado.com.
We recognise that a retailer’s priorities may be
different depending on their geography, level of
maturity and strategic direction. Ocado Smart
Platform is offered as a fully integrated managed
service which will provide customisable solutions
depending on the retailer’s specific requirements
and the service they wish to offer their customers.
This will allow the retailer the flexibility to choose
how to service customers through alternative
fulfilment solutions of centralised warehouse
or store picking solutions. Equally, Ocado
Smart Platform will support alternative last
mile operations such as delivery, pick up, locker
boxes or courier services. This will allow the
best strategic package to be developed for each
partner. All solutions will be powered by Ocado
Smart Platform’s cutting edge technology.
Customers of Ocado Smart Platform will benefit
from years of innovation originating from our own
retail business that will enable us to replicate our
unique capabilities at a significantly lower cost to
alternative solutions. In comparison to other third
party providers of services and software, we have
developed our end-to-end solutions specifically
with grocery retail in mind. This means that
every part of the solution has been designed and
engineered with the qualities and characteristics
that grocery shopping requires, which has allowed
us to develop what we believe to be a market
leading solution for Morrisons.com and our future
corporate customers.
Our physical infrastructure solution can be
retrofitted into standard warehouse buildings;
it is modular in nature (can be built to different
sizes), scalable (can be increased in size over
time) and will be fast to deploy (short build and
commissioning lead times), providing significant
benefits in matching capacity requirements to
business volume demands. This will provide
a sustainable solution that is constantly being
enhanced with future developments and that can
be extended as a retailer grows its online business.
To enhance the customer proposition, other
products, applications or features can be
integrated into Ocado Smart Platform such
as general merchandise, loyalty schemes or
grocery range extensions. We would expect these
additional features to help to increase customer
retention and drive growth. Commercialisation
of our intellectual property via Ocado Smart
Platform offers significant value creation
opportunities in the UK and abroad. Morrisons
is our first platform partner and has seen strong
growth in their online business since launching in
2014 (See Morrisons Update case study). We are
confident in signing multiple deals utilising our
capabilities over the medium-term.
Case Study
Ocado Smart Platform: Providing
Flexibility for Corporate Customers
There are two fulfilment systems offered by Ocado Smart Platform
which will enable the flexibility for our partners to tailor their
solution to their strategic priorities. The CFC centralised pick
solution allows for the MHE and software to run centralised
picking and fulfilment, where customer orders are picked and
packed within a modular grid that can be scaled with growth. This
functionality would allow for a compelling customer proposition
providing high picking accuracy and a large range for customers.
Alternatively a store pick solution can be adopted, whereby
customer orders are picked and packed directly from a partner’s
existing stores. Despite expected weaker economics at scale, this
alternative picking solution would, we believe, enable a quick to
market option allowing full geographic coverage to areas where the
centralised picking solution does not reach. It is complementary
to CFC fulfilment and would enable retailers to utilise their existing
store estate to build online sales volume that could later be
transferred to more efficient CFCs.
These fulfilment solutions are not mutually exclusive and can be
operated in conjunction with each other to enhance the flexibility
of our offering for different partners.
Read the Morrisons Update
case study on page 21
Our vision for Ocado Smart Platform
Proposition
• A complete modular and scalable
e-commerce, fulfilment and last mile
solution
Growth Drivers
• Proposition ideally positioned to take
advantage of the ongoing channel shift to
online grocery shopping globally
• Pace of development of the online market
drives competition and therefore innovation
throughout the industry
•
Learning in a live retail environment enables
us to constantly improve, enhance and
innovate Ocado Smart Platform to remain
best in class
• Service provided stimulates and encourages
online growth for partners
• The platform is offered as a managed service
solution, with fee structures aligning to sales
growth of each partner
•
Limited upfront costs for retailers and
therefore lower risks associated with
adopting Ocado Smart Platform
• As online retail business grows the platform
can be scaled whilst achieving cost
efficiencies
Economic Model
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report How does Ocado Smart Platform work?
Ordering
Fulfilment
Last Mile Solution
13
Ocado Smart Platform will provide the
routing and in-van technology to complete
the last mile delivery services. This helps
track the orders right up to the customer’s
front door to minimise errors and waste
while driving cost efficiencies for the
retailer by planning the most effective and
economic route to sequence the deliveries.
Alternative last mile services, including pick
up or courier services, can be enabled using
our technology solutions.
Ocado Smart Platform will provide the full
e-Commerce software solution. This will
include what we believe will be a best-in-
class grocery webshop, mobile and tablet
applications tailored to meet the customer’s
retail requirements. The platform also
includes the back-end systems required to
power the site content and the algorithms
devised to analyse consumer habits
and customer data. This can enable the
shopping experience to be personalised via
features such as product recommendations
and targeted product sampling as available
on Ocado.com.
Ocado Smart Platform provides two different
fulfilment systems:
• Customer Fulfilment Centre (CFC)
centralised pick
• Store pick
The MHE required for the CFC solution will
be installed in the retailer’s building, serviced
by our engineers who will be onsite 24/7
to maintain it. The dual solution approach
of both a centralised CFC picking or store
picking option will provide Ocado Smart
Platform partners with the flexibility to
choose how to operate their business to
give the best service, greatest coverage and
best economics. All software and systems to
operate fulfilment activities will be provided
under Ocado Smart Platform.
RETAILER'S
SUPPLIERS
OCADO POWERED
SUPPLY CHAIN MANAGEMENT
3rd PARTY
POST or
COURIER
RETAILER'S
CLICK &
COLLECT
RETAILER'S
STORES
RETAILER'S
WAREHOUSE
RETAILER'S
DELIVERY NETWORK
RETAILER'S
DRIVERS
RETAILER'S
ONLINE
CUSTOMERS
OCADO POWERED
WEBSHOP, TABLET
& MOBILE APPS
OCADO
FULFILMENT MHE
RETAILER'S STORES
OCADO POWERED
STORE PICK SOFTWARE
OCADO POWERED
ROUTING AND
IN-VAN
TECHNOLOGY
OCADO
POWERED
DELIVERY
PROCESS
RETAILER'S
SATISFIED
CUSTOMERS
REPEAT SHOP – ASSISTED BY TARGETED ADVERTISING AND CUSTOMER INSIGHT, POWERED BY OCADO
Read the Morrisons Update
case study on page 21
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report 7. Our Strategy
14
Powered by fresh thinking, we strive for new and improved ways to deliver the world’s most advanced end-to-end online grocery shopping and delivery
solutions. Our strategy is designed to deliver shareholder value through our three strategic objectives of driving growth, maximising efficiency and utilising
proprietary knowledge. In order to achieve our strategic objectives we align the business to operate through five strategic actions. Our objectives and actions
allow us to provide a market leading proposition to our customers and shape the online grocery market of the future.
Objectives
Driving Growth
Maximising Efficiency
Utilising Proprietary Knowledge
Continually enhancing the value
of our proposition for our retail and
corporate customers.
Harnessing our years of learning
we continually strive to innovate
and develop our technology and
operations to consistently improve
our economic and operating
performance.
Utilising our IP to create competitive
advantages in our retail business and
to monetise IP through our platform
business.
Read more about Driving Growth on
pages 16 and 17
Read more about Maximising
Efficiency on pages 18 and 19
Read more about Utilising Proprietary
Knowledge on pages 20 and 21
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report 15
Constantly
enhance end-to-
end technology
solutions
Enable
Morrisons and
future partners’
online
business
• Remain the best
in the world by
constantly evolving
and innovating
• Use the
developments of
Ocado’s technology
and engineering
teams to innovate
and improve our end-
to-end processes
• Continuously develop
and enhance Ocado
Smart Platform to
enable a compelling
customer proposition
and competitive
economics to add
significant value for
partners
Actions
Continuously
develop more
capital and
operationally
efficient
infrastructure
solutions
• Operating efficiency:
Optimise every aspect
of the fulfilment
and delivery life
cycle to improve our
economics and our
customer proposition
• Capital efficiency:
Continuously lower
the cost of investment
required for online
grocery activities to
support growth in our
own retail business
and those of our
Ocado Smart Platform
partners
Constantly
improve
proposition to
customers
Strengthen our
brands
• Develop and expand
brand offerings to
appropriate retail and
corporate customer
groups
• Reinforce brand
equity and values to
existing customers
• For our retail
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 the
improvements to our
retail proposition
into Ocado Smart
Platform and
extending our
offering with new
capabilities including
store fulfilment and
pick up
Read more about Strategic Actions in
the CEO’s Review on pages 22 to 25
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report 8. Our Strategic
Objectives:
Driving Growth
16
Grocery
In the online arena it is critical to ensure a positive
customer experience as the cost and ease of
switching between retailers is low. At Ocado, we
have focused on improving every element of
the consumer shop through the quality of our
service and our user interfaces, the freshness
of our products, the breadth and availability of
range, and the competitiveness of our prices. This
drives customer retention and helps us capture
market share with the intention of providing long-
term value for our shareholders. Ocado Smart
Pass, a bundled benefits scheme, further drives
customer loyalty and frequency of shop – it offers
holders unlimited free deliveries for a fixed price,
enhancing the benefits of the proposition. Over
half of all sales is conducted with our Smart Pass
customers.
Through our technological innovations we
continuously improve our user interfaces to
ensure an increasingly personalised and easy
to use shopping experience. This includes
the development of our mobile and tablet
applications, which are increasingly significant,
with over 55% of our orders being checked out via
these channels.
Online grocery shopping has unique challenges
not found in other online retail segments. This
includes significant basket volumes, refined
delivery slots and efficient order turnaround.
We offer our customers full flexibility by offering
one-hour delivery time slots seven days a week,
with a wide availability of slots ranging from
5.30am – 11.30pm, and same day delivery service
within certain catchment areas. We enable this
service by operating our centralised model where
we are able to drive efficiency and accuracy in
our fulfilment process. This ensures high stock
availability with minimal substitutions for our
customers. Our operating model, combined with
our market leading technology and software,
underpins our strong customer service metrics,
with 94.9% on time deliveries and 99.0% order
accuracy.
Efficiency gains enabled by our proprietary
solutions can be reinvested into our competitive
pricing policy; we operate a price matching
initiative whereby each customer’s shop is
evaluated against an equivalent order with
Tesco.com. We ensure this scheme is fully
transparent by communicating directly with
the customer any variances between our
benchmarked shop, with any additional expense
refunded to our customers in the form of
vouchers.
Progress
In a tough grocery market we have demonstrated
strong growth in our retail business of 13.6%,
impacted by deflation on item prices and
constrained by capacity utilisation in our mature
CFCs. The value of our proposition to our
customers is evidenced by the growth in our active
customers over the year (13.9%) as well as our
progress in sales of our Ocado own label products
(10.9%). Growth in Ocado own label products
has been constrained by contractual obligations
under our agreement with Waitrose.
To attract and retain customers and encourage
spend from our customer base we have continued
to invest in our range, which is enabled by our
centralised operating model. We now offer over
50,000 SKUs on our Ocado.com webshop – we
believe the most extensive offering from a UK
supermarket. We advertise and showcase our
range through our dedicated ‘shop-in-shop’
facilities – we now have over 60 different “shop-in-
shops”, which allow customers to quickly search
through themed product offerings and select
niche items from a variety of regions or suppliers,
which wouldn’t typically be found in traditional
supermarkets. By categorising our interfaces in
this way we provide niche suppliers – who may
struggle for premium shelf space in conventional
store formats – exposure and the ability to drive
sales, which enhances our relationships and
attracts suppliers to work with us.
Kantar Worldpanel data shows that 55% of
online shoppers use the same shopping list from
one purchase to the next; we understand these
consumer habits and continuously update our
interfaces with features such as favourites imports
and tailored shopping promotions to facilitate and
enhance the customer shopping experience and
further accelerate growth.
Future Focus
In order to retain our loyal customers and capture
market share we must not get complacent. While
taking inspiration from technology and other
industries we are committed to innovating and
pushing the boundaries in online shopping and
fulfilment and have invested in our dedicated
technology and engineering teams to ensure this
remains core to our offering (See Fabled case study).
General Merchandise
Our centralised operating model has enabled us
to expand our offering into general merchandise
categories. As well as general merchandise
products sold on Ocado.com, we have dedicated
destination sites which focus on specialist product
ranges, such as our pet store, Fetch, our kitchen
and dining store, Sizzle and our new premium
beauty offering, Fabled. Hosting these dedicated
destination sites drives the range of products
made available to us by niche suppliers and
brands, allowing us to vastly extend our range
beyond conventional supermarkets.
KPIs
Risks
230,000
Average orders per week
£108.10
Average order size
580,000
Active customer base
50,000
SKU count
• Failure to maintain a competitive pricing position
• Decline in high service levels
• Failure to develop a retail proposition to appeal to
broader customer base and sustain growth rates
• Failure to develop sufficient management and
technology capability or bandwidth to deliver on all our
strategic priorities
• Risk of negative implications caused by final Brexit
terms such as increase in impact costs or difficulty in
hiring employees
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report 17
In November 2016, we commenced operations at
our latest fulfilment centre in Andover, Hampshire
(see case study). This is the first instance where
our proprietary physical infrastructure solution is
in use, and provides a live example of the physical
equipment solution our platform customers would
enjoy.
Read more in the Andover CFC and New
Technologies case study on page 19
Future Focus
Our approach of continuously embedding our
market leading capabilities (which we believe are
market leading) into the Ocado Smart Platform
is designed to drive long-term shareholder
value and makes it an increasingly attractive
proposition to current and future partners. We
continue to be in discussions with multiple
potential partners, and expect to sign multiple
deals in the medium term.
Risks
• Risk of not signing multiple OSP deals in the
medium term
A
See Alternative Performance
Measures on page 194
Expanding our extensive range into the premium
beauty segment accelerates growth in our
business as it allows us to utilise our best-in-class
fulfilment solution to enter an attractive, higher
margin segment of retail.
Customer orders from general merchandise
categories can be collated with customer grocery
orders so that all products are received at the same
time, driving operational efficiency and minimising
waste created by separate home deliveries.
Deliveries can also be made standalone from a
grocery order, but using the same routing software,
or by courier enabling us to service areas outside
our CFC reach.
Progress
We have seen strong growth in our general
merchandise categories, up to over 40% year-
on-year, and which now account for almost
7% of our Gross Sales (Retail) A . This has been
driven by continued extension of the range of
products offered. For example in October 2016 we
introduced our new “Smart Home” section, where
products such as smart home lighting, heating
and security were incorporated into the Ocado.
com hypermarket, allowing customers to extend
their basket even further in a single shop.
Read about Ocado Smart Platform on
pages 12 and 13
In August 2016, we launched our dedicated
premium beauty shop, Fabled, in partnership with
Marie Claire. Fabled has access to an extensive
range of beauty products, from well-known names
to new and niche branding, allowing customers to
stock up on their beauty essentials overnight.
Future Focus
We plan to launch additional destination sites
to offer our customers even more variety and
convenience of shopping. Our proprietary
technology is built for range expansion, making the
extension of assortment and product segments a
natural pathway and a good driver of growth.
Platform Business
Continuous innovation and investment in our
integrated software and physical infrastructure
solutions drives a virtuous cycle of growth in
both our retail and platform businesses. Our
future platform customers will benefit from
years of learning and development in a live retail
environment to enable a sustainable launch or
improvement in their online operations – with
minimal capital investment and associated risk.
Progress
In August 2016, we announced an extension to our
agreement with Morrisons, to host and deliver their
online operations. The extension underlined the
quality of our proposition and our strong relationship
with Morrisons as a platform provider. The renewed
contract operates in a format aligned to our Ocado
Smart Platform structure and principles.
Read more in the Morrisons Update
case study on page 21
We have added additional capabilities to our
Ocado Smart Platform offering, namely the
inclusion of a store pick module, which will allow
corporate customers the flexibility to choose
how to service their customers and provides an
alternative method for delivery in more remote
catchment areas. Morrisons will be our first
platform partner to utilise this technology.
Case Study
In August 2016, we announced the launch of our
premium beauty shop, Fabled, in partnership
with Marie Claire. Marie Claire’s brand authority
combined with Ocado’s e-commerce expertise
aims to bridge the gap between content and
commerce. Fabled utilises Marie Claire’s editorial
expertise to provide an enhanced user experience
when shopping. This is evident in both our
webshop interface as well as our flagship store,
which is designed and set out in brand clusters to
provide an interactive shopping experience with
high quality advice across the beauty spectrum.
Fabled targets a more premium beauty focus
than other online retailer offers and provides an
authoritative niche range which sets us apart from
pure bricks and mortar competitors. The focus of
Fabled is on the key beauty categories of make-
up, skincare, fragrance and haircare, supported
by a wellbeing offer to capitalise on this growing
trend.
Fabled utilises our superior fulfilment proposition
allowing the site to offer an extensive range to
customers, as well as industry leading delivery
and customer service metrics, all supported
by the Ocado customer service centre and by
dedicated beauty specialists for independent
product advice and aftersales support. There
are clear synergies between the Marie Claire and
Ocado customer profiles, which will help it drive
the success of the partnership.
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report 8. Our Strategic
Objectives:
Maximising Efficiency
18
Operational Efficiency
Our proprietary technology and infrastructure
have been developed in-house over many years
for the sole purpose of running and optimising
the efficiency of our online businesses. This spans
the entire shopping and delivery life cycle from
customer facing interfaces which power our
webshop, mobile and tablet applications to our
optimised delivery routing for the final mile service.
The core design principles that drive efficiency
throughout our business are automation, use of
proprietary technology and aggregation of scale
via the use of our large CFCs. By combining these
attributes we have been able to develop the most
sophisticated and operationally efficient grocery
shopping and delivery solution in the world.
We face the unique challenge that around half of our
sales lie within fresh and chilled categories and as a
delivery operation we have to ensure this freshness is
preserved right up to our customer’s front doors. To
enable this we operate a shelf life promise whereby a
minimum of approximately two thirds of the total life
of the product is guaranteed by the time it reaches
the customer. In traditional store-based competitors
this is difficult for a number of reasons including
additional human touchpoints and disrupted stock
rotation due to manual customer intervention as
they personally handle the products. Our model
enables us to carry lower inventory levels and to
operate a perfect “first in first out” stock rotation
dependent on shelf life. This allows us to operate
with what we believe to be the lowest product waste
in the industry at 0.7% of sales across our CFCs
and underlines the sustainability benefits of our
operating model.
All of our delivery routes are optimised in real
time using our proprietary software; this enables
operationally efficient delivery routes to be
calculated taking into account our customer
one-hour delivery slots, house locations and order
volumes. By carefully modelling these attributes
it increases the likelihood our drivers can
successfully deliver orders on time, maintaining
our high customer service metrics.
Progress
As we continue to expand existing and open new
CFC sites we expect to harness our experience
and learning to improve our operational efficiency
– quantified by units processed end-to-end per
labour hour – even further. Ocado Smart Platform
will provide a service offering for our operational
capabilities to be packaged and replicated to
provide these high service metrics to other retail
partners.
Alongside our proprietary software and algorithms
we have continued to develop our best in class
physical infrastructure solution. The first utilisation
of this has been in our Andover CFC and we expect
it to demonstrate the power of utilising and
integrating our proprietary software and algorithms
with our physical solutions to provide the end-to-
end solution for our customers.
Read more in the Andover and New
Technologies case study on page 19
We complete the final mile of our grocery
deliveries through our CFC and spoke network.
All stock is currently stored and picked in our
three operational CFCs in Hatfield, Dordon and
Andover or in our General Merchandise warehouse
in Welwyn Garden City. Around one third of
orders are then delivered directly from these
CFCs to customer homes in the CFC catchment
areas and the remainder are “trunked” in larger
vehicles to one of our 17 spoke sites, from where
local delivery in one of our delivery vans takes
place. The opening of CFCs enables a rebalancing
of spoke facilities to lower trunking costs, for
example upon opening Andover we were able to
transfer capacity from the Southampton spoke to
Andover and improve operational costs.
Due to increased demand from existing
catchments, we opened two additional spokes
during 2016 in Peterborough and Crawley. This
will enable us to further develop and optimise
our delivery network to drive efficiency in the
long-term.
KPIs
Risks
94.9%
Delivery punctuality
99.0%
Order accuracy
• Delays in the implementation of new
capacity for both Ocado and Morrisons
Future Focus
We built our latest solutions with the future in mind,
and have developed our physical infrastructure
solution in such a way that any manual touchpoints
within the densely packed fulfilment infrastructure
are located on the periphery of the structure so that
they can be retrofitted with robotics and automated
technology as and when these are appropriately
developed. This ensures that we are able to
improve our economics as we can efficiently adapt
to the technology of the future using existing core
infrastructure.
As our customer base expands we will continually
look to innovate and improve our technology and
infrastructure solutions to ensure operational
excellence in every aspect of the fulfilment and
delivery life cycle.
Capital Efficiency
We currently operate three CFCs in Hatfield,
Dordon and Andover, which opened in 2002,
2013 and 2016 respectively. Our CFCs constitute
what we believe to be the world’s largest, most
sophisticated and most efficient single pick
grocery warehouses. Combined with our extensive
spoke network, they form a critical part of our
unique online grocery operating model.
Progress
During the period, we made several changes
to Hatfield CFC and Dordon CFC with limited
capital expenditure, to enable additional capacity
from these sites - now totalling over 20,000
OPW additional order capacity for Ocado. We
commenced operations in our Andover CFC
in November 2016. This houses our new MHE
solution. Our solution is modular (can be built
to different sizes), scalable (can be increased in
size) and we expect future iterations to be faster
to deploy (shorter build and commissioning
lead times) allowing for reduced up front capital
commitment.
Despite the additional fixed costs associated
with opening a new CFC, the new solution
together with its innovative design means that the
“economic drag” of opening is minimised. As a
new CFC increases its operational throughput, the
improved efficiency benefits increase.
160
CFC
efficiency
176
Average deliveries
per van per week
0.7%
Product
waste
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report 19
Future Focus
We have been developing our largest and, we
expect, most capital efficient warehouse in Erith,
South London since 2015. We expect first orders
from this CFC to initiate in financial year 2018. Like
Andover, this CFC will utilise both our proprietary
software and physical solutions and we expect it
will be capable of handling over 200,000 orders
per week, equivalent to around £1.2 billion of
sales when operating at full capacity. This is larger
than our existing CFCs, and will demonstrate
the scalability of our end-to-end solution. As we
develop and learn through our CFC roll-out plan
we expect to be able to continuously advance our
CFC capital efficiency increasing the benefits of
operating our centralised model in comparison
to alternative ways. Through our model we can
deliver attractive economics in a difficult retail
environment where we see enhanced competition
and continued margin pressure.
New equipment solution
Online grocery shopping faces pressures not
seen in other online retail segments – such as
different temperature regimes, volume of items,
multiple product lines and irregular demand
patterns for different users. Our new proprietary
solution is specifically designed to tackle this as its
framework offers very dense and efficient storage
through the use of a three dimensional grid, or
“hive”, to stack and store products and transport
them within the facility.
Automated inbound and outbound processes are
utilised to move products and completed orders
into and out of the hive. This flow is enabled by
our proprietary communications system which
controls and coordinates thousands of fast,
space efficient, densely located robotic devices
that each roam and occupy a single location
on the surface of the hive. A proprietary system
allows communication between the robotic
devices which enables efficient and flexible item
retrieval of any product, in any order, stored in
the hive. The flow of information is constantly
being updated and refined based on real time
information of incoming customer orders and
product locations.
The challenge surrounding the vast variety of
product characteristics associated with grocery
shopping such as size, density, crushability and
shape means that the final pick from our solution is
conducted by hand – this ensures wastage is kept
to a minimum and products remain undamaged.
To ensure this operates in the most operationally
efficient way this ultimate part of the pick-process
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. This enhances the quality of the picking
and packing of customer orders as whole totes
can be picked and packed by the same person.
This mechanism also makes the entire process
extremely efficient and accurate and would allow
the picking of an entire customer order to be
completed in under five minutes, significantly
shortening lead times for ordering and delivery.
Resilience and reliability
Our proprietary solution operates in a centralised
manner, with all processes being fed into
our densely packed hive. This allows parallel
processing to operate within the grid, limiting
upstream/downstream dependencies and
therefore minimising bottlenecks and disruptions
in the end-to-end process.
Flexibility
The three dimensional hive can be constructed
to varying scales; for example our next CFC which
is due to open in 2018 in Erith, South London will
have capacity to hold over three times the tote
holding locations we have in our Andover CFC,
across chilled and ambient temperature zones
ready for single item picking. The design allows
this flexibility due to its modular nature, which
means the solution can be built to accommodate
the size and shape of the designated warehouse.
This demonstrates the power of the Ocado Smart
Platform, which packages our solution and
illustrates the value it can have to a wide array of
retail partners.
IP Protection
To safeguard our competitive advantage our
MHE solution is now the subject of filed and
planned patent applications and other intellectual
property rights.
Read about Ocado Smart Platform on
pages 12 and 13
Case Study
Andover CFC and New Technologies
In November 2016, we commenced operations at our latest CFC in Andover, Hampshire. This site houses the
first implementation of our new, internally developed, integrated MHE and associated software. Due to the
scalable nature of the solution, the MHE and other automation such as picking stations can be continually
added in line with sales growth of our business. At maturity, the solution will, we believe, be capable of driving
significant productivity and fulfilment benefits in a highly modular and flexible fashion, and we expect it will
increase our fulfilment capacity by around 65,000 orders per week, or approximately £350 million in sales
value. We expect Andover and future CFCs using our new solutions to provide efficiencies both in capital costs
and operating expenses. We will continue the process of value engineering to further improve capital
efficiency in our CFCs, reflected by the capital ratio expected in our Erith CFC. Below we indicate the
anticipated improvements in our mature CFCs.
CFC
Hatfield
Dordon
Andover
Erith
Commenced
operations in
2002
2013
2016
2018
Capital
efficiency1
NA
16%
13%
11%
Operational
efficiency (UPH)2
-150
175+
180+
200+
1. Ratio of MHE infrastructure cost to sales capacity
2. Target UPH figures expected 3–4 years after CFC opening
CFC Sites
1. CFC 1 – Hatfield
2. CFC 2 – Dordon
3. CFC 3 – Andover
4. CFC 4 – Erith (planned to open 2018)
2
3
1
4
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report 8. Our Strategic
Objectives:
Utilising Proprietary Knowledge
20
Our Intellectual Property
Our proprietary IP, knowledge and technology is
at the core of our business. It supports our market
leading proposition to customers and drives our
operating efficiencies. We seek to continually
improve the technology we use and believe that
innovation creates competitive advantages across
our business.
The key to success of our IP is that we have
focused on developing optimal solutions solely for
online grocery retail – and have been able to refine
and test our solutions in a live retail environment.
Practically, this means we have tackled traditional
challenges associated with grocery baskets
such as large order volumes, goods spanning
three different temperature zones and narrow
one-hour delivery slots. Our capabilities span
our proprietary processes, physical infrastructure
solutions, systems and software to provide a
complete end-to-end solution.
Progress
To ensure rapid innovation and advancement
of our intellectual property and to maintain
technological leadership we continue to invest
in both our Ocado Technology (currently over
950 people) and engineering development
teams (over 200 qualified engineers). Our largest
technology development centre is in the UK, but
we also have two in Poland and one in each of
Bulgaria and Spain helping to build our reputation
as a global technology leader, attracting quality
talent to underpin our technology expertise.
By creating these capabilities internally we can
ensure that our solutions are continually updated
and integrated without having to liaise and
co-ordinate lengthly change processes with
multiple third party providers. This allows us both
the flexibility to innovate at a rapid pace and also
the continual evolution of our solutions with the
intention of creating long-term shareholder value.
Throughout the year we have focused on
development and deployment of our physical
infrastructure solution and associated software
platform. The first live instance of this infrastructure
is in our Andover CFC and we expect it to highlight
significant capital and operational efficiency
advantages, demonstrating the power of our
capabilities to our future platform partners.
Read about Andover and New
Technologies case study on page 19
In August 2016, we announced the extension of
our agreement with Morrisons to provide the
infrastructure, host and support for their online
operations (see Morrisons case study on page 21).
The growth of Morrisons.com, which has driven
the contract extension, highlights the advantages
and competitiveness of our technology solutions.
The renewed agreement is now more aligned
to how we would structure future Ocado Smart
Platform deals and illustrates the flexibility of our
offering, allowing future partners much lower
entry points for capacity commitments.
Future Focus
We are committed to invest in our solutions to
drive growth and innovation in our retail and
platform businesses with the intention of creating
long-term shareholder value. We continue to
advance our conversations with multiple potential
platform partners and are confident of signing
multiple deals in multiple territories in the
medium-term to capitalise on our knowledge.
Patents
In order to retain our competitive advantage
from our technology innovations we take careful
measures to protect our intellectual property and
inventions and file multiple patent applications to
safeguard this.
Our patent activities are intended to create a web of
protection for our intellectual property.
Progress
As at the end of the period, we had filed patent
applications covering over 50 separate innovations.
Of the patent applications filed so far the majority
relate to our physical infrastructure solution,
which is now live in Andover. Our first patents were
granted in 2016.
Future Focus
Our focus for the future is to retain our market
leading position in our technology solutions for
the online grocery market. We will ensure this by
continuing to innovate and protect our intellectual
property through the patent application process.
Read about the Morrisons Update case
study on page 21
Patent applications
covering over
50 separate
innovations
1
5
3
2
4
Technology development centres
1. Hatfield, UK
2. Krakow, Poland
3. Wroclaw, Poland
4. Sofia, Bulgaria
5. Barcelona, Spain
Risks
• Technology innovation supersedes our
own and offers improved methods of
food distribution to consumers
• Failure to protect our IP
• Failure to ensure that our technology
can be freely operated without
infringing a third party’s IP
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report 21
Case Study
Morrisons Update
•
In 2013 we signed a 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 our
first platform partner in the UK.
• Since launch in January 2014, Morrisons.com
has grown substantially. The outstanding
development of its online business has
enabled the retailer to attract new and
existing customers with a compelling
proposition whilst operating with attractive
cost economics.
• Morrisons.com is currently operated from
our Dordon CFC and utilises several of our
spoke operations. Operations are enabled
by our end-to-end fulfilment solution and
proprietary software. Morrisons.com acts
independently in making all commercial
decisions regarding marketing, range, price
and promotions.
•
In August 2016 we announced an extension
of this service contract – a testament to the
quality of our end-to-end solution.
• The agreement is structured in a similar
way to potential Ocado Smart Platform
agreements, and includes the following
elements:
• We will operate a proportion of our CFC in
Erith for Morrison.com’s benefit. The site is
due to commence operations in financial
year 2018, allowing the Morrisons online
business to continue its substantial growth
path.
• Morrisons will pay recurring fees for its share
of the mechanical handling equipment
(MHE) capacity, but will not own any of the
MHE. This will allow significantly lower up
front capital costs for Morrisons.
• We have committed to providing a store pick
solution for Morrisons to allow them to better
service the harder to reach geographies.
• The exclusivity restrictions on UK grocery
retailers has been renegotiated, allowing
the Ocado Smart Platform services to be
available to a larger potential pool of UK
retailers.
Read about Ocado Smart
Platform on pages 12 and 13
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report 22
Tim Steiner, OBE
Chief Executive Officer
...we delivered
double digit sales
growth through the
year, consistently
ahead of both the
UK online grocery
market and the
grocery market as
a whole.”
9. Chief Executive
Officer’s Review
Robust progress in a
challenging market
Our 2016 performance highlights the strength
of our core retail business model. In a grocery
market with limited growth we delivered double
digit sales growth through the year, consistently
ahead of both the UK online grocery segment and
the grocery market as a whole. We commenced
operations at our latest CFC in Andover,
Hampshire, which has the first installation of our
next generation physical infrastructure solution.
We progressed with the building of our largest
ever CFC in Erith, South East London. We also
extended the scope of our agreement of services
to Morrisons.com, and advanced discussions with
multiple potential international partners to utilise
Ocado Smart Platform.
We continued to deliver on our strategic
objectives, namely, to drive growth, maximise
efficiency and utilise our proprietary knowledge.
These objectives are shared among both our retail
and platform businesses and enable us to ideally
position ourselves for the continuing shift to
online that is taking place in the grocery industry,
both in the UK and globally.
This progress has been made in a UK grocery
market that has faced significant challenges
throughout 2016. Intense competition, influenced
by continued changing trends in customer
behaviour with ongoing shifts to using discount
and smaller format stores and online, has driven
sustained price deflationary pressures across
the grocery industry. Input cost inflation, largely
fuelled by labour cost rises, and more latterly
the impact of currency devaluation following the
EU referendum, has added to the challenging
environment and resulted in margin pressure and
uncertainty across the industry. Our continued
focus on improving our proposition to customers
and driving the efficiency of our business through
technology helps to protect us in these conditions.
Progress against our strategic
objectives
We have a number of core 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 brand;
• Develop more capital and operationally
efficient infrastructure solutions;
• Constantly enhance our end-to-end
technology systems; and
• Enable Morrisons’ and future partners’ online
businesses.
Constantly improve
the proposition to
customers
Our core focus remains on offering the best
possible proposition to our customers, which we
believe is central to driving growth for both our
retail and partner businesses.
From a retail perspective, we continued to focus
on improving each of the core elements of our
customer proposition - providing excellent
service and user experience, an extensive range
of products, and offering competitive prices. Our
efforts in improving the proposition to customers
have been evidenced by the award of the Best
Online Supermarket for the second consecutive
year at The Grocer Gold Awards 2016.
Providing a compelling proposition to consumers
is critical to attracting new customers to Ocado,
and to encourage loyalty and retention for future
shops. We constantly analyse and review our
offering against the wider market and focus on
innovation in order to seek to stay ahead of our
peers. A consistently positive user experience is
at the heart of our service and we always strive
to improve the customer experience through
enhancements to the speed, convenience and
ease of using our service. This provides our
customers with the freedom and flexibility to
navigate easily and complete their weekly shop
wherever and whenever they please.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report 23
Mobile has continued to grow in significance with
over 55% of all orders at Ocado being checked
out using our latest apps and browsers on mobile
devices. Given the importance of mobile, and
the constant development and improvement of
underlying mobile device technologies, it is critical
we continually improve our capabilities to enable
easy to use shopping.
We strive to be at the forefront of innovation and
new developments and have continued to focus
on improving functionality and personalisation
for our customers to enhance their shopping
experience, with features such as customised
gifts based on prior shopping habits, calorie saver
suggestions and personalised online coupons.
We have introduced additional ‘shop-in-shops’
including our Picard shop specialising in high end
frozen food and the Discovery Shop in partnership
with the Grocery Accelerator to help food and
drink start-ups trial concepts and get to market,
further assisting customers to find more of their
requirements in easily and carefully curated areas
of our shop.
In June 2016 we launched a ‘Supply Ocado’
entrepreneurship portal, which allows potential
suppliers from businesses of all sizes, from across
the globe, the opportunity to access our buying
team and apply to supply Ocado – with feedback
provided to all applicants.
We further extended our delivery choices in some
catchments with the earliest slot now starting at
5:30am to cater for the very early risers among
our customers. Order accuracy was 99.0% (2015:
99.3%), with delivery punctuality (orders delivered
on time or early) standing at 94.9% (2015: 95.3%).
We believe our order accuracy and delivery
punctuality continue to be market leading, both
critical elements in providing a high quality,
reliable and consistent service for our customers.
With what we believe to be the broadest range
of products in the industry, our customers were
able to choose from over 50,000 SKUs by the
end of 2016 (2015: 47,000 SKUs) when shopping
at Ocado.com. Our diverse range includes basic
everyday items, own label products from both
Ocado and Waitrose, other favourite brands,
specialist and international product ranges, as
well as general merchandise items ranging from
basic clothes to standard electrical appliances.
Our Low Price Promise (“LPP”) basket matching
scheme ensures that we are price competitive
against the market leader. This transparent pricing
strategy gives confidence to our customers in
the prices they are paying for their shopping.
Despite price reductions and broader food price
deflation in the market, nearly three quarters 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 slightly increased but remained low,
reflecting our competitiveness in prices and
sustained promotional activity.
Our bundled customer benefit membership
scheme, Ocado Smart Pass, continued to be
popular this year, with over half of regular sales
conducted with Smart Pass customers. Smart
Pass offers customers multiple benefits including
free deliveries whilst enabling us to drive customer
loyalty, shopping frequency and ultimately
increase total spend per customer.
Our general merchandise product sales, including
those from our destination sites, notably Fetch.
co.uk, our dedicated pet store, have grown at over
40% year-on-year, and now constitute almost 7%
of Ocado retail sales. In August 2016, we launched
our latest destination site, Fabled, our premium
beauty store in partnership with Marie Claire.
The online shop is complemented by a flagship
store in Tottenham Court Road, London, offering
a physical showcase opportunity to the many
premium brands we now work with. The early
performance of Fabled is encouraging and we
look forward to further developing this and our
other destination sites. These destination sites
are complementary to our Ocado.com offerings
giving our customers access to significant
additional assortments across everyday general
merchandise categories.
Any improvements and innovations added to
our retail proposition enhance the key features
we can apply to the technology embedded
in our platform, allowing our existing and
future corporate customers to benefit from our
continued development.
Strengthen
our brands
We continued to reinforce our retail brand equity
and values to our wide range of stakeholders
including our existing customers who have
recognised the quality of our proposition,
evidenced by winning a number of awards
including Best Online Retailer at the Best of
Organic Market Awards and Best Online Retailer at
the Loved By Parents Awards.
Our Ocado own-label continues to grow,
further reinforcing our brand recognition. This
year we have seen sales up over 10% against
the equivalent period last year, with growth
constrained by our contractual obligations with
Waitrose. The average customer basket now
contains over six Ocado own-label products,
with over 90% of our customers having bought
Ocado own-label products. The value of our
brand and strength of these products is evidenced
by multiple awards for our Ocado-own label
products in 2016. These include the Gold award
for the Ocado own-label Veg and Salad Box by
Women’s Fitness and several awards in organic
food and baby product categories at the Loved by
Parents Awards.
Our active customer base continued to expand to
580,000 (2015: 509,000), up 13.9% as we continued
to grow in all of our existing catchment areas.
Similarly our total order volumes have shown
robust growth of 17.9% to an average of over
230,000 orders per week (“OPW”) (2015: 195,000
OPW), with the highest OPW exceeding 270,000
during the period.
