O
c
a
d
o
G
r
o
u
p
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
f
o
r
t
h
e
5
2
w
e
e
k
s
e
n
d
e
d
2
D
e
c
e
m
b
e
r
2
0
1
8
®
M
O
C
.
P
U
O
R
G
O
D
A
C
O
W
W
W
.
OCADO GROUP PLC
ANNUAL REPORT AND ACCOUNTS
FOR THE 52 WEEKS ENDED 2 DECEMBER 2018
Ocado AR2018 Strategic Report.indd 3
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:07:23 AM
Purpose: changing the way the world shops
Mission: 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.
Ocado AR2018 Strategic Report.indd 4
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:07:45 AM
26237
5 February 2019 1:58 am
Proof 6
notes-heading-level-one
notes-heading-level-two
notes-heading-level-three
notes-heading-level-four
notes-strapline
notes-text-body
• notes-list-bullet
• notes-list-bespoke
− notes-list-dash
d. notes-list-alpha
5. notes-list-number
vi. notes-list-roman
CHANGING THE WAY
THE WORLD SHOPS
We are transforming shopping, making it as
easy and efficient as possible. We are online
grocery pioneers. We have unique knowledge
and inspired people delivering the best possible
service to all our customers and continuous
advantage to our partners with our innovative
technologies and shared expertise.
Strategy
Driving growth: continually enhancing the value of
our proposition for our retail customers and Solutions
partners.
Maximising efficiency: always striving to develop our
technology and operations, to consistently improve our
economic and operating performance.
Utilising proprietary knowledge: using our IP to
create competitive advantages in our retail business,
and further monetising our IP through our platform
business.
Table plain text
Background
Border
Border
Heading
Default
Heading
Default
Heading
Default
1
1
1
2
2
2
3
3
3
01
WHAT’S INSIDE
1.
04
NOW IS OUR TIME
To give our customers the best
shopping experience
06 Our people create pioneering technology
That powers the most advanced solutions
08
For the world’s leading retailers to invest in
10
2.
STRATEGIC REPORT
14 Why Invest in Ocado?
Progress in 2018
15
16 Q&A with Tim Steiner
Chairman’s Statement
16
The Marketplace
18
20 Business Model
22 How We Create Value
23 Our Solutions Business
24 Our Retail Business
26
34
36
44 How We Manage Our Risks
50
54 Our People
Corporate Responsibility
Strategy
Key Performance Indicators
Chief Financial Officer’s Review
GOVERNANCE
Chairman’s Governance Overview
3.
60
61 Board of Directors
62
74
Corporate Governance Statement
Leadership and Effectiveness –
Nomination Committee Report
Accountability –
Audit Committee Report
82 Directors’ Remuneration Report
130 Directors’ Report
76
FINANCIAL STATEMENTS (GROUP)
4.
142 Independent Auditor’s Report
149 Consolidated Income Statement
150 Consolidated Statement of Comprehensive Income
151 Consolidated Balance Sheet
152 Consolidated Statement of Changes in Equity
155 Consolidated Statement of Cash Flows
154 Notes to the Consolidated Financial Statements
FINANCIAL STATEMENTS (COMPANY)
5.
212 Company Balance Sheet
213 Company Statement of Changes in Equity
214 Company Statement of Cash Flows
215 Notes to the Company Financial Statements
ADDITIONAL INFORMATION
6.
226 Glossary
229 Alternative Performance Measures
231 Five Year Summary
232 Financial Calendar
232 Company Information
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 1
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:08:22 AM
Now is our timeStock Code: OCDO Annual Report and Accounts Ocado Group plc Ocado AR2018 Strategic Report.indd 2
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:08:22 AM
26237
5 February 2019 1:58 am
Proof 6
1.
NOW IS
OUR TIME
04 To give our customers the best shopping experience
06 Our people create pioneering technology
08 That powers the most advanced solutions
10 For the world’s leading retailers to invest in
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 3
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:08:22 AM
04
Ocado offers Retail customers
NEARLY 55,000
different products
95%
of Ocado deliveries
are on time or early
99%
order accuracy
Ocado Retail
customers get
reliable delivery
within a
1 HOUR
window
With the Instant Shop Algorithm, customers can buy
50+ ITEMS IN 3 MINUTES
Ocado AR2018 Strategic Report.indd 4
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:08:25 AM
26237
5 February 2019 1:58 am
Proof 6
Now is our timeOcado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.com 05
We are changing the way the world
shops, offering consumers a different
proposition, because we are built
differently – we are built to be online.