The average basket size at Ocado.com (excluding
the impact of smaller standalone orders from our
destination sites) declined by 2.7% to £108.10
(2015: £111.15), primarily due to price deflation
across the industry. There was also some impact
from the continued uptake of our Ocado Smart
Pass offering which tends to drive increased
customer frequency but with smaller basket sizes.
Our existing destination brands continue to
strengthen. We anticipate Fabled, benefiting from
the strong brand association of our partner, Marie
Claire, will develop into an attractive destination
retail brand for premium beauty products.
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report 9. Chief Executive
Officer’s Review
24
We continue to work on our Ocado Smart
Platform offering, utilising our Ocado Smart
Platform branding to strengthen the marketing of
the service to international commercial partners.
While not an external brand, we have been active
in promoting the strength and values of Ocado
Technology. Brand development has been
focused on awareness activities largely through
editorial and speaking opportunities, including
participating in features with titles such as the
Harvard Business Review, New Scientist and the
technology section of wider publications such as
the Wall Street Journal. This focus ensures we are
able to recruit the best talent to develop the most
innovative technology for use within our business.
Continuously develop
more capital and
operationally efficient
infrastructure solutions
Our two mature Customer Fulfilment Centres in
Hatfield and Dordon continued to operate to high
levels of accuracy and with improved efficiency
(we consider a CFC to be mature if it has been
open for 12 months by the start of the half year
reporting period). With limited investment we
have increased capacity in both facilities to more
than their designed maximum limits, and now
expect to be able to operate at over 165,000
OPW from Hatfield CFC and at over 190,000 at
Dordon CFC. This benefits not just Ocado but also
Morrisons.com, as we have now taken the capacity
of Dordon CFC above the anticipated capacity
level at the time of our 2013 agreement. Using the
units per labour hour efficiency measure (“UPH”),
the average productivity for the period in these
operations was 160 UPH (2015: 155 UPH).
We commenced operations at our new CFC in
Andover, Hampshire, in November 2016, which
will ramp up in future periods. This is particularly
significant as Andover CFC houses the first
installation of our new proprietary modular,
scalable physical fulfilment solution. This solution
will also offer many other benefits, such as
the ability to pick an entire order in less than 5
minutes compared with an average of over two
hours in our earlier CFCs. This will significantly
reduce order processing lead times and give more
flexibility to offer improved services for customers.
At maturity Andover CFC will add approximately
65,000 OPW of capacity at an estimated capital
cost of £45 million for the material handling
equipment (“MHE”).
We continued to develop our fourth CFC in Erith,
South East London. The building is now complete
and fit out works started during 2016. We plan
to commence operations in FY2018. The MHE
solution in this CFC is estimated to cost £135
million and will add over 200,000 OPW of capacity
to our operations. Similar to our Andover CFC,
this CFC will also use our proprietary modular,
scalable fulfilment solution which will enable us
to phase the investment over time in line with
our capacity requirements. We expect this to be
our most capital efficient CFC to date, and we
anticipate it will enable us to efficiently expand
our UK capacity. Approximately 30% of the Erith
CFC capacity will be utilised for Morrisons.com
under the extension agreement that was signed
during 2016. In addition we plan to open a second
general merchandise facility in 2018 to enable our
general merchandise sales to continue to grow
rapidly.
Enhancements to our routing system, increased
availability of Sunday delivery slots and improved
customer density led to an improvement in
average deliveries achieved on a van route and
has helped us increase deliveries per van per
week across all shifts (“DPV”) to 176 (2015: 166).
We increased our delivery capacity within existing
catchments by extending and rationalising our
hub and spoke network. In 2016 we opened
two new spoke sites in Peterborough and
Crawley, while relocating operations from, and
subsequently closing, our Southampton spoke to
our Andover CFC.
Enhance our end-to-end
technology systems
Core to our business and competitive advantage
is our proprietary IP, knowledge and technology
that supports our market leading proposition to
customers and drives our operating efficiencies
and to enable attractive economics. We
continually strive to improve and develop our
technology and believe that this innovation
continues to create a competitive edge across
our business. Our patent activities help to create
a web of protection for our IP. As at the end of the
period, we had filed patent applications covering
over 50 separate innovations and the first few
patents were granted during 2016.
Our focus on innovation has allowed us
consistently to improve our own skills. Our
innovation is enabled by our extensive and
growing technology and engineering teams.
By the end of the period our technology team
comprised over 950 IT and software professionals
operating from multiple technology centres in the
UK, Poland, Spain and Bulgaria, taking advantage
of the significant technological expertise found in
these regions.
In addition to our technology team, we have a
dedicated engineering team of over 200 qualified
engineers deployed in current operations, CFC
development and build, and platform business
projects. This team, working closely with the
technology team, are core to developing, building
and commissioning our proprietary infrastructure
equipment solution, now deployed in Andover CFC.
Enable Morrisons’ and
future partners’ online
businesses
We have built our retail business through
developing and utilising proprietary solutions in
technology, engineering and operations. As we
continue to develop and innovate in our retail
business we embed any improvements into
our platform for existing and future partners,
enhancing the opportunity to commercialise
our IP. The commencement of operations at
our Andover CFC will, we hope, provide further
evidence of the capabilities and showcase to
future Ocado Smart Platform customers the
attractiveness of our proprietary solutions.
Morrisons.com launched as an online business
in January 2014 using our broader platform
offering. Our technology and service capabilities
have enabled its strong growth, which continued
through the 2016 period. To enable its further
growth, in August 2016 we announced an extension
of this agreement with Morrisons to include our
Erith CFC. The renegotiated terms for additional
capacity, which will come on stream in 2018, are
more in line with the format of how we wish to
operate with future platform partners. Among other
things the agreement provides Morrisons with a
30% share of the capacity from our Erith CFC as
well as the provision of a store pick module, which
will allow Morrisons.com to service its customers
from their store estate, alongside the CFC fulfilment
Ocado provides, and also reach customers not
served by our current CFCs.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report 25
We commenced
operations at
our new CFC
in Andover...
houses the first
installation of our
new proprietary
modular and
scalable physical
fulfilment
solution.”
Our Code for Life programme, which teaches
children coding skills using a free resource, now
has almost 70,000 users, including almost 1,400
schools, in the UK and from another 60 countries.
We believe this scheme is vital to help equip the
next generation with key skills from which they
will benefit; we are proud of its widespread uptake
across the globe.
We continuously strive to be the UK’s greenest
grocery supplier, operating at what we believe are
the lowest waste levels in the industry. Working in
partnership with Ecometrica we hope to publish
centralised waste data during 2017. Throughout
2016 we have also seen the recycling of Ocado
uniforms as part of an offenders retraining
programme, enabling us to help offenders learn
new skills as well as repurpose and sell new
garments with all proceeds going to the Ocado
Foundation.
Outlook statement
We reported robust gross sales (Retail) growth
of 13.6% for the period and we anticipate
continuing to grow ahead of the online market in
the year ahead.
We anticipate that capital expenditure in 2017
will be approximately £175 million, including the
development of further capacity in the Andover
and Erith CFCs, and 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 2017.
During the period, we continued to engage and
develop discussions with multiple international
retailers about how we might assist them in
launching or improving online businesses in their
own markets using our technology and solutions
collectively branded as Ocado Smart Platform.
Ocado Smart Platform customers will benefit from
our experience and from the latest technology and
innovations we apply to our own retail business,
offering flexible fulfilment (through CFC or store-
based operations) and last mile options (home
delivery and pick up services). We have recently
appointed Luke Jensen, who has extensive
experience in strategy, online and grocery
retailing, to a new role as CEO - Ocado Smart
Platform, to help accelerate our discussions. He
will start in mid-February. We remain confident
in the quality of our commercial proposition and
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 almost
12,000 people, a net addition of over 1,700 new
employees year-on-year. Our employees support
our retail business, our Morrisons.com platform
business and the development of Ocado Smart
Platform.
We will continue expanding our pool of talented
staff in 2017, including plans to add over 100
technology and engineering professionals. The
launch of the Andover CFC, and the continued
growth in our business will continue to create new
opportunities for existing and new employees in
various roles throughout 2017.
The commitment and energy of our people is
central to our success and I want to once again
acknowledge their remarkable contribution
throughout this very busy and exciting time. The
efforts of our people were recognised during the
year with a number of awards and we regularly
receive feedback highlighting the outstanding
service provided by our Customer Service
Team members who make the Ocado.com and
Morrisons.com deliveries.
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report 10. Key Performance
Indicators
26
Group Sales (£m)
Average Orders per Week
Why we use
this measure
Measures growth at Group level
reflecting retail sales and platform
business fees
2016 performance
+15.1% v 2015
Strategic link
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
0
0
0
,
0
3
2
:
6
1
0
2
Why we use
this measure
Measures order growth in our retail
businesses
2016 performance
+17.9% v 2015
Strategic link
2
5
8
:
3
1
0
2
7
2
0
,
1
:
4
1
0
2
4
0
2
,
1
:
5
1
0
2
7
.
6
8
3
,
1
:
6
1
0
2
Gross Sales (Retail) (£m) A
CFC Efficiency (UPH)
Why we use
this measure
Measures sales growth of our retail
business
2016 performance
+13.6% v 2015
Strategic link
5
3
1
:
3
1
0
2
5
4
1
:
4
1
0
2
5
5
1
:
5
1
0
2
0
6
1
:
5
1
0
2
Why we use
this measure
Measures CFC operational
efficiency
2016 performance
+3.5% v 2015
Strategic link
3
4
8
:
3
1
0
2
2
7
9
:
4
1
0
2
6
1
1
,
1
:
5
1
0
2
4
.
7
6
2
,
1
:
6
1
0
2
EBITDA (£m) A
Product Waste (%)
Why we use
this measure
Measures operating profitability
2016 performance
+3.3% v 2015
Strategic link
0
.
1
:
3
1
0
2
8
.
0
:
4
1
0
2
7
.
0
:
5
1
0
2
7
.
0
:
6
1
0
2
Why we use
this measure
Measures efficiency of our operations
in terms of waste minimisation: the
lower the better
2016 performance
+0ppt v 2015
Strategic link
6
4
:
3
1
0
2
2
7
:
4
1
0
2
2
8
:
5
1
0
2
4
8
:
6
1
0
2
A
See Alternative Performance
Measures on page 194
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report
27
Average Order Size (£)
Delivery Punctuality (%)
Why we use
this measure
Measures aggregate impact on
average shopping basket
2016 performance
-2.7% v 2015
Strategic link
5
.
3
1
1
:
3
1
0
2
7
.
2
1
1
:
4
1
0
2
2
.
1
1
1
:
5
1
0
2
1
.
8
0
1
:
6
1
0
2
Average Deliveries per Van per Week
Why we use
this measure
Measures efficiency of our service
delivery operation
2
.
5
9
:
3
1
0
2
3
.
5
9
:
4
1
0
2
3
.
5
9
:
5
1
0
2
9
.
4
9
:
6
1
0
2
Active Customer Base
0
.
0
6
1
:
3
1
0
2
0
.
3
6
1
:
4
1
0
2
0
.
6
6
1
:
5
1
0
2
6
7
1
:
6
1
0
2
2016 performance
+6.3% v 2015
Strategic link
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
0
0
0
,
0
8
5
:
6
1
0
2
Why we use
this measure
Measures punctuality of our delivery
operations
2016 performance
-0.4ppt v 2015
Strategic link
Why we use
this measure
Measures growth in our core customers
who shopped in the last 12 week
2016 performance
+13.9% v 2015
Strategic link
Order Accuracy (%)
SKU Count (Hypermarket)
Why we use
this measure
Measures order accuracy (pre
substitution)
2016 performance
-0.3ppt v 2015
Strategic link
Why we use
this measure
Measures growth in range offered at
Ocado.com, not including standalone
sites
2016 performance
+6.4% v 2015
Strategic link
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
0
0
0
,
0
5
:
6
1
0
2
0
.
9
9
:
3
1
0
2
3
.
9
9
:
4
1
0
2
3
.
9
9
:
5
1
0
2
0
.
9
9
:
6
1
0
2
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report
Strategic Report
Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016
28
Duncan Tatton-Brown
Chief Financial Officer
Revenue (£m)
2
9
7
:
3
1
0
2
9
4
9
:
4
1
0
2
8
0
1
,
1
:
5
1
0
2
1
7
2
,
1
:
6
1
0
2
EBITDA (£m) A
6
4
:
3
1
0
2
2
7
:
4
1
0
2
2
8
:
5
1
0
2
4
8
:
6
1
0
2
11. Chief Financial
Officer’s Review
For the period to 27 November 2016, we
maintained solid sales growth in what has
remained a challenging competitive environment.
At Group level, sales increased driven principally
by growth in our retail business with the balance
coming from our agreement with Morrisons.
Solid growth in Retail sales, order volumes and
the number of active customers in the period
demonstrated the appeal of our retail proposition.
Every year since we launched, we have seen
over 10% growth in orders and in the period we
grew total orders 17.9% year-on-year. Operating
profitability in the period was adversely impacted
by the continuing pressure on margins reflecting
the competitiveness and deflationary pressures in
the market, the impacts of the national living wage
and our continued investment in a number of
strategic initiatives to aid the future growth of the
business. This was offset in part by more efficient
operational fulfilment mainly at Dordon CFC and
improvements in average deliveries per van per
week.
Revenue1
Gross profit
EBITDA before exceptional items A
Operating profit before share of result from JV and
exceptional items A
Share of result from joint venture
Profit before tax and exceptional items
Exceptional items
Profit before tax
FY 2016
£m
1,271.0
435.3
84.3
21.9
2.1
14.5
(2.4)
12.1
FY 2015
£m
1,107.6
375.1
81.5
19.1
2.3
11.9
-
11.9
Variance
14.8%
16.0%
3.3%
14.7%
(8.7)%
21.8%
-
1.3%
1. Revenue is sales (net of returns) generated at Ocado.com, and the other retail banners - Fetch, Sizzle and Fabled,
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
Revenue increased by 14.8% to £1,271.0 million
for the period. Revenue from retail activities was
£1,171.6 million, an increase of 13.3% which we
believe continues to be ahead of the UK online
grocery market. Revenue growth was driven by
a 17.9% year-on-year increase in the full year
average orders per week to 230,000. Product
sales from the general merchandise destination
sites grew by over 85% year-on-year driven by
the increasing popularity of the Fetch pet store
and the launch our new beauty destination site,
Fabled, during the second half of the period.
The increase in order growth was partially offset
by a reduction in average hypermarket order
size, down 2.7% from £111.15 in 2015 to £108.10
in 2016, primarily due to deflation in the average
item price as experienced across the grocery
industry and a small reduction on the number
FY 2016
£m
1,171.6
79.9
19.5
1,271.0
FY 2015
£m
1,033.7
55.1
18.8
1,107.6
Variance
13.3%
44.9%
3.7%
14.8%
of items partly due to the increased frequency of
shop from our customers. Overall average basket
size fell by 3.7% due to these effects and also
the dilutive effect on the average order size from
an increased mix of standalone destination site
orders which are typically smaller average size.
The Morrisons arrangement contributed £99.4
million of revenue in 2016 (2015: £73.9 million).
The growth was mainly driven by increased
revenue from recharges for services provided
to support the expansion of the Morrisons.com
business. The fee income remained broadly in line
with the prior year and comprised of the initial
licence fees for the setup of technology services
and annual fees relating to technology support,
research and development and management
services.
A
See Alternative Performance
Measures on page 194
Ocado Annual Report 2016 front.indd 28
slugline
03/02/2017 15:17:09
Stock Code: OCDO | www.ocadogroup.com
Strategic Report
29
Gross profit
Retail
Morrisons recharges
Morrisons fees
Total gross profit
Gross profit rose by 16.0% year-on-year to £435.3
million (2015: £375.1 million) and was 34.2%
of revenue (2015: 33.9%), ahead of 2015 due
to additional gross profit attributable to the
Morrisons arrangement in the period, reflecting
the sustained growth in the Morrisons.com
business. Retail gross profit reduced to 28.7% of
retail revenue (2015: 29.2%) primarily as a result of
selling price deflation.
Other income increased to £52.9 million, up 7.9%
year-on-year (2015: £49.0 million). Supplier income
was 3.3% of retail revenue (2015: 3.1%). Supplier
income grew year-on-year and continues to
grow ahead of the rate of increase in revenue as
we engage our suppliers in media opportunities
on our customer interfaces (including website,
mobile apps and mobile websites). Other income
also included £2.5 million (2015: £2.5 million)
of rental income relating to the lease of Dordon
CFC and £11.7 million (2015: £11.2 million) of
income arising from the leasing arrangements
with Morrisons for MHE assets. This income, for the
Distribution costs1
Administrative expenses1
Costs recharged to Morrisons2
Depreciation and amortisation3
Total distribution costs and administrative
expense
FY 2016
£m
335.9
79.9
19.5
435.3
FY 2015
£m
301.4
54.9
18.8
375.1
Variance
11.4%
45.4%
4.1%
16.0%
MHE assets, is generated from charging MHE lease
costs to Morrisons and equates to the additional
depreciation and lease interest costs that we incur
for the share of the MHE assets effectively owned
by Morrisons.
Operating profit
Operating profit before the share of result from the
joint venture and exceptional items for the period
was £21.9 million (2015: £19.1 million).
Distribution costs and administrative expenses
included costs for both the Ocado and Morrisons
fulfilment and delivery operations. Total
distribution costs and administrative expenses
including costs recharged to Morrisons grew by
15.2% year-on-year. Excluding Morrisons, costs
grew by 10.4% year-on-year, below the growth
in average orders per week of 17.9%. The costs
relating to the Morrisons operations are recharged
and included in revenue.
We’ve maintained
solid sales
growth in what
has remained
a challenging
competitive
environment.”
Profit/(Loss) before Tax and
Exceptional Items (£m)
FY 2016
£m
247.5
78.8
79.8
60.3
466.4
FY 2015
£m
216.6
73.4
54.9
60.1
405.0
Variance
14.3%
7.4%
45.4%
0.4%
15.2%
)
1
.
5
(
:
3
1
0
2
5
.
7
:
4
1
0
2
9
.
1
1
:
5
1
0
2
5
.
4
1
:
6
1
0
2
1. Excluding chargeable Morrisons costs, depreciation, amortisation and impairment charges
2. Morrisons costs include both distribution and administrative costs
3. Depreciation and amortisation excludes exceptional items for the period which amounted to £0.7 million
impairment charge (2015: £nil)
At £247.5 million, distribution costs increased
by 14.3% compared to 2015. Overall mature CFC
UPH (for Hatfield CFC and Dordon CFC combined)
was 160 in 2016 compared with 155 in 2015. The
improvement in mature CFC UPH for the period
was driven mainly by the improved productivity
at Dordon CFC which had grown by 5.6% year-
on-year to 174 UPH in 2016 and had regularly
exceeded 180 UPH by the end of the period.
Deliveries per van per week have improved by
6.3% year-on-year to 176 (2015: 166) as customer
density improved and we increased Sunday
delivery slots. During the period we opened two
new spokes in Crawley and Peterborough. As
a result of these new spoke openings and the
annualised impact of three spokes (Dagenham,
Milton Keynes and West Drayton), the expansion of
the Bristol spoke and additional fixed costs arising
from the move of the London spoke at White
City to Park Royal in 2015, spoke fixed costs as a
percentage of sales increased in the period.
Ocado Annual Report 2016 front.indd 29
03/02/2017 14:58:42
slugline
11. Chief Financial
Officer’s Review
30
FY 2016
£m
63.0
4.1
11.7
78.8
FY 2015
£m
55.1
7.8
10.5
73.4
Variance
14.3%
(47.3)%
11.6%
7.4%
Net finance costs
Net finance costs of £9.5 million (2015: £9.5
million) were in line with the prior year.
Profit before tax
Profit before tax and exceptional items for the
period was £14.5 million (2015: £11.9 million).
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 had approximately £268.6 million (2015:
£287.8 million) of unutilised carried forward
tax losses at the end of the period. During 2016
Ocado incurred £43.4 million (2015: £36.2 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 2.02p (2015: 2.01p)
and diluted earnings per share was 1.96p (2015:
1.91p).
Central costs – other 1
Central costs – share-based senior management incentive charges2
Marketing costs (excluding vouchers)
Total administrative expenses1
1. Excluding chargeable Morrisons costs, depreciation, amortisation and impairment
Total administrative expenses excluding
depreciation, amortisation and costs recharged to
Morrisons increased to £78.8 million (2015: £73.4
million) and as a percentage of retail revenue this
reduced to 6.7% (2015: 7.1%). The year-on-year
cost increases were mainly due to additional costs
to operate Morrisons.com which are not recharged
to Morrisons but for which the Group earns fees,
and continued investments in our strategic
initiatives to support future growth in both our
general merchandise business and for the Ocado
Smart Platform. These cost increases were offset
by lower share-based management incentive
costs driven by the net effect of the maturity of the
2013 LTIP scheme.
Marketing costs excluding voucher spend were
higher at £11.7 million (2015: £10.5 million) and
in line with the prior year as a percentage of retail
revenue at 1.0% (2015: 1.0%).
Total depreciation and amortisation costs
excluding exceptional items were £60.3 million
(2015: £60.1 million), broadly flat year-on-year and
this includes impairment charges of £0.7 million
(2015: £1.8 million). Higher depreciation and
amortisation arose from increased investment in
vehicles and new spokes to support our continued
order growth offset by lower depreciation as
a result of lower capex spend at our existing
CFCs over the last few years. We commenced
operations at Andover CFC at the end of the
period. As a result the capital work in progress
of Andover CFC and its associated software did
not have a depreciation impact in the period.
The impairment charges in the period relate to
our head office move, write offs related to the
exit from the Southampton spoke site and from
a detailed review of our legacy systems as we
rewrite a number of key systems as part of our
software replatforming.
Share of result from joint
venture
MHE JVCo Limited (“MHE JVCo”) was incorporated
in 2013 on the completion of the Morrisons
arrangement, with Ocado owning a 50% equity
interest in this entity. MHE JVCo holds Dordon CFC
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 administrative
expenses and depreciation on minor assets not
subject to lease and administration charges.
The Group share of MHE JVCo profit after tax in
the period amounted to £2.1 million (2015: £2.3
million), the year-on-year decrease driven in main
by a higher tax provision.
Exceptional items A
Exceptional items in the period were £2.4 million
(2015: £nil). Of this £1.7 million was recognised in
EBITDA and related to our head office move and
litigation against payment providers. The balance
of £0.7 million is related to the accelerated
depreciation charge as a result of our planned
head office move.
A
See Alternative Performance
Measures on page 194
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report Capital expenditure
Capital expenditure for the period excluding share of MHE JVCo was £153.0 million (2015: £122.1 million)
and comprised of the following:
Capital Expenditure
31
Mature CFCs
New CFCs
Delivery
Technology
Fulfilment development
Other
4
1
0
2
5
1
0
2
6
1
0
2
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)
FY 2016
£m
FY 2015
£m
3.4
64.6
20.6
34.3
19.7
10.5
153.0
156.9
3.2
52.9
25.3
23.0
13.3
4.4
122.1
126.5
1. Capital expenditure includes tangible and intangible assets
2. Capital expenditure excludes assets leased from MHE JVCo under finance lease arrangements
3. Capital expenditure includes Ocado share of the MHE JVCo of £3.9 million in 2016 and of £4.4 million in 2015
Total investment in Mature CFCs was £3.4 million,
which excludes the capital expenditure relating
to MHE JVCo of £3.9 million. The investments at
Hatfield CFC were primarily resiliency projects, for
example installing additional chillers and crane and
conveyor improvements. There have also been some
capacity and productivity projects at the existing
sites such as upgrading pick station scanners.
We incurred £64.6 million of costs in the period
for the build and installation of our proprietary
infrastructure at our new CFCs. At the end of the
period, we commenced operations at our Andover
CFC. This is the first of our CFCs to use our new
proprietary infrastructure equipment solution and
software, which will support the ongoing growth
of our business. Andover CFC has an expected
capacity of 65,000 OPW. Our fourth CFC located in
Erith, South East London, will be larger than any
of our existing CFCs with an expected capacity
of over 200,000 OPW, and is planned to open in
financial year 2018. We incurred £38.6 million of
costs on this site in the period.
Delivery capital expenditure was £20.6 million
(2015: £25.3 million). This included investment
in new vehicles of £13.6 million (2015: £14.0
million) to support our business growth and
replace vehicles at the end of their useful lives.
These assets are typically on five year financing
contracts. There was investment in new spokes
of £2.0 million, which included the Crawley spoke
which opened in April 2016 and the Peterborough
spoke which opened in August 2016.
We continued to develop our own proprietary
software and incurred £26.8 million (2015: £18.1
million) of internal development costs which were
capitalised as intangible assets in the period, with
a further £7.5 million (2015: £4.9 million) spent on
computer hardware and software. Our technology
headcount grew to over 950 staff at the end of
the period (2015: over 700 staff) as increased
investments were made to support our strategic
initiatives, including 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 and the
further development of the Morrisons proposition.
Fulfilment development capital expenditure of
£19.7 million (2015: £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.
Other capital expenditure of £10.5 million,
included £5.8 million of capital expenditure
related mainly to our head office move. In
addition to this we spent £3.5 million in our
general merchandise business to support growth
in capacity in our existing general merchandise
facility and the fit out and costs associated with
the development of our new Fabled flagship store
and online offering.
At 27 November 2016, capital commitments
contracted, but not provided for by the Group,
amounted to £34.4 million (29 November 2015:
£22.3 million), this increase is mainly driven by
commitments in our new CFCs. We expect capital
expenditure in 2017 to be approximately £175
million which mainly comprises the continuing
investment 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.
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report 32
Operating cash
flow increased
by £14.6 million
during the year.”
11. Chief Financial
Officer’s Review
Cash flow
During the year the Group generated improved operating cash flow after finance costs of £96.9 million,
up from £82.8 million in 2015, as follows:
EBITDA A
Working capital movement
Exceptional items3 A
Other non-cash items1
Finance costs paid
Operating cash flow
Capital investment
Dividend from joint venture2
Increase/(decrease) in debt/finance obligations
Proceeds from share issues net of transaction costs
Other investing and financing activities
Increase in cash and cash equivalents
FY 2016
£m
84.3
18.5
(1.7)
4.9
(9.1)
96.9
(123.9)
8.4
22.2
1.1
0.4
5.1
FY 2015
£m
81.5
2.3
–
8.7
(9.7)
82.8
(99.1)
8.1
(26.8)
4.5
–
(30.5)
1. Other non-cash items include movements in provisions, share of income from MHE JVCo and share-based payment
charges
2. Dividend received from MHE JVCo of £8.4 million (2015: £8.1 million)
3. Total exceptional items of £2.4 million (2015: £nil) includes a £0.7 million impairment charge to property, plant and
equipment, which is a non-cash item
The operating cash flow increased by £14.1
million during the year as a result of an increase
in EBITDA of £2.8 million and a positive working
capital movement of £16.2 million. The positive
working capital movement includes a £25.2
million increase in trade payables primarily due
to increased trade accruals and trade payables
attributable to inventory increases prior to year
end.
We continue to reinvest our cash for future growth
and as a result the cash outflows due to capital
investment increased to £123.9 million comprising
investments in Andover CFC and Erith CFC,
development of our next generation fulfilment
solution and expenditure on our delivery assets.
In the period there was a net increase in debt
and finance obligations of £22.2 million (2015:
net repayments of £26.8 million). This included a
£52.5 million drawdown on the Revolving Credit
Facility (2015: £nil).
A
See Alternative Performance
Measures on page 194
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report 33
Bank facility
In the prior year, the 3 year £100 million revolving
unsecured facility was extended by a further two
years to July 2019 and the amount of the facility
was increased to £210 million. At the end of the
period we had drawn down £52.5 million of the
facility.
Change of external auditors
Following a tender process of the external audit,
Deloitte LLP is being recommended at the Annual
General Meeting for appointment as the Group’s
external auditors for the 2017 financial year.
Balance sheet
The Group had cash and cash equivalents of £50.9
million at the period end (2015: £45.8 million) with
the increase mainly owing to a net cash inflow
from financing activities in the period.
External gross debt at the period end, which
excludes finance leases payable to MHE JVCo,
was £107.1 million (2015: £53.3 million). The
increase of £53.8 million was mainly driven by
a drawdown of £52.5 million on the Revolving
Credit Facility (excluding capitalised transaction
fees of £1.2 million), currently used for funding
capital investment in the new distribution centres.
The balance was a result of £16.6 million of
additional vehicle and property debt, offset by net
repayments of £14.1 million of borrowings.
Gross debt at the period end of £215.8 million
(2015: £172.8 million) and includes amounts
owing to MHE JVCo of £108.7 million (2015: £119.5
million).
Net external debt at the period end was £56.2
million (2015: £7.5 million).
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report 12. How We Manage
Our Risks
34
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.
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 and 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.
Key Developments in 2016
• 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 2016, Ocado continued to enhance
its approach to risk management. This
included the development of a physical
security policy, testing of our capabilities for
information security and business continuity,
and production of a roadmap to enhance our
disaster recovery capability.
• 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.
1.
Set
Strategy
4.
Review
Risks
Risk
Management
2.
Evaluate
Risks
3.
Implement
Mitigation
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.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report 35
• For further information on the review of
financial reporting, refer to page 60 of the
Audit Committee report
2017 Plan
Activities to improve our strategic, programme
and operational risk management capabilities,
including business continuity and information
security, will continue in 2017. Our trading strategy
is reviewed and amended as necessary to reflect
the increasingly competitive grocery trading
environment.
The Internal Audit and 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.
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 the
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
36 and 37.
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.
A
See Alternative Performance
Measures on page 194
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 £50.9 million (2015: £53.3 million),
external gross debt A (excluding finance leases
payable to MHE JVCo of £107.0 million (2015:
£45.8 million)) and net current liabilities of £141.2
million (2015: £59.5 million). The Group has a mix
of short and medium term finance arrangements
and has a £210 million revolving credit facility
which contains typical financial covenants
and runs until July 2019. The facility has been
drawndown by £52.5 million. 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 forecasts involve the
Directors making judgements about future
revenue, EBITDA and capital expenditure and the
cost of future financing. The financial position of
the Group, including information on cash flow,
can be found in Our Financials on pages 118 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 pages 36 to 37) and the Group’s principal
risks and the likely effectiveness of any mitigating
actions and controls available to the Directors (see
pages 36 and 37).
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.
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 for
the upcoming financial year and is used by the
Remuneration Committee to set performance
targets for the Annual Incentive Plan. A longer
term business model, which is refreshed by
the Board annually, provides less certainty of
outcome, but provides a sensible planning tool
against which strategic decisions can be made.
This plan contemplates the impact of a number
of different strategic initiatives, including possible
Ocado Smart Platform transactions, possible trials
of new technology, new CFCs, potential increases
in CFC capacity and changes in the rate of retail
customer growth. 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 A and cash flow over the three years and
an assessment of 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, including the
Andover CFC and the Erith CFC. The Directors
consider that it is reasonable to believe that the
Group’s £210 million revolving credit facility, which
runs until July 2019 (falling during the three year
assessment), will be refinanced or extended to
provide continuing finance to the Group. The
Directors’ assessment also took into account the
other principal risks and mitigating actions.
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.
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report 12. How We Manage
Our Risks
36
The Board carried out its assessment of principal risks during the period. Set out below are details of the principal risks and uncertainties for the Group and the
key mitigating activities used to address them.
Strategic
Objective
Risks
Mitigation Action/Control
Change During
the Year
Driving Growth
Failure to maintain competitive
pricing position
• Continuation of our LPP basket matching price comparison
• Maintaining a competitive number of promotional offers and increased
availability of free delivery slots for price sensitive customers
• Creation of a choice of tiered price points within each category
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
Due to operating close
to maximum capacity
Due to increased
competition in food
distribution
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 Andover CFC
and Erith CFC
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
Andover CFC has gone
live. OSP product can
be demonstrated.
Risk of negative implications
caused by final Brexit terms such
as increase in import costs or
difficulty in hiring employees
• Collaborating with trade organisations to follow developments and express our
concerns to government
•
Taking part in BRC analysis to determine impact of WTO tariff rates on imports
and exports
New risk
A risk of delays in the
implementation of new capacity
for both Ocado and Morrisons
• Dedicating resources to the modularisation of technology and logistics systems
to enable faster replication
• New capacity in development at Andover CFC and Erith CFC
• Regular Executive Board steering and full Board reporting of new technology
projects
Maximising
Efficiency
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report Strategic
Objective
Utilising
Proprietary
Knowledge
Operational
37
Risks
Mitigation Action/Control
Change During
the Year
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 introduced 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
• Where appropriate, obtaining specialist or legal advice
Increased levels of IP
protection via patents
Increased scope of
Ocado innovations,
into increasingly
complex areas
A risk of a food safety or product
safety incident
A risk of changes in regulations
impacting our retail business
model or the viability of OSP
deals
Risk of major cyber-attack or
data loss
Business interruption
•
•
•
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
• 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
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
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
For further information on the financial risks, see pages 158 to 160 of the notes to the financial statements.
Key
Risk has Increased
Risk has Decreased
No Change
Not Applicable
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report
13. Corporate
Responsibility
38
“The Ocado Way: 2020 Corporate Responsibility Strategy” continued to develop and embed
across the business in 2016. Progress was made in each of the four pillars, some of the highlights are set
out in this section.
The Ocado Way: 2020 Strategy
Education
Entrepreneurship
Environment
Eating well
Education
Code for Life
Code for Life, our freely available school resource designed to teach children to code, continues to be well received both globally and here in the UK. As of the
end of November 2016, we had 75,000 users and interest from over 59 countries at over 1,300 schools.
Road Safety
We have started an innovative road safety education programme to
provide pedestrian safety training to school children.
Over the coming year, we will continue to work closely with Hertfordshire
County Council to roll out “Pedestrian Training Skills” to schools across
Hertfordshire, teaching children about the dangers of large vehicles .Our
aim is to take this successful model and replicate it across other locations
in the UK.
The provision of high-viz tabards has enabled more children to be offered
Pedestrian Skills training in Key Stage 2 ready for their transition to
secondary school.
Hertfordshire County Council
is delighted to be working
with Ocado to support road
safety education in schools.”
Heather Hill – Team Leader, Hertfordshire CC Road Safety in Schools
Hertfordshire County Council is delighted to be working with Ocado to support road safety
education in schools
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report 39
Waste
We expect that centralised waste data will be
compiled and published during 2017.
Throughout this year we have been closely
measuring food waste, particularly that which can
be redistributed to those in need. Over the last 12
months, more than 206 tonnes has been donated
to food bank partners. This is a combination of hot
meals served in shelters and refuges, in cafes such
as those of our partner The Real Junk Food Cafe,
food parcels and donations.
In the spirit of trying to avoid as much waste to
landfill as possible, the last 12 months has also
seen the recycling and refashioning of Ocado
uniforms. Partnering with HMP Northumberland,
Ocado’s uniforms are refashioned as part of an
offender retraining programme – enabling the
upskilling of offenders to learn a trade whilst
enabling Ocado’s uniforms to be repurposed and
ultimately be available for sale, with all proceeds
going to the Ocado Foundation, for further
charitable donations.
Refashioned Ocado uniform
Greenhouse Gas Emissions
During the reporting period, our CO2 emissions
moderately increased as a percentage of sales to
the previous year. The business has continued to
significantly grow, with a number of newly opened
Spokes now fully operational and the Andover
CFC also open.
Our vehicle fleet continues to be our largest
contributor to carbon emissions (66% of reported
emissions), and during the period the fleet grew
by a further 27% in response to our continued
growth and that of Morrisons.com.
Despite the growth, we have continued to invest
in carbon efficiencies. This has included the
replacement of lighting with LED at both Hatfield
CFC and the General Merchandise Distribution
Centre as well as at a number of our Spokes; and
installation of airlock doors at a number of Spokes
to reduce refrigerant wastage on our “white box”
refrigerated storage units.
The quality and integrity of our data is something
we have particularly concentrated on during the
period, bringing us far greater accuracy of content
and significantly fewer estimates. This year, less
than 1% of all carbon data is estimated compared
to 5% last year.
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.
2015/16
75,891
28,675
104,566
2014/15
63,151
28,602
91,753
2013/14
50,198
26,493
76,691
762.5
725.4
815.1
Entrepreneurship
Supporting small suppliers
We like to make sure our customers are spoilt for
choice when it comes to shopping, that’s why
we’re always on the lookout for amazing new
products to add to our range. Historically, it can be
a struggle for small and artisan suppliers to secure
a meeting with a buying manager of a retailer, so
we have developed a user friendly site aimed at
helping small suppliers complete the necessary
paperwork and application to increase their
chances of success.
It works by suppliers logging an application on
www.supplyocado.com. Here they are asked for
all the mandatory criteria necessary to be listed,
ensuring that if they are successful, they can be
listed quickly. Details of their products are then
uploaded and this information is then routed to
the relevant Ocado buying manager to review and
follow up with. We have had more than 500 small
suppliers complete applications in the first few
months, and we look forward to reporting on this
further next year.
Environment
We continue to make progress with our
environmental data management, working
closely with our partner Ecometrica to provide a
centralised data management system. This tracks
carbon emissions from our CFCs, Spokes and
vehicles. We are expanding it to track all waste
from our operations.
GHG Emissions (Tonnes CO2e)
Scope 1 – Direct
Scope 2 – Indirect
Total Emissions
Intensity measures:
Tonnes CO2e / 100,000 orders
View more information about the
basis of preparation of our emissions
data online at ocadogroup.com
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report 13. Corporate
Responsibility
40
Fresh Fruit/Vegetables on Promotion 2016
Eating Well
Enabling customers to make informed choices
about food and nutrition is at the heart of this pillar.
Recognising that we are a very different business
to many others in the industry is also a key aspect,
and presents a number of opportunities. Last
year we committed to always having at least 100
different fruit and vegetables on promotion at any
one time, which we have continued to monitor
throughout this financial year.
700
600
500
400
300
200
100
0
8
9
3
5
1
0
2
r
e
b
m
e
c
e
D
5
6
6
7
5
3
5
6
3
5
5
4
0
6
4
3
5
4
4
1
4
8
4
4
7
3
3
0
7
3
0
6
3
6
1
0
2
y
r
a
u
n
a
J
6
1
0
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y
r
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F
6
1
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h
c
r
a
M
6
1
0
2
l
i
r
p
A
6
1
0
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y
a
M
6
1
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2
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n
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J
6
1
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y
l
u
J
6
1
0
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t
s
u
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6
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m
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p
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6
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b
o
t
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6
1
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b
m
e
v
o
N
Financial Year 2015
Financial Year 2016
Target
Being online enables us to use technology to offer nutritional information and healthier choice alternatives to our customers as they undertake their shop with
us. During 2016, the “Seasonality” campaigns have proven particularly popular, highlighting and encouraging customers to eat what is in season, supported by
associated recipes and promotions.
In an online world, we can’t give customers the opportunity to leave food donations in store, as some retailers do. So we looked for a better way. December
2014 saw us launch “Donate Food with Ocado”, an alternative food donation scheme whereby customers make a financial donation to buy food for our local
food bank partners, and we match it with groceries that we donate. This has continued to prove popular with customers, and during the financial year more
than £179,278 of food has been provided to food banks. The beauty of the scheme is that it allows food banks to get the specific foodstuffs that they need,
predominantly fresh, refrigerated products.
Case Study
The North Warwickshire
Food Project
“Over the last 12 months, the North Warwickshire
Food Bank, in partnership with the Council, local
Citizens Advice Bureau and a homelessness
charity has been supplied almost exclusively
through the fantastic partnership we have with
the Ocado operation in Dordon. This brilliant
and innovative arrangement has enabled us to
develop a service offer over the last three years
with Ocado that initially saw us able to support
families and individuals impacted by welfare
reforms via the provision of emergency food
parcels. In the last 12 months alone, this has
enabled us to issue over 1,600 food parcels that
has helped support more than 5,500 individuals.
Without this support, the ability of these
residents to cope with their crisis need would
have been significantly worse and cannot be
underestimated.”
North Warwickshire Food Bank partners and
volunteers
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report
41
Ocado is committed to the upholding of human
rights. During the period, we introduced a Human
Rights Policy reflecting our commitment to acting
ethically and with integrity in all our business
relationships and to implementing and enforcing
effective systems and controls. We welcome the
introduction of the Modern Slavery Act which is
designed to root out slavery-like practices, such
as human trafficking, in global supply chains. Our
full modern slavery statement will be published on
www.ocadogroup.com.
We continue supporting farmers in South Africa
and Kenya who supply us with fruit and vegetables
via donating to the Waitrose Foundation. We
made donations totalling £20,000 during the
period of this report.
During the period we also made a donation
of £260,000 to the Prince of Wales’s Charitable
Foundation, through sales of Duchy branded
products.
No donations were made by the Group to any
political party, organisation or candidate during
the period (2015: nil).
The Ocado Foundation
The Ocado Foundation was established in
April 2015 with the aim of our employees and
customers helping us make well-aimed actions
at a local level across the UK. We try to make
donations to multiple small, local charities,
selected by employees across Ocado nationally,
rather than providing support only to a single
“household name” major charity.
During the last 12 months, almost £15,000 has
been donated to charities across the UK by
colleague’s activities that have been matched
in funds by the Ocado Foundation. Colleagues
have also volunteered more than 2,000 hours to a
variety of good causes.
The legislation that came into effect in October
2015 requires a 5p charge on all new single use
carrier bags in England. Given the aim of the
legislation is to reduce bag littering and damage
to wildlife, we believe that this is best done by
removing the bags from circulation. During the
period, we have collected 102.7 million bags
from customers preventing them from becoming
litter in the first place. The Ocado Foundation is
custodian of the remaining funds from the carrier
bag charge and disburses the donations.
One such example of our donation is our
partnership with WRAP and the Recycle Now
schools campaign. Some of the proceeds from the
carrier bag charge is funding the development and
dissemination of primary schools resources about
recycling and sustainability.
Case Study
In 2016, Ocado partnered with The Real Junk
Food Project (TRJFP), a charity intercepting
food destined for waste and using it to create
healthy meals for its Pay As You Feel cafes
located across the UK and worldwide.
The efficient planning of Ocado’s business
model means that there is a very small
amount of food waste. The area that cannot be
planned is customer cancellations.
Food is donated to TRJFP when a customer
cancels an order that has already been
picked and packed. The order is returned
to the distribution site, stored at the correct
temperature and collected every day by TRJFP.
Adam Smith, founder of TRJFP, says: “Ocado
runs an incredibly streamlined and efficient
operation in regards to product sourcing,
variety and delivery logistics. The style and
quality of food and the regularity of deliveries
we are receiving from Ocado is incredible. The
variety of Ocado food that we’ve used to create
tasty and healthy meals has attracted more
and more customers to the cafés, especially in
Leeds. Coupled with that, the Ocado team is
able to let us know what we’ll receive the day
before we collect the products, so our chefs
can plan menus in advance. This ensures no
food is wasted in our cafes.”
During the year, we have rolled this partnership
out to numerous sites across the UK and
continue to look for innovative ways to reduce
food waste.”
Ocado’s partnership with WRAP and Recycle Now
school campaign
Ocado working with The Real Junk Food Project,
Leeds
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report 42
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
2
0
9
,
1
1
:
6
1
0
2
All Employees
Number of employees as at period end
Male: 9,809
Female: 2,093
Senior Managers
Senior Managers means the Management Committee
excluding Executive Directors as at period end
Male: 8
Female: 1
Directors
Number of Directors as at period end
Male: 9
Female: 2
14. Our People
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 in our markets.
We Recruit Talent
Our business is built by employees who innovate,
who find solutions, and who deliver world class
service. Our recruitment team has been effective in
meeting the significant challenge of hiring the new
employees needed for our continuous growth.
We opened two spokes in 2016 and moved a third
to new premises. Our delivery driver team is the
largest in our 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 in Andover now having
commenced operations and our fourth CFC
in Erith under construction, we plan to create
even more opportunities for existing and new
employees in 2017.
In September 2016 we brought in a record 47
university graduates under our seven separate
graduate training schemes, covering Logistics
Development, Engineering, Finance, General
Management, HR, Retail and Operations
Management, cementing our place as a significant
employer and creator of new graduate jobs.
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 adjacent charts 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. These range
from redesigning uniforms in conjunction with
employee representatives, to relocating our
head office to one with a higher quality work
environment. We provide access to healthy eating
options with an onsite restaurant; and for all
our CFC-based employees, there is access to a
discounted Company shop.
We’ve increased our use of technology for
internal communications by introducing mobile
friendly platforms including a new employee
benefits portal – MiBenefits – and increased the
development of mobile apps – MiOcado – and
other web-based plasma technology.
We also encourage formal two-way
communication through our employee surveys
and our employee representative body, the
Ocado Council, both of which help us identify
areas where we can improve as an employer and
encourage participation and consultation in the
decisions we make. Ocado maintains a voluntary
union recognition agreement with USDAW, which
is integrated with our Ocado Council, to voice the
views of our hourly paid employees.
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 have further
embedded appraisals, 1:2:1s and 360 degree
employee feedback as a development tool. Using
talent matrix mapping and succession planning
we also identify potential successors for every
middle and senior management role.
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 of more than 300 e-learning modules
and over 30 different workshops, team building
days, a learning library and provide individual
coaching.
MiLearning Platform
At Ocado we recognise the importance of meeting
colleagues’ learning and development needs in
the most flexible way possible.
So, we’ve developed an online platform that
delivers beyond the more traditional classroom-
based training.
MiLearning has a wealth of information and
learning activities and provides a gateway to:
• Explore and diagnose learning needs
•
Identify solutions to address learning needs
• Record learning and development activities
• Share learning activities with others
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Strategic Report
43
Strategic Report Approval
The Company’s Strategic Report is set out on
pages 6 to 43.
The Strategic Report is approved by the Board and
signed on its behalf by
Neill Abrams
Group General Counsel and Company Secretary
Ocado Group plc
31 January 2017
Case study
MiBenefits – an online benefits portal –
is accessible on any device for remote
and non-desk based employees to see
personalised information about Ocado
share plans, plus a variety of rewards and
discounts on Ocado, Fabled, Fetch and
Sizzle, as well as high street shops, gyms,
theme parks, and more.
Employees can view their current pension
membership, change contribution levels, or
join/leave a pension scheme. They can also
change their beneficiary and much more. In
the future, MiBenefits will provide employees
with an opportunity to “flex the benefits they
receive, giving our employees further choice.
Retaining, Recognising and
Rewarding Our People
As we invest a significant amount of time and
resources in recruiting the right people and
developing their skills, retaining our employees
is vitally important to the business. This means
designing benefits packages that are in tune with
what different groups of employees want. This
year information about Reward and Benefits were
moved to an online portal – MiBenefits – a mobile
friendly platform designed especially for every
employee so they see only what is relevant and
available to them. For the first time, we will be
producing a personalised Total Reward Statement
for each employee, setting out the full value of
their remuneration.
We have a range of traditional benefits and an
industry leading 15% employee discount on
all shopping at Ocado. We have a commitment
to ensuring that all employees share in the
Group’s success through various equity schemes.
Employees are also 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 third year
running we also gave free shares equivalent to 1%
of basic pay to all employees with six months or
more service.
We strive to make Ocado an employer of choice
and our comprehensive employee benefits
package includes pension schemes with employer
contribution, and an employee assistance
programme for all.
People Values
We’re
in it
together
Value
each
person
Love
what
we do
We can
be even
better
sluglineStock Code: OCDO | www.ocadogroup.comStrategic Report 44
slugline Governance
15. Chairman’s Governance Introduction
16. Board of Directors
17. Statement of Corporate Governance
18. Audit Committee Report
19. Nomination Committee Report
20. Directors’ Report
46
48
50
59
64
66
45
slugline 46
Lord Rose
Chairman
The
entrepreneurial
behaviour at
Ocado underpins
the growth of
our business . . .
supported by the
Group’s robust
governance
framework and its
values.”
15. Chairman’s Governance
Introduction
Dear Shareholder,
On behalf of the Board, I am pleased to present
Ocado’s Statement of Corporate Governance for
2016.
As I have reported in previous years, the
entrepreneurial behaviour at Ocado underpins
the growth of our business and enables the
Company to lead the online grocery retail market.
Importantly, this is supported by the Group’s
robust governance framework and its values.
The Board takes overall responsibility for the
Group’s governance and culture. When discussing
reports from management and functions such as
Internal Audit & Risk the Board looks for alignment
between the Group’s culture and values and
the behaviours shown by employees and other
stakeholders.
Leadership and Board
Effectiveness
The Board provides entrepreneurial leadership
to the Company and oversees the strategy of the
Group, as well as having overall responsibility for
the Group’s performance, creating accountability,
and managing risks that face the Group. As
the business grows and meets new challenges
and opportunities, the smooth operation
of the Board is key. We are mindful that it is
important for the Board to be composed of those
personnel that are best placed to provide the
appropriate constructive debate on the Group’s
strategic direction with a diverse range of skills
and experiences which collectively are both
complementary and directly relevant to Ocado’s
strategy. This year’s annual Board performance
review was facilitated externally and provided a
good opportunity for the Board to take an in depth
look at its effectiveness and composition.
On 18 November 2016 we announced some
changes to the Board. Firstly, the appointment
of Emma Lloyd as Non-Executive Director with
effect from 1 December 2016. Emma brings to
the Board significant experience in technology
and strategic partnerships, at a time when the
Group is positioning itself to grow the platform
business. In addition, Robert Gorrie will step down
from the position of Non-Executive Director with
effect from the AGM on 3 May 2017. Robert Gorrie
has made a very significant contribution to the
Board during almost 17 years of service, first as an
Executive Director and then as a Non-Executive
Director and he leaves with our sincere thanks
and best wishes. These recent Board changes
follow the appointment of Andrew Harrison in
early 2016. Andrew has significant experience
in the technology and retail sectors and with
establishing international ventures, which should
provide valuable insight as the Group pursues
partnerships with overseas retailers. David Grigson
retired from the position of Senior Independent
Director in May 2016, having made a significant
contribution to the Board since 2010. Further
details are set out in the report on the activities
of the Nomination Committee found on pages 64
and 65.
Accountability and Risk
The Board periodically discusses risk management
and the principal risks facing the Group. The
Audit Committee has played an important role
in monitoring the Group’s risk and assurance
systems, including in relation to strategically
important projects such as the new CFCs. The Audit
Committee reviewed the reporting framework on
controls being used by the business, including for
the Ocado Smart Platform, which was an important
step both for the retail business and in readiness for
the platform business.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Governance 47
Remuneration and
Engagement with Shareholders
Our Executive Director remuneration
arrangements are designed to incentivise
and support the achievement of our business
objectives and sustain long-term value for
shareholders. The Remuneration Committee
oversees the 2014 Directors’ Remuneration
Policy and this year has made a number of minor
changes to it in order to further align it with best
practice from a corporate governance perspective
and with shareholder expectations. The Directors’
Remuneration Policy will be put to shareholders
at the AGM on 3 May 2017. The new 2017 Policy
retains 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.
Further detail and the new 2017 Policy can be
found in the Directors’ Remuneration Report on
pages 80 to 96.
Statement of Corporate
Governance1
The Statement of Corporate Governance for 2016
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 76 to 115. The Group’s risk
management and internal control framework and
the Group’s principal risks and uncertainties are
described on pages 34 to 37.
Lord Rose
Chairman
Ocado Group plc
1. These sections form part of this Statement of Corporate Governance. The Directors’ Remuneration Report on pages
76 to 115, the Directors’ Report on pages 66 to 73 and the going concern and viability statements on page 35 also
contain information required to be included in this Statement of Corporate Governance, and so are incorporated
into this statement by reference.
sluglineStock Code: OCDO | www.ocadogroup.comGovernance 16. Board of Directors
48
Lord Rose
Chairman, 67
Appointment to the Board
11 March 2013
Committee Membership
Nomination (Chairman)
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.; Non-Executive Director of Woolworths
Holdings Limited, listed in South Africa; Chairman of Majid
Al Futtaim Retail based in Dubai; Non-Executive Director of
Time Out Group plc
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 knighted in 2008 for services to the retail
industry and corporate social responsibility, and granted a
life peerage in August 2014.
Tim Steiner, OBE
Chief Executive Officer, 47
Duncan Tatton-Brown
Chief Financial Officer, 51
Appointment to the Board
13 April 2000
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.
Appointment to the Board
1 September 2012
External Appointments
Senior Independent Director and Audit Committee
Chairman of Zoopla Property Group plc
Relevant Experience
Prior to joining Ocado, Duncan was Chief Financial
Officer of Fitness First plc, and previously Group Finance
Director of Kingfisher plc, one of the world’s largest home
improvement retailers. He has also been Finance Director
of B&Q plc, Chief Financial Officer of Virgin Entertainment
Group and held various senior finance positions at
Burton Group Plc. Duncan holds a master’s degree in
Engineering from King’s College, Cambridge. He is also
a member of the Chartered Institute of Management
Accountants.
Mark Richardson
Chief Operations Officer, 52
Neill Abrams
Group General Counsel and
Company Secretary, 52
Alex Mahon
Non-Executive Director and
Senior Independent Director, 43
Appointment to the Board
3 February 2012
External Appointments
Non-Executive Director of 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.
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 Corporate Responsibility. 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 divisions. Neill holds degrees in
industrial psychology and law from the University of the
Witwatersrand in Johannesburg and a Masters 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.
Appointment to the Board
1 June 2012
Committee Membership
Audit, Nomination
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 and 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.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Governance 49
Ruth Anderson
Non-Executive Director, 63
Douglas McCallum
Non-Executive Director, 50
JÖrn Rausing
Non-Executive Director, 56
Appointment to the Board
9 March 2010
Committee Membership
Audit (Chairman), Remuneration, Nomination
External Appointments
Non-Executive Director of Travis Perkins plc; Non-
Executive Director of Coats Group plc; Trustee and
Director of The Royal Parks; 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. She is a fellow
of the Institute of Chartered Accountants in England and
Wales and a member of the Chartered Institute of Taxation.
Appointment to the Board
3 October 2011
Committee Membership
Remuneration (Chairman), Nomination
External Appointments
Chairman of Trainline and PhotoBox; Founder and
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.
Appointment to the Board
13 March 2003
Committee Membership
Nomination
External Appointments
Group Board Member of Tetra Laval; Board Member of
Alfa Laval AB; Board Member of DeLaval Holding AB;
Member of the Board of Governors of the Museum of
London
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.
Robert Gorrie
Non-Executive Director, 57
Andrew Harrison
Non-Executive Director, 46
Emma Lloyd
Non-Executive Director, 47
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.
Appointment to the Board
1 March 2016
Committee Membership
Audit, Remuneration, Nomination
External Appointments
Deputy Chief Executive of Dixons Carphone Plc; Trustee
to the charity The Mix
Relevant Experience
Andrew was appointed Deputy Group Chief Executive of
Dixons Carphone Plc in August 2014. He was previously
Chief Executive Officer of Carphone Warehouse Plc. Having
joined in 1995, Andrew was appointed UK CEO of Carphone
Warehouse in 2001. He led the growth of the UK business
to become the market leader in the mobile sector, and
developed the fixed line strategy which led to the creation
of the TalkTalk division. Andrew was responsible for taking
Carphone Warehouse to the US in 2006, and instrumental
in the creation of the highly successful Best Buy Mobile JV.
From 2009 Andrew was responsible for both Carphone
Warehouse and Phone House operations, becoming
Chief Executive Officer of the Best Buy JV in 2010. Andrew
graduated with a BA in Management Studies from the
University of Leeds in 1992.
Appointment to the Board
1 December 2016
Committee Membership
Nomination
External Appointments
Director of Corporate Development, Partnerships and
Investments of Sky plc
Relevant Experience
As Sky’s Group Director of Business Development and Strategic
Partnerships Emma identifies and nurtures key strategic
relationships with Sky’s technology partners. Emma has overseen
the creation of Sky’s start-up venture investment function and US
presence, leading to the investment in over 20 technology start-
ups. Previously Emma was Sky’s Director of Emerging Products,
where she led a team that focused on identifying new product
opportunities across TV, online and mobile. In this position, she
played a key role in the early development of Sky’s award-
winning multiplatform TV service, Sky Go. Emma joined Sky in
January 2008 as a Business Development Director. She started
her career in management consulting, where she has ten years
business consulting and mobile telecommunications experience.
Emma graduated with a BA Joint Hons in Management Studies
and Geography from the University of Leeds in 1992.
sluglineStock Code: OCDO | www.ocadogroup.comGovernance 17. Statement of
Corporate Governance
50
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.
The following diagram shows the role of the Board and its committees and management.
Chairman
● Leads the Board
● Promotes high standards of governance
and ensures effectiveness
● Sets the Board’s agenda
Senior Independent Director
● Provides a sounding board for
the Chairman
● Serves as an intermediary for the other
Directors
● Discusses any concerns with shareholders
Non-Executive Directors
● Constructively challenge the
Executive Directors
● Monitor the delivery of the Group’s
strategy within the risk and control
framework set by the Board
Company Secretary and Group
General Counsel
● Ensures that Board procedures are
followed
● Governance matters
● Ensuring that information flows
between management, the Board
and its committees
Board of Directors
The Board is collectively responsible for the long-term
success of the Company. The business of the Company
is managed by the Board who may exercise all of the
powers of the Company. 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.
Audit Committee
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.
Remuneration Committee
Determines the remuneration, bonuses,
long-term incentive arrangement, contract
terms and other benefits in respect of the
Executive Directors, the Chairman and the
Company Secretary.
Nominaton Committee
Undertakes an annual review of succession
planning and ensures that the membership
and composition of the Board, including the
balance of skills, remain appropriate.
For more details see
pages 59 to 63
For more details see
pages 76 to 80
For more details see
pages 64 and 65
Chief Executive Officer
● Leads the Executive Directors
● Represents management on the Board
Executive Directors
● Day-to-day management of the Group’s
operations
● Operations and results of the Group
● Execute the strategy once agreed by
the Board
Management Committee
● Implements and oversees operational
management
Risk Committee
Oversees the Group’s risk
register, risk control
processes and disaster
recovery planning.
Information Security
Committee
Monitors the Group’s
information security
measures and oversees
changes to security
systems.
Treasury Committee
Oversees the treasury
policy concerning the
Group’s cash and deposits,
investments, foreign
exchange and interest
rates.
Safety Steering
Committee
Oversees the Group’s health,
safety and environment
management systems and
monitors the progress of
safety plans.
Capital Expenditure
Group
Reviews and authorises
capital expenditure
projects, overspends and
property expenditure, in
accordance with agreed
limits.
Indicates delegation
Indicates Board support
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Governance 51
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.
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 above, formally report to the Executive Directors, and may provide reports to the
Board or Board committees from time to time. The Management Committee, comprises the Executive Directors and nine members of management.
The full terms of reference for each Board committee are available on the Company’s corporate website (www.ocadogroup.com) and reports by each Board
committee are given in this Annual Report.
Board Responsibilities and Actions
y
t
i
l
i
b
i
s
n
o
p
s
e
R
d
o
i
r
e
p
e
h
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. Overseeing Ocado Smart
Platform negotiations and discussions
with Morrisons and Waitrose.
Annual review of key risks and risk
appetite and reviewing reports of
risk management. Review of
reports on specific risk areas
including OSP control environment.
Approving the annual budget,
the business plan for the Group
and individual capital
expenditure projects.
Approving the Group’s human
rights policy and modern slavery
statement.
Monitoring grocery retail
competitor activity.
.
Reviewing and approving the
Group’s regulatory results
announcements
and reports.
Receiving reports on patent
protection of the Group’s
technology.
Receiving report on people issues.
Discussing Board composition.
Receiving reports from
senior management on
trading, business
performance and financing.
Reviewing reports on health,
safety and environment, litigation,
investor relations and legal
and Company secretarial matters.
Site visit to Andover CFC to
understand 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.
Receiving various reports on
governance and regulatory
changes.
Approving the Group’s new share
dealing policy and processes.
sluglineStock Code: OCDO | www.ocadogroup.comGovernance
17. Statement of Corporate
Governance
52
Board Attendance
Executive Directors
Tim Steiner
Duncan
Tatton-Brown
Neill Abrams
Mark
Richardson
Board Attendance
The attendance record of the Directors at scheduled Board meetings during the period is set out in the
chart on the left. The Board scheduled thirteen 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.
Composition of the Board
Review of Board and Board Committee Composition
As noted on page 46, a number of changes were made to the composition of the Board. In making
changes to the Board, the Board’s review of composition took into account various considerations
including length of Director tenure, Board diversity, independence and the mix of skills and experience of
the Directors. Some of these considerations are outlined below.
12
13
13
13
13
13
13
13
Actual meetings attended
Possible meetings the Director could have attended
Board Attendance
Non-Executive Directors
Lord Rose
(Chairman)
David Grigson
Jörn Rausing
Ruth
Anderson
Robert Gorrie
Douglas
McCallum
Alex Mahon
Andrew
Harrison
5
6
12
12
13
13
13
13
13
13
13
13
13
13
10
11
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.
2. Andrew Harrison was appointed to the Board on
1 March 2016.
3. David Grigson resigned from the Board on 4 May
2016.
4. Emma Lloyd was appointed on 1 December 2016,
after the period ended.
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 experience, skills, backgrounds
and perspectives. 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.
Gender Diversity
9
4
3
5
3
0
Male
Female
Executive
Whole
Board
Non-
Executive
When the appointment of Emma Lloyd takes
effect and after the resignation of Robert Gorrie,
the Board will have 27% female membership. The
Board has made significant progress in improving
the gender balance on the Board. In 2009, the
Board had no female representation. Despite this,
the Board recognises there is further work to do
to improve female participation in executive and
senior management positions and to improve
ethnic diversity on the Board. 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 (or ethnicity) on the Board,
the Board is committed to increasing the percentage of women on the Board and in senior positions in
the Company. Any future Board 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 42 and 43. The chart above illustrates the
diversity of the Board in terms of gender (as at the date of this Annual Report).
1. The chart includes Robert Gorrie, who will retire at
the AGM on 3 May 2017, and Emma Lloyd, who was
appointed on 1 December 2016.
2. The chart excludes David Grigson, who retired at the
AGM on 4 May 2016.
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 new Non-Executive Directors for the Group. The Nomination
Committee monitors these objectives.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Governance Board Tenure
The Board also takes into account the length of tenure of existing Directors when considering
reappointment and succession planning. Ruth Anderson will have served seven years (in March 2017)
as a Director and both Robert Gorrie and Jörn Rausing have served as Directors for over 13 years
and accordingly their reappointments to the Board were subject to particular scrutiny (including the
importance of maintaining Board continuity). The chart on the right illustrates the tenure of Directors (as
at the date of this Annual Report).
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 seven Non-Executive Directors all determined by the Board to be independent and four Executive
Directors, the Board complies with this recommendation. The second chart on the right illustrates the
current composition of the Board in respect of the independence of its members (as at the date of this
Annual Report).
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 Non-
Executive Directors Jörn Rausing and Robert Gorrie, in particular.
Jörn Rausing
Jörn Rausing has been a Director for almost 14 years, although less than seven of these have been in the
era of the Company as a listed company. Jörn is a beneficiary of the Apple III Trust, which owns Apple III
Limited, a material (approximately 11%) shareholder of the Company. He is not a representative of the
Apple III Trust, nor does the Apple III Trust have any contractual or other right to appoint a Director to the
Board.
53
Length of Tenure of Chairman
and Non-Executive Directors
3
2
:
s
r
a
e
y
3
-
0
:
s
r
a
e
y
6
-
3
2
:
s
r
a
e
y
+
0
1
1
0
:
s
r
a
e
y
0
1
-
6
Board Independence
59%
33%
8%
Executive Director
Chairman
Independent Non-Executive Director
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.
1. The charts above include Robert Gorrie, who will
retire at the AGM on 3 May 2017, and Emma Lloyd,
who was appointed on 1 December 2016.
2. The charts above exclude David Grigson, who retired
at the AGM on 4 May 2016.
The Board considers Jörn to be independent in character and judgement and does not believe that
the size of Apple III Limited’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 17 years, but less than seven of these have been in the era
of the Company as a listed company. Robert will retire at the 2017 Annual General Meeting, but during
the period, the Board remained assured of Robert’s independence. Robert has acted as the non-
executive chairman of the Ocado National 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 £900
fee during the period for performing this role (2015: £6,000). Robert was employed by the Company until
2006, in an executive role as the Logistics Director.
The Board considers that Robert’s knowledge of the Group’s complex IT and logistics operations
was 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 was helpful
in monitoring the execution of that strategy. The Board does not consider that the Ocado National
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 National Council to have been 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.
sluglineStock Code: OCDO | www.ocadogroup.comGovernance
17. Statement of Corporate
Governance
54
Board 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.
Board Effectiveness Review Cycle
2014
2015
2016
Internal performance review.
Progress against external
review assessed.
Internal performance
review of progress.
Independent,
externally facilitated review.
The Board review for 2016 was facilitated externally by Independent Audit Limited. The review followed two years in which an internally facilitated review had
been conducted by the Company Secretary.
Independent Audit Limited (who have no other connection to the Company, and are considered by the Board to be independent) carried out a detailed
Board review which included conducting individual interviews with the Directors and the Deputy Company Secretary and observing a Board meeting. The
interviewees were asked their views on a range of subjects including the role of the Board and Board committees, the relationship between the Executive
Directors and the Non-Executive Directors, and the quality of the Board and committee discussions on various topics such as strategy, risk, assurance, Board
composition and succession planning.
Conclusions from this Year’s Review
The review concluded with a final report and feedback session with the Chairman and a presentation to, and discussion with, the Board at a Board meeting.
The report contained extensive commentary on the effectiveness of the Board, the Board committees, the Non-Executive Directors, the Executive Directors as
well as on the Company Secretariat and the support provided to the Board by management. Some of the findings and actions areas are shown below.
Focus areas
Strategy
Strategy development, review of
performance against strategic objectives
Performance
Reporting of performance against
strategic objectives
Board composition
Committees, skills, diversity, size,
appointment, succession and tenure
Some key findings and actions
• The Board held a successful strategy day in June 2016, with good quality discussion.
• The strategy and its performance objectives are clear and have been agreed with management.
• The Board should continue to have presentations from management, with presentations from more members
of management and a broader range of topics so that the Non-Executive Directors gain more visibility and
insight into the business.
• The Board and its committees are of an appropriate size and mix of skills.
• The Board continues to focus on succession planning in the medium- and long-term.
Areas of focus for 2017
Some of the potential areas for the Board to consider in 2017 that were highlighted in the review include:
• Continue to manage and plan succession for Board members.
• Maintain ongoing focus on strategy execution and review, following the successful strategy day.
• Ensure that the Board reviews culture and has greater visibility of people-related matters.
• The Board will consider opportunities for more informal meetings to encourage broad-ranging discussions between Board members.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Governance
55
The overall conclusion from the report was that the Board and its committees operate effectively, engaging in a high level of debate and constructive
challenge.
The Board recognises that a continuous and constructive evaluation of its performance is an important factor in helping the Board realise its potential.
The Board intends to continue to conduct annual performance reviews, with external oversight of the process at least every three years.
The Board and separately each of the committees discussed the report including the key considerations. Apart from the formal review of the Board’s
effectiveness, the Chairman and the Non-Executive Directors met without the Executive Directors being present to discuss the performance of the Board
and the Executive Directors. The Senior Independent Director and the Non-Executive Directors also met to discuss the performance of the Chairman without
the Executive Directors or the Chairman being present and subsequently met with the Chairman to provide feedback. The Chairman regularly met with the
Executive Directors and the Deputy Company Secretary during the period, on a range of Company matters and responsibilities.
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 4 May 2016, all of the current Directors (except David Grigson who was retiring, and Emma
Lloyd who had not yet been appointed) stood for re-appointment, and were duly elected with a range of 83% to 99% of votes cast by shareholders in favour of
re-appointment.
All Directors, except Robert Gorrie, will retire and seek re-election at the AGM. New Non-Executive Director, Emma Lloyd, whose appointment took effect on
1 December 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 on page 56) during the
period).
The rules that the Company has about the appointment and replacement of Directors are described in the Directors’ Report on page 67.
Board Induction and Professional Development
Newly appointed non-executive directors follow a tailored induction programme, which includes a comprehensive overview of the Group, dedicated time with
Group executives and key management personnel, and visits to customer fulfilment centres. The Chairman and the Company Secretary are responsible for
reviewing, preparing and coordinating the induction programme.
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 external auditors, PwC, on new lease accounting requirements, the cyber security risks and the software as a service reporting framework. 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
requirements of the new Market Abuse Regulations and the Statutory Audit Directive).
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.
sluglineStock Code: OCDO | www.ocadogroup.comGovernance 17. Statement of Corporate
Governance
56
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 48 and 49.
Director
Lord Rose
Change in Commitment
Appointed Non-Executive Director of Time Out Group plc
Appointed Chairman of Open Britain Limited
Resigned as Chairman of Open Britain Limited
Effective Date of Change
June 2016
December 2015
September 2016
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 the 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. The system in place
for monitoring potential Director conflicts remained effective during the period.
Engagement with Shareholders
Investor Relations
The Company is committed to keeping shareholders informed of its strategy and progress. The Chairman has overall responsibility for ensuring that the
Company has appropriate channels of communication with its shareholders and is supported in this by the Executive Directors. 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 bi-annual investor roadshows and also addresses current and prospective shareholders at various investment
conferences and other events, 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 Alex Mahon, the Senior Independent Director, are available to the Company’s shareholders for discussions. The Chairman and
Senior Independent Director met with some of the Company’s shareholders following Alex’s appointment as Senior Independent Director to discuss various
matters including Group trading, strategy and developments, corporate governance and executive remuneration. The Chairman reports to the Board on these
discussions. We held a number of investor days for our core shareholders at our new CFC in Andover in late 2016.
Directors’ Remuneration Policy
This year the Remuneration Committee has proposed a number of minor changes to the 2014 Directors’ Remuneration Policy. The new 2017 Policy will be put
to shareholders at the 2017 AGM. The Company notified its largest shareholders of the key changes to the policy in order to illicit any feedback ahead of its
publication. For more information on the Directors’ Remuneration Policy, please refer to the Remuneration Committee report on pages 80 to 96.
Changes to the Company’s Resolution Regarding Share Allotment
The Group also engages with shareholders in the event of a substantial vote against a resolution proposed at an annual general meeting. The Company
Secretary had consulted some shareholders in recent years about the Company’s share allotment shareholder authorities.
At the 2016 annual general meeting, the Company’s share allotment resolutions received less support than expected by management. The Company consulted
the large shareholders who did not support the resolutions. The Company Secretary received feedback from the shareholders that indicated the shareholders
had governance policies that were not wholly aligned with the Pre-Emption Group’s Statement of Principles and Investment Association guidance. In response
to shareholder feedback the Company changed its approach to share allotment authorities for the 2017 AGM. For more information on the resolutions
proposed for the 2017 AGM, please refer to the Directors’ Report on pages 66 to 73.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Governance 57
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 pages 72 and 73 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 this Annual Report by the Executive Directors and the full Board;
focused review of specific sections of this 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 pages 59 to 63);
• 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 118 to 124.
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 3 May 2017 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 76.10% to 100%.
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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 the Disclosure Guidance 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 Schedule A 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.
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.
Code Provision
D.1.1 and Schedule A
Area
Design of performance-based remuneration
D.2.2
Senior management remuneration
Explanation
As explained on page 103, Directors are not required to retain shares from share
incentive schemes for a period after leaving the Company.
As explained on page 80, the Remuneration Committee monitors, but does not
make recommendations concerning, the level and structure of remuneration for
senior management of the Company.
The Financial Reporting Council updated the UK Corporate Governance Code in September 2016 (the “2016 Code”). The 2016 Code applies to reporting
periods beginning on or after 17 June 2016, and so does not apply to the Company’s reporting period ended 27 November 2016. However, the Board has,
where appropriate and feasible, adopted the new provisions in the 2016 Code earlier than required and provides disclosure against these requirements in this
Annual Report.
Further information on the Code and 2016 Code can be found at www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance/UK-Corporate-
Governance-Code.
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.
Lord Rose
Chairman
Neill Abrams
Group General Counsel and Company Secretary
Ocado Group plc
Registered in England and Wales, number 07098618
31 January 2017
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59
Ruth Anderson
Audit Committee Chairman
During the
year the Audit
Committee oversaw
the tender for the
role of external
auditors.”
Dear Shareholder,
I am pleased to present the report of the Audit
Committee for the financial year ended 27
November 2016.
Our report provides information concerning our
oversight of the Company’s financial reporting,
assurance framework and internal controls.
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 context for
understanding the Group’s accounting policies
and financial statements for the period.
A key responsibility of the Audit Committee during
the year was overseeing the tender for the role of
external auditors. The tender was completed in
late 2016 and, based upon the Audit Committee’s
recommendation, the Board is proposing that
shareholders approve that Deloitte LLP be
appointed, effective from the 2017 Annual General
Meeting. More detail about the external audit
tender process can be found on pages 62 and 63.
The Audit Committee would like to thank each
firm that participated in the tender and specifically
to thank PwC on the Board’s behalf, for their
significant contribution to Ocado over the years.
During the year the Audit Committee reviewed
the work being done to establish a control
environment for the Ocado Smart Platform by
Internal Audit and Risk. Internal Audit and Risk
oversaw the design of the control model and the
Audit Committee has received, and will continue
to receive regular updates and reports.
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
31 January 2017
Membership and meetings
The membership and appointment dates of the Audit Committee members, together with details of each member’s meeting attendance, are set out below.
As required under the terms of reference, the Audit Committee has three members, all of whom are independent Non-Executive Directors, and holds a
minimum of three meetings a year.
Alex Mahon
Andrew Harrison
Ruth Anderson
Chairman
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
Audit Committee
member since 1 March 2016
Number of meetings: 3
Number attended: 3
Relevant sector
experience: Retail,
Technology
Relevant sector
experience: Retail
Relevant sector
experience: Technology
At least one member of the Audit Committee (Ruth Anderson) is considered by the Board to have competence in accounting and all members have recent and
relevant financial experience. Ruth Anderson is a chartered accountant with the Institute of Chartered Accountants in England and Wales. In line with the UK
Corporate Governance Code 2016, the Audit Committee as a whole has competence relevant to the sectors in which the Company operates, notably the retail
and technology sectors. Details of each Audit Committee member’s relevant sector experience can be found in the diagram above. The biography of each
member of the Audit Committee is set out in the Board of Directors section on pages 48 and 49.
During the year, the Audit Committee composition changed as a result of the retirement of David Grigson and the subsequent appointment of Andrew Harrison
effective from 1 March 2016. David Grigson attended two meetings during the period, out of a possible two meetings, before his retirement from the Audit
Committee on 4 May 2016.
Regular attendees at the Audit Committee meetings include the Chief Financial Officer, the Group General Counsel and Company Secretary, the Finance and
Risk Director, 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. The Deputy Company Secretary is the secretary to the
Audit Committee.
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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 areas of risk identified for detailed review and 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. As part of the year end reporting process the Audit Committee reviewed this Annual Report, a management report
on accounting estimates and judgements, external auditors’ reports on internal controls, accounting and reporting matters and management representation
letters concerning accounting and reporting matters.
Monitoring the integrity of the financial statements of the Company, 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 and the Audit Committee plays an important role in
assisting the Board in reaching those conclusions, including an assessment that the narrative reporting in the front of the Annual Report accurately reflects
the financial statements in the back. For information concerning the process followed by the Company in preparing this Annual Report see page 57 of the
Statement of Corporate Governance. The Audit Committee also monitors the financial reporting processes for the Group’s half year report, which is a similar
role to the one it carries out for full year reporting.
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 table below 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.
Area
Intangible Assets
— Capitalisation
of Internal
Development
Time and Costs
Cost of Sales -
Supplier income
(including
commercial
income,
promotional
allowances and
volume rebates)
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.
The key projects in 2016 have been the
development of new technology used
in Andover CFC and replatforming the
non-CFC based software to a cloud-based
solution.
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 timings 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.
Revenue
Recognition
New promotional initiatives impact on
Revenue, Other Income and Cost of Sales.
Impact on Financial Information
and Disclosure in Financial
Statements
The amount of £44.9 million of
internal development costs has
been capitalised within intangible
non-current assets, as set out
in note 3.1 to the consolidated
financial statements on pages 141
and 142.
See notes 2.1 and 3.8 to the
consolidated financial statements
on pages 134 and 148.
The accounting treatment is
included in the Consolidated
Income Statement on page 125.
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 and
concluded an impairment was required.