We aim to allow consumers to shop
online in the way most convenient
for them, constantly evolving our
technology, based on customers’
needs. Our functionality works across
a spectrum of customer interfaces,
including mobile and Alexa voice-
activated systems.
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 5
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:08:35 AM
Now is our timeStock Code: OCDO Annual Report and Accounts Ocado Group plc 06
PACE OF
INNOVATION
75%
new components in our
3rd generation bots
compared with 2nd
25%
new components in our
2nd generation bots
compared with 1st
OCADO
TECHNOLOGY
EMPLOYEES
2018
1300
2017
1100
2015
750
Ocado AR2018 Strategic Report.indd 6
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:08:40 AM
26237
5 February 2019 1:58 am
Proof 6
Now is our timeOcado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.com 07
Our business is built on finding solutions, aiming to
Our business is built on finding solutions, aiming to
offer world-class service. Our people are critical to us
offer world-class service. Our people are critical to us
achieving our strategy. So we identify and develop the
achieving our strategy. So we identify and develop the
highest quality of talent throughout Ocado. For example,
highest quality of talent throughout Ocado. For example,
we added 300 more software engineers in FY18 to
we hired 300 more software engineers in FY18 to increase
increasehe pace we evolve our technology. The role of
the pace we evolve our technology. The role of our
our technology leadership team is to ensure we generate
technology leadership team is to ensure we generate
value in both the short and long term, to guarantee our
value in both the short and long term and to ensure our
technology will still be relevant in five to ten years’ time,
technology will still be relevant in five to ten years’ time,
and that we stay ahead of the market.
and that we stay ahead of the market.
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 7
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:08:43 AM
Now is our timeStock Code: OCDO Annual Report and Accounts Ocado Group plc 08
We believe our online grocery solution provides a complete service which is
the most advanced and efficient in the world. The cloud-based architecture
of our proprietary Ocado Smart Platform – made of software modules and
fulfilment hardware – means it is scalable and we can continuously update
it. The automated fulfilment in our Customer Fulfilment Centres (CFCs)
involves a market-leading, physical infrastructure solution and algorithms
that shorten lead-times and improve accuracy.
Ocado AR2018 Strategic Report.indd 8
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:08:56 AM
26237
5 February 2019 1:58 am
Proof 6
Now is our timeOcado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.com 09
1,000
HOURS
of testing before
we deploy new
solutions software
OVER
100
patent applications
this year
and
OVER
65
patents already
granted
Erith CFC achieved
a capacity in
3
WEEKS
that took 32 weeks
in Andover CFC
OUR 6
test grids run
24/7
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 9
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:08:59 AM
Now is our timeStock Code: OCDO Annual Report and Accounts Ocado Group plc 10
We work with grocery retailers across the world; retailers who want
our help to succeed in the online market. Our Solutions business offers
them a full-service proposition – a front-end interface for ordering,
automated fulfilment within CFCs, and last-mile operations for delivery
– all underpinned by the Ocado Smart Platform, our proprietary
technology. The modular nature of our CFCs means they are also
scalable, so as a retailer’s business grows, their ability to fulfil customer
demand can keep pace.
Ocado AR2018 Strategic Report.indd 10
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:02 AM
26237
5 February 2019 1:58 am
Proof 6
Now is our timeOcado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.com 11
Our commercial and product
teams speak
11
different languages
We will create CFCs for Groupe Casino,
Sobeys and ICA and will begin work on
CFCs for Kroger, building
20+ over the next
3 YEARS
We now have
partners in
5
countries
WE SIGNED
3
major deals
in 2018
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 11
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:02 AM
Now is our timeStock Code: OCDO Annual Report and Accounts Ocado Group plc Ocado AR2018 Strategic Report.indd 12
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:02 AM
26237
5 February 2019 1:58 am
Proof 6
2.
STRATEGIC
REPORT
14 Why Invest in Ocado?
15 Progress in 2018
16 Q&A with Tim Steiner
16 Chairman’s Statement
18 Marketplace
20 Business Model
22 How We Create Value
23 Our Solutions Business
24 Our Retail Business
26 Strategy
34 Key Performance Indicators
36 Chief Financial Officer’s Review
44 How We Manage Our Risks
50 Corporate Responsibility
54 Our People
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 13
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:03 AM
14
Why Invest in Ocado?