The Audit Committee assessed management
judgements regarding estimates of commercial
income. This commercial income arises from
a range of agreements with suppliers including
annual agreements with many suppliers which
include a financial reward for achieving pre-
agreed sales volumes. The Audit Committee
reviewed the basis of the judgements made
by management and concluded these were
appropriate.
Details of the nature of the new promotional
activity were considered by the Audit Committee.
They reviewed the management judgements and
accounting treatment, which takes into account
the method by which the customer is incentivised
to shop and how the supplier reimburses some,
or all, of the promotional cost of this incentive
to Ocado. The Audit Committee concurred with
conclusions reached.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Governance 61
Area
Recognition of
Deferred Tax
Asset
Issue and Nature of Judgement
The estimates used to support the future
business profitability and recognised
deferred tax asset require management
judgement.
Exceptional
Items A
Whether the costs associated with the
head office move to new buildings and
material litigation costs should be treated
as exceptional.
Factors and Reasons Considered
and Conclusion
The basis of management 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. The Audit Committee assessed the
reasonableness of the assumptions underlying
the Group’s future profits forecasts.
The Audit Committee assessed management
judgements, took into account the views of
the external auditors and concluded that the
accounting treatment was appropriate given
the one-off nature of these particular events.
Impact on Financial Information
and Disclosure in Financial
Statements
The amount of £14.2 million was
recognised in the Consolidated
Balance Sheet for the period.
Details of the deferred tax asset
are set out in note 2.8 to the
consolidated financial statements
on pages 138 to 140.
Given the accounting treatment as
exceptional, £2.4 million
was included as an exceptional
cost item in the Consolidated
Income Statement. See note 2.7
of the consolidated financial
statements on page 137.
The table above is not a complete list of all the Group’s accounting issues, estimates and policies, but highlights the most significant ones for the period in the
opinion of the Audit Committee.
The accounting treatment of all significant issues and judgements was subject to review by the external auditors. For a discussion of the areas of particular audit
focus by the external auditors, refer to pages 118 to 121 of the Independent Auditors’ Report.
The Audit Committee considers that the Company has adopted appropriate accounting policies and made appropriate estimates and judgements.
Share-based payments: Accounting for share-based payments is a recurring issue, but did not require a significant estimate or judgement during the period,
unlike previous periods. Although there were no material new share schemes in the year requiring assessment, the Audit Committee remain aware of their
assessments in the prior years and their accounting impact. The judgements historically mainly relate to vesting criteria, share price volatility and leaver
assumptions for each of the schemes.
Segmental 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.
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 35) and the assessment reports prepared by management in support of such statements. The external auditors reviewed management’s assessment and
discussed this review with the Audit Committee.
Tax Review: The Audit Committee also considered the Company’s tax policy, 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 or access the necessary tax expertise to cater for the growth of
the business in the future and the impending rule changes regarding tax disclosures and reporting of effective tax rates.
Internal Audit and Risk: 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 and Risk plan, which was approved by the Audit Committee in January 2016, set out a number of activities for the
period and the 2017 financial year, including assurance programmes for key strategic projects such as the new CFCs and the Ocado Smart Platform technology.
These assessments of key programmes focus on several areas including programme management processes and governance for the project. The Internal Audit
and Risk function recruited a new team member during the period to focus on technology assurance work.
In carrying out operational audits that test key controls designed to manage key risks to achieving the Group’s strategic objectives, Internal Audit and Risk agrees
recommendations with the relevant business area for implementation of appropriate actions. Management actions are tracked and the status of these actions are
reported to the Audit Committee alongside progress against the Internal Audit and Risk plan. This helps mitigate the Group’s risks.
As well as reporting at each Audit Committee meeting on the results of their work, Internal Audit and Risk reports on any cases of whistleblowing, fraud and bribery.
Internal Audit and Risk effectiveness review: A review of the effectiveness of the Internal Audit and Risk function was carried out during the period by way of
questionnaire completed by members of management and business operations, the Audit Committee members and the external auditors, as well as a self-
assessment by the Head of Internal Audit and Risk. The assessment questionnaire asked questions to assess performance in a range of areas including planning
and work programme, communication, reporting and performance. 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 the Internal Audit and Risk function was effective. During the period, the Audit
Committee met with the Head of Internal Audit and Risk, without management present.
Risk Review: The Board has ultimate responsibility for effective management of risk for the Group including determining its risk appetite, identifying key strategic
and emerging risks, and reviewing the risk management framework. The Audit Committee, in supporting the Board to assess the effectiveness of risk management
and internal control processes, relies on a number of different sources to carry out its work including an assessment report provided by management, Internal
Audit and Risk assurance reports and the assurance provided by the external auditors and other third parties in specific risk areas. No significant failings or
A
See Alternative Performance
Measures on page 194
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weaknesses were identified for the period. As the Group’s risk management framework evolves with the growth of the business new controls and processes are
identified and actions are put in place to implement them. The Board discussed and reviewed the Group’s risk appetite when reviewing the principal risks for the
Group. Regular review of the risk appetite ensures that the Company’s risk exposure remains appropriate and acceptable in enabling the Group to achieve its
strategic objectives. The Audit Committee also reviews risk appetite and principal risks when considering the effectiveness of risk management system. Every year
the Audit Committee focuses on particular risk areas identified in the Group risk register. During the period, management reported on the progress of the Group’s
business continuity plans and the Ocado Smart Platform control environment. The Audit Committee will continue to receive reports on these areas in future years.
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 34 to 37.
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 54, the Audit Committee carried
out a review of its terms of reference. A number of changes were made to the Audit Committee’s terms of reference to reflect changes in Disclosure Guidance and
Transparency Rules and The UK Corporate Governance Code 2016, including with regards to Audit Committee competence and audit tender requirements.
Auditor Tender and Appointment Overview
Assessing the Effectiveness of the External Audit Process and the External Auditors
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 118 to 124). 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 work of the auditors.
The Audit Committee reviewed the performance of PwC based on a questionnaire 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 results of the questionnaire were reviewed by the Audit Committee. 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
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 136. The non-audit services fees of £50,000 (2015: £37,000) paid to PwC related to: (1)
advice on the Company’s Greenhouse Gas Assurance Report (further details of which can be found in the Corporate Responsibility section on page 39); (2) an
engagement concerning Ocado Smart Platform controls assessment; and (3) advice covering the establishment of the Group’s Spain office during the period.
All non-audit work engagements were approved by the Chief Financial Officer as the fees concerned were well within the approval thresholds set under
the policy. In the case of each engagement, management considered it appropriate to engage PwC for the work because of their existing knowledge and
experience from prior Group engagements.
The Audit Committee received a regular report from management regarding the extent of non-audit services performed by PwC. PwC also provided a report to
the Audit Committee on the specific safeguards put in place for each piece of non-audit work confirming that it was satisfied that neither the extent of the non-
audit services provided nor the size of the fees (being 15.5% 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 concluded that the auditors’ independence from the Group was not compromised.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Governance 63
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 £322,000 (2015: £287,000)) was appropriate and that an effective audit could be conducted for such a fee. The existing authority for 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
2016. At the annual general meeting in 2016, all votes cast by shareholders were in favour of granting the Directors this authority.
External Audit Tender
As reported in last year’s annual report, the Audit Committee decided to undertake a tender of the external auditor role in 2016. PwC has audited the
Group’s accounts since 2001 and the current audit engagement partner’s five year term was due to end in mid-2017. A formal tender of the external audit
contract had not been carried out since PwC was first engaged in 2001. Although the Board and the Audit Committee have remained satisfied with both
PwC’s quality of service and their independence and objectivity, 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 believed that this
timing was in the best interests of the Company’s shareholders as it coincided with the timing of the rotation of PwC’s audit engagement partner under
professional standards and because a tender had not been conducted since 2001.
The Audit Committee approved and oversaw the tender process, including agreeing the timetable and tender document, which were prepared in
accordance with the relevant requirements. A description of the process undertaken during the audit tender is below.
Audit tender process – Timeline and key activities
Stage One
Audit Committee recommended the audit tender to the Board in April 2015, for the tender to take place in 2016.
The Audit Committee agreed the timetable for the tender, the tender document, the tender shortlist and the key decision criteria it would use in deciding
to make a recommendation to the Board.
Stage Two
Ruth Anderson and Duncan Tatton-Brown met separately with the audit partner of each shortlisted firm in advance of issuing the invitation to tender for
audit. This provided the ability to assess each audit partner from an experience and cultural fit perspective.
Four firms were invited to tender for the audit of Ocado. Each firm was sent a list of proposal requirements and evaluation criterion. The criteria included, but
was not limited to, the auditor’s application of technical knowledge, commercial insight and ability to deliver high quality audits. Each firm was invited to:
• A tour of the CFC in Hatfield;
• A meeting with management and finance team members; and
• Access a secure data room with information to help them gain an understanding of Ocado as a business.
Each firm submitted an extensive written proposal to the Company in September 2016.
Stage Three
Each proposal was reviewed and a shortlist was agreed.
Three of the firms were invited to present to the Audit Committee.
Stage Four
Each firm presented to the Audit Committee in October 2016. It was an interactive session with questions and answers.
The Audit Committee met to evaluate each firm using the agreed key decision criteria and to reach its recommendation to the Board.
Stage Five
Board approved the recommendation of the Audit Committee. Feedback was provided to all four firms.
At the conclusion of the process, the Audit Committee (having consulted with management) recommended to the Board that Deloitte LLP be appointed
as external auditors with effect for the 2017 financial year. The Audit Committee believed that both Deloitte LLP and one other firm, KPMG LLP, could be
recommended, but had a reasoned preference for Deloitte LLP, based on the selection criteria as above.
Recommendation to Appoint: The Board accepted the Audit Committee’s recommendation to appoint Deloitte LLP as external auditors and a resolution
for the appointment of Deloitte LLP will be put to shareholders at the 2017 AGM. The Audit Committee confirms this recommendation is free from influence
by a third party and that no contractual term has been imposed on the Company limiting the choice of auditor.
Transition to New Auditors: The Audit Committee has reviewed plans for the transition to the new auditors during 2017 and will receive regular reports on
the transition at Audit Committee meetings.
Resignation of auditors: PwC will cease to hold office effective at the conclusion of the Annual General Meeting on 3 May 2017, having completed the audit
of the Company’s financial statements for the period.
Statement of Compliance with the Competition and Markets Authority (CMA) Order
The Company confirms that it has complied with The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive
Processes and Audit Committee Responsibilities) Order 2014 (Article 7.1), published by the CMA on 26 September 2014, including with respect to the Audit
Committee’s responsibilities for agreeing the audit scope and fees and supervising the audit tender process.
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Lord Rose
Nomination Committee
Chairman
This report
outlines the work
of the Nomination
Committee in
reviewing Board
composition
and overseeing
the Director
recruitment
process.”
Dear Shareholder,
I am pleased to present the report of the
Nomination Committee for the financial year
ended 27 November 2016.
During the year, the Nomination Committee has
undertaken a number of activities, the results of
which led to the Company’s announcement on
18 November 2016 concerning some changes
to the Board. We appointed Emma Lloyd, with
effect from 1 December 2016 and announced
the resignation of Robert Gorrie with effect from
the 2017 Annual General Meeting on 3 May 2017.
This follows the changes to the Board made
earlier in 2016, with a view to refreshing the Board
composition.
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.
Lord Rose
Nomination Committee Chairman
31 January 2017
Membership and Meetings
The membership and attendance of the Nomination Committee, together with the appointment dates, are set out below.
As required under the terms of reference, the Nomination Committee has eight members, all of whom are independent Non-Executive Directors, and holds a
minimum of two meetings a year.
Lord Rose
Chairman
Robert Gorrie
Jörn Rausing
Ruth Anderson
Douglas McCallum
Alex Mahon
Andrew Harrison
Emma Lloyd
Nomination Committee
member since
11 March 2013
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
1 March 2016
Nomination Committee
member since
1 December 2016
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 of meetings: 0
Number attended: 2
Number attended: 2
Number attended: 2
Number attended: 2
Number attended: 2
Number attended: 2
Number attended: 2
Number attended: 0
Lord Rose became Chairman of the Nomination Committee when David Grigson stepped down from the role on his retirement from the Board, both with effect
from the 2016 annual general meeting on 4 May 2016. The composition of the Nomination Committee changed during the period with the appointment of
Andrew Harrison as Non-Executive Director with effect from 1 March 2016.
Emma Lloyd became a member of the Nomination Committee on her appointment to the Board as Non-Executive Director on 1 December 2016. Emma Lloyd
did not attend any meetings as her appointment was after period end.
The biography of each member of the Nomination Committee is set out in the Board of Directors section on pages 48 and 49.
Other attendees at the Nomination Committee meetings include the Chief Executive Officer and the People Director. The Deputy Company Secretary is the
secretary to the Nomination Committee.
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65
Principal Activities of the Nomination Committee During 2016
The Nomination Committee undertook a number of activities during the period as described below.
As reported in the Company’s previous annual report, the Nomination Committee had reviewed the Board’s size and composition in 2015. The review of Board
composition took into account various considerations including diversity, Director tenure, independence and mix of Board knowledge, skills and experience.
The skills review formed part of the discussions of the Nomination Committee around the necessary skills and experience of future appointees to the Board.
This review was the precursor to the Board agreeing a number of changes to the Board in the past 12 months. The Company separately announced the
appointment of Andrew Harrison as Non-Executive Director with effect from 1 March 2016 and the appointment of Emma Lloyd as Non-Executive Director with
effect from 1 December 2016. During the year, the Company announced that David Grigson would retire with effect from the annual general meeting on 4 May
2016 and that Robert Gorrie will retire from the position of Non-Executive Director with effect from the AGM on 3 May 2017.
The Nomination Committee, led by the Chairman, carried out two separate recruitment processes to identify suitable candidates for both new appointments,
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 agreed Non-Executive Director role descriptions. From this list, the Chairman compiled
lists for interview. Initial interviews were conducted with the Chairman and following that, with the Chief Executive Officer and the Senior Independent Director.
From this, a shortlist of candidates was compiled and these final candidates were interviewed by a number of the remaining Directors. The Nomination
Committee made recommendations to the Board for the appointments. For information concerning remuneration arrangements for newly appointed
Directors and retiring Directors, refer to the Directors’ Remuneration Report.
As part of the Board changes, the Nomination Committee also recommended some changes to the composition of the Board committees, as outlined in the
respective committee reports. The Nomination Committee recommended that Alex Mahon take up the role of Senior Independent Director with effect from
4 May 2016, upon David Grigson’s retirement.
For further information on Board composition, diversity and independence, see the Statement of Corporate Governance on pages 52 and 53.
Annual Review: In addition to its annual performance evaluation, discussed in the Statement of Corporate Governance on page 54, the Nomination
Committee carried out a review of its terms of reference during the period. The review resulted in no changes to the terms of reference.
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The Directors’
Report should be
read in conjunction
with the Strategic
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 6
to 43) which includes Corporate Responsibility
(pages 38 to 41), and the Statement of Corporate
Governance (defined in the index below as the
“CG Statement”) (pages 50 to 58), 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
American Depositary Receipt (ADR) program
Appointment and replacement of Directors
Board of Directors
Change of control
Community
Directors’ insurance and indemnities
Directors’ inductions and training
Directors’ interests
Directors’ responsibility statement
Disclosure of information to auditors
Diversity
Employee involvement
Employees with disabilities
Future developments of the business
Going concern and viability statements*
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 to the consolidated financial statements
Share capital
Significant agreements
Significant related party agreements*
Significant shareholders
Statement of corporate governance
Strategic Report
Voting rights
67
70
67
CG Statement, 48-49
70
Corporate Responsibility, 38-41
68
CG Statement, 55
Directors’ Remuneration Report, 104
72-73
72
Our People, 42-43
Our People, 42-43
72
Strategic Report, 6-43
Strategic Report, 35
Corporate Responsibility, 39
72
Directors’ Remuneration Report, 76-115
Corporate Responsibility, 41
72
69
CG Statement, 50-51
72
Strategic Report, 6-43
68-69
68
Strategic Report, 34-37
158-160
68
71
70
70
CG Statement, 50-58
6-43, 67
68
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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 6 to 43.
The Company has chosen to include some of the information required to be disclosed in the Directors’ Report within the Strategic Report (pages 6 to 43), 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 66.
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 Guidance 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 50 to 58 and the Directors’ responsibility statement on pages 72 and 73.
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 50 to 58.
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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 27 November 2016 comprised a single class of ordinary shares. The shares have a nominal
value of 2 pence each. The ISIN of the shares is GB00B3MBS747. The LEI of the Company is 213800LO8F61YB8MBC74.
As at 18 January 2017, being the last practicable date prior to publication of this report, the Company’s issued share capital consisted of 629,270,054 issued
ordinary shares, compared with 625,456,843 issued ordinary shares per the 2015 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, 32,830,613 (2015: 34,770,981) are held by Wealth Nominees Limited on behalf of Estera 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 32,830,613 ordinary shares, although it may at the request of a participant vote in respect of 32,751,581 ordinary shares
which have vested under the JSOS and remain in the trust at period end. The total of 32,830,613 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 32,830,613 ordinary shares held by the EBT Trustee. Note 4.9 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.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Governance 69
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 and on page 104 with respect to agreements concerning the Directors’ shareholdings, 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 4 May 2016, 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 4 May 2016, to allot shares in the Company under two separate resolutions:
(i) up to one-third of the Company’s issued share capital; and (ii) up to two-thirds of the Company’s issued share capital in connection with a rights issue. These
authorities apply until the end of the AGM (or, if earlier, until the close of business on 3 August 2017). During the period, the Directors did not use their power to
issue shares under the authorities, but did satisfy options and awards under the Company’s option and incentive schemes.
The Directors were also granted authority at the previous annual general meeting on 4 May 2016 to disapply pre-emption rights. This resolution, which
followed the Pre-emption Group’s Statement of Principles (March 2015) on disapplying pre-emption rights (the “PEG Principles”) applicable at that time,
sought the authority to disapply pre-emption rights over 10% of the Company’s issued ordinary share capital.
Given that shareholder support for these resolutions at the 2016 annual general meeting was not as high as the Company expected, the Company consulted
those large shareholders who did not support the resolutions. Following such consultation, the Company will modify its approach for the 2017 AGM. A special
resolution will be proposed at the 2017 AGM to renew the Directors’ powers to disapply pre-emption rights. The new resolutions will seek the authority to
disapply pre-emption rights on up to five per cent of the issued share capital. The Directors intend to follow the PEG Principles when considering the case for
disapplying pre-emption rights. An authority will not be sought, however, to disapply pre-emption rights for an additional five per cent for transactions which
the Board determines to be an acquisition or other capital investment, as allowed by the PEG Principles and the new template resolutions on disapplying
pre-emption rights (released in May 2016 by the Pre-Emption Group). The Company will, consistent with the 2016 annual general meeting, continue to seek
authority to allot shares up to two-thirds of the Company’s issued share capital in connection with a rights issue only. The Company believes such approach
is appropriate given that it follows guidance set by the Investment Association on the allotment of shares. 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.
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Significant Shareholders
During the period the Company has received notifications, in accordance with Disclosure Guidance and Transparency Rule 5.1.2R, of interests in 3% or more of
the voting rights attaching to the Company’s issued share capital, as set out in the table below:
The London and Amsterdam Trust Company Limited
Apple III Limited
The Capital Group Companies, Inc.
Citigroup Global Markets Limited
Morgan Stanley (Institutional Securities Group and Global Wealth Management)
Norges Bank
Tremblant Capital LP
Deutsche Bank AG
OppenheimerFunds, Inc.
JPMorgan Chase & Co.
The Goldman Sachs Group, Inc.
Number of
Ordinary
Shares/Voting
Rights
94,396,313
69,015,602
64,447,980
59,159,037
35,859,769
34,502,508
32,590,753
32,014,813
31,860,520
31,834,666
19,957,216
Percentage of
Issued Share
Capital
15.02
10.97
10.30
9.41
5.70
5.48
5.19
5.09
5.07
5.06
3.17
Nature of
Holding
Direct/Indirect
Direct
Indirect
Direct
Direct
Direct
Indirect
Direct
Indirect
Indirect
Indirect
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 Guidance and Transparency Rule 5.1.2R in the period between 28 November 2016 and 18
January 2017 (being not more than one month prior to the date of the Notice of Meeting), except as set out in the table below:
Citigroup Global Markets Limited
Norges Bank
Deutsche Bank AG
Morgan Stanley (Institutional Securities Group and Global Wealth Management)
The Goldman Sachs Group, Inc.
Number of
Ordinary
Shares/Voting
Rights
55,835,966
34,502,508
33,053,616
31,454,014
19,009,292
Percentage of
Issued Share
Capital
8.87
5.48
5.25
4.99
3.02
Nature of
Holding
Direct
Direct
Direct
Direct
Indirect
These figures represent the number of shares and percentage held as at the date of notification to the Company.
American Depositary Receipt Program
The Company has a sponsored level 1 American Depositary Receipt (ADR) program with The Bank of New York Mellon as depositary bank.
Each ADR represents two ordinary shares of the Company. The ADRs will trade on the over-the-counter (OTC) market in the United States. The CUSIP number
for the ADRs is 674488101, the ISIN is US6744881011 and the symbol is OCDDY.
An ADR is a security that has been created to permit US investors to hold shares in non-US companies and, in a level 1 programme, to trade them on the OTC
market in the United States. In contrast to underlying ordinary shares, ADRs permit US investors to trade securities denominated in US dollars in the US OTC
market with US securities dealers. Were the Company to pay a dividend on its ordinary shares, ADR holders would receive dividend payments in respect of their
ADRs in US dollars.
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, (2) a close
member of a Director’s family or (3) 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 awards granted to employees
under such schemes to vest on a takeover; and (ii) certain members of senior management (not including the Directors) who were employed prior to 2010
are entitled to a payment contingent on a change of control of the Company or merger of the Company (irrespective of loss of employment) as set out in his
or her respective employment contract. For further information on the change of control provisions in the Company’s share schemes refer to the Directors’
Remuneration Report on page 95.
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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: The Group has a number of commercial arrangements with Morrisons. 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 would be entitled to give notice to terminate the operating agreement by giving not less than four (but not
more than four and a half) years’ notice.
Following Morrisons giving such a notice, Morrisons would be entitled to procure equivalent services from third parties, the Company ceasing to be Morrisons’
exclusive supplier of online grocery fulfilment services. Similarly, all restrictions on the UK retail grocers to whom the Company is entitled to provide certain
services would fall away.
At the end of the four to four and a half years’ notice period, the Company would be required to purchase Morrisons’ shares in MHE JVCo Limited (the owner of
the mechanical handling equipment in Dordon CFC).
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 Cooperative Rabobank UA 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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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 6 to 43.
Future Developments of the Business
The Group’s likely future developments including its strategy are described in the Strategic Report on pages 6 to 43.
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 125. The Group’s profit before tax for the period amounted to
£12.1 million (2015: £11.9 million).
The Directors do not propose to pay a dividend for the period (2015: £nil).
Post-Balance Sheet Events
There have been no material events after the balance sheet date of 27 November 2016 to the date of this Annual Report.
Independent Auditors
Following the Audit Committee’s recommendation to the Board as a result of a tender process, the Board is proposing that shareholders approve the
appointment of Deloitte LLP as the Company’s independent auditors, effective from the end of the 2017 Annual General Meeting. Resolutions concerning
the appointment of Deloitte LLP 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. Deloitte LLP have indicated their willingness to be appointed as the Company’s auditors. For further information on the
appointment of the auditors, refer to pages 62 to 63 of the Audit Committee Report.
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 48 and 49 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
Company and the Group 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.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Governance 73
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 48 and 49 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 67) 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
31 January 2017
sluglineStock Code: OCDO | www.ocadogroup.comGovernance 74
slugline Directors’ Remuneration
Report
75
21. Directors’ Remuneration Report
Annual Statement from the Remuneration
Committee Chairman
Description of the Remuneration Committee
Remuneration Policy Report
Annual Report on Remuneration – 2016
Annual Report on Remuneration –
Implementation of Policy for 2017
76
78
80
97
113
slugline 21. Directors’
Remuneration Report
Annual Statement from the Remuneration Committee Chairman
Dear Shareholder,
On behalf of the Board, I am pleased to present
the Directors’ Remuneration Report for 2016.
We believe that the remuneration of the Executive
Directors appropriately reflects the performance of
the Group. In 2016, the retail business continued
to see strong growth despite a difficult retail
environment. The Group’s Revenue grew 14.8%
to £1,271.0 million, average orders per week grew
17.9% to 230,000 and EBITDA A grew 3.3% to £84.3
million for the financial year ended 27 November
2016. While the Group achieved strong sales
and customer growth, it and the wider market
suffered declining product prices, which impacted
business Revenue and hence achievement against
profitability targets under the incentive plans was
modest.
Relationship Between Pay and
Performance
We have recommended a bonus payment to the
Executive Directors based on 43.7% to 44.1%
achievement against objectives under the bonus
plan for the period. This echoes the strong growth
of the retail business.
During the period, we reviewed the performance
against the 2014 LTIP award targets, which had
a performance period ending on 27 November
2016. The 2014 LTIP awards were subject to
the achievement of two equally weighted
performance conditions, which were Group
Revenue and earnings per share. Based on the
2016 results, the Directors achieved 42.76%
against the performance targets. This was a result
of an increase in the Group’s EPS, excluding
exceptional costs and share scheme awards, to
3.075 pence per share. The 2014 LTIP awards are
expected to vest in March 2017.
Base salaries, which underpin retention of the
Executive Directors, were reviewed during the
period. An increase of 3% was approved, which
is in line with the Group’s employee salary
percentage increase.
The Annual Report on Remuneration on pages 97
to 115 contains details of the remuneration paid to
Executive Directors during the period.
Review of Directors’ Remuneration
Policy
One of the Remuneration Committee’s key
activities during 2016 was to undertake its
periodic review of the Directors’ remuneration
policy, which is due for renewal in 2017. The
Remuneration Committee are not proposing to
make any substantive changes to the policy, and
propose that the broad remuneration framework
in terms of structure and the levels of incentive
opportunities remains unchanged. However,
in order to bring the Directors’ remuneration
policy further in line with best practice, a number
of relatively minor changes are proposed. The
policy changes, including the introduction of LTIP
holding periods, are intended to further align it
with best practice from a corporate governance
perspective and with the expectations of many
shareholders and representative investor bodies.
A new Directors’ remuneration policy will be put
to all shareholders for approval at our Annual
General Meeting on 3 May 2017. The Remuneration
Policy Report on pages 80 to 96 contains details
of the new Directors’ Remuneration Policy that we
propose to apply from the date of the AGM.
Key Changes to Executive Director
Remuneration
We believe that our remuneration framework
helps support and drive our strategy, which is
focused on growing the retail business through
improvement in the customer proposition and on
maximising operational and capital efficiency of
the retail business.
Our objective is also to invest in the Group’s
IP and technology to drive growth both in
our retail business and platform business.
The Remuneration Committee reviews the
remuneration framework annually, to make sure
that the AIP, the LTIP and the GIP contain specific
performance measures that support this strategy.
During the financial year, we undertook a
review of the Executive Director AIP structure
and concluded that the financial measures of
EBITDA A and Gross Sales (Retail) A remained
aligned with the Company’s strategy and should
be retained for 2017 in order to encourage
continued strong retail business growth. The
proportion allotted to individual objectives has
been maintained at 30%, to reflect the importance
of delivering key strategic objectives in 2017,
including new technology and CFCs.
76
Douglas McCallum
Remuneration Committee
Chairman
We believe that the
remuneration of the
Executive Directors
appropriately and
fairly reflects the
performance of the
Group.”
A
See Alternative Performance
Measures on page 194
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 77
The financial performance measures for the
2017 LTIP awards remain aligned with previous
years’ awards. One of the targets for the platform
business will, unlike previous years’ awards, be
focused on expanding the Ocado Smart Platform
business rather than the cost efficiency of the
platform solution. This reflects the Board’s focus
on rewarding the delivery of both a broader
platform solution that includes store pick
fulfilment and sales of the platform solution to
new customers, while continuing to incentivise
improvements in operational efficiency.
Changes to Non-Executive Director
Remuneration
The Non-Executive Directors’ annual fees were
subject to annual review and the basic fees for
Non-Executive Directors were increased to £50,000
per annum (2015: £48,000). Fee levels have not
changed since April 2014.
Shareholder Feedback and
Remuneration Disclosure
In preparing the new Directors’ Remuneration
Policy, we sought feedback from shareholders on
the main changes proposed. No concerns were
raised by shareholders. 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. To enhance
our reporting of performance we included actual
performance targets for incentive schemes
for the first time in last year’s report. We have
included this information again this year and
hope that it provides shareholders with clear
and understandable information about the
operation of our performance-related incentive
schemes. Shareholder support for the resolution
on the Directors’ Remuneration Report has
seen meaningful improvement in recent years,
with 91.48% support at the 2016 annual general
meeting.
I will be available at the AGM to answer any
questions about the work of the Remuneration
Committee.
Douglas McCallum
Remuneration Committee Chairman
31 January 2017
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Description of the Remuneration Committee
This section of the Directors’ Remuneration Report describes the membership of the Remuneration Committee, its advisers and principal activities during the
period. It forms part of the Annual Report on Remuneration section of the Directors’ Remuneration Report.
Membership
The current membership of the Remuneration Committee, together with appointment dates, is set out below.
As required under the terms of reference, the Remuneration Committee has three members, all of whom are independent Non-Executive Directors, and holds a
minimum of two meetings a year.
Douglas McCallum
Chairman
Remuneration Committee
member since 3 October 2011
Number of meetings: 4
Number attended: 4
Ruth Anderson
Andrew Harrison
Remuneration Committee
member since 9 March 2010
Number of meetings: 4
Number attended: 4
Remuneration Committee
member since 1 March 2016
Number of meetings: 2
Number attended: 2
The biography of each member of the Remuneration Committee is set out in the Board of Directors section on pages 48 and 49.
Other attendees at the Remuneration Committee meetings included the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer, the
People Director and the external adviser to the Remuneration Committee, Deloitte LLP. The Chairman 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.
During the year, the Remuneration Committee composition changed as a result of the retirement of David Grigson and the subsequent appointment of Non-
Executive Director Andrew Harrison, effective from 1 March 2016. David Grigson attended three meetings during the period, out of a possible three meetings,
before his retirement from the Remuneration Committee on 4 May 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
Retained by
Deloitte LLP
Remuneration
Committee
Services Provided to the
Remuneration Committee
Other Services Provided
Executive remuneration advice including
assisting in a benchmarking review of
Executive Director remuneration.
Separate teams engaged by the Company to advise on a range of
Company tax, share schemes and accounting matters, including
transaction advice.
Slaughter
and May
Company
None
See also on page 79 regarding the auditor tender process.
Share schemes, tax and employment law advice 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 and changes to the LTIP and GIP
rules.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 79
Deloitte LLP Re-appointment Review and Tender Process
The Remuneration Committee considered the re-appointment of Deloitte LLP. This review took into account Deloitte’s effectiveness, independence, period
of appointment and fees. Deloitte LLP were appointed by the Remuneration Committee in 2012 following a tender process led by the then Remuneration
Committee Chairman.
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.
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, £25,000 in advisory fees were paid or payable to Deloitte LLP for services provided to the Remuneration Committee.
Following the review by the Remuneration Committee, it was agreed that Deloitte LLP should be re-appointed.
Subsequently, the Remuneration Committee noted the proposed appointment of Deloitte LLP as external auditors of the Company from the 2017 Annual
General Meeting (for further information see pages 62 and 63). Deloitte would not continue as adviser to the Remuneration Committee from then and
accordingly the Remuneration Committee agreed to tender the role. The Remuneration Committee agreed a tender process, which is expected to conclude in
April 2017.
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 the Financial Year
The Remuneration Committee has, under its terms of reference, been delegated responsibility for setting remuneration for all of the Executive Directors, the
Chairman and the Company Secretary. This is outlined on page 50. In line with its terms of reference, the Remuneration Committee’s work during the period
included the following:
• approving the 2015 Directors’ Remuneration Report;
•
reviewing performance under the 2015 AIP and consideration of any bonuses payable;
• approving the 2016 AIP performance targets;
• approving the 2016 LTIP awards and performance targets;
•
•
•
•
•
•
•
reviewing performance against LTIP awards;
receiving executive remuneration advice from Deloitte LLP in respect of a range of matters considered by the Remuneration Committee during the year;
receiving a report on Group-wide and management remuneration for 2016;
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 2017;
receiving a report on shareholder feedback on the 2015 annual report and 2016 annual general meeting;
• approving a new invitation under the Sharesave scheme for 2017;
• approving amendments to the LTIP rules to allow for holding periods;
•
•
reviewing the Remuneration Committee’s performance and terms of reference;
reviewing the performance of Deloitte LLP; and
• agreeing a process and timetable for a tender of the role of external remuneration consultants.
sluglineStock Code: OCDO | www.ocadogroup.comDirectors’ Remuneration Report 21. Directors’
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The Remuneration Committee’s work also included monitoring and considering 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.
Remuneration Policy Report
Introduction
This part of the Directors’ Remuneration Report sets out the Company’s policy for the remuneration of its Directors.
Shareholders will be asked to approve the new Directors’ Remuneration Policy at the AGM on 3 May 2017 and it will, if approved, apply to payments made from
this date. Until that time the 2014 Policy will continue to apply. The new 2017 Policy is intended to apply for a period of three years from the AGM.
A copy of the 2014 Policy can be found in the Company’s 2015 annual report on www.ocadogroup.com.
Proposed Policy for Director Remuneration
During the period, the Remuneration Committee carried out a thorough review of the current remuneration policy for Executive Directors. The Remuneration
Committee concluded that there were few parts of the existing remuneration policy that required change and it adhered to the remuneration principles
(outlined below) and that it remained relevant and appropriate in incentivising management to achieve the Group’s strategic objectives. However, in order to
bring the Directors’ remuneration policy further in line with governance best practice and with the expectations of shareholders and representative investor
bodies, two main changes are proposed. The proposed changes are set out in the table below, together with an explanation for such proposed changes.
Element of
remuneration/policy
LTIP holding period
Proposed 2017 Policy
2014 Policy
Introduction of an additional holding period of two years (or
longer if the Remuneration Committee determines) from the
third anniversary of the date of grant.
This change helps increase alignment between the interests
of executives and long-term shareholders and further
balance the shorter-term focus of the annual bonus.
No additional holding period after completion of three-year
performance period.
Shareholding requirement
Introduction of an increased level of expected shareholding
to 200% of base salary for all Executive Directors.
Minimum holding of 150% of base salary for the Chief
Executive Officer and 100% for other Executive Directors.
Change to allow the minimum shareholding to be met over
five years from the date of Director appointment.
The holding can be built up over three years from
appointment.
Taken together, the Remuneration Committee believe that these changes help to increase alignment between the Group’s management and its shareholders.
The 2017 Policy continues to support the long-term success of the business and ensure that the Group’s management are driving sustainable shareholder
value in the long-term.
No changes are proposed for the remuneration policy for the Chairman and the Non-Executive Directors.
Remuneration Principles for Senior Executives
The Directors’ Remuneration Policy is underpinned by the following remuneration principles:
• Support long-term success of the business 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.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 81
Link with Strategy
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 retail business performance in the
short and medium-term (for example, EBITDA A and Gross Sales (Retail) A targets) and the objectives of creating long-term success and sustainable long-term
shareholder value (for example, key strategic targets concerning the efficiency of the nascent platform business).
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 pages 95 and
96. The holding period in the LTIP, the share deferral provision in the AIP, the minimum shareholding requirements and the GIP’s five-year performance period
all help ensure a longer-term focus for the business from the Executive Directors.
Base
Salary
Reflects the value of the individual, their role, skills, experience (taking into account
appropriate market data) and contribution to the business
Fixed
Benefits
Aligned with all other employee arrangements
Pension
Provides an appropriate level of retirement benefits
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
Annual
Incentive
Plan
Deferred
Bonus
Under AIP
Long-
Term
Incentives
One-Off
Plans
A
See Alternative Performance
Measures on page 194
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Remuneration Committee Discretion and Judgement
In formulating the Directors’ Remuneration Policy, the Remuneration Committee has sought to allow it sufficient operational flexibility over Director
remuneration for the next three years. While the policy provides the boundaries for remuneration arrangements, the policy is intended to provide some
isolated discretion for the Remuneration Committee to use in various circumstances relating to particular components of remuneration. The Directors’
Remuneration Policy does not provide for the exercise of discretion over any aspect of the policy. The Remuneration Committee may not use any discretion
outside the policy without separate shareholder approval.
The Remuneration Committee operates the share schemes according to their respective rules and in accordance with the Listing Rules and other rules and
regulations, where relevant. The Remuneration Committee retains discretion, in a number of regards to the operation and administration of these plans. The
discretions include, but are not limited to, those set out in the table below.
Area of Discretion
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, holding periods 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 or formulaic scheme outcomes both upwards and
downwards including to ensure the scheme outcomes reflect individual or Company
performance over the performance period, or to take account of unforeseen
circumstances outside the Company’s control1
Application of malus and clawback
AIP
LTIP
JSOS
GIP
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
N
Y
Y
Y
N
Y
N
N
Y
Y
Y
Y
Y
Y
Y
Y
N
N
Y
1. Under the 2014 Policy the Remuneration Committee did not have explicit discretion to make payment adjustments under the LTIP in such circumstances. Allowing the
Remuneration Committee such discretion will help it ensure that the payments under the LTIP reflect actual Group performance if this is different from the formulaic outcomes
from LTIP performance measures.
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 did not formally consult shareholders on the Directors’ Remuneration Policy on the basis that the minor changes to the policy
were to the benefit of shareholders (such as introducing a LTIP holding period) and there were no changes to the overall structure or elements of remuneration
for the Directors. Shareholders were notified of, and given the opportunity to discuss, the changes to the policy with the Chairman of the Remuneration
Committee. The Remuneration Committee has previously consulted shareholders on various incentive arrangements and the current policies and had used
these consultations to inform its view that there is good alignment between the Directors’ Remuneration Policy and shareholder interests.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 83
Employee Context
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.
However, the Remuneration Committee did not consult with employees when drawing up the Directors’ Remuneration Policy, nor take into account any
remuneration comparison measurements.
The Directors’ Remuneration Policy is designed in line with the remuneration principles outlined on page 80, which reflect the remuneration principles for the
Group. A key remuneration principle for the Group is that share awards be used to recognise and reward good performance and attract and retain employees.
This is reflected by the issue of awards of free shares and options to all employees under the SIP and the ESOS schemes, which allows all employees an
opportunity to share in the Group’s success via share ownership.
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.
Remuneration Policy Table: Elements of Director Remuneration The following table sets out the key elements of remuneration for the Executive Directors, their
purposes and links to strategy, the maximum opportunity and any performance conditions. In addition, where relevant, the changes proposed to the policy for
each element of remuneration and the rationale behind these changes.
Purpose and Link
to Strategy
Fixed pay
Base pay
To attract and retain the
right calibre of senior
executive required to
support the long-term
interests of the business.
Recovery or
Withholding
No contractual
provisions for
clawback or malus.
How it Operates
Performance Conditions
Maximum Opportunity
Paid monthly in cash.
Not performance linked.
Reviewed annually by the
Remuneration Committee, with
any changes normally becoming
effective in April each year (or
may be reviewed ad hoc where
there is a significant change of
responsibilities).
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.
Normally, maximum salary
increases for Executive
Directors will be within the
normal percentage range
and guidelines that are
applied to the UK-based
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 increases 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
salary at appointment has
been positioned below the
market.
Change from 2014 Policy and rationale
No substantive changes from the 2014 Policy.
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Purpose and Link
to Strategy
Benefits
To 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.
The Company provides a range of
benefits which are aligned with
those provided to monthly paid
employees under the Company’s
flexible benefits policy. These may
include: private medical insurance
and health assessments, life
assurance, travel insurance, income
protection, travel allowance, free
parking, access to financial and
legal advice, staff product discount,
subsidised staff restaurants and
other discounts. Any business travel
costs will be paid 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.
The Company provides Directors’
and Officers’ Liability Insurance
and may provide an indemnity to
the fullest extent permitted by the
Companies Act.
Change from 2014 Policy and rationale
Some minor changes from the 2014 Policy to reflect the Company’s current flexible benefits policy.
Not performance linked.
Pension
To attract and retain the
right calibre of senior
executive required to
support the long-term
interests of the business.
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, the
balance of employer contributions
may be paid as a cash allowance
or into a personal pension
arrangement. These amounts 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.
Change from 2014 Policy and rationale
No substantive changes from the 2014 Policy.
Recovery or
Withholding
No contractual
provisions for
clawback or malus.
No contractual
provisions for
clawback or malus.
Benefits for Executive
Directors are set at a level
which the Remuneration
Committee considers to be
appropriate against market
data for comparable roles for
companies of equivalent size
and complexity in similar
sectors and geographical
locations to the Company.
The maximum value of
the Directors’ and Officers’
Liability Insurance and the
Company’s indemnity is the
cost at the relevant time.
Contributions to the defined
contribution pension
scheme for the 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
based Executive Directors
will not exceed 30% of
annual base salary.
For Executive Directors
outside the UK, provision for
an executive pension will be
set taking into account local
market rates.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report Purpose and Link
to Strategy
How it Operates
Performance Conditions
Maximum Opportunity
Variable Pay: Short-Term Incentives
The maximum bonus is
200% of base salary.
The maximum bonus
payable for the relevant
financial year is described
in the Annual Report on
Remuneration.
Annual Incentive Plan
(“AIP”)
To provide a direct link
between measurable
and predictable annual
Company and/or role
specific performance and
reward.
To 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.
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
financial targets and
individual objectives with
the majority being financial.
For threshold performance
no more than 25% of the
maximum opportunity
will be earned. For stretch
performance, the maximum
opportunity will be earned.
The performance conditions
for the relevant financial year
are described in the Annual
Report on Remuneration.
85
Recovery or
Withholding
Clawback may
apply for three
years (or longer if
the Remuneration
Committee
determines) from
date of payment of
a bonus or grant of
a deferred award, in
certain exceptional
circumstances. See
page 93 for further
details.
Change from 2014 Policy and rationale
A minor change from the 2014 Policy to recognise that the payout range between the threshold and the maximum opportunity may not necessarily be
calculated on a straight-line basis. The 2014 Policy provided that a straight-line sliding scale applied between the threshold and the maximum.
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Purpose and Link
to Strategy
How it Operates
Performance Conditions
Maximum Opportunity
Variable Pay: Long-Term Incentives
Long Term Incentive
Plan (“LTIP”)
To attract, retain and
incentivise senior
executives over the
longer-term.
To 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.
Awards made after 3 May 2017 are
subject to an additional holding
period of two years (or longer if
the Remuneration Committee
determines) from the third
anniversary of the date of grant.
LTIP awards are only acquired by
an Executive Director once the total
period of five years from the date
of grant has elapsed. The holding
period usually applies regardless
of whether or not the Executive
Director remains an employee of
the Group.
The Remuneration
Committee sets targets
that are closely aligned to
the delivery of the Group’s
strategic objectives for the
performance period. These
will be a mix of financial
targets and individual
objectives with the majority
being financial.
For threshold performance,
no more than 25% of the
maximum opportunity
will vest. For stretch
performance, the maximum
opportunity will vest. The
measurement period for
performance conditions will
ordinarily comprise at least
three financial years of the
Company. The performance
conditions for the relevant
award are described in
the Annual Report on
Remuneration.
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 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.
Recovery or
Withholding
Clawback and
malus provisions
may be applied
to LTIP awards in
certain exceptional
circumstances. The
clawback period
will be two years
(or longer, if the
Remuneration
Committee
determines) from
the end of the
holding period or
the date the awards
are acquired.
See page 93 for
further details.
Change from 2014 Policy and rationale
A change from the 2014 Policy to introduce a holding period of two years from the third anniversary of the date of grant. This change helps increase
alignment between the interests of the Executive Directors and shareholders and further balance the shorter-term focus of the annual bonus. Under the
2014 Policy there was no holding period after completion of the three-year performance period.
A minor change from the 2014 Policy to recognise that the payout range between the threshold and the maximum opportunity may not necessarily be
calculated on a straight-line basis. The 2014 Policy provided that a straight-line sliding scale applied between the threshold and the maximum.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 87
Recovery or
Withholding
Clawback and
malus provisions
may be applied
to GIP awards in
certain exceptional
circumstances. The
clawback period
will be two years
(or longer if the
Remuneration
Committee
determines) from
the date of vesting.
See page 93 for
further details.
Purpose and Link
to Strategy
How it Operates
Performance Conditions
Maximum Opportunity
Variable Pay: One-off Long-Term Incentives
Growth Incentive Plan
(“GIP”)
To attract, retain and
incentivise senior
executives.
To 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.
A one-off award of options over
shares in the Company with a nil
exercise price.
The Chief Executive Officer, the
Chief Financial Officer and the
Chief Operations Officer received
an award. New Executive Directors
and other senior employees may
be invited to participate at a level
dependent on the point during the
performance period at which they
were appointed.
The Executive Directors must 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.
Change from 2014 Policy and rationale
No change from the 2014 Policy.
Four million shares for the
Chief Executive Officer and
one million shares for each
of the Chief Financial Officer
and the Chief Operations
Officer.
Awards to new participating
Executive Directors or other
senior employees will
not exceed the awards of
existing participants.
Awards are subject to
a single performance
condition to be satisfied over
the five years from the date
of grant.
The share price of the
Company is the sole
performance measure and
its growth 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 is growth
in the FTSE 100 Share Index
plus:
• not more than 5% p.a.:
0% of the award vests.
• 5% p.a.: 25% of the
award vests.
• 10% p.a.: 50% of the
award vests.
• 15% p.a.: 75% of the
award vests.
• 20% p.a.: 100% of the
award vests.
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Purpose and Link
to Strategy
Joint Share Ownership
Scheme (“JSOS”)
To attract, retain and
incentivise senior
executives.
To align the interests of
the senior executives
and the shareholders, by
driving share price growth
over four years.
A one-off arrangement established
prior to the Company’s listing on
the London Stock Exchange in 2010.
The participants and Estera Trust
(Jersey) Limited, the EBT Trustee,
acquired separate beneficial
interests in ordinary shares of the
Company. The participant may lose
his interest in the shares.
How it Operates
Performance Conditions
Maximum Opportunity
The JSOS rules contain
limits which constrain the
number of interests that may
be issued under the JSOS.
No future awards will be
made to the Executive
Directors under the JSOS.
Recovery or
Withholding
Certain leaver
provisions allow
the Company
to recover share
interests in certain
circumstances.
See page 94 for
further details.
Interests in shares vested
annually over a four-year
period. The participant
benefits from the increase in
value of the shares interests
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 were granted in
tranches, with a different
hurdle price for each
tranche.
See page 105 for further
details.
Not performance linked.
The scheme rules
do not provide for
malus or clawback
provisions.
Options are usually granted
at a discount to the market
price at the time of grant up
to the maximum discount
under HMRC limits.
Employees are limited to
saving a maximum amount
under HMRC limits.
Change from 2014 Policy and rationale
No change from the 2014 Policy.
All-Employee Share Plans
Sharesave
To provide all employees,
including Executive
Directors, the opportunity
to voluntarily invest in
Company shares and be
aligned with the interests
of shareholders.
All employees are eligible to
participate in this all employee
tax advantaged 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
or five years up to the maximum
monthly amount under HMRC
limits. The amount saved will
determine the number of shares
over which the option is granted.
Options may be exercised in a six
month period at the maturity of a
three or five year savings period,
subject to continued service.
Change from 2014 Policy and rationale
No change from the 2014 Policy.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 89
Recovery or
Withholding
The scheme rules
do not provide for
malus or clawback
provisions.
Purpose and Link
to Strategy
Share Incentive Plan
(‘‘SIP’’)
To provide all employees,
including Executive
Directors, the opportunity
to receive and invest in
Company shares and be
aligned with the interests
of shareholders.
How it Operates
Performance Conditions
Maximum Opportunity
Not performance linked.
Maximum opportunity for
awards and purchases are
kept in line with HMRC limits.
All employees are eligible to
participate in this all employee tax
advantaged share scheme. The SIP
allows:
•
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.
Change from 2014 Policy and rationale
No change from the 2014 Policy.
2014 Executive Share
Option Scheme (‘‘2014
ESOS’’)
To provide all employees,
including Executive
Directors, the opportunity
to receive Company share
options and be aligned
with the interests of
shareholders.
All employees are eligible to
participate in this all employee tax
advantaged share scheme and the
unapproved part of the scheme.
The Company grants options
over shares in the Company to
employees. 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.
Change from 2014 Policy and rationale
No change from the 2014 Policy.
There are currently no plans
to make awards to the
existing Executive Directors
under this scheme.
The scheme rules
do not provide for
malus or clawback
provisions.
Maximum opportunity
for awards will be in line
with HMRC limits for the
tax advantaged part of the
scheme.
Maximum opportunity
for awards under the
unapproved part of the
scheme is 300% of annual
base salary, except in
exceptional circumstances.
If awards are made to the
Executive Directors, the
Remuneration Committee
may set targets. 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
no more than 25% of the
maximum opportunity
would be earned. For stretch
performance, the maximum
opportunity will vest. The
measurement period for
performance conditions will
ordinarily comprise at least
three financial years of the
Company.
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Purpose and Link
to Strategy
Executive Share Option
Scheme (‘‘ESOS’’)
To provide all employees,
including Executive
Directors, the opportunity
to receive Company share
options and be aligned
with the interests of
shareholders.
How it Operates
Performance Conditions
Maximum Opportunity
See 2014 ESOS.
Options issued prior to May 2014
were issued under the ESOS.
Employees and two Executive
Directors retain options under the
ESOS. From May 2014 new option
awards are made under the 2014
ESOS. The terms of the ESOS largely
mirror those of the 2014 ESOS.
There are currently no plans
to make awards to any
employees or the Executive
Directors under this scheme.
See 2014 ESOS.
Recovery or
Withholding
See 2014 ESOS.
Change from 2014 Policy and rationale
No change from the 2014 Policy.
The following table sets out the key elements of remuneration for the Non-Executive Directors.
Purpose and Link
to Strategy
Chairman Fee
To attract and retain
an individual with the
appropriate degree
of expertise and
experience
Non-Executive
Director Fee
To attract and retain
expert people with the
appropriate degree of
expertise and
experience
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 maximum aggregate
amount of basic fees
payable to all Directors shall
not exceed the £1 million
limit set in the Company’s
Articles of Association.
Normally, any increases
will be within the normal
percentage range and
guidelines that are applied
to the UK-based monthly
paid employees of the
Company in that year.
The maximum aggregate
amount of basic fees
payable to all Directors shall
not exceed the £1 million
limit set in the Company’s
Articles of Association.
Normally, any increases
will be within the normal
percentage range and
guidelines that are applied
to the UK-based monthly
paid employees of the
Company in that year.
The fee is paid monthly in cash.
Not performance linked.
Reviewed annually by the
Remuneration Committee, with
any changes normally becoming
effective in April each year.
The review takes into account
a number of factors including:
the Group’s annual review
process, business performance
and appropriate market data for
comparable roles for companies of
equivalent size and complexity in
similar sectors and geographical
locations to the Company.
The fee is paid monthly in cash.
Not performance linked.
Fee structure includes an annual
base fee for a Non-Executive
Director and may include
additional fees for being the Senior
Independent Director or a Board
committee chair.
Reviewed annually by the
Executive Directors and the
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 in
similar sectors and geographical
locations to the Company.
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Recovery or
Withholding
No contractual
provisions for
clawback or malus.
Not applicable.
Purpose and Link
to Strategy
Travel and expenses
To support the Directors
in the fulfilment of their
duties.
Other arrangements
How it Operates
Performance Conditions
Maximum Opportunity
Not performance linked.
Not applicable.
The maximum
reimbursement is expenses
reasonably incurred,
together with any taxes
thereon.
The maximum staff product
discount is that offered to
any Group employees.
The maximum value of
the Directors’ and Officers’
Liability Insurance and the
Company’s indemnity is the
cost at the relevant time.
The Company may reimburse
expenses and travel costs
reasonably incurred by the
Chairman and the Non-Executive
Directors in fulfilment of the
Company’s business, together with
any taxes thereon.
The Chairman and the Non-
Executive Directors are not usually
eligible for annual bonus, share
incentive schemes, pensions or
other benefits with the exception
of the staff product discount
and free delivery offered to all
employees.
The Company provides the
Chairman and the Non-Executive
Directors with Directors’ and
Officers’ Liability Insurance and
may provide an indemnity to the
fullest extent permitted by the
Companies Act.
Change from 2014 Policy and rationale
No changes are proposed for the policy for the Chairman and the Non-Executive Directors, except that the Chairman’s Share Matching Award (provided
for under the 2014 Policy) that vested on 10 May 2016, will not carry forward under the 2017 Policy, since it was a one-off award made on Lord Rose’s
appointment as Chairman to the Board in 2013.
Notes to the Policy Tables:
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 53.
2. 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 tax advantaged 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. Options were awarded under the ESOS to Duncan Tatton-Brown on his appointment to the Board. Although awards will not usually
be made to existing Executive Directors, the rules of the ESOS and 2014 ESOS allow the Remuneration Committee to impose performance conditions on any awards made to a
Director under each plan. 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 AIP performance measures 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 over the performance period. 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. Details of the LTIP performance measures are outlined in the Annual report on remuneration.
b.
c. GIP – the GIP performance measure was designed to incentivise outstanding growth in value of the Group over the five-year performance period. The performance measure
requires the growth in the Company share price to be significantly more than the growth of the FTSE 100 Share Index over that period. This helps to ensure alignment with
shareholders, as full vesting will only occur where outstanding shareholder value is created.
3. 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 remuneration arrangements for all employees akin to all of the components of Directors’
remuneration. In the case of the Management Committee, they participate in an annual bonus plan and the long-term incentive schemes, including the LTIP and the JSOS,
with award levels set at lower percentages of salary than those of the Directors. The performance conditions and most other terms of these schemes are the same as for the
Executive Directors. The bonus plan for senior management does not include provision for share deferral of a payment. The LTIP awards from 2017 for senior management do
not include holding periods. In the case of some small groups of senior employees, the Group operates some tailored bonus and long-term incentive arrangements (such as the
JSOS, cash-based long-term incentive scheme and management incentive plan). Aside from these targeted arrangements (and the SIP, the ESOS and the Sharesave), the variable
remuneration of employees is not closely aligned with that of Directors.
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Director Minimum Shareholding Expectation
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 the shareholders in the long-term. These shareholding expectations are
outlined in the table below.
Director
Executive Directors
Shareholding Expectation
Executive Directors are expected to hold shares equivalent to 200% of base salary. This holding can be built up
over five years from appointment.
Share awards may count if vesting is not subject to any further performance conditions or other conditions such as
continued employment. The net value of share interests and share awards which are vested, but remain subject to
a holding period and/or clawback, may count towards the shareholding 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.
The Chairman is expected to hold shares equivalent to one year’s annual fee. This holding can be built up over
three years from appointment.
Non-Executive Directors are expected to hold shares equivalent to one year’s annual fee. This holding can be built
up over three years from appointment.
Chairman
Non-Executive Directors
Change from 2014 Policy and rationale
A change from the 2014 Policy to introduce a higher level of minimum shareholding to 200% of annual base salary for Executive Directors. Under the 2014
Policy the minimum shareholding was 150% of annual base salary for the Chief Executive Officer and 100% for other Executive Directors. Executive Directors
have five years from appointment to meet the minimum shareholding expectation (compared with three years under the 2014 Policy).
Should the minimum shareholding expectation be met but the market value of the Company’s shares subsequently fall below the required level, compliance with
this expectation will be based on the higher of the original share purchase price (or the price at vesting in the case of share awards) 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 (if not otherwise within the terms of this policy) 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 a 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. Any 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.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 93
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
A Non-Executive Director is not entitled to any other payment on cessation of service with the Company.
Malus and Clawback Provisions
The AIP, LTIP and GIP scheme rules contain malus and/or clawback provisions that allow the Remuneration Committee to reduce or retrieve a payment or
an award. The Remuneration Committee will do so when there are exceptional circumstances. Such exceptional circumstances include (without limitation)
a material mis-statement in the published results of the Group, an error in assessing any applicable performance condition, misconduct on the part of the
Executive Director concerned and where, as a result of an appropriate review of accountability, the Remuneration Committee determines that the Executive
Director has caused wholly or in part a material loss for the Group as a result of (i) reckless, negligent or wilful actions or (ii) inappropriate values or behaviour.
sluglineStock Code: OCDO | www.ocadogroup.comDirectors’ Remuneration Report 21. Directors’
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Share Scheme Leaver Provisions
The incentive schemes contain leaver provisions that cover arrangements for awards where a participant leaves employment with the Group, as set out in the
relevant scheme rules and summarised below.
Remuneration
Element
LTIP
GIP
JSOS
Bad Leavers
Good Leavers
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 LTIP 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 LTIP award
will be reduced pro rata to reflect the proportion of the performance period that has elapsed to
the date of cessation of employment. The LTIP awards will normally continue to be subject to
the post-vesting holding period.
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. The post-vesting holding period will not apply to his LTIP awards.
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 (or such longer period as the Remuneration
Committee may decide) 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. The post-vesting
holding period will continue to apply (except in the event of a participant’s death) unless the
Remuneration Committee decides otherwise.
The Company may apply the post-vesting holding period to an LTIP award or to any part of it in
one of two ways: (i) to vested awards where the underlying shares are retained by the Company
for the duration of the holding period and are only transferred to participants on expiry of such
period; or (ii) to vested awards where the underlying shares are transferred to the participant on
vesting but which remain subject to additional restrictions (such as transfer or sale) until expiry
of the holding period.
See LTIP above, as the same leaver rules apply (except with respect to holding periods which
do not apply to GIP awards).
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.
Generally, unvested LTIP awards
(and vested LTIP options) will lapse
on the date the participant ceases
to be an employee.
See LTIP above, as the same leaver
rules apply (except with respect
to holding periods which do not
apply to GIP awards).
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
on ceasing to be an employee,
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.
Deferred Shares
Under the AIP
Deferred share awards will lapse
on the date the Executive Director
ceases to be an employee.
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.
All-Employee
Share Plans
Leavers will be treated within the
scheme rules.
Leavers will be treated within the scheme rules.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 95
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.
The Remuneration Committee may, in its discretion, determine that the post-vesting holding period will no longer apply to an LTIP Award or to any part of it as
of the vesting date or on such later date as decided by the Remuneration Committee.
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 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 70 to 71.
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.
Payments Which are not in Accordance with the Policy
The Remuneration Committee reserves the right to make any remuneration payments and payments for loss of office (including exercising any discretions
available to it in connection with such payments) notwithstanding that they are not in line with the policy set out above where the terms of the payment were
agreed: (i) before 7 May 2014 (the date the Company’s first shareholder-approved directors’ remuneration policy came into effect; (ii) before the policy set out
above came into effect, provided that the terms of the payment were consistent with the shareholder-approved Directors’ remuneration policy in force at the
time they were agreed; or (iii) at a time when the relevant individual was not a Director of the Company and, in the opinion of the Remuneration Committee,
the payment was not in 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.
Minor Amendments
The Remuneration Committee may make minor changes to this policy for regulatory, exchange control, tax or administrative purposes or to take account of a
change in legislation without seeking shareholder approval for that amendment.
Illustration of Directors’ Remuneration Policy
The bar charts on page 96 provide estimates of the potential future reward opportunity for each of the Executive Directors based on the Directors’
Remuneration Policy outlined on pages 80 to 96.
AIP
LTIP
GIP
Minimum
Performance is below threshold on
each metric.
Performance is below threshold on
each metric.
Target or at
Expectation
Performance is in line with the
Company’s expectations.
Threshold performance is reached.
Performance is growth in the FTSE
100 Share Index plus not more than
5% p.a.
Performance is growth in the FTSE
100 Share Index plus 5% p.a.
Maximum
Maximum performance is achieved
on each metric.
Maximum performance is achieved
on each metric.
Performance is growth in the FTSE
100 Share Index plus 20% p.a.
Base Salary, Benefits
and Pension
Fixed
Fixed
Fixed
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The figures use the 2016 base salary and pension (see pages 98 and 99) and value of benefits received for 2016 (see page 99). The performance related pay
figures are based on the potential awards for 2017 (see pages 99 to 100), 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 2017 will
also be vesting in 2017. The estimated value of the GIP is calculated using a share price of 281 pence per share, being the average share price of the final three
months of the period. It is also assumed that the GIP will vest in 2019. 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 the LTIP awards has been excluded.
Tim Steiner, Chief Executive Officer (£m)
Minimum
93%
7%
Target
14% 11% 7%
67%
1%
Maximum
4% 5%
1%
9%
81%
0
2
4
6
8
10
12
14
Salary and benefits
Pension
AIP
LTIP
GIP
Duncan Tatton-Brown, Chief Financial Officer (£m)
Minimum
93%
7%
Target
25%
16% 9%
48%
Maximum
9%
0
2%
1%
9%
0.5
13%
1
68%
1.5
2
2.5
3
3.5
4
Salary and benefits
Pension
AIP
LTIP
GIP
Neill Abrams, Group General Counsel and Company Secretary (£m)
Minimum
Target
Maximum
93%
50%
30%
0
0.2
7%
4%
3%
31%
15%
30%
0.4
0.6
37%
0.8
1
1.2
Salary and benefits
Pension
AIP
LTIP
Mark Richardson, Chief Operations Officer (£m)
Minimum
93%
7%
Target
25%
16% 9%
48%
Maximum
9%
0
2%
1%
9%
0.5
13%
1
1.5
2
68%
2.5
3
3.5
4
Salary and benefits
Pension
AIP
LTIP
GIP
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 97
Annual Report on Remuneration — 2016
Introduction
This part of the Directors’ Remuneration Report sets out the Directors’ remuneration paid in respect of the 2016 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 78 to 80 constitutes the Annual Report on Remuneration, and will be put to an advisory shareholder vote at
the Company’s AGM.
Highlights for 2016 (audited)
This table briefly summarises the highlights of the Directors’ remuneration arrangements for the financial year.
Base Pay and Benefits
Base pay increase of 3% for
the Executive Directors, in
line with other employees.
Fee increases of 4.2% for
the Non-Executive Directors
(except the Chairman) in the
period.
No change to taxable
benefits.
Further Information:
See page 98.
Pension
Company contributions
to pensions for Executive
Directors are currently
significantly below the
maximum provided for
under the 2014 Policy.
AIP
Total bonus earned by
Executive Directors for 2016
based on achievement
of 43.7% to 44.1% of
performance target, was
£759,953 (2015: £1,115,370).
Long-Term Incentives
Awards were granted under
the LTIP.
All-Employee Schemes
ESOS options vested during
the period.
For the 2014 LTIP awards,
which are due to vest in
March 2017, achievement
was 42.76%.
Ongoing participation in the
SIP and Sharesave schemes.
See page 99.
See page 99.
See page 101.
See pages 101 and 108 to
110.
Total Director Remuneration (audited)
The total remuneration paid to all of the Directors during the period was £4,856,000. The detailed remuneration breakdown for the Executive Directors and the
Non-Executive Directors is set out separately.
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Executive Directors
Total Remuneration (audited)
The total remuneration for the period for each of the Executive Directors is set out in the table below. Total cash-based remuneration paid to the Executive
Directors was £2,472,000 in 2016, which was 11% lower than in 2015 (£2,773,000). The decline in cash-based remuneration is largely attributable to the lower
payments under the AIP in 2016.
Tim Steiner
2016
£’000
2015
£’000
Neill Abrams
2016
£’000
2015
£’000
Duncan Tatton-Brown
2015
£’000
2016
£’000
Salary
Taxable Benefits
Pensions
Total Fixed Pay
AIP
Total Remuneration
in cash
Share Plans – requiring
investment
JSOS
Share Plans – awards
LTIP
GIP
ESOS
2014 ESOS
SIP
Sharesave
Total for Share Plans
Recovery of Sums Paid
Total Remuneration
572
2
46
620
315
935
557
3
45
605
459
1,064
—
—
206
—
—
—
—
—
206
—
1,141
4,034
—
—
—
—
—
4,034
—
5,098
297
1
26
324
132
456
—
75
—
—
—
—
—
75
—
531
289
1
23
313
194
507
—
896
—
—
—
—
—
896
—
1,403
354
1
28
383
156
539
—
113
—
—
—
—
—
113
—
652
345
1
19
365
232
597
—
2,017
—
—
—
—
—
2,017
—
2,614
Mark Richardson
Total
2016
£’000
2015
£’000
2016
£’000
1,577
5
131
1,713
759
2,472
2015
£’000
1,536
6
115
1,657
1,116
2,773
345
1
28
374
231
605
—
—
—
1,380
—
—
—
—
—
1,380
—
1,985
507
—
—
—
—
—
507
—
2,979
8,327
—
—
—
—
—
8,327
—
11,100
354
1
31
386
156
542
—
113
—
—
—
—
—
113
—
655
1. The value of LTIP awards for 2013 included in the column for the 2015 financial year has been restated to show the actual vested amount (based on the vesting of the award on
31 March 2016 at a price of 294 pence per share). The actual vested amount is £1.53 million lower than the estimated vested amount stated in the 2015 annual report of £9.86
million. The estimated vested amount was based on the three-month average share price from 1 September 2015 to 27 November 2015 of 348.02 pence per share. No dividends
were paid.
2. The value of LTIP awards for 2014 included in the column for the Financial Year has been estimated based on 42.76% vesting and the three-month average share price from
1 September 2016 to 27 November 2016 of 275.42 pence per share, as these awards are not capable of vesting until after the end of the period, on 16 March 2017. 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.
3. The award of 9,923 share options made to Duncan Tatton-Brown in 2013 under the ESOS vested during the period. The award became exercisable on 8 July 2016. The award was
made at a value of 302 pence per share. At the time of vesting, the share price was lower than the exercise price, and therefore the award has no value shown in the table.
4. Tim Steiner’s taxable benefits have been restated for 2015 in relation to the use of a chauffeur to drive a car where such use was non-business related. Total remuneration for Tim
Steiner has been restated accordingly.
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
Duncan Tatton-Brown
Mark Richardson
Neill Abrams
Salary 2016
(£)
Salary 2015
(£)
577,830
357,204
357,204
300,000
561,000
346,800
346,800
290,700
Effective from
1 April 2016
1 April 2016
1 April 2016
1 April 2016
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 99
The changes to base salary were made in line with the 2014 Directors’ Remuneration Policy. The Executive Directors received an increase in base pay of 3%
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 and travel insurance. 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 Executive Directors
have access to a chauffeur to drive a car for the purposes of attending business meetings. Non-business use of the chauffeur is tracked and is shown as a
taxable benefit in the total remuneration table to the extent it was used for that purpose.
Pensions (audited)
The Company made pension contributions on behalf of the Executive Directors to the defined contribution Group personal pension scheme. 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
Company contributions 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. These contributions were made in line with the 2014
Directors’ Remuneration Policy which allows the Company to make employer contributions of up to 30% of base salary.
During the period, the Company changed its GPP pension administrators from Standard Life to Legal & General following a pension provider review. As part of
that transition, pension arrangements were changed to allow for pension contributions to be made by all employees on a salary sacrifice basis in accordance
with the rules of the scheme.
Pension contributions can be made to the Executive Directors (and any other employee) as a cash allowance where the Executive Director (or employee) has
reached either the HMRC annual tax free limit or HMRC lifetime allowance limit for pension contributions as provided for in the 2014 Directors’ Remuneration
Policy. In accordance with this policy, Tim Steiner, Duncan Tatton-Brown and Neill Abrams have elected to receive their pension contributions as an equivalent
cash allowance for part and all of the year respectively.
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 2016 AIP was based on the performance targets and weightings set out below. Financial performance measures, namely Gross Sales
(Retail) A and EBITDA A , 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 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) A (% of total target)
Individual objectives
(% of total target)
Examples of business area objectives
1.
35
35
30
35
35
30
35
35
30
35
35
30
Deliver/progress key
projects including new
CFCs and technology
Drive sufficient cost
challenge for operational
programmes
Increase capacity at
Dordon and Hatfield CFCs
Support all OSP
contractual negotiations
2. Develop and drive long-
term strategy
Continue to operate an
efficient and effective
finance and risk function
Progress Erith CFC and
technology projects and
keep them on schedule
Expand patent function
and IP protection
A
See Alternative Performance
Measures on page 194
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Financial Targets and Individual Targets
Each Executive Director had four to five 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
strategic plans for 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 judgement on a scoring report by the Chief Executive Officer and the
Chairman.
The Group’s Gross Sales (Retail) A for the period were £1,267 million, which was above the ‘‘threshold” of £1,254 million set under the 2016 AIP. The Group’s
EBITDA (pre-exceptional items) A for the period was £84.3 million, which was above the “threshold” of £84.0 million set under the 2016 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 being
scored between 68% and 70% of maximum.
Financial Targets
Individual Objectives
Total Payment
Gross Sales (Retail) A
Group EBITDA A
Director
Threshold Maximum
Actual % bonus % salary Threshold Maximum
Actual % bonus % salary
% bonus % salary % salary
Target
Performance
Achievement
Target
Performance
Achievement
Performance
Achievement
£1,254m £1,330m £1,267m
13.37% 16.71%
£1,254m £1,330m £1,267m
13.37% 13.37%
£84m
£84m
£91m
£84.3m
9.88% 12.35%
Note 1
20.40% 25.50%
£91m £84.3m
9.88% 9.88%
Note 1
20.55% 20.55%
54.5%
43.8%
£’000
£315
£156
£1,254m £1,330m £1,267m
13.37% 13.37%
£84m
£91m £84.3m
9.88% 9.88%
Note 1
20.85% 20.85%
44.1%
£132
£1,254m £1,330m £1,267m
13.37% 13.37%
£84m
£91m £84.3m
9.88% 9.88%
Note 1
20.40% 20.40%
43.7%
£156
Tim Steiner
Duncan
Tatton-Brown
Neill Abrams
Mark
Richardson
1. 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.
2. The applicable salary used for calculating the bonus payment under the rules of the 2016 AIP is the applicable base salary on the date of payment.
Disclosure of Targets
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 strategies 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.
Summary of Bonus Earned
The Remuneration Committee has, in accordance with the 2014 Directors’ Remuneration Policy and the rules of the 2016 AIP, recommended an aggregate
bonus payment under the plan for the period of £759,953 (2015: £1,115,370), based on achievement between 43% and 44% of maximum (2015: achievement
of 65% to 67% of maximum). 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 2016 AIP. The cash payments are expected to be made in February 2017. 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 expectations under the
2014 Directors’ Remuneration Policy.
A
See Alternative Performance
Measures on page 194
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 101
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.
ESOS
The award of 9,923 share options, made to Duncan Tatton-Brown in 2013 under the ESOS, vested during the period. The award became exercisable on
8 July 2016. This was a one-off award of options made to Duncan after joining the Group. The Group had, until mid-2013, a policy of issuing options to all new
employees and the Executive Directors shortly after joining the Group. The options were not subject to performance conditions but were not exercisable before
the third anniversary of the grant date. On the first date the award became exercisable, the Company’s share price was below the exercise price and so the
award had no value on vesting. The details of the ESOS option are set out in the table below.
Director
Duncan Tatton-Brown
Date of Grant
08/07/2013
Number of
options
9,923
Exercise
price (£)
3.02
Price on date
of vesting (£)
2.306
Value on date
of vesting (£)
0
The options have not been exercised and are exercisable until July 2023.
LTIP
The LTIP is the primary long-term incentive for the Executive Directors. The LTIP awards help reward the Executive Directors for the delivery of long-term
business objectives.
The three-year performance period for the 2014 LTIP awards expired at the end of the financial year. The Remuneration Committee reviewed the performance
against the two equally weighted performance conditions, namely diluted and adjusted earnings per share and Group Revenue, for the 2015/2016 financial
year.
The diluted and adjusted earnings per share for the period was 3.075 pence per share. Accordingly, achievement against this performance target was 42.76%.
As noted on page 125 of this Annual Report, the Group’s diluted earnings per share was 1.96 pence per share (2015: 1.91 pence per share). The EPS used as a
performance criteria for the LTIP is adjusted to exclude exceptional costs and additional share scheme awards made since the 2014 award as agreed at the
time of the award.
Group Revenue represented the other half of the award. As noted on page 125, the Group’s Revenue for the period was £1,271.0 million, which was an
increase of 14.8% on 2015 and an increase of 34% between 2014 and 2016, but which fell below the threshold of £1,385.5 million set under the LTIP award.
Consequently, achievement against this performance target was 0%.
Accordingly, the Remuneration Committee has, in accordance with the 2014 Policy and the rules of the LTIP, recommended overall vesting of 42.76% for the
2014 LTIP awards. The Remuneration Committee believes that this level of vesting appropriately reflects the performance of business during the performance
period. Details of performance are set out in the table below.
The value of the 2014 LTIP awards in the total remuneration table is estimated based on the average Company share price for the final three months of the
period, being 275.42 pence per share.
The expected vesting date of the 2014 LTIP award is 16 March 2017 (which was changed from 31 March 2017, with the approval of the Remuneration Committee
during the period, for administrative ease). Subject to the continued satisfaction of the award conditions, final vesting will be determined.
Revenue
EPS
Total vesting
Target
Performance
Achievement
% of
Target
Director
Tim Steiner
Threshold Maximum
£1,492.7m
£1,385.5m
Actual
£1,271.0m
Maximum Threshold Maximum
3.5pps
1.3pps
0%
Duncan Tatton-Brown
£1,385.5m
£1,492.7m
£1,271.0m
Neill Abrams
Mark Richardson
£1,385.5m
£1,492.7m
£1,271.0m
£1,385.5m
£1,492.7m
£1,271.0m
0%
0%
0%
1.3pps
1.3pps
1.3pps
3.5pps
3.5pps
3.5pps
Performance
Achievement
Actual
3.075pps
3.075pps
3.075pps
3.075pps
% of
Maximum
42.76%
% of
Maximum
42.76%
42.76%
42.76%
42.76%
42.76%
42.76%
42.76%
£’000
£206
£113
£75
£113
1. The Remuneration Committee has agreed “threshold” and “maximum” conditions that must be achieved. An award will not vest unless a “threshold” level of the performance
condition has been achieved. At “threshold” performance for a financial performance measure, 12.5% of the total award will vest and 50% vesting will occur for achieving or
exceeding “maximum” performance for a condition. A straight line sliding scale applies in relation to the intermediate points between the “threshold” and “maximum”.
2. Details of the number of conditional shares awarded to each Director for the 2014 LTIP awards are shown in the table on page 106.
Recovery of Sums Paid (audited)
No sums paid or payable to the Executive Directors were sought to be recovered by the Group.
sluglineStock Code: OCDO | www.ocadogroup.comDirectors’ Remuneration Report 21. Directors’
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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 below) 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
Ruth Anderson
Robert Gorrie
Jörn Rausing
Douglas McCallum
Alex Mahon
Andrew Harrison
David Grigson
Total
Fees
Taxable
Benefits
2016
£’000
2015
£’000
2016
£’000
2015
£’000
Pension
Entitlements
2015
2016
£’000
£’000
200
61
49
49
61
56
37
30
543
200
60
48
48
60
48
—
70
534
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Annual
Bonus
Long-Term
Incentives
Recovery of
Sums Paid
2016
£’000
—
—
—
—
—
—
—
—
—
2015
£’000
2016
£’000
— 1,334
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 1,334
2015
£’000
2016
£’000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2015
£’000
Total
Remuneration
2015
2016
£’000
£’000
— 1,534
—
61
—
49
—
49
—
61
—
56
—
37
—
30
— 1,877
200
60
48
48
60
48
—
70
534
1. Andrew Harrison joined the Board on 1 March 2016.
2. David Grigson resigned from the Board with effect from the 2016 annual general meeting on 4 May 2016.
For further details on the long-term incentive payment see the Chairman’s Share Matching Award below.
3.
4. Emma Lloyd was appointed on 1 December 2016, after the period end. Emma’s fees are in line with the 2014 Directors’ Remuneration Policy.
The remuneration arrangements for the Non-Executive Directors (except the Chairman) were reviewed by the Executive Directors and the Chairman during the
period and the basic fees for non-executive directors were increased to £50,000 (2015: £48,000) per annum.
The review was carried out by the Executive Directors and Chairman in accordance with the 2014 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 (provided by Deloitte) for comparable roles for companies of equivalent size and
complexity to the Group.
The Chairman’s fees were not subject to review in 2016 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.
Robert Gorrie chairs the meetings of the Ocado National 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.