Grocery shopping in our home market, the UK, has evolved significantly
during the last 60 years. Once the domain of small, local independent
retailers, the market has grown to include large supermarkets,
hypermarkets on the edge and out of town, as well as convenience
and limited assortment discount formats. Now we are seeing a shift to
online as customers seek improved service, convenience and value.
The continuing growth of online shopping is made possible by
improved technology, while the customer experience has been
enhanced by faster broadband and new generation mobile devices,
both trends that can be seen globally.
Ocado Retail is not a traditional supermarket. We are the world’s largest
pure online grocery supermarket – and the UK’s only one. We built our
business specifically for this change in shopping behaviour – to benefit
from, and to lead, the online revolution for ourselves and our partners.
Ocado Retail is leading
the change as UK consumers
embrace online shopping
Online is the fastest growing
channel in most markets
Ocado’s unique and proprietary
technology is helping other
retailers change the way people
shop in their own markets
The wider addressable market
is huge – for example, the
overall US grocery market
is $1 trillion
Ocado’s technology
has applications beyond the
grocery sector
Reasons to invest
1.
We are the world’s
leading pure play
online grocer.
2.
Our business model offers
a superior customer
experience, to help us and
our partners grow sales and
win market share.
3.
Although online is the fastest
growing channel in most
markets, grocery market
share is still significantly
lower than for most general
merchandise categories.
4.
We are leading the UK
shift in how people
shop, providing an
example for others.
5.
We can package and
license our unique,
proprietary technology
to third parties.
6.
Our end-to-end solution
allows our partners to
grow their online grocery
businesses profitably and
sustainably.
7.
Our model is based
on a virtuous cycle of
growth, investment and
innovation.
8.
We have a proven
management team
leading strategy and
execution.
Ocado AR2018 Strategic Report.indd 14
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:03 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report Progress in 2018
15
Operational Highlights
• We continued to develop our technology to improve the shopping
experience for consumers. We introduced new ways to help them
shop, such as our in-app “Meals and Lists” feature. This allows
customers to group items together into a “meal” and add it to
their basket with one click. We have also led the market in product
innovation, for example, increasing our vegetarian and vegan ranges
by over 15% and adding 600 new products to our organic ranges.
• Customer loyalty has remained strong, and we have had double-
digit order growth, even in those postcodes where we were already
popular. As we have grown, we continue to achieve consistently high
levels of customer service. We remain a market leader in punctuality
of deliveries and order accuracy. As a result, we have grown sales
significantly ahead of the UK market and taken market share.
Customer numbers have grown by 11% and we now average
296,000 orders a week.
• We have been able to welcome these new customers by adding
capacity to our network, most notably by opening our fourth CFC, in
Erith, South London. When complete, Erith will be the largest robotic
picking facility for grocery anywhere in the world.
Strategic Highlights
• We continued to enable the growth of our first commercial
partner, Morrisons.com, by continuing our roll-out of store
picking capabilities for them across the UK and by starting
to ship orders from our new facility in Erith.
• We signed our third, fourth and fifth international partnerships
to develop the Ocado Smart Platform (OSP) – in Canada,
Sweden and the United States respectively. Here we will use our
proprietary software and algorithms, as well as our robotic
infrastructure solutions. OSP will now power the online
grocery business of seven of the world’s most innovative
and forward-looking retailers: Ocado, Morrisons, Bon Preu,
Groupe Casino, Sobeys, ICA, and Kroger.
• In addition to the new CFC in Erith, we more than doubled
our capacity in non-food by opening our second General
Merchandise Distribution Centre.
Financial Highlights
Revenue (Group) A (£m)
Revenue (Retail) A (£m)
Revenue (Solutions) A (£m)
9
9
5
,
1
4
2
4
,
1
7
6
2
,
1
4
0
1
,
1
6
7
4
,
1
7
1
3
,
1
3
2
1
5
9
6
0
1
2
7
1
,
1
6
1
1
,
1
2015
2016
2017
2018
2015
2016
2017
2018
2015
2016
2017
2018
EBITDA (Group) A (£m)
EBITDA (Retail) A (£m)
EBITDA (Solutions) A (£m)
8
7
0
8
5
7
0
6
9
7
2
8
6
7
1
2017
2018
2015
2016
)
7
(
)
8
1
(
2015
2016
2017
2018
2015
2016
2017
2018
All numbers on this page are reported on a 52 week basis
A See Alternative Performance Measures on
pages 229 and 230
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 15
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:06 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 16
Strategic Report
Chairman’s Statement
with Tim Steiner
Chief Executive Officer
Q What risks do retailers face if they don’t have an
e-commerce presence?