Chairman’s Share Matching Award
The Chairman’s Share Matching Award, which was awarded to Lord Rose on his becoming Chairman in May 2013, vested in May 2016.
Director
Lord Rose
Date of grant
17/05/2013
Number of shares
452,284
Value at grant (£)
400,000
Vesting date
10/05/2016
Value on vesting (£)
1,334,238
1. The value at grant of the award was calculated using a price of 88.44 pence per share, being the volume weighted average share price of the Company’s ordinary shares on the
three trading days prior to 22 January 2013 (the date of the announcement of the Chairman’s appointment). The basis for the award was to match up to £400,000 of Company
shares where such shares were acquired by the Chairman.
2. The value on vesting was calculated using the closing share price of 295 pence per share on the day of vesting.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 103
The vesting of the award was subject to the condition that the Chairman remained a Director of the Company. There were no performance criteria to which
vesting was subject. Lord Rose may not dispose of the vested shares until the first anniversary of his ceasing to be a director of the Company.
The Chairman’s Share Matching Award was approved by shareholders at the Company’s annual general meeting on 10 May 2013. It was a one-off award made
on Lord Rose’s appointment as Chairman of the Board. On joining the Board, Lord Rose had already acquired 750,000 of the Company’s ordinary shares on his
own account. Lord Rose subscribed for the 452,284 ordinary shares at their nominal value, that is £9,046, on grant. No payment was required on vesting.
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 2014 Directors’ Remuneration Policy,
though the contracts provide for payment in lieu of notice of one times basic salary only (and do not include other fixed elements of pay, which are permitted
by the policy). The service contracts for each of the Executive Directors are continuous until terminated by either party (on 12 months’ notice if terminated by
the Company, or six months’ notice if terminated by the Director).
Non-Executive Directors’ Letters of Appointment (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 re-appointment 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 by either party giving to the other not less than one month’s notice, except in the case of the
Chairman, which requires six months’ notice by either party. 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 current Executive Director share scheme awards do not contain any requirements for Directors to retain shares for a period after leaving the Company.
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. Additionally, the 2017 Policy introduces a holding period of two years from the third
anniversary of the date of grant under the LTIP. This is explained on page 80.
Director Retirement Arrangements and Payments for Loss of Office (audited)
As announced on 28 January 2016 and 18 November 2016, it was determined in accordance with the 2014 Directors’ Remuneration Policy that the
arrangements set out below should apply in relation to David Grigson’s and Robert Gorrie’s remuneration on retirement, respectively.
Element of Remuneration
Remuneration Payments
Payment for Loss of Office
Share Schemes
Treatment
All outstanding fees were paid to David Grigson up to 4 May 2016, in
accordance with the terms of his letter of appointment.
All outstanding fees will be paid to Robert Gorrie up to 3 May 2017 in
accordance with the terms of his letter of appointment.
No payments are expected after the date of retirement for either Director.
Although Robert Gorrie may continue to be paid a fee for services to the
Group not in a Director capacity (as explained on page 53).
No payment for loss of office or other remuneration payment was made or is
expected to be made to either Director.
At the time of retirement, neither David Grigson nor Robert Gorrie were
participants 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 2014 Policy. On appointment, Andrew Harrison’s basic annual fee was £48,000, which increased to £50,000 in April 2016 in line
with the other Non-Executive Directors. Andrew Harrison will not receive any other benefits or payments, in line with the 2014 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 2014 Directors’ Remuneration Policy. All of the Remuneration decisions regarding
sluglineStock Code: OCDO | www.ocadogroup.comDirectors’ Remuneration Report 21. Directors’
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executive remuneration for the period have been made in line with the 2014 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
was paid a fee of £62,500 in 2016, which will increase to £65,000 in 2017.
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.
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
Duncan Tatton-Brown
Mark Richardson
Neill Abrams
Alex Mahon
Ruth Anderson
Robert Gorrie
Andrew Harrison
Douglas McCallum
Jörn Rausing
Ordinary Shares of 2 Pence
each held at 27 November 2016
Ordinary Shares of 2 Pence
each held at 29 November 2015
Direct Holding
Indirect Holding
Direct Holding
Indirect Holding
15,205,557
1,202,284
561,363
243,808
754,386
17,355
80,000
415,660
11,500
100,000
14,292,464
–
61,247
6,328
1,319,048
–
–
–
–
–
–
69,015,602
14,478,423
750,000
97,865
–
597,007
11,099
80,000
415,660
–
20,000
–
14,291,200
–
60,650
694
1,314,339
–
–
–
–
–
69,015,602
1. The indirect holding for Neill Abrams includes holdings of Caryn Abrams (wife of Neill Abrams) who holds 79,701 (2015: 79,745) ordinary shares, Daniella Abrams (daughter of Neill
Abrams) who holds 1,363 (2015: nil) ordinary shares, Mia Abrams (daughter of Neill Abrams) who holds 1,363 (2015: nil) ordinary shares, Joshua Abrams (son of Neill Abrams) who
holds 1,363 (2015: nil) ordinary shares and as a discretionary beneficiary of a trust holding 133,100 (2015: 133,100) ordinary shares.
2. The indirect holding for Duncan Tatton-Brown includes a holding by Kate Tatton-Brown (wife of Duncan Tatton-Brown) who holds 59,934 (2015: 60,000) ordinary shares.
3. The indirect holding for Mark Richardson includes a holding by Rebecca Richardson (wife of Mark Richardson) who holds 4,970 (2015: nil) ordinary shares.
4. 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 109. There have been no changes in the Directors’ beneficial interests in trusts holding ordinary
shares of the Company.
5. No Director had an interest in any of the Company’s subsidiaries at the beginning or end of the period.
6. Tim Steiner has granted a security interest over his ordinary shares in the Company. The security interest has been granted in connection with a loan made to him. For further
details, refer to the Company’s announcement made on 28 November 2016. The security interest was granted over 15,197,812 ordinary shares in the Company and any further
ordinary shares held by Tim Steiner from time to time. Arthur Seligman as trustee of the Steiner 2008 Millennium Trust, of which Tim Steiner is one of a number of discretionary
beneficiaries, has granted a security interest over 14,291,200 ordinary shares in the Company.
7. On 13 May 2016, in respect of various contracts for the transfer of shares (as described on pages 235 and 238 of the Prospectus), Tim Steiner delayed the date on which
completion under the contracts for transfer would take place to 30 June 2019, or such later date as the parties may agree. As a result of the security interest granted over Tim
Steiner’s ordinary shares in the Company, (see footnote 6) the completion of these contracts is conditional on the release of the security interest.
8. On 11 May 2016, in respect of various contracts for the transfer of shares (as described on pages 235 and 238 of the Prospectus), Neill Abrams delayed the date on which
completion under the contracts for transfer would take place to 30 June 2019, or such later date as the parties may agree.
9. On 23 November 2016, Jörn Rausing notified the Company of a transfer of 69,015,602 shares in the Company from Hamilton Trust Company Limited as trustee of the Apple II Trust
(of which Jörn Rausing is a beneficiary) to Apple III Limited (which is owned by Apple III Trust, of which Jörn Rausing is a beneficiary).
10. Where applicable, the above indirect holdings include SIP Partnership Shares held under the SIP, which are held in trust.
11. The Executive Director shareholdings have increased during the period primarily due to the vesting of the 2013 LTIP awards. For more details, see pages 106 and 107.
12. Emma Lloyd was appointed on 1 December 2016, after the period end. Emma has not purchased Company shares at the date of this Annual Report.
13. During the year, Non-Executive Director David Grigson retired from the Board. David Grigson held 35,000 ordinary shares at 29 November 2015 and on the date of his retirement
on 4 May 2016.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 105
Director Shareholding Requirement (audited)
The table below shows current compliance with the Director shareholding requirements in the 2014 Directors’ Remuneration Policy as at the date of this
Annual Report. All Directors comply with the Director shareholding requirements.
Director
Tim Steiner
Duncan Tatton-Brown
Neill Abrams
Mark Richardson
Lord Rose
Robert Gorrie
Douglas McCallum
Ruth Anderson
Alex Mahon
Jörn Rausing
Andrew Harrison
Emma Lloyd
Minimum Shareholding
Requirement (% of Base Salary
or Fee)
150
100
100
100
100
100
100
100
100
100
100
100
Complied with
Shareholding
Requirement?
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
n/a
n/a
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
Indirect shareholdings
n/a
n/a
1. Andrew Harrison was appointed on 1 March 2016 and Emma Lloyd was appointed on 1 December 2016. Non-Executive Directors are expected to hold shares equivalent to one
year’s annual fee. This holding can be built up over three years from appointment. Therefore, while neither Andrew Harrison nor Emma Lloyd hold the requisite number of shares
to comply with the shareholding requirement currently, both are compliant with the policy.
2. During the year, Non-Executive Director David Grigson retired from the Board. David Grigson held 35,000 ordinary shares at 29 November 2015 and on the date of his retirement
on 4 May 2016, therefore complying with the shareholding requirement up to this date. His shareholdings were held directly.
The assessment for compliance is based on the current annualised salary or fee (as set out in the total remuneration tables) which applied on 18 January 2017
(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
264 pence per share on 18 January 2017), 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
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
Date of
issue
03/02/10
03/02/10
03/02/10
03/02/10
03/02/10
03/02/10
03/02/10
03/02/10
01/11/12
01/11/12
03/02/10
03/02/10
03/02/10
03/02/10
30/11/12
30/11/12
Number of
share interests
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
Hurdle
Price
(£)
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
Vesting Date
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
sluglineStock Code: OCDO | www.ocadogroup.comDirectors’ Remuneration Report 21. Directors’
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106
Granted: No awards of JSOS share 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 current 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.
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
Basis on
Which Award
is made
(% of Salary)
200
200
200
150
150
150
120
120
120
150
150
150
Date of
Grant
05/02/14
13/03/15
17/03/16
05/02/14
13/03/15
17/03/16
05/02/14
13/03/15
17/03/16
05/02/14
13/03/15
17/03/16
Number of
Shares
174,588
291,005
429,885
96,023
134,920
199,310
64,016
90,476
133,655
96,023
134,920
199,310
Face Value of
Award
(£)
900,000
1,100,000
1,122,000
495,000
510,000
520,000
330,000
342,000
349,000
495,000
510,000
520,000
End of
Performance
Period
27/11/16
03/12/17
02/12/18
27/11/16
03/12/17
02/12/18
27/11/16
03/12/17
02/12/18
27/11/16
03/12/17
02/12/18
Expected
Vesting Date
16/03/17
13/03/18
17/03/19
16/03/17
13/03/18
17/03/19
16/03/17
13/03/18
17/03/19
16/03/17
13/03/18
17/03/19
1. 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.
2. The 2014 LTIP award was determined based on a price of 515.5 pence per share, being the volume weighted average price of the Company’s ordinary shares on the three trading
days prior to 5 February 2014 (being the LTIP grant date). The 2014 LTIP 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. For each target, at “threshold” performance, 12.5% of an LTIP award will vest and at “maximum”
performance, 50% of an LTIP award will vest. Vesting will be on a straight-line basis between the “threshold” and the “maximum”.
3. The 2015 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 award is 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 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 2016/17 financial year and the second concerns the capital cost for an Ocado
Smart Platform module. In respect of a target, at “threshold” performance, 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”.
4. The 2016 LTIP award is outlined below.
5. The 2014 LTIP awards are not capable of vesting until after the end of the period, on 16 March 2017 (which was changed from 31 March 2017, with the approval of the
Remuneration Committee during the period, for administrative ease).
Granted: LTIP awards were made in respect of 2016 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 2014 Directors’ Remuneration Policy. The number of shares
subject to an LTIP award was determined based on a price of 261 pence per share, being the volume weighted average price of the Company’s ordinary shares
on the three trading days prior to 17 March 2016 (being the LTIP grant date).
The 2016 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 2017/2018 financial year, being the third year of a three-year performance period. The performance
metrics relate to the retail business and the platform business. The Remuneration Committee believes that these performance conditions encourage the
delivery of crucial strategic objectives of the Group. 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 2017/2018 financial year and
the second concerns the capital cost for an Ocado Smart Platform module.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 107
The rationale for, and basis of measurement of, the performance metrics was as follows:
Performance target
Commercial rationale
Basis of measurement
Retail business (50%)
Rewards top line sales growth for the retail business in
line with the Group’s strategy and the creation of financial
returns to shareholders.
Group Revenue and earnings before tax for the retail
business for the 2017/2018 financial year.
Platform business (50%)
Rewards progress and achievement with the proprietary
infrastructure solution, which is a key strategy objective.
Operational efficiency of Andover CFC and the capital cost
per Ocado Smart Platform modules for the 2017/2018
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 2016 LTIP awards will be tested in relation to the financial year ending in 2018 to determine what percentage of the LTIP
awards has been achieved, and will vest during 2019 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: The 2013 LTIP awards had a vesting date of 31 March 2016 for a three-year performance period that ended with the 2014/15 financial year. As explained
in the previous annual report, 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 2014/15 financial year. The Group’s
earnings before interest and tax and exceptional items for the period was £21.4 million, which was an increase of 31.3% on 2014. The performance target also
takes into account the share-based management incentive charges which were £7.8 million. The Group’s earnings before interest and tax and pre-exceptional
items and before the LTIP award costs for management was therefore £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%.
The performance period for the 2014 LTIP awards finished in the year, although these awards are not capable of vesting until 16 March 2017 (as noted on page
101).
Sold: As a result of the vesting of the 2013 LTIP awards, the Executive Directors sold shares in the Company. The Directors sold sufficient of the shares that
vested to cover the cost of the tax and National Insurance. The details of the LTIP vesting and resulting share sale for each Executive Director are set out below.
Director
Tim Steiner
Duncan Tatton-Brown
Mark Richardson
Neill Abrams
Date of
Grant
23/07/13
23/07/13
23/07/13
23/07/13
Grant price
(£)
1.312
Number of
Shares
Vested
1,371,951
Date of
Vesting and
Sale
31/03/16
Share Price
on Vesting
(£)
2.94
Value of
Shares Vested
(£)
4,033,536
1.312
1.312
1.312
685,975
469,512
304,878
31/03/16
31/03/16
31/03/16
2.94
2.94
2.94
2,016,767
1,380,365
896,341
Shares
Sold on
Vesting
644,817
322,409
220,671
143,293
Shares
Retained on
Vesting
727,134
363,566
248,841
161,585
1.
For more details see the total remuneration table on page 98.
Lapsed: No LTIP awards lapsed during the period.
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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 of
Award
(£)
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 being the price on date of grant. 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 during the period.
Lapsed: No awards under the GIP lapsed during the period.
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 of
Grant
(£)
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: For details of vested ESOS options, see page 101.
Sold: No awards under the ESOS have been exercised or sold by an Executive Director during the period.
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 existing Executive Directors. Accordingly, no value is shown in the total remuneration table for the period.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 109
SIP (audited)
At the end of the period interests in shares held by the Executive Directors under the SIP were as follows:
Partnership
Shares
Acquired in
the Year
664
663
664
664
Matching
Shares
Awarded in
the Year
95
95
94
95
Free Shares
Awarded in
the Year
1,323
1,312
1,312
1,102
Total Face Value of
Free Shares and
Matching Shares
Awarded in the Year
(£)
3,858
3,829
3,825
3,256
Total SIP
Shares Held
27/11/2016
4,996
4,938
4,990
4,436
SIP Shares
that Became
Unrestricted
in the Period
–
–
–
–
Total
Unrestricted
SIP Shares
Held at
27/11/2016
–
–
–
–
Director
Tim Steiner
Duncan Tatton-Brown
Mark Richardson
Neill Abrams
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 2016 under the terms of the SIP and the 2014
Directors’ Remuneration Policy. “Free shares” of up to £3,600 of ordinary shares may be allocated to any employee in any year. Free shares are allocated to
employees equally on the basis of salary, as permitted by the relevant legislation.
An award of matching shares was made to those Executive Directors who purchased partnership shares (using deductions taken from their gross basic pay)
under the terms of the SIP and in accordance with the 2014 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. Between the end of the period and 18 January 2017, 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
116
116
116
116
Matching
Shares
Awarded
17
17
16
16
Free Shares
Award
–
–
–
–
Total Face
Value of Free
Shares
and Matching
Shares
(£)
44
44
41
41
Total SIP
Shares Held at
18/01/2017
5,129
5,071
5,122
4,568
1. 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.
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. No shares awarded under the SIP have become unrestricted. 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.
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Sharesave Scheme (audited)
At the end of the period the Executive Directors’ option interests in the Sharesave scheme were as follows:
Director
Tim Steiner
Neill Abrams
Duncan Tatton-Brown
Mark Richardson
Type of
Interest
Options
Options
Options
Options
Options
Options
Options
Date of
Grant
01/10/13
05/08/16
01/10/13
05/08/16
01/10/13
05/08/16
05/08/16
Number of
Share Options
2,987
7,894
2,987
7,894
2,987
7,894
7,894
Exercise Price
(£)
3.01
2.28
3.01
2.28
3.01
2.28
2.28
Face Value
(£)
8,997
17,998
8,997
17,998
8,997
17,998
17,998
Exercise Period
01/12/16 – 31/05/17
01/12/19 – 01/05/20
01/12/16 – 31/05/17
01/12/19 – 01/05/20
01/12/16 – 31/05/17
01/12/19 – 01/05/20
01/12/19 – 01/05/20
Granted: The Executive Directors elected to participate in the 2016 invitation under the Ocado Sharesave Scheme, where the Directors were granted options
to purchase ordinary shares in the Company on the same terms as all other employees, at an exercise price of £2.28 per ordinary share, as set out in the table
above. The exercise price for an option was the market value of the Company’s shares for the five dealing days during the Sharesave application window, less a
discount of 10%.
Vested: A savings contract under the Sharesave Scheme matured after period end, on 1 December 2016. Tim Steiner, Duncan Tatton-Brown and Neill Abrams
each held 2,987 options at this date.
The value of the Directors’ Sharesave awards at 1 December 2016 is the value of the savings made by each Director under the savings contract. At the time of
vesting on 1 December 2016, the share price (of 264.00 pence per share) was lower than the exercise price (of 301 pence per share), meaning that the options
had no value on vesting. Under the rules of the Sharesave Scheme, participants are able to withdraw their savings rather than exercising their options. The
value of the savings made by each Director is £9,000. Participants are able to exercise their options until the end of the exercise period in May 2017.
Exercised: No awards under the Sharesave were exercised or sold by the Executive Directors during the period.
Lapsed: The Executive Directors elected to cancel their participation in the 2015 offer of Sharesave, resulting in the lapsing of the options originally granted to
them on 1 April 2015 with an exercise price of 324 pence per share. The options would have become exercisable on 1 May 2018. Each had 2,777 options lapse,
except in the case of Mark Richardson, who had 5,555 options lapse.
Chairman’s Share Matching Award (audited)
The Chairman’s Share Matching Award vested during the period. For further details of the vesting, see page 102.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 111
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 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. Awards vesting
under the LTIP were satisfied by the issue of new shares and 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 practicable date prior to the publication date of this Annual Report being 18 January 2017, 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
5.67%
Limit
10.00%
Discretionary Share Plans
Actual
3.15%
Limit
5.00%
sluglineStock Code: OCDO | www.ocadogroup.comDirectors’ Remuneration Report 21. Directors’
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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 six financial years.
Year
2016
2015
2014
2013
2012
2011
2010
Chief
Executive
Officer
Total
Remuneration
(£’000)
1,141
5,880
6,483
1,011
483
987
599
AIP or Bonus
Payment as
a Percentage
of Maximum Target
Achievement
(%)
43.6
65.0
56.0
98.3
29.7
0
n/a
Value of
AIP or Bonus
Payment
(£’000)
315
459
385
528
104
0
220
Long-Term
Incentives as
a Percentage
of Maximum
Opportunity
(%)
35.6
100
100
0
0
100
0
1. 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 and the first award had a performance period ending in 2015 and a vesting date in 2016. The
GIP and SIP were both implemented in 2014, but have vesting dates in 2019 and 2017 respectively.
For an explanation of JSOS and the theoretical remuneration represented in the Chief Executive Officer’s total remuneration, see page 112 in the 2014 Annual Report.
2.
3.
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 2015 to 2016
Percentage change in taxable benefits from 2015 to 2016
Percentage change in AIP earned from 2015 to 2016
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
3%
(33.33)%
(31.43)%
All UK
employees
3.5%
7.69%
n/a
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 as set out in Note 2.1 to the consolidated financial statements.
• Total gross employee pay – total gross employment costs for the Group (including pension, variable pay, share based payments and social security) as set
out in Note 2.6 to the consolidated financial statements.
Profit before tax
Total gross employee pay
27 November
2016
(£m)
29 November
2015
(£m)
12.1
287.7
11.9
239.9
Company Share Price
The closing market price of the Company’s shares as at 25 November 2016, being the last trading day in the period ended 27 November 2016, was 275.8 pence
per ordinary share (2015: 366.5 pence) and the share price range applicable during the period was 208.1 pence to 377.9 pence per ordinary share.
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 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.
113
400.00
350.00
300.00
250.00
200.00
150.00
100.00
50.00
0
FTSE 250
Ocado Group plc
02 Nov 2010
18 Nov 2011
17 Dec 2012
15 Nov 2013
02 Dec 2014
03 Nov 2015
25 Nov 2016
Annual Report on Remuneration — Implementation of Policy for 2017
Introduction
This part of the Directors’ Remuneration Report sets out implementation of the Directors’ remuneration for 2017.
Summary of Changes for Executive Directors
This table briefly summarises the proposals for the Directors’ remuneration arrangements for 2017 when compared to the arrangements for the period.
Base Salary and Benefits
Base salary will be subject to
annual review.
Pension
No changes proposed.
AIP
No change to the maximum
opportunity, measures or
structure of 2017 AIP.
Long-Term Incentives
No change to the maximum
opportunity for the 2017 LTIP
awards.
A change to one of the
platform business targets.
All-Employee Schemes
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 2017, 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
No changes are proposed to the pension contributions for Executive Directors for 2017, which are expected to remain at the levels provided in the current period.
2017 AIP
The Remuneration Committee approved the implementation of an AIP for the Executive Directors applicable to the 2016/17 financial year. This plan broadly
reflects the framework of the 2016 AIP and is line with the 2014 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 2016 AIP.
The weighting of objectives in the 2017 AIP is the same as the 2016 plan, with 35% for a Gross Sales A target, 35% for a Group EBITDA A target and 30% for
performance measured against role-specific objectives. The Gross Sales A target relates to the Group’s Gross Sales (Retail) and does not include any income or
benefits from the Morrisons operation. The rationale for setting these performance measures has not changed from 2016. For an explanation, see the Annual
Report on Remuneration on page 99.
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.
A
See Alternative Performance
Measures on page 194
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2017 LTIP Awards
The Remuneration Committee approved the making of awards under the LTIP for the Executive Directors for the 2016/2017 financial year. The amount of the
LTIP awards is based on a percentage of salary, expected to be in line with the percentages agreed for the 2016 LTIP awards and in line with the 2014 Directors’
Remuneration Policy.
As with the 2016 LTIP awards, the Remuneration Committee proposes to make 2017 LTIP award grants subject to earnings before tax and Revenue performance
conditions in respect of the retail business for the 2018/2019 financial year. The other two performance targets relate to the platform business. The first of these
is linked to the operational efficiency of the platform solution for the 2018/2019 financial year. The second of the platform business targets will be focused
on expanding the Ocado Smart Platform business and specifically generating sales of the Ocado Smart Platform. This target replaces the performance target
used for the 2015 and 2016 LTIP awards concerning the cost efficiency of the platform solution. This change to the LTIP performance targets reflects the Board’s
focus on rewarding the delivery of both a broader platform solution that includes store pick fulfilment and sales of the platform solution to new customers,
while continuing to incentive improvements in operational efficiency. 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.
SIP
The Executive Directors are expected to continue their participation in the SIP scheme in 2017.
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 2016 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 table below sets out the actual voting in respect of resolutions regarding remuneration at the three previous annual general meetings.
Resolution Text
2016 AGM
Approve the 2015 Directors’ Remuneration Report
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
Votes For
% For
Votes Against
% Against
Total Votes Votes Withheld
314,587,371
91.48
29,304,819
8.52
345,048,769
1,156,579
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
80.04
73.24
97.10
99,701,426
133,721,017
14,373,969
19.96
26.76
2.90
499,693,161
499,693,271
499,692,971
226,825
2,071
3,436,005
sluglineOcado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Directors’ Remuneration Report 115
Basis of Preparation and Audit Review
This report is a Directors’ Remuneration Report for the 52 weeks ended 27 November 2016, 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
Guidance 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
31 January 2017
sluglineStock Code: OCDO | www.ocadogroup.comDirectors’ Remuneration Report 116
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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 Changes in Equity
Company Statement of Cash Flows
Notes to the Company Financial Statements
118
125
126
127
128
129
130
174
176
177
178
179
117
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Independent Auditors’ Report
to the members of Ocado Group plc
118
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 27 November 2016 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, comprise:
•
•
•
•
•
the Consolidated Balance Sheet as at 27 November 2016;
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 Consolidated financial statements, which include other explanatory information and the accounting policies.
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 IFRSs as adopted by the European Union, and
applicable law.
Our audit approach
Overview
Context
Our 2016 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 OSP technology 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 from the prior year 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: £4.7m which represents 0.37% of revenue.
Materiality
• The complete financial information of the four significant 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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Area of focus
Commercial income
As described in note 2.1 to the financial statements (page 134),
Ocado has two main streams of commercial income; promotional
allowances and volume rebates. In addition within other income
are significant sums of advertising (“Media”) income.
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 11 and on arrangements with direct suppliers to Ocado.
Both rebates earned under Waitrose managed supply arrangements
and rebates earned from direct suppliers are material to the group’s
results. Entitlement to income under both the Ocado and Waitrose
supply arrangements is based on the level of purchasing activity
made by Ocado under the Waitrose sourcing agreement and direct
supply agreements and the specific contractual terms negotiated
with various suppliers by Waitrose, and in the case of direct
suppliers, by Ocado.
As Waitrose negotiates and agrees a number of 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.
Similarly the key judgement in respect of rebates in relation to
direct suppliers is the determination of levels of accrued income to
recognise at the period end.
How our audit addressed the area of focus
Promotional support and media income
Our approach, specifically in relation to promotional income, was underpinned by
testing key system controls, including those used to determine the amount of items
sold under the terms of a supplier funded promotion arrangement. We determined that
the testing of these controls provided us with audit evidence that promotional support
income had been recorded appropriately and in the correct period. Our testing for
promotions also included checking the computation of the amounts billed to suppliers.
We additionally reconciled the total value of promotion income recorded in Ocado’s
“Promotions” system for the period to the total value recognised in the general ledger
and found no material reconciling items.
We independently confirmed the terms of a sample of individual promotion and media
agreements, covering both the duration of the promotion / campaign and the quantum
of promotional support per unit sold / the price charged for the campaign, directly with
a range of suppliers, including requesting confirmation of items invoiced in the period
and for amounts accrued at the period end, checking that the amount recognised was
recorded in the correct period based on the suppliers’ confirmation of details of the
period the funding related to.
Similar to promotional income, we reconciled the total value of amounts recorded
in Ocado’s “Media” booking system to the total value of media income recorded in
the financial statements and found no material reconciling items. We also selected a
sample of individual media adverts in the period and checked that income relating to
these adverts was recognised in the period.
Volume rebates
In relation to income due from Waitrose under the terms of their supply arrangements,
we visited the Waitrose head office and met with the members of the Waitrose
Commercial Finance team responsible for determining rebates due to Ocado. We
obtained and read a sample of supplier contracts negotiated by Waitrose and checked
that there was an accrual for amounts due to Ocado in relation to these agreements,
the accuracy of which we tested as set out below. We also considered how Waitrose
determine their overall supplier volume rebate income and the associated Ocado share
of this.
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.
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 quarter 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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Area of focus
Capitalisation of internal development costs
As explained on page 20, 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 the Audit Committee Report on page 60 and in note 3.1
and 3.2, £45m 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.
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.
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 £450,000, together with
a sample of smaller projects from the remaining population, as follows:
• We obtained explanations from management of why the project was considered
to be capital in nature, in terms of how the specific requirements of the relevant
accounting standards and other guidance, most notably of IAS 38, IAS 16 and SIC
32 (Web Site Costs) were met. We also conducted interviews with individual project
development managers responsible for the projects selected to corroborate these
explanations and to obtain an understanding of the specific projects to enable us to
independently assess whether the projects met all the criteria for capitalisation set
out in accounting standards. We found the explanations obtained from individual
project managers to be consistent with those obtained from management, our
understanding of developments in the business and supported management’s
assessment that the costs met the relevant capitalisation criteria.
• We challenged both management and the relevant development project managers
as to whether the development of new software or systems superseded or impaired
any of the existing assets on the balance sheet. We noted that, as disclosed in
notes 3.1 and 3.2 an impairment charge of £1.4m 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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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, Tax and Exceptionals’ 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 material 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 the Audit Committee Report on page 61 and note
2.8 Ocado recognise a deferred tax asset of £14.2m. This was an
enhanced area of focus in the current year as the group now has
recorded a profit in each of the last three 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 132.
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
8 and 9 and CEO’s review on pages 22 to 25. 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 8-12, 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 the four
significant 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 remaining trading entities, 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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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
£4.7m (2015: £4.5m).
0.37% of revenue.
We have applied revenue as a benchmark for determining materiality as we considered that this provides us with a
consistent year-on-year basis for determining materiality, reflecting the group’s growth and investment plans and levels
of profitability, and which we believe is also a key measure used by the shareholders as a body in assessing the group’s
performance.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £235,000 (2015: £225,000) 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 35, 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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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.
123
•
•
•
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 57, 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 position and performance, business model and
strategy is materially inconsistent with our knowledge of the group acquired in the course of performing our audit.
the section of the Annual Report on pages 59 to 63, 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 58 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.
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.
the directors’ explanation on page 35 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.
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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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 72 to 73, 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 27 November 2016 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
30 January 2017
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Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Our Financials Consolidated Income Statement
for the 52 weeks ended 27 November 2016
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
Earnings per share
Basic earnings per share
Diluted earnings per share
125
52 Weeks
Ended
27 November
2016
£m
52 Weeks
Ended
29 November
2015
£m
1,271.0
(835.7)
435.3
52.9
(365.7)
(100.6)
21.9
2.1
(2.4)
21.6
0.2
(9.7)
12.1
(0.1)
12.0
pence
2.02
1.96
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
Notes
2.3
2.4
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) A
Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Amortisation expense
Impairment of property, plant and equipment
Impairment of intangible assets
Exceptional items – Impairment of property, plant and equipment
Exceptional items – other
EBITDA
The notes on pages 130 to 173 form part of these financial statements.
52 Weeks
Ended
27 November
2016
£m
52 Weeks
Ended
29 November
2015
£m
21.6
47.0
12.6
0.3
0.4
0.7
1.7
84.3
21.4
45.1
13.2
1.0
0.8
—
—
81.5
Notes
3.2
3.1
3.2
3.1
2.7, 3.2
2.7
A
See Alternative Performance
Measures on page 194
24883.04
Proof 1
1 February 2017 11:09 AM
Stock Code: OCDO | www.ocadogroup.comOur Financials Consolidated Statement of
Comprehensive Income
for the 52 weeks ended 27 November 2016
126
Profit for the period
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Cash flow hedges
— Gains arising on forward contracts
— Gains arising on commodity swaps
— Losses arising on commodity swaps
Foreign exchange gains on translation of foreign subsidiary
Other comprehensive income for the period, net of tax
Total comprehensive income for the period
The notes on pages 130 to 173 form part of these financial statements.
52 Weeks
Ended
27 November
2016
£m
52 Weeks
Ended
29 November
2015
£m
12.0
11.8
0.1
0.8
(0.2)
0.3
1.0
13.0
0.2
—
(0.7)
—
(0.5)
11.3
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Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Our Financials Consolidated Balance Sheet
as at 27 November 2016
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
Derivative financial instruments
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
127
27 November
2016
£m
29 November
2015
£m
Notes
3.1
3.2
2.8
3.3
3.4
3.7
3.8
4.6
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
79.7
397.3
14.2
2.6
57.1
550.9
39.1
59.4
0.3
50.9
149.7
700.6
(205.6)
(52.9)
(29.8)
(0.2)
(2.4)
(290.9)
(141.2)
(6.1)
(127.0)
(7.3)
(6.9)
(147.3)
262.4
12.6
256.9
(48.0)
(116.2)
0.2
156.9
262.4
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
The notes on pages 130 to 173 form part of these financial statements.
The Consolidated financial statements on pages 125 to 173 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)
31 January 2017
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Stock Code: OCDO | www.ocadogroup.comOur Financials Consolidated Statement of
Changes in Equity
for the 52 weeks ended 27 November 2016
128
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
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
Profit for the period
Other comprehensive income:
Cash flow hedges
— Gains arising on forward contracts
— Gains arising on commodity swaps
— Losses arising on commodity swaps
Translation of foreign subsidiary
Total Comprehensive Income
for the Period Ended 27 November 2016
Transactions with owners:
— Issues of ordinary shares
— Share-based payments charge
— Disposal of treasury shares
Total Transactions with Owners
Balance at 27 November 2016
Notes
4.9
4.9
4.9
4.9
4.9
4.9
4.9
4.9
4.9
4.10
4.9
Share
Capital
£m
12.5
—
Share
Premium
£m
255.1
—
Treasury
Shares
Reserve
£m
(51.8)
—
Reverse
Acquisition
Reserve
£m
(116.2)
—
—
—
—
—
0.1
—
—
—
0.1
12.6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4.4
—
(0.8)
—
3.6
258.7
—
—
—
—
—
—
1.1
—
(2.9)
(1.8)
—
—
—
—
—
—
0.8
0.1
0.9
(50.9)
—
—
—
—
—
—
—
—
2.9
2.9
—
—
—
—
—
—
—
—
—
(116.2)
—
—
—
—
—
—
—
—
—
—
12.6
256.9
(48.0)
(116.2)
Other
Reserves
£m
(0.3)
—
0.2
(0.7)
—
(0.5)
—
—
—
—
—
(0.8)
—
0.1
0.8
(0.2)
0.3
1.0
—
—
—
—
0.2
Retained
Earnings
£m
118.9
11.8
—
—
—
Total
Equity
£m
218.2
11.8
0.2
(0.7)
—
11.8
11.3
—
7.8
—
—
7.8
138.5
12.0
—
—
—
—
4.5
7.8
—
0.1
12.4
241.9
12.0
0.1
0.8
(0.2)
0.3
12.0
13.0
—
6.4
—
6.4
1.1
6.4
—
7.5
156.9
262.4
The notes on pages 130 to 173 form part of these financial statements.
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1 February 2017 11:09 AM
Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Our Financials Consolidated Statement of Cash Flows
for the 52 weeks ended 27 November 2016
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
— 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 fees
Settlement of cash flow hedges
Net Cash Flows from Financing Activities
Net Increase/(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
The notes on pages 130 to 173 form part of these financial statements.
129
52 weeks
Ended
27 November
2016
£m
52 weeks
Ended
29 November
2015
£m
12.1
61.0
0.6
(2.1)
6.4
9.5
(9.2)
2.5
25.2
106.0
(9.1)
96.9
(85.3)
(38.6)
8.4
0.2
(115.3)
1.1
61.3
(11.5)
(26.4)
(1.2)
0.2
23.5
5.1
45.8
50.9
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
Notes
3.1, 3.2
3.11
3.4
2.6
4.5
3.9
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Stock Code: OCDO | www.ocadogroup.comOur Financials Notes to the Consolidated
Financial Statements
130
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, its subsidiaries and the Group’s interest in a jointly controlled entity (hereafter “the Group”). See Note 5.1. The
Financial Period represents the 52 weeks ended 27 November 2016. The prior financial period represents the 52 weeks ended 29 November 2015. The principal
activities of the Group are described in the Strategic Report on pages 6 to 43.
1.2 Basis of Preparation
The financial statements have been prepared in accordance with the Listing Rules and the Disclosure Guidance 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 29 November 2015 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.
Standards, amendments and interpretations adopted by the Group in the financial period 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 30 November 2015 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 5
IFRS 10
IFRS 11
IFRS 12
IAS 1
IAS 16
IAS 28
IAS 36
Share-based Payments
Consolidated Financial Statements
Joint Arrangements
Disclosure in Other Entities
Presentation of Financial Statements
Property, Plant and Equipment
Investments in Associates and Joint Ventures
Intangible Assets
Effective Date
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
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 30 November 2015 and have not been adopted early:
IFRS 2
IFRS 9
IFRS 12
IFRS 15
IFRS 16
IAS 28
Various
Share-based payments
Financial Instruments
Disclosure in Other Entities
Revenue from Contracts with Customers
Leases
Investments in Associates and Joint Ventures
Amendments to various IFRSs and IASs including those arising from the IASB’s annual improvements project
Effective Date
1 January 2018
1 January 2018
1 January 2017
1 January 2018
1 January 2019
1 January 2018
Various
The following new standards are not yet effective and the impact on the Group is currently under review:
— IFRS 15 “Revenue from Contracts with Customers” (endorsed by the EU) provides on the recognition and measurement of revenue. The standard
establishes a principles-based approach for revenue recognition and is based on the concept of recognising revenue for obligations only when they are
satisfied and the control of goods or services is transferred. This applies to all contracts with customers except those in the scope of other standards. This
new standard will replace IAS 12 “Revenue” and is effective for annual periods beginning on or after 1 January 2018 unless adopted early. The Group is
currently reviewing the impact of IFRS 15.
— 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 Consolidated 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 27 November 2016Our Financials 131
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.
Ocado Polska Sp. Z.o.o. has a year end of 30 November 2016, as the Poland Accounting Act requires a financial year to be 12 full calendar months from the prior
year end date. Ocado Spain S.L.U. has a year end of 31 December 2016, as established in its articles of association. There was no material movement between
the reporting date of the Group and the reporting dates of these entities.
All other subsidiaries have a year end of 27 November 2016.
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 Consolidated Income Statement 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. 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 Consolidated 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 Consolidated Income Statement within
finance income or finance costs. All other foreign exchange gains and losses are presented in the Consolidated 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.
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Stock Code: OCDO | www.ocadogroup.comOur Financials Notes to the Consolidated
Financial Statements
132
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.