A I think the biggest risk we can see in the UK is not simply losing
your best customers’ primary shopping trip, but losing your best
customers – full stop.
Q How is technology changing the e-commerce grocery
landscape?
A As an e-commerce operator, we’re expected to do the work the
consumer does in a traditional supermarket – driving, walking the
aisles, picking goods, taking them to the till, packing them up and
taking them home. What we’ve been doing for the last 15 years is
deploying technology so we can do that extra work, yet at a lower
cost. So we’re producing the best service for the consumer, while
actually creating a fully economic and sustainable model. We’ve
done that by taking a different approach.
Q What role does innovation play at Ocado?
A We’re increasing automation to lower the warehouse cost, and
creating new delivery solutions to lower delivery costs, to help
improve margins. We’re investing in the front end to build a better
experience for the consumer, to build loyalty. In fact, we’re working
on innovation for every place where we interact with a customer.
Q Why has Ocado made its Ocado Smart Platform (OSP)
available to others?
A We’ve built a successful e-commerce business in the UK, and
think we’re in a powerful position to help retailers in other parts
of the world do the same. Retailers have a significant presence in
their local markets, with customer knowledge, buying power and
presence. The combination of their skills, knowledge and presence
with our IP, technology and logistics skills can be a very powerful
combination.
Q How will an OSP partner of Ocado benefit from Ocado’s
constant innovation?
A They’ll get the benefit of all our innovations. For example, when
we’re able to add more robotics and automation at facilities, to
reduce the amount of people it takes to serve the same number of
customers, that’s what they’ll also get offered. That’s the best thing
about being an OSP customer – the ability to continue to benefit
from all our ongoing investment.
Q How does Ocado stimulate customer loyalty?
A We provide the best possible service by improving our interfaces
to allow customers to buy from the widest range of products
quickly and by operating our model accurately and efficiently so
the customer gets what they want when they want. As we do this
consistently our customers trust us and stay loyal.
I am pleased to introduce this year’s
Strategic Report. The year to December
2018 has been one of the most exciting
yet, both in the lifetime of Ocado and in
my time as Chairman of Ocado.
I’ve had the privilege of seeing, first-hand, the results of a business
made up of talented and committed people who are focused on
continuing to grow this business and deliver while exceeding the
expectations of customers, building and improving our ground
breaking technology, and making a positive contribution to the
communities and wider society that the Company serves.
It has been a year of transformational change at Ocado, with significant
development of the Solutions business, continued growth of the Retail
business in the UK, and ongoing investment in and advancement of
Ocado Smart Platform (OSP). The increase in the value of the Company
was reflected in it joining the FTSE 100 index for the first time, a
significant achievement for such a young company.
We aim to provide our retail customers and commercial partners with
an advanced online grocery shopping solution. The Ocado Solutions
business took exciting steps in delivering this strategy and has now
signed five international partners. During the prior year, Ocado
signed an agreement to provide OSP to Groupe Casino in France and
we secured an agreement with Bon Preu in Spain to help build its
online grocery business using OSP. We signed further deals this year
with Sobeys in Canada and ICA in Sweden to allow them to grow
We aim to provide our retail and commercial
customers with an advanced online grocery
shopping solution. The Ocado Solutions business
took exciting steps in delivering this strategy and
has now signed five international customers.
Lord Rose
Chairman
www.ocadogroup.com
Ocado AR2018 Strategic Report.indd 16
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:09 AM
26237
5 February 2019 1:58 am
Proof 6
17
The increase in UK capacity and development of our proprietary
platform continues to require significant expenditure. The Group
increased the funding available to support this investment during the
period. The Group issued a placing of 5% of its shares in February 2018,
raising a total of £143 million. Additionally, on signing the partnership
agreement in May 2018, Kroger subscribed for new shares in Ocado,
equivalent to 5% of the existing issued share capital of Ocado, at a
value of £183 million. The increase in funding available will allow
Ocado to commit to investment capital expenditure relating to the
signing of Ocado Solutions partnerships globally and to increase
Ocado’s technology engineering and software capabilities.