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 recognised when the significant risks and rewards of ownership of the goods have been transferred, which is
upon delivery of the goods to the customer’s home for Ocado deliveries and upon transfer of goods to the courier for third party
deliveries. 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 A
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 out on pages 34 to 37.
In arriving at this judgement there are a large number of assumptions and estimates involved in calculating future cash flow
projections. This includes management’s expectations of revenue, EBITDA A , 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 are 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.
A
See Alternative Performance
Measures on page 194
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Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Our Financials 133
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 the period
end, the Group had cash and cash equivalents of £50.9 million (2015: £45.8 million), external gross debt A (excluding finance leases payable to MHE JVCo) of
£107.0 million (2015: £53.3 million) and net current liabilities of £141.2 million (2015: £59.5 million). The Group has a mix of short and medium term finance
arrangements and has a £210 million revolving credit facility which contains typical financial covenants and runs until July 2019. £52.5 million of this facility
has been drawn down to date. 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 125 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 on pages 14 to 15) and the Group’s principal risks and the likely effectiveness
of any mitigating actions and controls available to the Directors (see pages 34 to 37).
Further details of the Group’s considerations are provided in the Group’s Viability and Going Concern Statement on page 35.
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 and EBITDA A , the timing and quantum of future
capital expenditure, and estimation and cost of future funding.
A
See Alternative Performance
Measures on page 194
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Stock Code: OCDO | www.ocadogroup.comOur Financials Notes to the Consolidated
Financial Statements
134
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 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. For the 52 weeks ended 27
November 2016, promotional allowances represent 82% (2015: 85%) of commercial income, with volume-related rebates representing 18% (2015: 15%).
Promotional Allowances
Cost of sales 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 the 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, which was
administered by Standard Life until August 2016 and is now administered by Legal & General, 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 A
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 Consolidated 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, head office relocation costs, 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 Consolidated Income Statement.
2.3 Gross Sales A
The reconciliation of revenue to gross sales A is as follows:
52 Weeks
Ended
27 November
2016
£m
52 Weeks
Ended
29 November
2015
£m
1,271.0
98.9
16.8
1,386.7
1,107.6
82.4
14.4
1,204.4
Revenue
VAT
Marketing vouchers
Gross sales
A
See Alternative Performance
Measures on page 194
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Financial Statements
136
2.4 Other Income
Other income comprises:
Media and other income
Rental income
Other income
2.5 Operating Expenses
Operating expenses include:
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
— Exceptional items A
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
2.7, 3.2
3.1
3.8
52 Weeks
Ended
27 November
2016
£m
52 Weeks
Ended
29 November
2015
£m
38.6
14.3
52.9
35.3
13.7
49.0
52 Weeks
Ended
27 November
2016
£m
52 Weeks
Ended
29 November
2015
£m
821.2
249.3
12.6
47.0
0.3
0.7
0.4
1.1
12.8
—
0.6
715.3
212.8
13.2
45.1
1.0
—
0.8
0.8
10.3
0.3
—
52 Weeks
Ended
27 November
2016
£’000
52 Weeks
Ended
29 November
2015
£’000
65
257
50
31
403
57
230
37
30
354
A
See Alternative Performance
Measures on page 194
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Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Our Financials
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
137
52 Weeks
Ended
27 November
2016
£m
52 Weeks
Ended
29 November
2015
£m
252.8
22.2
5.6
7.1
287.7
(29.8)
(8.6)
249.3
9,308
1,622
10,930
206.8
18.1
5.1
9.9
239.9
(21.3)
(5.8)
212.8
7,453
1,241
8,694
* Included in the share-based payment expense is the IFRS 2 equity-settled charge of £6.4 million (2015: £7.8 million) and an additional provision of £0.7 million (2015: £2.1 million) for
the payment of amounts due to participants of the Cash LTIP and the Beauty MIP, and for the payment of employer’s national insurance contributions on certain employee incentive
schemes.
2.7 Exceptional items A
Head office relocation costs
— Impairment of property, plant and equipment
— Other
Litigation costs
52 Weeks
Ended
27 November
2016
£m
52 Weeks
Ended
29 November
2015
£m
0.7
0.8
0.9
2.4
—
—
—
—
Head office relocation costs
Following the growth of the business, the Group decided to relocate its head office. The move to the new premises is being completed in stages to minimise
the impact on the business and the Group has incurred dual running costs as it transitions to the new premises. Due to the one-off nature of the head office
move, these costs have been treated as exceptional.
Litigation costs
The Group has incurred litigation costs relating to the recovery of interchange fees for card transactions. The fees relating to this are material and non-recurring
and have therefore been treated as exceptional.
A
See Alternative Performance
Measures on page 194
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Financial Statements
138
2.8 Taxation
Accounting Policies
The tax charge for the period comprises current and deferred tax. Tax is recognised in the Consolidated 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 by the balance sheet date. Management
periodically evaluate 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 have 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.
Research and Development Expenditure Credit
The Group takes advantage of the incentives offered under the UK’s Research and Development Expenditure Credit (RDEC) regime to claim a credit for the
Group’s significant expenditure on qualifying research and development. As enacted in the Finance Act 2015, the credit due to the Group is equal to 11% of the
Group’s qualifying expenditure. The Group continues to utilise the additional benefits from the scheme in light of the Group’s commitment to its innovative
technology and software.
The Group claimed a credit of £1.3 million for the 52 weeks ended 29 November 2015.
Future Changes to Tax Legislation
The Group undertakes regular reviews in order to ensure its ongoing compliance with current and future proposed changes to UK tax legislation. The Group
has undertaken a review of the Group’s activities in light of the OECD’s Base Erosion and Profit Shifting (BEPS) publications and does not foresee any significant
impact on the Group’s effective tax rate resulting from the proposed changes in the short to medium term.
Taxation — Income Statement
Recognised in the Consolidated 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
52 Weeks
Ended
27 November
2016
£m
52 Weeks
Ended
29 November
2015
£m
—
0.1
—
0.1
—
—
0.1
0.1
(0.1)
0.1
0.1
—
—
0.1
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Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Our Financials 2.8 Taxation (continued)
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the effective tax rate applicable to profits of the Group as
follows:
139
Profit before tax
Effective tax charge at the UK tax rate of 20% (2015: 20.3%)
Effect of:
Utilisation of brought forward losses
Permanent differences
Difference in overseas tax rates
Temporary differences on which no deferred tax recognised
Prior year adjustments
Income Tax charge for the Period
52 Weeks
Ended
27 November
2016
£m
52 Weeks
Ended
29 November
2015
£m
12.1
2.4
(0.6)
1.7
—
(3.4)
—
0.1
11.9
2.4
—
1.8
0.6
(4.8)
0.1
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. The effective rate for the
period is 20%.
Taxation — Balance Sheet
Movement in the deferred tax asset is as follows:
As at 30 November 2014
Effect of change in UK corporation tax rate
Recognised through the Consolidated Income Statement
As at 29 November 2015
Recognised through the Consolidated Income Statement
As at 27 November 2016
Tax Losses
Carried
Forward
£m
9.4
(0.9)
1.5
10.0
4.2
14.2
As enacted in the Finance Act (No.2) 2016, the main rate of corporation tax will change from 20% to 19% from 1 April 2017, to 18% from 1 April 2018 and to 17%
from 1 April 2020. Deferred tax has been provided at the rate at which the deferred tax asset is expected to be utilised.
Movement in the unrecognised deferred tax asset is set out below:
As at 30 November 2014
Effect of change in UK corporation tax rate
Potential movement in the period unrecognised through:
— Consolidated Income Statement
As at 29 November 2015
Adjustment through submitted corporation tax returns
Potential movement in the period unrecognised through:
— Consolidated Income Statement
As at 27 November 2016
Tax Losses
Carried
Forward
£m
Accelerated
Capital
Allowances
£m
Other Short-
Term Timing
Differences
£m
47.6
(4.8)
(1.1)
41.7
(2.6)
(4.9)
34.2
15.0
(1.5)
(8.0)
5.5
16.1
(10.0)
11.6
0.5
—
(0.5)
—
—
—
Total
£m
63.1
(6.3)
(9.6)
47.2
13.5
(14.9)
45.8
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Financial Statements
140
2.8 Taxation (continued)
As at 27 November 2016 the Group had approximately £268.6 million of unutilised tax losses (2015: approximately £287.8 million) available for offset against
future profits. A deferred tax asset of £14.2 million (2015: £10.0 million) has been recognised in respect of £78.9 million (2015: £55.6 million) of such losses, the
recovery of which is supported by the expected level of future profits of the Group. The recognition of the deferred tax asset is based on forecast 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 £14.2 million (2015: £10.0 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 set out below:
As at 30 November 2014
Effect of change in UK corporation tax rate
Recognised through the Consolidated Income Statement
As at 29 November 2015
Recognised through the Consolidated Income Statement
As at 27 November 2016
£m
(2.0)
0.2
(0.9)
(2.7)
(4.2)
(6.9)
For the year ended 27 November 2016 the Group has recognised a deferred tax liability of £6.9 million (2015: £2.7 million). Of this amount, £6.9 million (2015:
£2.3 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.
2.9 Earnings Per Share
Basic earnings 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 earnings 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 classes of instruments that are potentially dilutive: share options and share interests held pursuant to the
JSOS.
Basic and diluted earnings 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
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 earnings per share
Diluted earnings per share
52 Weeks
Ended
27 November
2016
Number of
Shares (m)
52 Weeks
Ended
29 November
2015
Number of
Shares (m)
590.6
2.5
1.3
594.4
19.1
613.5
£m
12.0
pence
2.02
1.96
586.1
2.2
—
588.3
31.1
619.4
£m
11.8
pence
2.01
1.91
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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. 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 of 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
3–15 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 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. This is in line with the recognition
criteria as outlined in IAS 38 “Intangible Assets”. Management determine whether the nature of the projects meets 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, 22% (2015: 19%) relates to asset additions within property, plant and equipment.
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Financial Statements
142
3.1 Intangible Assets (continued)
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 Consolidated 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.
Cost
At 30 November 2014
Additions
Internal development costs capitalised
Disposals
At 29 November 2015
Additions
Internal development costs capitalised
Disposals
At 27 November 2016
Accumulated Amortisation
At 30 November 2014
Charge for the period
Impairment
Disposals
At 29 November 2015
Charge for the period
Impairment
Disposals
At 27 November 2016
Net Book Value
At 29 November 2015
At 27 November 2016
Internally
Generated
Assets
£m
Other
Intangible
Assets
£m
Total
Intangible
Assets
£m
65.6
—
24.1
(6.7)
83.0
—
34.9
(0.3)
117.6
(36.6)
(12.4)
(0.8)
6.7
(43.1)
(11.8)
(0.4)
0.3
(55.0)
39.9
62.6
13.2
4.4
—
—
17.6
4.9
—
(0.2)
22.3
(3.8)
(0.8)
—
—
(4.6)
(0.8)
—
0.2
(5.2)
13.0
17.1
78.8
4.4
24.1
(6.7)
100.6
4.9
34.9
(0.5)
139.9
(40.4)
(13.2)
(0.8)
6.7
(47.7)
(12.6)
(0.4)
0.5
(60.2)
52.9
79.7
Included within intangible assets is capital work-in-progress for internally generated assets of £20.0 million (2015: £21.7 million) and capital work-in-progress
for other intangible assets of £3.3 million (2015: £7.2 million).
The net book value of intangibles held under finance leases is analysed below:
Cost
Accumulated amortisation
Net Book Value
52 Weeks
Ended
27 November
2016
£m
52 Weeks
Ended
29 November
2015
£m
14.3
(11.2)
3.1
13.8
(9.3)
4.5
For the 52 weeks ended 27 November 2016, internal development costs capitalised represented approximately 88% (2015: 85%) of expenditure on intangible
assets and 22% (2015: 19%) of total capital spend including property, plant and equipment.
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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 57% of the total asset base of the Group in 2016 (2015: 55%). 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 Dordon CFC, and is expected to provide part of the
foundation of software used in future centres including Andover CFC.
For more information on the Group’s policy on capitalisation of borrowings costs, see Note 4.1.
Depreciation on 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 Consolidated 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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3.2 Property, Plant and Equipment (continued)
Cost
At 30 November 2014
Additions
Internal development costs capitalised
Disposals
At 29 November 2015
Additions
Internal development costs capitalised
Disposals
At 27 November 2016
Accumulated Depreciation
At 30 November 2014
Charge for the period
Impairment
Disposals
At 29 November 2015
Charge for the period
Impairment
Disposals
At 27 November 2016
Net Book Value
At 29 November 2015
At 27 November 2016
Land and
Buildings
£m
Fixtures,
Fittings, Plant
and Machinery
£m
Motor
Vehicles
£m
55.2
25.5
—
—
80.7
27.6
—
(0.1)
108.2
(18.5)
(1.9)
(0.1)
—
(20.5)
(1.9)
—
0.1
(22.3)
60.2
85.9
352.1
48.5
5.8
(3.1)
403.3
63.7
10.1
(4.9)
472.2
(138.8)
(33.4)
(0.9)
3.1
(170.0)
(33.4)
(1.0)
4.9
(199.5)
233.3
272.7
47.4
18.4
—
(10.6)
55.2
16.6
—
(7.5)
64.3
(22.2)
(9.8)
—
10.6
(21.4)
(11.7)
—
7.5
(25.6)
33.8
38.7
Total
£m
454.7
92.4
5.8
(13.7)
539.2
107.9
10.1
(12.5)
644.7
(179.5)
(45.1)
(1.0)
13.7
(211.9)
(47.0)
(1.0)
12.5
(247.4)
327.3
397.3
Included within property, plant and equipment is capital work-in-progress for land and buildings of £27.4 million (2015: £31.9 million) and capital work-in-
progress for fixtures, fittings, plant and machinery of £22.9 million (2015: £57.5 million).
The net book value of non-current assets held under finance leases is set out below:
At 29 November 2015
Cost
Accumulated depreciation and impairment
Net book value
At 27 November 2016
Cost
Accumulated depreciation and impairment
Net Book Value
Land and
Buildings
£m
Fixtures,
Fittings, Plant
and Machinery
£m
30.3
(17.9)
12.4
30.9
(19.5)
11.4
207.0
(92.7)
114.3
209.8
(110.6)
99.2
Motor
Vehicles
£m
54.5
(20.8)
33.7
63.5
(25.0)
38.5
Total
£m
291.8
(131.4)
160.4
304.2
(155.1)
149.1
Property, plant and equipment with a net book value of £19.0 million (2015: £19.9 million) has been pledged as security for the secured loans (Note 4.2).
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3.3 Financial Assets
Accounting Policies
Financial Assets
Financial assets comprise available-for-sale financial assets, prepaid fees in relation to financing activities and contribution towards dilapidations.
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 intend to dispose of it within 12 months of the end of the
reporting period. Management consider 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 drawdown and utilisation of
the underlying facility. Amortisation commenced when the underlying facility was 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 Consolidated Income Statement.
Financial assets comprise:
Unlisted equity investment — cost and net book value
Prepaid financing fees
Contribution towards dilapidation costs
Financial Assets
27 November
2016
£m
29 November
2015
£m
0.4
0.7
1.5
2.6
0.4
2.5
—
2.9
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 Consolidated Income
Statement. Dividends are recognised in the Consolidated Income Statement when the right to receive payment is established.
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 previous year. The non-current portion of prepaid finance costs
relates to amounts capitalised during the year which will not be amortised to the Consolidated Income Statement within the next 12 months. In line with the
utilisation of the facility, £0.6 million has been released from prepayments.
Contribution Towards Dilapidations
A contribution towards dilapidations is due from the former tenant of two leases entered into during the year and will be utilised when dilapidation costs are
incurred at the end of the lease.
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 £57.1 million (2015: £62.0 million) in MHE JVCo, 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 £8.4 million from
MHE JVCo (2015: £8.1 million). The Group injected a £1.1 million capital contribution into MHE JVCo to finance the acquisition of Dordon CFC 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
27 November
2016
£m
29 November
2015
£m
2.9
(0.8)
2.1
3.1
(0.8)
2.3
At the period end the Group’s share of the net assets of MHE JVCo were valued at £57.1 million (2015: £62.0 million) The principal movements during the year
were the £2.1 million Group share of profit after tax, a £1.1 million capital contribution made to MHE JVCo and a dividend of £8.4 million paid by MHE JVCo to
the Group.
For the 52 weeks ended 27 November 2016 the entity, MHE JVCo Limited, has recognised net interest income of £5.8 million (2015: £6.2 million). Costs incurred
by MHE JVCo include depreciation of £1.6 million (2015: £1.2 million) and a tax charge of £0.3 million (2015: £0.4 million). Material amounts held on its balance
sheet as at 27 November 2016 include finance lease receivables of £108.7 million (2015: £119.5 million), £8.6 million of property, plant and equipment (2015:
£8.9 million), £0.4 million of cash and cash equivalents (2015: £0.5 million), and £5.3 million of trade and other payables (2015: £5.6 million), contributing
towards net assets of £115.5 million (2014: £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 196.
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 27 November 2016.
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 has 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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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 Consolidated 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 Consolidated 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 base their
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
Write down of inventories amounted to £0.1 million (2015: write back 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
27 November
2016
£m
29 November
2015
£m
38.6
0.5
39.1
29.4
0.5
29.9
27 November
2016
£m
29 November
2015
£m
25.8
(2.8)
23.0
4.8
11.6
20.0
59.4
31.0
(1.7)
29.3
4.8
10.7
16.0
60.8
Included within trade receivables is a balance of £5.3 million (2015: £5.6 million) owed by MHE JVCo.
Included in trade receivables is £5.9 million (2015: £4.3 million) due from suppliers in relation to commercial and media income. As at 1 January 2017 £4.2
million has been received. Included in accrued income is £10.8 million (2015: £9.5 million) to be invoiced to suppliers in relation to supplier funded promotional
activity and £7.0 million (2015: £5.5 million) to be invoiced to suppliers in relation to volume-related rebate amounts. As at 1 January 2017 £14.5 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
27 November 2016
Gross
£m
Impairment
£m
29 November 2015
Gross
£m
Impairment
£m
39.5
6.9
1.5
2.7
50.6
—
(0.2)
(0.4)
(2.2)
(2.8)
43.8
8.0
—
—
51.8
—
(1.7)
—
—
(1.7)
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 Consolidated Income Statement.
Trade receivables that are past due but not impaired amount to £4.4 million (2015: £6.3 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
27 November
2016
£m
29 November
2015
£m
0.9
1.0
2.5
4.4
6.3
—
—
6.3
27 November
2016
£m
29 November
2015
£m
50.9
45.8
£4.8 million (2015: £4.7 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 £0.2 million (2015: £0.1 million) 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
27 November
2016
£m
29 November
2015
£m
95.2
6.3
84.2
19.9
205.6
63.6
5.8
74.8
20.2
164.4
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.
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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 Consolidated 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.
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, the Beauty Management Incentive plan (“Beauty MIP”) 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 2014, the Group established the Cash LTIP in order to incentivise selected high performing employees of the Company. At the end of the three-year vesting
period, employees will be paid a cash amount equal to the notional number of awards at the prevailing share price, adjusted for the achievement of the
performance conditions.
Provisions
As at 30 November 2014
Charged/(credited) to the Consolidated Income Statement
— additional provision
— unused amounts reversed
Used during the period
Unwind of discount
As at 29 November 2015
Charged/(credited) to the Consolidated Income Statement
— additional provision
— unused amounts reversed
Used during the period
As at 27 November 2016
Insurance
Claims
£m
Dilapidations
£m
Employee
Incentive
Schemes
£m
0.9
0.9
(0.4)
—
—
1.4
0.6
(0.4)
(0.4)
1.2
3.1
0.9
—
(0.1)
0.1
4.0
0.7
1.4
(0.1)
6.0
1.6
2.1
—
—
—
3.7
0.9
(0.2)
(1.9)
2.5
Total
£m
5.6
3.9
(0.4)
(0.1)
0.1
9.1
2.2
0.8
(2.4)
9.7
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3.11 Provisions (continued)
Analysis of total provisions as at 29 November 2015
Current
Non-current
Analysis of total provisions as at 27 November 2016
Current
Non-current
Insurance
Claims
£m
Dilapidations
£m
0.5
0.9
1.4
0.2
3.8
4.0
Insurance
Claims
£m
Dilapidations
£m
0.4
0.8
1.2
1.1
4.9
6.0
Employee
Incentive
Schemes
£m
2.1
1.6
3.7
Employee
Incentive
Schemes
£m
0.9
1.6
2.5
Total
£m
2.8
6.3
9.1
Total
£m
2.4
7.3
9.7
Insurance Claims
The Ocado Cell uses statistical information built up over several years to estimate, as accurately as possible, the future outturn 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 £0.4 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 Hatfield CFC lease expires in 2032, the Dordon CFC lease expires in 2038, head office leases expire between 2016 and 2028, 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, the Beauty MIP 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 on vesting, 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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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 A 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 Consolidated Income Statement on the effective
interest rate basis.
Operating Leases
Assets leased under operating leases are not recorded on the Consolidated Balance Sheet. Rental payments are charged directly to the Consolidated 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
Current Liabilities
Borrowings
Obligations under finance leases
Non-Current Liabilities
Borrowings
Obligations under finance leases
Total Borrowings and Finance Leases
A
See Alternative Performance
Measures on page 194
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27 November
2016
£m
29 November
2015
£m
Notes
4.2
4.3
4.2
4.3
52.9
29.8
82.7
6.1
127.0
133.1
215.8
1.6
26.5
28.1
7.7
137.0
144.7
172.8
Stock Code: OCDO | www.ocadogroup.comOur Financials Notes to the Consolidated
Financial Statements
152
4.2 Borrowings and Finance Leases (continued)
Borrowings
As at 29 November 2015
Secured loans
Total Borrowings
As at 27 November 2016
Unsecured loans
Secured loans
Total Borrowings
The loans outstanding at period end can be analysed as follows:
Less Than
One Year
£m
Between
One Year and
Two Years
£m
Between
Two Years and
Five Years
£m
1.6
1.6
51.3
1.6
52.9
1.5
1.5
—
6.1
6.1
6.2
6.2
—
—
—
Total
£m
9.3
9.3
51.3
7.7
59.0
Inception
July 2014
July 2014
September 2015
Security
Held
None
Property, plant
and equipment
Freehold Property
Current
Interest Rate
LIBOR + 1.5%
9.12%1
Instalment
Frequency
Monthly
Monthly
Final
Payment
Due
July 20192
July 2017
LIBOR + 1.5%
Quarterly September 2018
Principal amount
£m
210.0
2.5
8.2
Disclosed as:
Current
Non-current
Carrying
Amount as at
27 November
2016
£m
Carrying
Amount as at
29 November
2015
£m
51.3
0.5
7.2
59.0
52.9
6.1
59.0
—
1.1
8.2
9.3
1.6
7.7
9.3
1. Calculated as the effective interest rate, the calculation of which includes an optional balloon payment at the end of the term.
2. Date of expiry of facility
In the previous year, the unsecured three-year £100 million revolving facility was extended by a further two years and the amount of the facility was increased
to £210 million. As at 27 November 2016, £52.5 million of the facility had been utilised, net of transaction fees. The Group regularly reviews its financing
arrangements. 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
27 November
2016
£m
29 November
2015
£m
29.8
25.8
66.4
34.8
156.8
26.5
23.8
62.1
51.1
163.5
External obligations under finance leases are £48.1 million (2015: £44.0 million) excluding £108.7 million (2015: £119.5 million) payable to MHE JVCo, a joint
venture company.
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Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Our Financials 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
153
27 November
2016
£m
29 November
2015
£m
38.4
31.7
76.9
36.8
183.8
(27.0)
156.8
29.8
127.0
156.8
34.8
30.3
75.0
55.3
195.4
(31.9)
163.5
26.5
137.0
163.5
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
A
Current Assets
Cash and cash equivalents
Current Liabilities
Borrowings
Obligations under finance leases
Non-Current Liabilities
Borrowings
Obligations under finance leases
Total Net Debt
27 November
2016
£m
29 November
2015
£m
Notes
3.9
4.2
4.2
4.2
4.2
50.9
(52.9)
(29.8)
(82.7)
(6.1)
(127.0)
(133.1)
(164.9)
45.8
(1.6)
(26.5)
(28.1)
(7.7)
(137.0)
(144.7)
(127.0)
Net debt is £56.2 million (2015: £7.5 million), excluding finance lease obligations of £108.7 million (2015: £119.5 million) payable to MHE JVCo, a joint venture
company. £5.0 million (2015: £4.8 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
27 November
2016
£m
29 November
2015
£m
5.1
(23.4)
(19.6)
(37.9)
(127.0)
(164.9)
(30.5)
24.3
(21.4)
(27.6)
(99.4)
(127.0)
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
A
See Alternative Performance
Measures on page 194
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154
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.
Interest on cash balances
Finance Income
Borrowing costs
— Obligations under finance leases
— Borrowings
Fair value movement in derivatives
Fair value movement on provisions
Finance Costs
Net Finance Costs
52 Weeks
Ended
27 November
2016
£m
52 Weeks
Ended
29 November
2015
£m
0.2
0.2
(9.4)
(0.3)
—
—
(9.7)
(9.5)
0.2
0.2
(8.8)
(0.6)
(0.2)
(0.1)
(9.7)
(9.5)
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 27 November 2016 and at 29 November 2015, the Group’s derivative financial instruments consisted of commodity swap
contracts which are designated as cash flow hedges of highly probable transactions.
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 Consolidated 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.
Commodity Swap Contracts
The notional principal amounts of the outstanding commodity swap contracts at 27 November 2016 were £4.8 million (2015: £3.2 million). The hedged highly
probable forecast transactions are expected to occur at various dates during the next 12 months. Cumulative net gains of £0.6 million have been recognised
in the hedging reserve within other comprehensive income. The net balance at year end was £nil. These gains and losses are recognised in the Consolidated
Income Statement in periods during which the hedged forecast transaction affects the Consolidated Income Statement.
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Commodity swap contracts
Derivative asset
Derivative liability
155
27 November
2016
£m
29 November
2015
£m
0.3
(0.2)
0.1
—
(0.7)
(0.7)
Forward Foreign Exchange Contracts
There were no outstanding forward foreign exchange contracts at 27 November 2016 and 29 November 2015 .
There are £0.1 million of gains recognised in the hedging reserve within Other Comprehensive Income (2015: £0.2 million).
These gains were recognised in the income statement in periods during which the hedged forecast transaction affected the Consolidated Income Statement.
4.7 Financial Instruments
Accounting Policies
Financial assets and financial liabilities are recognised on the Consolidated 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 determine the classification of their
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 Consolidated 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 Consolidated 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 Consolidated 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 Consolidated Income Statement on equity
investments are not reversed.
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156
4.7 Financial Instruments (continued)
Fair Value of Financial Instruments
Financial instruments carried at fair value in the Consolidated 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
Derivative assets
Total financial assets
Financial Liabilities
Trade payables
Accruals and other payables
Borrowings
Finance lease obligations
Derivative liabilities
Total financial liabilities
27 November 2016
29 November 2015
Carrying Value
£’000
Notes
Fair Value
£’000
Carrying Value
£’000
Fair Value
£’000
3.9
3.8
3.8
3.3
4.6
3.10
3.10
4.2
4.3
4.6
50.9
23.0
24.8
2.6
0.3
101.6
(95.2)
(84.2)
(59.0)
(156.8)
(0.2)
(395.4)
50.9
23.0
24.8
2.6
0.3
101.6
(95.2)
(84.2)
(59.0)
(156.8)
(0.2)
(395.4)
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)
The derivative assets and liabilities relate to forward commodity swap 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 2.8%
(2015: 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.
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4.7 Financial Instruments (continued)
The Group has categorised its financial instruments as follows:
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 Consolidated Balance Sheet
Cash and cash equivalents
Trade and other receivables (excluding prepayments)
Financial assets
Total
Financial Liabilities as per the Consolidated Balance Sheet
Trade payables
Accruals
Borrowings
Obligations under finance leases
Derivative liabilities
3.9
3.8
3.3
3.10
3.10
4.2
4.3
4.6
Total
—
—
2.8
2.8
—
—
—
—
—
—
45.8
50.1
—
95.9
—
—
—
—
—
—
—
—
—
—
(63.6)
(74.8)
(9.3)
(163.5)
—
(311.2)
—
—
—
—
—
—
—
—
(0.7)
(0.7)
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 27 November 2016
Financial Assets as per the Consolidated Balance Sheet
Cash and cash equivalents
Trade and other receivables (excluding prepayments)
Financial assets
Derivative assets
Total
Financial Liabilities as per the Consolidated Balance Sheet
Trade payables
Accruals and other payables
Borrowings
Obligations under finance leases
Derivative liabilities
3.9
3.8
3.3
4.6
3.10
3.10
4.2
4.3
4.6
Total
—
—
2.6
—
2.6
—
—
—
—
—
—
50.9
47.8
—
—
98.7
—
—
—
—
—
—
—
—
—
—
—
(95.2)
(84.2)
(59.0)
(156.8)
—
(395.2)
—
—
—
0.3
0.3
—
—
—
—
(0.2)
(0.2)
Total
£m
45.8
50.1
2.8
98.7
(63.6)
(74.8)
(9.3)
(163.5)
(0.7)
(311.9)
Total
£m
50.9
47.8
2.6
0.3
101.6
(95.2)
(84.2)
(59.0)
(156.8)
(0.2)
(395.4)
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158
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
27 November
2016
£m
29 November
2015
£m
Notes
(1.7)
(1.1)
(0.8)
0.8
(2.8)
(3.0)
(0.9)
(0.6)
2.8
(1.7)
3.8
The Group has adequate cash resources to manage the short-term working capital needs of the business. In the prior year the three-year £100 million revolving
facility was extended by a further two years and the amount of the facility was increased to £210 million. As at 27 November 2016, £52.5 million of the facility
had been utilised. The Group regularly reviews its financing arrangements. For further details of the review please refer to the Group’s Viability Statement on
page 35.
The Group monitors its liquidity requirements to ensure it has sufficient cash to meet operational needs. For further details see Note 4.11.
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4.8 Financial Risk Management (continued)
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period to the contractual maturity date at
the Balance Sheet date. The amounts disclosed in the table are the carrying values and undiscounted contractual cash flows.
Financial Liabilities
Trade payables
Accruals
Borrowings
Obligations under finance leases
Derivative liabilities
29 November 2015
Financial Liabilities
Trade payables
Accruals and other payables
Borrowings
Obligations under finance leases
Derivative liabilities
27 November 2016
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
(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
(63.6)
(74.8)
(1.8)
(34.8)
(0.7)
(175.7)
Carrying
Value
£m
Contractual
Cash Flows
£m
1 Year or
Less
£m
(95.2)
(84.2)
(59.0)
(156.8)
(0.2)
(395.4)
(95.2)
(84.2)
(59.0)
(183.8)
(0.2)
(422.4)
(95.2)
(84.2)
(52.9)
(38.4)
(0.2)
(270.9)
1–2
Years
£m
—
—
(1.7)
(30.3)
—
(32.0)
1–2
Years
£m
—
—
(6.1)
(31.7)
—
(37.8)
2–5
Years
£m
—
—
(6.2)
(75.0)
—
(81.2)
2–5
Years
£m
—
—
—
(76.9)
—
(76.9)
More Than
5 Years
£m
—
—
—
(55.3)
—
(55.3)
More Than
5 Years
£m
—
—
—
(36.8)
—
(36.8)
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
27 November
2016
£m
29 November
2015
£m
0.2
2.0
(0.2)
(0.1)
(0.1)
1.8
0.4
0.4
(0.2)
(0.1)
(0.2)
0.3
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Financial Statements
160
4.8 Financial Risk Management (continued)
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
27 November 2016
29 November 2015
Increase/
(Decrease)
in Income
£m
0.2
(0.2)
Increase/
(Decrease)
in Equity
£m
—
—
Increase/
(Decrease)
in Income
£m
(0.1)
0.1
Increase/
(Decrease)
in Equity
£m
—
—
A movement of the euro, as indicated, against sterling at 27 November 2016 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
27 November
2016
£m
29 November
2015
£m
50.7
(156.8)
0.2
(59.0)
41.6
(163.4)
4.2
(9.2)
Sensitivity Analysis
An increase of 100 basis points (1.0%) in interest rates would impact 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
Result
Income
Loss
27 November
2016
£m
29 November
2015
£m
—
(0.6)
—
—
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 27 November 2016, the number of ordinary shares available for issue under the Block Listing Facilities was 13,318,184 (2015: 14,620,308). These ordinary
shares will only be issued and allotted when the shares under the relevant share incentive plan have vested 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.
24883.04
Proof 1
1 February 2017 11:09 AM
Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Our Financials 4.9 Share Capital and Reserves (continued)
The movements in the called up share capital and share premium accounts are set out below:
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
Issues of ordinary shares
Disposal of treasury shares
Allotted in respect of share option schemes
At 27 November 2016
161
Ordinary
Shares
Number of
Shares
(million)
620.9
0.6
—
3.9
625.4
3.4
—
0.4
629.2
Ordinary
Shares
£m
Share
Premium
£m
12.5
—
—
0.1
12.6
—
—
—
12.6
255.1
0.5
(0.8)
3.9
258.7
0.6
(2.9)
0.5
256.9
Included in the total number of ordinary shares outstanding above are 32,830,613 (2015: 34,770,981) 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 JSOS 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 earnings per share calculation in Note 2.9 as basic earnings
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 30 November 2014
Movement on derivative financial instruments
Disposal of treasury shares
Reacquisition of interests in treasury shares
At 29 November 2015
Movement on derivative financial instruments
Translation of foreign subsidiary
Disposal of treasury shares
At 27 November 2016
Treasury
Shares
Reserve
£m
Reverse
Acquisition
Reserve
£m
Fair
Value
Reserve
£m
(51.8)
—
0.1
0.8
(50.9)
—
—
2.9
(48.0)
(116.2)
—
—
—
(116.2)
—
—
—
(116.2)
(0.3)
(0.5)
—
—
(0.8)
0.7
0.3
—
0.2
Notes
4.9(b)
4.9(a)
4.9(a)
4.9(b)
4.9(a)
(a) Treasury Shares Reserve
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.
The disposal of treasury shares in the current period relates to the utilisation of 1,915,040 JSOS interests to part-satisfy the 2013 LTIP award which vested in the
period. These interests, which were held by the Employee Benefit Trust on an unallocated basis, were held at a cost of £1.50 per interest. A further 2,500,000
shares were issued at nominal value to satisfy the award. As the 2013 LTIP award was a nil cost share award, there was no consideration received from the
participants in return for these interests and hence a loss on disposal of £2.9m was realised on the transaction. This loss was transferred to the share premium
account on consolidation
(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
27 November 2016 has been presented as if the Company had always been the parent company of the Group.
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Proof 1
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Stock Code: OCDO | www.ocadogroup.comOur Financials Notes to the Consolidated
Financial Statements
162
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 Consolidated 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, the Cash LTIP and the Beauty MIP (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 two cash-settled incentive schemes, the Cash LTIP and the Beauty MIP.
The total expense for the period relating to employee share-based payment plans was £7.1 million (2015: £9.9 million), of which £6.4 million (2015: £7.8
million) related to equity-settled share-based payment transactions and £0.7 million (2015: £2.1 million) as a provision for the payment of employers’ NIC upon
allotment of HMRC unapproved equity-settled share schemes, the Cash LTIP and the Beauty MIP (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 been 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).
24883.04
Proof 1
1 February 2017 11:09 AM
Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Our Financials 4.10 Share Options and Other Equity Instruments (continued)
At each respective balance sheet date the outstanding options were as follows:
Approved
Year of
Issue
27 November
2016
Exercise
Price
(£)
29 November
2015
Exercise
Price
(£)
2006
2006
2007
2008
2008
2009
2009
2010
2011
2011
2012
2012
2012
2013
2013
2014
2014
2015
2015
2015
2016
2016
2007
2009
2012
2014
2014
2014
2015
2015
2015
2016
2016
—
2,073
54,534
22,420
22,891
32,173
116,647
172,265
60,871
185,460
153,824
241,217
486,212
323,383
133,312
45,656
379,030
394,350
22,980
35,439
597,596
31,968
3,514,301
50,833
122,600
119,088
11,578
29,962
23,945
30,901
18,172
18,803
152,922
63,532
642,336
4,156,637
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
3.77
4.46
4.39
2.70
2.59
1.50
1.20
1.05
3.27
3.36
4.84
3.77
4.46
4.39
2.70
2.59
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
1.40
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
3.77
4.46
4.39
—
—
1.50
1.20
1.05
3.27
3.36
4.84
3.77
4.46
4.39
—
—
Total Approved Options
Non-Approved
Total Non-Approved Options
Total
163
Exercise Period
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
05/02/17–04/02/24
17/03/17–16/03/24
13/03/18–12/03/25
01/07/18–30/06/25
10/07/18–09/07//25
16/03/19–15/03/26
15/07/19–14/07/26
31/05/10–30/05/17
31/05/12–30/05/19
09/03/15–08/03/22
08/08/17–07/08/24
01/08/17–31/07/24
17/03/17–16/03/24
13/03/18–12/03/25
01/07/18–30/06/25
10/07/18–09/07/25
16/03/19–15/03/26
15/07/19–14/07/26
24883.04
Proof 1
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Stock Code: OCDO | www.ocadogroup.comOur Financials Notes to the Consolidated
Financial Statements
164
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 A :
Total options subject to performance criteria
27 November 2016
29 November 2015
Year of
Issue
Number of
Share Options
Exercise
Price (£)
Number of
Share Options
Exercise
Price (£)
Exercise
Period
2009
139,600
139,600
1.20
139,600
139,600
1.20
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
27 November 2016
29 November 2015
Number of
Share Options
3,939,825
899,687
(272,688)
(410,187)
4,156,637
2,299,803
Weighted
Average
Exercise
Price (£)
2.24
2.69
3.04
1.25
2.38
1.42
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
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 £2.84 (2015: £3.89).
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
27 November
2016
29 November
2015
£2.69
£2.69
0.40
3.00
0.5%
0.0%
£3.88
£3.88
0.40
3.00
0.8%
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.