Continuing to innovate and invest in new technology is key to the
creation of long-term shareholder value for Ocado and will be key to
our continued growth. The management team is aware that as the
business grows, the objective of retaining and recruiting talented
people becomes ever more important. Growing headcount in
specialist areas of technology and engineering is crucial to meeting
our innovation and development plans. We remain focused on this
and ensuring that available resources are allocated effectively and
prioritised on the Group’s most important strategic objectives. Looking
forward, we will remain committed to continuing to successfully
develop our online grocery shopping solution both for our retail
customers and our commercial partners in the UK and internationally.
We look forward to delivering this and pursuing many more successful
collaborations with leading retailers across the globe.
Lord Rose
Chairman
5 February 2019
Chairman’s Statement
I am pleased to introduce this year’s
Strategic Report. The year to December
2018 has been one of the most exciting
yet, both in the lifetime of Ocado and in
my time as Chairman of Ocado.
I’ve had the privilege of seeing, first-hand, the results of a business
made up of talented and committed people who are focused on
continuing to grow this business and deliver while exceeding the
expectations of customers, building and improving our ground
breaking technology, and making a positive contribution to the
communities and wider society that the Company serves.
It has been a year of transformational change at Ocado, with significant
development of the Solutions business, continued growth of the Retail
business in the UK, and ongoing investment in and advancement of
Ocado Smart Platform (OSP). The increase in the value of the Company
was reflected in it joining the FTSE 100 index for the first time, a
significant achievement for such a young company.
We aim to provide our retail customers and commercial partners with
an advanced online grocery shopping solution. The Ocado Solutions
business took exciting steps in delivering this strategy and has now
signed five international partners. During the prior year, Ocado
signed an agreement to provide OSP to Groupe Casino in France and
we secured an agreement with Bon Preu in Spain to help build its
online grocery business using OSP. We signed further deals this year
with Sobeys in Canada and ICA in Sweden to allow them to grow
We aim to provide our retail and commercial
customers with an advanced online grocery
shopping solution. The Ocado Solutions business
took exciting steps in delivering this strategy and
has now signed five international customers.
Lord Rose
Chairman
and develop their online food businesses. We signed a partnership
agreement with Kroger in May 2018 and a Master Services agreement
in October under which Ocado’s technology will be used in the US
exclusively by Kroger for grocery and other food distribution related
activities. These significant commitments, although having negative
impact on reported earnings in 2018 and 2019, partly due to the
adoption of the IFRS 15 accounting standard on revenue recognition
for contracts with customers, are expected to create significant long-
term value.
While these deals are exciting and have changed the business, we now
face the task of delivering them. I have had the opportunity to meet
with colleagues in the business and examine the challenges we face.
There is no doubt in my mind that we have a great deal of work to do
in the coming years, and that transformational changes are needed in
the business. These challenges are not only in delivering what we have
promised to customers, but in ensuring that we have the resources,
governance and controls in place to position this Company for its future.
Our Retail business continues to grow profitably while operating in
a tough sector, with inflationary pressures on imported food prices
and continued competition from the discounters. We expect these
challenges to continue, and the business is working to address these
market challenges as well as the shift in market dynamics towards
increased shopping frequency and greater convenience. Additionally,
Brexit has the potential to restrict supply and increase the cost of food
from the European Union. Limited availability could impact the range
and volume of products we can offer, which is a key part of our appeal
to customers. Extensive work with suppliers has been undertaken to
mitigate these risks, for each eventuality.
Both the Board and I continue to believe that our retail strategy is
the right one; namely to drive growth by broadening our addressable
market and differentiating on service and range, while price following
the market leader. As well as improving the customer experience, we
aim to maximise efficiency by focusing on technology innovation and
operational improvements. These changes help to decrease the costs
per order and increase the Group’s overall profitability and to offset
the impact of some of the wider market headwinds, namely rising
labour costs.
Our latest CFCs at Andover and Erith will facilitate the growth of the
Retail business. One of the biggest challenges facing the Group is
ensuring that capacity is made available in time to meet our expected
growth in customers. We expect both CFCs to continue to scale with
the planned future improvements to the reliability and resilience of
software and material handling equipment. Ongoing investment
in our technology and engineering capabilities should help ensure
we advance towards our operational efficiency targets, though as
experienced in the past two years, we do not expect this progress to be
without difficulties.
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 17
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:09 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 18
The Marketplace
The Global Grocery Market
The global market we operate in represents around half of all retail
sales. The global food distribution market is worth £5.6 trillion.
Roughly 30% of all supply chain costs are spent on warehousing and
last mile delivery.