A
See Alternative Performance
Measures on page 194
24883.04
Proof 1
1 February 2017 11:09 AM
Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Our Financials 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:
165
27 November 2016
29 November 2015
Exercise
Price
(£)
Number of
Share Options
Weighted
Average
Remaining
Contractual
Life (years)
Exercise
Price
(£)
Number of
Share Options
Weighted
Average
Remaining
Contractual
Life (years)
0.85
1.03
1.05
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
2.59
2.70
153,824
241,217
605,300
177,664
323,383
139,067
—
107,440
172,265
60,871
185,460
133,312
11,578
29,962
425,251
54,242
41,152
402,975
45,656
95,500
750,518
4,156,637
5.5
5.2
5.3
2.5
6.3
2.8
—
0.6
3.6
4.6
4.2
6.6
7.7
7.7
8.3
8.6
8.6
7.3
7.2
9.6
9.3
0.85
1.03
1.05
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
—
—
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 Estera Trust (Jersey) Limited, the Employee Benefit Trust
Trustee, held at the balance sheet date separate beneficial interests in 32,830,613 (2015: 34,770,981) ordinary shares which represents 5.2% (2015: 5.6%) of the
issued share capital of the Company. Of these ordinary shares, 79,032 (2015: 1,994,071) 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 2011
Jan 2012
Jan 2013
Jan 2014
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 2012
Jun 2013
Jun 2014
Jun 2015
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 2013
Jan 2014
—
—
%
of Market
Price
230% — 265%
244% — 280%
—
—
Hurdle
Value
£1.70
£1.80
—
—
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Proof 1
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Stock Code: OCDO | www.ocadogroup.comOur Financials Notes to the Consolidated
Financial Statements
166
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
£1.35
£1.73
0.25
0.91
3.5%
0.0%
Tranche 1
£1.70
£1.96
0.25
1.0
3.5%
0.0%
Tranche 2
£1.35
£1.91
0.25
1.91
3.5%
0.0%
Tranche 2
£1.70
£2.15
0.25
2.0
3.5%
0.0%
Tranche 3
£1.35
£2.08
0.25
2.91
3.5%
0.0%
Tranche 3
£1.70
£2.36
0.25
3.0
3.5%
0.0%
Tranche 4
£1.35
£2.28
0.25
3.91
3.5%
0.0%
Tranche 4
£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
Forfeited during the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
27 November 2016
29 November 2015
Number of
Interests in
Shares
32,776,910
—
(25,329)
32,751,581
32,751,581
Weighted
Average
Exercise
Price (£)
1.99
—
2.05
1.99
1.99
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
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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 in 2014, these options are now held over ordinary shares in Ocado Group
plc.
At each respective balance sheet date the outstanding options were as follows:
January 2004
Outstanding at the end of the period
27 November 2016
29 November 2015
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
There was no movement in the number of non-employee share options outstanding in the period (2015: £nil). All non-employee share options are exercisable
at the end of the period.
The weighted average remaining contractual lives for outstanding non-employee share options are as follows:
27 November 2016
29 November 2015
Exercise Price
(£)
Number of
Share Options
1.03
435,300
435,300
Weighted
Average
Remaining
Contractual
Life (years)
Exercise Price
(£)
Number of
Share Options
1.1
1.03
435,300
435,300
Weighted
Average
Remaining
Contractual
Life (years)
2.1
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; 85% of the market value in the case of the
Group’s first Sharesave Scheme (“SAYE1”) and 90% of the market value in the case of the Group’s Sharesave Schemes SAYE2, SAYE3, SAYE4 and SAYE5.
At 27 November 2016 employees of the Company’s subsidiaries held 2,950 (2015: 2,273) contracts in respect of options over 6,260,286 (2015: 3,549,479) 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 the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
27 November 2016
29 November 2015
Number of
Share Options
3,549,479
4,582,171
(1,864,633)
(6,731)
6,260,286
821,345
Weighted
Average
Exercise
Price (£)
3.16
2.28
3.17
2.31
2.51
3.01
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
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168
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 2014 LTIP, the performance conditions are the Group’s revenue and
earnings per share for the financial year ended 27 November 2016. For both the 2015 LTIP and the 2016 LTIP, there are four equally weighted performance
conditions, which are operational efficiency and capital efficiency metrics related to the retail business and the platform business, the Group’s retail business
revenue and Group’s retail business earnings before tax for the financial year ending December 2017, and financial year ending December 2018 respectively.
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, 2018 for the 2015 LTIP and 2019 for the 2016 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 the LTIP as at 27 November 2016 and changes during the year is presented below:
Outstanding at the beginning of the period
Granted during the period
Exercised during the period
Outstanding at the end of the Period
There were no awards exercisable as at 27 November 2016 (2015: None).
Number of
Share Awards
27 November
2016
Number of
Share Awards
29 November
2015
6,076,621
1,490,029
(4,415,040)
3,151,610
5,087,848
988,773
—
6,076,621
The Group recognised an expense of £2.8 million (2015: £6.1 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 was 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. The award vested in the
current period, being three years from when the award was approved by the shareholders. There were no performance criteria to which vesting was 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 27 November 2016 and changes during the year is presented below:
Outstanding at the beginning of the period
Exercised during the period
Outstanding at the end of the period
Number of
Share Awards
27 November
2016
Number of
Share Awards
29 November
2015
452,284
(452,284)
—
452,284
—
452,284
The Group recognised an expense of £0.1 million (2015: £0.4 million) related to this award in the Consolidated Income Statement during the year.
(g) Growth Incentive Plan
In 2014, 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.
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Performance will be assessed based on the three-month average share price of the Company and the FTSE 100 Share Index at the end of the performance
period in comparison to the three-month average share price of the Company and the FTSE 100 Share Index prior to the start of the performance period.
In determining the fair value of the awards granted, a unique Monte Carlo model was used with the following inputs:
169
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 27 November 2016 and changes during the year is presented below:
Outstanding at 30 November 2014
Granted during the year
Outstanding at 29 November 2015
Granted during the year
Outstanding at 27 November 2016
Number of
Share Awards
6,000,000
—
6,000,000
—
6,000,000
There were no awards exercisable as at 27 November 2016 (2015: None).
The Group recognised an expense of £1.2 million (2015: £1.3 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
In 2014, 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 their 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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Financial Statements
170
4.10 Share Options and Other Equity Instruments (continued)
A summary of the status of the SIP as at 27 November 2016 and changes during the year is presented below:
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
Outstanding at 29 November 2015
Awarded during the period
Forfeited during the period
Released during the period
Outstanding at 27 November 2016
Unrestricted at 27 November 2016
Partnership
Shares
Matching
Shares
52,714
139,790
—
(19,346)
173,158
173,158
7,189
19,968
(2,661)
(46)
24,450
—
Partnership
Shares
Matching
Shares
173,158
195,565
—
(50,429)
318,294
318,294
24,450
27,856
(6,278)
(852)
45,176
—
Free
Shares
383,089
452,018
(88,642)
(2,459)
744,006
654
Number of
Share Awards
Total
442,992
611,776
(91,303)
(21,851)
941,614
173,812
Free
Shares
744,006
693,341
(132,914)
(10,703)
1,293,730
1,909
Number of
Share Awards
Total
941,614
916,762
(139,192)
(61,984)
1,657,200
320,203
In the year, the Group recognised an expense of £0.6 million (2015: £0.3 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 A . Net debt is calculated as total debt (obligations under finance leases and
borrowings as shown in the Consolidated Balance Sheet), less cash and cash equivalents. The Group’s net assets at the end of the period were £262.4 million
(2015: £241.9 million) and it had net debt of £164.9 million (2015: £127.0 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 previous year the three-year £100 million revolving facility was extended by a further two years and the amount of the facility was increased to £210
million. As at 27 November 2016, £52.5 million of the facility had been utilised. The Group regularly reviews its financing arrangements. 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 Andover CFC and future CFCs, the declaration and payment of
a dividend is not part of the short-term capital management strategy of the Group.
A
See Alternative Performance
Measures on page 194
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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
171
Notes
4.2
3.9
27 November
2016
£m
29 November
2015
£m
400.6
(215.8)
184.8
50.9
235.7
409.6
(172.8)
236.8
45.8
282.6
† In the prior year the three-year £100 million revolving facility was extended by a further two years and the amount of the facility was increased to £210 million.
‡ The undrawn facility at the end of the period, includes transaction costs. If transaction costs are excluded, then the undrawn facility is £183.6 million.
As at 27 November 2016, £52.5 million of the facility had been utilised. Transaction costs of £1.2 million relating to the facility amendment have been
capitalised. The Group regularly reviews its financing arrangements.
Section 5 — Other notes
5.1 Subsidiaries
In accordance with section 409 of the Companies Act 2006, a full list of related undertakings, the country of incorporation and the effective percentage of equity
owned, as at 27 November 2016 is disclosed below:
Share Class
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
£1.00 “B” shares
Proportion of
Share Capital Held
(direct/indirect)
Principal Activity
Name
The following companies are registered at Titan Court, 3 Bishops Square, Hatfield Business Park, Hatfield, Hertfordshire, AL10 9NE:
100%
Holding company
Ocado Holdings Limited
100%
Retail
Ocado Retail Limited
100%
Technology
Ocado Innovation Limited
100%
Logistics and Distribution
Ocado Operating Limited
100%
Business Services
Ocado Central Services Limited
100%
Non-trading company
Ocado Innovation Holdings Limited
100%
Non-trading company
Jalapeno Partners Limited
100%
Non-trading company
Last Mile Technology Limited
MHE JVCo Limited
50%
Trading company
The following companies are registered at Aquarius House, Bessemer Road, Welwyn Garden City, Hertfordshire, AL7 1HH:
Speciality Stores Limited
Paws & Purrs Limited
Marie Claire Beauty Limited
The following company is registered at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2, Ireland:
Ocado Information Technology Limited
The following company is registered at ul. Rakowicka 7, 31-511, Krakow, Poland:
Ocado Polska Sp. Z.o.o.
The following company is registered at Av. Josep Tarradellas 38, Planta 8a, 08029, Barcelona, Spain:
Ocado Spain S.L.U.
The following company is registered at 1209 Orange Street, Wilmington, Delaware 19801, United States of America:
Oxford US LLC
The following company is registered at 200 Bay Street, Suite 3800, Royal Bank Plaza, South Tower, Toronto, Ontario, M5J 2Z4, Canada:
Pompano Canada Inc.
The following company is registered at Paneltex House, Somerden Road, Hull, HU9 5PE:
Paneltex Limited
Trading company
Retail
Retail
Ordinary shares
Ordinary shares
Ordinary shares
Non-trading company
Non-trading company
100%
100%
98%
Intellectual property
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Manufacturing
Technology
Technology
Common
100%
100%
100%
100%
100%
25%
Country of
Incorporation
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
England and Wales
Republic of Ireland
Poland
Spain
United States of America
Canada
England and Wales
In accordance with the exemption under Section 479A of the Companies Act the standalone financial statements for a subsidiary, Paws & Purrs Limited, will not
be audited for the year ended 27 November 2016, 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.
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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
27 November
2016
£m
29 November
2015
£m
2.5
31.9
34.4
3.4
18.9
22.3
Of the total capital expenditure committed at the current period end, £25.7 million relates to new CFCs, £0.8 million to existing CFCs, £1.7 million to fleet costs
and £2.0 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 27 November 2016 the ageing profile of future aggregate minimum lease payments under non-cancellable operating leases is as follows:
Due within one year
Due after one year but less than five
Due after five years
Total commitment
27 November
2016
£m
29 November
2015
£m
20.3
75.2
280.2
375.7
14.2
44.8
136.7
195.7
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
Share-based payments
27 November
2016
£m
29 November
2015
£m
3.2
3.1
6.3
3.2
5.6
8.8
Further information on the remuneration of Directors and Directors’ interests in ordinary shares of the Company is disclosed in the Directors’ Remuneration
Report on pages 76 to 115.
Other related party transactions with key management personnel made during the period related to the purchase of professional services and amounted to
£900 (2015: £6,000). 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 (2015: £nil). There were no other material transactions or balances between the
Group and its key management personnel or members of their close family.
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Investment
The following transactions were carried out with Paneltex Limited, a company 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.
173
Purchase of goods
— Plant and machinery
— Consumables
Sale of goods
52 Weeks
Ended
27 November
2016
£m
52 Weeks
Ended
29 November
2015
£m
—
0.5
0.1
0.6
0.1
0.5
—
0.6
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 £11.8 million (2015: £12.2 million). At period end, the Group owed Paneltex £57,000 (2015: £31,000).
Joint Venture
The following transactions were carried out with MHE JVCo, 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
27 November
2016
£m
29 November
2015
£m
1.1
8.4
4.9
3.1
13.8
5.8
—
8.1
6.1
3.0
14.3
6.2
During the period the Group paid lease instalments (including interest) of £19.6 million (2015: £20.5 million) to MHE JVCo.
Of the £19.6 million, £10.7 million (2015: £10.6 million) was recovered directly from Morrisons in the form of Other Income and a further £8.4 million (2015: £8.1
million) was received from MHE JVCo by way of a dividend. The remaining £0.5 million (2015: £1.8 million) represents capital expenditure requirements of MHE
JVCo for which no additional funding was required from Ocado. The net result is the termination of £13.8 million of MHE JVCo debt during the period (2015:
£14.3 million) with no corresponding net cash outflow.
In the current period, the Group made capital contributions of £1.1 million to MHE JVCo (2015: £nil).
Included within trade and other receivables is a balance of £5.3 million owed by MHE JVCo (2015: £5.6 million). £0.8 million of this relates to a finance lease
accrual which is included within other receivables (2015: £1.0 million). £4.5 million (2015: £4.6 million) relates to capital recharges.
Included within trade and other payables is a balance of £3.8 million owed to MHE JVCo (2015: £1.0 million).
Included within obligations under finance leases is a balance of £108.7 million owed to MHE JVCo (2015: £119.5 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 27 November 2016.
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to the members of Ocado Group plc
174
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 27 November 2016 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, comprise:
•
•
•
•
the Company Balance Sheet as at 27 November 2016;
the Company Statement of Cashflows for the period then ended;
the Company Statement of Changes in Equity for the period then ended;
the notes to the Company financial statements, which include other explanatory information and the accounting policies.
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 IFRSs as adopted by the European Union, and
applicable law, and as applied in accordance with the provisions of the Companies Act 2006.
Other required reporting
Consistency of other information
Companies Act 2006 reporting
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.
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Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Our Financials 175
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.
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 72-73, 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 27 November 2016.
Andrew Latham (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
St Albans
30 January 2017
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Stock Code: OCDO | www.ocadogroup.comOur Financials Company Balance Sheet
as at 27 November 2016
176
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
27 November
2016
£m
29 November
2015
£m
Notes
3.1
3.3
3.4
3.5
3.6
3.6
4.1
4.1
505.6
505.6
244.0
14.6
258.6
764.2
(0.3)
(0.9)
(1.2)
257.4
(1.6)
(1.6)
761.4
12.6
260.1
488.7
761.4
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
The notes on pages 179 to 189 form part of these financial statements.
The Company financial statements on pages 176 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)
31 January 2017
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Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Our Financials Company Statement of
Changes in Equity
for the 52 weeks ended 27 November 2016
Share
Capital
£m
Share
Premium
£m
Retained
Earnings
£m
Notes
12.5
—
—
0.1
—
0.1
12.6
—
—
—
—
12.6
254.6
—
—
4.4
—
4.4
259.0
—
—
1.1
—
1.1
260.1
475.4
(0.8)
(0.8)
—
7.7
7.7
482.3
—
—
—
6.4
6.4
488.7
4.1
4.1
4.2
177
Total
Equity
£m
742.5
(0.8)
(0.8)
4.5
7.7
12.2
753.9
—
—
1.1
6.4
7.5
761.4
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
Result for the period
Total Comprehensive Income for the Period
Ended 27 November 2016
Transactions with owners:
– Issue of ordinary shares
– Share-based payments charge
Total Transactions with Owners
Balance at 27 November 2016
The notes on pages 179 to 189 form part of these financial statements.
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Stock Code: OCDO | www.ocadogroup.comOur Financials Company Statement of
Cash Flows
for the 52 weeks ended 27 November 2016
178
Cash Flow From Operating Activities
Result/(loss) before income tax
Adjustments for:
— Net finance costs
Changes in working capital:
— Movement in Provisions
— 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
27 November
2016
£m
52 Weeks
Ended
29 November
2015
£m
Notes
—
—
(1.2)
(4.3)
0.1
(5.4)
—
—
1.1
1.1
(4.3)
18.9
14.6
(0.8)
(0.2)
—
(37.4)
(0.8)
(39.2)
0.2
0.2
4.5
4.5
(34.5)
53.4
18.9
3.4
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Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Our Financials
Notes to the Company
Financial Statements
179
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 27 November 2016 (prior period 52
weeks ended 29 November 2015).
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, a statement
of comprehensive income or a cash flow for the Company alone. The result for the period is £nil (2015: loss £0.8 million).
Standards, amendments and interpretations adopted by the Company in the period 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 30 November 2015 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 5
IFRS 10
IFRS 11
IFRS 12
IAS 1
IAS 16
IAS 28
IAS 36
Share-based Payments
Consolidated Financial Statements
Joint Arrangements
Disclosure in Other Entities
Presentation of Financial Statements
Property, Plant and Equipment
Investments in Associates and Joint Ventures
Intangible Assets
Effective Date
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
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 30 November 2015 and have not been adopted early:
IFRS 2
IFRS 9
IFRS 12
IFRS 15
IFRS 16
IAS 28
Various
Share-based payments
Financial Instruments
Disclosure in Other Entities
Revenue from Contracts with Customers
Leases
Investments in Associates and Joint Ventures
Amendments to various IFRSs and IASs including those arising from the IASB’s annual improvements project
Effective Date
1 January 2018
1 January 2018
1 January 2017
1 January 2018
1 January 2019
1 January 2018
Various
The following new standards are not yet effective and the impact on the Company is currently under review:
— IFRS 15 “Revenue from Contracts with Customers” (endorsed by the EU) provides on the recognition and measurement of revenue. The standard
establishes a principles-based approach for revenue recognition and is based on the concept of recognising revenue for obligations only when they are
satisfied and the control of goods or services is transferred. This applies to all contracts with customers except those in the scope of other standards. This
new standard will replace IAS 12 “Revenue” and is effective for annual periods beginning on or after 1 January 2018 unless adopted early. The Company is
currently reviewing the impact of IFRS 15.
— 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 Company is
currently reviewing the impact of IFRS 16.
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Stock Code: OCDO | www.ocadogroup.comOur Financials Notes to the Company
Financial Statements
180
Accounting Policies
Foreign Currency Translation
Transactions and Balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where
items are remeasured. Foreign exchange gains or losses resulting from the settlement of such transactions and from the translation at year end exchange rates
of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement.
Taxation
Tax is recognised in the Income Statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this
case the tax is also recognised in other comprehensive income or directly in equity respectively.
Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted by the Balance Sheet date. Management periodically
evaluate 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.
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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 Result
During the period, the Company obtained audit services from its auditors, PricewaterhouseCoopers LLP, to the amount of £0.07 million (2015: £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
27 November
2016
£m
29 November
2015
£m
476.5
1.1
28.0
505.6
476.5
1.1
20.9
498.5
Investments represent investments in Group companies, Ocado Holdings Limited and Ocado Innovation Limited. A list of subsidiary undertakings held by the
Company is disclosed in note 5.1 to the consolidated financial statements.
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”.
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Financial Statements
182
3.2 Working Capital
Accounting Policies
Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in
current assets, except for maturities greater than 12 months after the end of the reporting period which are classified as non-current assets. The Company’s
loans and receivables comprise “Other receivables” and “Cash and cash equivalents” in the Balance Sheet.
Other Receivables
Other receivables are non-interest bearing and are recognised initially at fair value, and subsequently at amortised cost, reduced by appropriate allowances for
estimated irrecoverable amounts. No security has been granted over other receivables unless stated otherwise.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash at bank and in hand, demand deposits with banks and short-term deposits with a maturity of three months or less at
the Balance Sheet date.
Financial Liabilities
Financial liabilities are classified according to the substance of the contractual arrangements entered into.
Trade and Other Payables
Trade and other payables are initially recognised at fair value and subsequently at amortised cost, using the effective interest rate method.
3.3 Other Receivables
Amounts due from subsidiary undertakings
3.4 Cash and Cash Equivalents
Cash at bank and in hand
3.5 Trade and Other Payables
Deferred income and accruals
27 November
2016
£m
29 November
2015
£m
244.0
240.4
27 November
2016
£m
29 November
2015
£m
14.6
18.9
27 November
2016
£m
29 November
2015
£m
0.3
0.3
0.2
0.2
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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 2014, 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 30 November 2014
Charged to the Income Statement
— additional provision
— unused amounts reversed
Used during the period
As at 29 November 2015
Charged to the Income Statement
— additional provision
— unused amounts reversed
Used during the period
As at 27 November 2016
Analysis of Total Provisions as at 29 November 2015
Current
Non-current
Analysis of Total Provisions as at 27 November 2016
Current
Non-current
Employee
Incentive
Schemes
£m
1.6
2.1
—
—
3.7
0.9
(0.2)
(1.9)
2.5
Employee
Incentive
Schemes
£m
2.1
1.6
3.7
Employee
Incentive
Schemes
£m
0.9
1.6
2.5
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Financial Statements
184
3.6 Provisions (continued)
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 on 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) to 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.
Section 4 — Capital Structure and Financing Costs
4.1 Share Capital and Premium
Accounting Policies
Equity instruments issued by the Company 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 32,830,613 (2015: 34,770,981) ordinary shares held by the Group’s employee benefit
trust (see Note 4.10(b) to 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 earnings per share calculation in Note 2.9 to the Consolidated financial
statements, as basic earnings per share is calculated using the weighted average number of ordinary shares in issue during the period, excluding treasury
shares.
At 27 November 2016, the number of ordinary shares available for issue under the Block Listing Facilities was 13,318,184 (2015: 14,620,308). These ordinary
shares will only become allotted when the shares under the Share Incentive Plan have been awarded or the share options under the Group’s executive share
ownership scheme, non-employee share options and Sharesave schemes have been exercised, and are therefore not included in the total number of ordinary
shares outstanding.
The movements in the called up share capital and share premium are set out below:
At 30 November 2014
Issues of ordinary shares
Allotted in respect of share option schemes
At 29 November 2015
Issues of ordinary shares
Allotted in respect of share option schemes
At 27 November 2016
Ordinary
Shares
Number
(million)
620.9
0.6
3.9
625.4
3.4
0.4
629.2
Ordinary
Shares
£m
Share
Premium
£m
12.5
—
0.1
12.6
—
—
12.6
254.6
0.5
3.9
259.0
0.6
0.5
260.1
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Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Our Financials 185
4.2 Share-Based Payments
For more information on the Group’s share schemes, see Note 4.10 to the consolidated financial statements.
4.3 Financial Instruments
Accounting Policies
Financial assets and financial liabilities are recognised on the Balance Sheet when the Company becomes a party to the contractual provisions of the
instrument. The Company classifies its financial instruments into available-for-sale, loans and receivables, and other financial liabilities at amortised cost.
The classification depends on the purpose for which the financial assets and liabilities were acquired. Management determine the classification of their
financial instruments at initial recognition or in certain circumstances on modification.
Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount reported in the Balance Sheet when there is a legally enforceable right to offset the recognised
amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
Fair Value of Financial Instruments
Set out below is a comparison by category of carrying values and fair values of all financial instruments that are included in the financial statements. The fair
values of financial assets and liabilities are based on prices available from the market on which the instruments are traded where available. The fair values of
cash and cash equivalents, receivables and payables are assumed to approximate to their carrying values but for completeness are included in the analysis
below.
Financial Assets
Investments
Cash and cash equivalents
Other receivables
Total financial assets
Financial Liabilities
Trade and other payables
Total financial liabilities
27 November 2016
29 November 2015
Notes
Carrying Value
£’000
Fair Value
£’000
Carrying Value
£’000
Fair Value
£’000
3.1
3.4
3.3
3.5
505.6
14.6
244.0
764.2
(0.3)
(0.3)
505.6
14.6
244.0
764.2
(0.3)
(0.3)
498.5
18.9
240.4
757.8
(0.2)
(0.2)
498.5
18.9
240.4
757.8
(0.2)
(0.2)
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Stock Code: OCDO | www.ocadogroup.comOur Financials Notes to the Company
Financial Statements
186
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
Notes
3.3
27 November 2016
29 November 2015
Gross
£’000
244.0
Impairment
£’000
—
Gross
£’000
240.4
Impairment
£’000
—
There were no unimpaired balances at the period end where the Company had renegotiated the terms. Management have not provided for irrecoverable debts
against any of their other receivable balances.
4.5 Liquidity Risk
In the prior year, the three-year £100 million revolving facility was extended by a further two years and the amount of the facility was increased to £210 million.
As at 27 November 2016, £52.5 million of the facility had been utilised. The Company regularly reviews its financing arrangements. 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. The Company’s capital management
policies are consistent with those of the Group. For further details on the Group’s capital management strategy see Note 4.11 to the consolidated financial
statements.
The table below analyses the Company’s financial liabilities into relevant maturity groupings based on the remaining period at the Balance Sheet date to the
contractual maturity date. The amounts disclosed in the table are the carrying values and undiscounted contractual cash flows.
Financial Liabilities
Trade payables and other payables
29 November 2015
Financial Liabilities
Trade payables and other payables
27 November 2016
Notes
3.5
Notes
3.5
Carrying
Value
£m
Contractual
Cash Flows
£m
1 Year or Less
£m
1–2 Years
£m
2–5 Years
£m
More Than
5 Years
£m
(0.2)
(0.2)
(0.2)
(0.2)
(0.2)
(0.2)
—
—
—
—
—
—
Carrying
Value
£m
Contractual
Cash Flows
£m
1 Year or Less
£m
1–2 Years
£m
2–5 Years
£m
More Than
5 Years
£m
(0.3)
(0.3)
(0.3)
(0.3)
(0.3)
(0.3)
—
—
—
—
—
—
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Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Our Financials 187
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
27 November
2016
£m
29 November
2015
£m
14.6
—
17.9
1.0
Sensitivity Analysis
An increase of 100 basis points (1.0%) in interest rates would impact 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
Result
Income
Loss
27 November
2016
£m
29 November
2015
£m
—
—
—
—
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Financial Statements
188
4.7 Financial Instruments by Category
The Company has categorised its financial instruments as follows:
As at 29 November 2015
Financial Assets
Investments
Cash and cash equivalents
Other receivables
Total
Financial Liabilities
Trade and other payables
Total
As at 27 November 2016
Financial Assets
Investments
Cash and cash equivalents
Other receivables
Total
Financial Liabilities
Trade and other payables
Total
Notes
3.1
3.4
3.3
3.5
Notes
3.1
3.4
3.3
3.5
Available-
For-Sale
£m
Loans and
Receivables
£m
Other Financial
Liabilities at
Amortised Cost
£m
498.5
—
—
498.5
—
—
—
18.9
240.4
259.3
—
—
—
—
—
—
(0.2)
(0.2)
Available-
For-Sale
£m
Loans and
Receivables
£m
Other Financial
Liabilities at
Amortised Cost
£m
505.6
—
—
505.6
—
—
—
14.6
244.0
258.6
—
—
—
—
—
—
(0.3)
(0.3)
(0.3)
(0.3)
Total
£m
498.5
18.9
240.4
757.8
(0.2)
(0.2)
Total
£m
505.6
14.6
244.0
764.2
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 to the Consolidated financial
statements.
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Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016Our Financials 189
Section 5 — Other Notes
5.1 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 on page 104.
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 £2,000 was earned on these loans at market-related interest rates during the period
(2015: £10,000).
Transactions with Subsidiaries
Group share-based payments
Increase in loans made to subsidiary undertakings
Increase/(Decrease) 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
5.2 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
27 November
2016
£m
52 Weeks
Ended
29 November
2015
£m
7.1
3.6
0.1
9.8
37.2
(0.6)
27 November
2016
£m
29 November
2015
£m
244.0
0.3
240.4
0.2
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Additional Information
191
Glossary
Alternative Performance Measures
Five Year Summary
Financial Calendar
Company Information
192
194
195
196
196
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Additional Information
Glossary
192
2014 ESOS – means the Ocado 2014 Executive
Share Option Scheme.
2016 Code – means the UK Corporate Governance
Code published by the FRC in April 2016.
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 3 May 2017 at
11 am at Peterborough Court, 133 Fleet Street,
London, EC4A 2BB.
American Depositary Receipts – means
securities that have been created to permit US
investors to hold shares in non-US companies
and, in a Level 1 programme, to trade them on the
over-the-counter market in the United States.
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.
Beauty MIP – means the management incentive
plan for key management of Marie Claire Beauty
Limited.
Board – means the Board of Directors of the
Company or its subsidiaries from time to time as
the context may require.
Brexit – means the UK’s decision to leave the
European Union following the referendum on
23 June 2016.
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.
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.
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 and
CFC4 in Erith (under construction).
Deloitte – means Deloitte LLP.
Directors – means the Directors of the Company
whose names are set out on pages 48 and 49, or
the Directors of the Company’s subsidiaries from
time to time as the context may require.
Directors’ Remuneration Policy or 2017 Policy
– means the 2017 Directors’ remuneration policy
that the Company will propose to shareholders at
the AGM and which is set out on pages 80 to 96.
2014 Directors’ Remuneration Policy or 2014
Policy – means the Directors’ remuneration policy
which was approved by shareholders at the 2014
Annual General Meeting and is set out on pages
87 to 97 of the 2015 annual report and accounts
and on the Company’s corporate website at www.
ocadogroup.com.
Disclosure Guidance and Transparency Rules –
means the disclosure guidance 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 A – 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 Estera 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 A – means items that due to
their material and non-recurring nature have been
classified separately in order to draw them to the
attention of the reader of the financial statements.
Executive Directors – means Tim Steiner,
Neill Abrams, Duncan Tatton-Brown and Mark
Richardson.
Fabled.com – means the Group’s premium beauty
online store in collaboration with Marie Claire and
Time Inc.
Fetch.co.uk – means the Group’s dedicated
online pet store.
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.
GMDC – means the General Merchandise
Distribution Centre in Welwyn Garden City, a
dedicated highly automated warehouse used for
the operation of the business.
Gross Sales (Group) A – 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) A – means sales of the
Group’s retail operation being Ocado.com, fabled.
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.
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193
HMRC – means Her Majesty’s Revenue & Customs.
IAS – means International Accounting Standard(s).
IFRIC – means International Financial Reporting
Standards Interpretations Committee.
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.
IFRS – means International Financial Reporting
Standard(s).
Morrisons.com – means Morrisons’ online retail
business.
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.
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.
A
See Alternative Performance
Measures on page 194
Net Finance Costs – means finance income
less finance costs. Finance income is composed
principally of bank interest and other interest.
Finance cost is composed of interest on bank
loans and overdrafts, interest on finance leases
and interest on other financing arrangements.
Non-Executive Directors – means the non-
executive Directors of the Company designated as
such on pages 48 and 49.
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, SAYE4 means the
fourth invitations made under the scheme in 2015
and SAYE5 means the fifth invitations made under
the scheme in 2016.
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.
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.fabled.com, www.fetch.
co.uk and www.sizzle.co.uk.
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Stock Code: OCDO | www.ocadogroup.com Additional Information
Alternative Performance Measures
194
We assess the performance of the Group using a variety of alternative performance
measures which are not defined under IFRS and are therefore termed ‘non-GAAP’
measures. These measures provide additional useful information on the underlying
trends, performance and position of the Group. The non-GAAP measures we use are:
• Gross Sales;
• Gross Sales (Retail);
• Exceptional Items;
• Underlying administrative costs and distribution costs;
• EBITDA;
• External gross debt; and
• Net debt.
A reconciliation from these non-GAAP measures to the nearest measure
prepared in accordance with IFRS is presented below. The alternative
performance measures we use may not be directly comparable with similarly
titled measures used by other companies.
Gross Sales
Gross Sales is a measure of reported revenue before excluding value added
tax and relevant vouchers and offers. Gross Sales is a common measure used
by investors and analysts to evaluate the operating financial performance of
companies within the retail sector.
A reconciliation from reported revenue to Gross Sales can be found in note
2.3 in the consolidated financial statements.
Gross Sales (Retail)
Gross Sales (Retail) is a measure of reported revenue for the Group’s retail
operation, before excluding value added tax and relevant vouchers. The
Group’s retail operation comprises Ocado.com, Fabled.com, Fetch.co.uk
and Sizzle.co.uk. Management consider this an important measure of the
performance of the Group’s retail business.
Exceptional items
The Group’s Consolidated Income Statement separately identifies trading
results before exceptional Items. The Directors believe that presentation of
the Group’s results in this way is relevant to an understanding of the Group’s
financial performance. This presentation is consistent with the way that
financial performance is measured by management and reported to the
Board and assists in providing a meaningful analysis of the trading results of
the Group. This also facilitates comparison with prior periods to assess trends
in financial performance more readily.
The Group applies judgement in identifying significant non-recurring items
of income and expense that are recognised as exceptional to help provide an
indication of the Group’s underlying business. In determining whether an event
or transaction is exceptional in nature, management considers quantitative as
well as qualitative factors such as the frequency or predictability of occurrence.
Examples of items that the Group considers exceptional include, but are
not limited to, material costs relating to the opening of a new warehouse,
corporate reorganisations, material litigation, and any material costs, outside
of the normal course of business as determined by management.
Exceptional items are disclosed in note 2.7 to the consolidated financial
statements.
Underlying distribution and administrative costs
Underlying distribution and administrative costs are measures which seek to
reflect the underlying performance of the Group that will contribute to long-term
sustainable growth. As such, they exclude the impact of depreciation, amortisation,
impairment and costs relating to the provision of services to Morrisons.
A reconciliation from reported distribution and administrative costs, the
most directly comparable IFRS measure, to the decrease in underlying
administrative and distribution costs, is set out below.
Underlying distribution costs
Costs recharged to Morrisons
Depreciation and amortisation
Reported distribution costs
Underlying administrative costs
Costs recharged to Morrisons
Depreciation and amortisation
Reported administrative costs
2016
£m
247.5
76.4
41.8
365.7
2016
£m
78.8
3.4
18.4
100.6
2015
£m
216.6
52.0
40.8
309.4
2015
£m
73.4
2.9
19.3
95.6
EBITDA
In addition to measuring financial performance of the Group based on operating
profit, we also measure performance based on EBITDA. EBITDA is defined as the
Group earnings before depreciation, amortisation, impairment, net finance expense,
taxation and Exceptional Items. EBITDA is a common measure used by investors and
analysts to evaluate the operating financial performance of companies.
We consider EBITDA to be a useful measure of our operating performance
because it approximates the underlying operating cash flow by eliminating
depreciation and amortisation. EBITDA is not direct measures of our liquidity,
which is shown by our cash flow statement, and needs to be considered in
the context of our financial commitments.
A reconciliation from operating profit to EBITDA can be found on the face of
the Consolidated Income Statement on page 125.
External gross debt
External gross debt consists of loans and other borrowings (both current and
non-current), less finance leases payable to joint venture interests of the
Group.
External gross debt is a measure of the Group’s indebtedness to third parties
which are not considered a related party to the Group.
A reconciliation from this to gross debt can be found below.
External gross debt
Finance leases relating to joint ventures
Gross debt
2016
£m
107.1
108.7
215.8
2015
£m
53.3
119.5
172.8
Net Debt
Net debt consists of loans and other borrowings (both current and non-current),
less cash and cash equivalents. Loans and other borrowings are measured as the
net proceeds raised, adjusted to amortise any discount over the term of the debt.
Net debt is a measure of the Group’s net indebtedness that provides an
indicator of the overall balance sheet strength. It is also a single measure that
can be used to assess the combined impact of the Group’s cash position and
its indebtedness. The use of the term ‘net debt’ does not necessarily mean
that the cash included in the net debt calculation is available to settle the
liabilities included in this measure.
Net debt is considered to be an alternative performance measure as it is not
defined in IFRS. The most directly comparable IFRS measure is the aggregate
of loans and other borrowings (current and non-current) and cash and cash
equivalents. A reconciliation from these measures to net debt can be found in
Note 4.4 in the consolidated financial statements.
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Additional Information
195
Trading Weeks
Gross Sales A
Revenue
Gross Profit
EBITDA A
Adjusted operating profit/(loss)1
1. Adjusted to exclude exceptional items and share of result from joint venture
Average orders per week
Average order size (£)1,2
CFC Efficiency (UPH)3
DPV/week
Product waste (%)
Items delivered exactly as ordered
Deliveries on time or early (%)
52 Weeks to
27 November
2016
£m
52 Weeks to
29 November
2015
£m
52 Weeks to
30 November
2014
£m
52 Weeks to
1 December
2013
£m
53 Weeks to
25 November
2012
£m
52
1,386.7
1,271.0
435.3
84.3
21.9
52
1,204.4
1,107.6
375.1
81.5
19.1
52
1,026.5
948.9
312.9
71.6
14.2
52
852.4
792.1
247.5
45.8
1.0
53
731.9
678.6
207.3
34.5
5.4
52 Weeks to
27 November
2016
52 Weeks to
29 November
2015
52 Weeks to
30 November
2014
52 Weeks to
1 December
2013
53 Weeks to
25 November
2012
230,000
108.10
160
176
0.7
99.0
94.9
195,000
111.15
155
166
0.7
99.3
95.3
167,000
112.66
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
1. Refers to Ocado.com orders and includes standalone orders for Fetch.co.uk, Sizzle.co.uk and Fabled.com. This is after cancelled orders are deducted.
2. Average order size excludes destination sites from 2014 onwards, prior to this destination sites were not material.
3. Mature CFC operations (CFC is considered mature if it had been open 12 months by the start of the half year reporting period)
A
See Alternative Performance
Measures on page 194
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Stock Code: OCDO | www.ocadogroup.com Additional Information
Financial Calendar
196
14 March 2017
3 May 2017
5 July 2017
19 September 2017
14 December 2017
6 February 2018
Q1 Trading Statement
Annual General Meeting
Half Year Results Announcement
Q3 Trading Statement
Q4 Trading Statement
Final Results Announcement
Company Information
Registered office:
Company number:
Titan Court
3 Bishops Square
Hatfield Business Park
Hatfield
Hertfordshire
AL10 9NE
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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Ocado Group plc | Annual Report and Accounts for the 52 weeks ended 27 November 2016
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Ocado Group plc
Titan Court
3 Bishops Square
Hatfield Business Park
Hatfield
Hertfordshire
AL10 9NE
United Kingdom
Tel: +44(0) 1707 227800
Fax: +44(0) 1707 227999
www.ocadogroup.com
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