The Institute of Grocery Distribution (IGD) estimates that by 2022,
the global grocery retail market will expand by approximately $2.7
trillion (£2.12 trillion at current exchange rate) due to growth in both
population and spending power. This will provide attractive and
sustainable opportunities for retailers. Europe and North America
combined will account for 40% of total grocery sales by 2022.
The UK Grocery Market
Grocery is the largest retail segment in the UK, and is forecast to grow
by 15% over the next five years, from £190 billion to £218 billion (IGD).
IGD also forecasts that over the next five years, the online share of the
market will grow 52% to over £17 billion. UK shoppers are increasingly
digitally dependent, and it is becoming more important to use
technology to improve the customer experience, whether online or
in store, as well as in managing costs and enhancing loyalty across
the industry. UK retailers have also been experiencing cost increases,
primarily from labour inflation. Alongside this, retailers and the market
have been having to adapt to the fall in the value of sterling which has
increased the cost of imported goods.
Inflation Will Drive Growth
Source: IGD
UK Grocery Sales
£bn
Source: IGD
UK Grocery Sales Growth
%
Source: IGD
£22.2bn
£4.3bn
£1.7bn
£218.5bn
£190.3bn
p
u
-
e
d
a
r
T
/
n
o
i
t
p
m
u
s
n
o
C
–
e
m
u
o
V
l
h
t
w
o
r
G
n
o
i
t
a
u
p
o
P
l
–
e
m
u
o
V
l
n
o
i
t
a
l
f
n
I
2018
2023
UK Market Growth
Set to Grow by 15% by 2023
Source: IGD
250
240
230
220
210
200
190
180
170
160
150
6%
5%
4%
3%
2%
1%
0%
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
2
2
0
2
3
2
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
2
2
0
2
3
2
0
2
Low growth
Moderate
growth
High growth
Low growth
Moderate
growth
High growth
Online and Discount
Will Capture Half of Market Growth
Online Channel Forecast
Source: IGD
+£6.0bn
Change in
value
+52.4%
Change in
value
+8.8%
CAGR
£218.5
billion
5
.
8
1
2
2
.
2
1
2
1
.
6
0
2
3
.
0
0
2
£190.3
billion
5
.
7
7
1
2
.
8
7
1
2
.
5
8
1
0
.
5
7
1
1
.
5
9
1
3
.
0
9
1
2
.
5
8
1
250
200
150
%
1
.
3
%
8
.
2
%
7
.
2
%
5
.
2
%
9
.
2
%
0
.
3
%
0
.
3
100
%
5
.
3
50
0
%
4
.
1
%
8
.
% 0
4
.
0
)
%
(
h
t
w
o
r
G
Y
O
Y
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
)
n
b
£
(
e
z
i
s
t
e
k
r
a
m
l
i
a
t
e
r
y
r
e
c
o
r
G
60
50
40
30
20
s
t
e
k
r
a
m
r
e
p
y
H
10
8.6
% 7.6
%
0
s
t
e
k
r
a
m
r
e
p
u
S
46.8
% 43.9
%
i
e
c
n
e
n
e
v
n
o
C
21.1
%
21.6
%
t
n
u
o
c
s
i
D
14.4
%
12.1
%
e
n
i
l
n
O
r
e
h
t
O
7.9
%
6.0
%
5.4
% 4.5
%
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
2
2
0
2
3
2
0
2
Market value (£bn)
YOY % Change
+0.2
+6.9
+7.1
+8.5
+6.0
-0.4
£bn
change
2018
2023
Total
+28.2
3
.
7
8 1
.
5
5 1
.
4
2 1
.
3
1
%
4
.
9
%
3
.
9
%
4
.
9
%
4
.
9
1
.
2
1
4
.
1
1
7
.
0
1
%
5
.
6
%
9
.
5
%
5
.
8
20
15
n
b
£
10
5
0
)
%
(
h
t
w
o
r
G
Y
O
Y
20%
15%
10%
5%
0%
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
2
2
0
2
3
2
0
2
Market value (£bn)
YOY % Change
Ocado AR2018 Strategic Report.indd 18
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:22 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report
19
Major Trends Affecting Grocery Retail
An IGD research report confirms grocery retail is undergoing a revolution,
driven by rising shopper expectations. While long-standing needs remain
value, choice and convenience, shoppers’ expectations of how these
needs are met will continually evolve. Societal shifts and transformative
technology in particular, will shape the online store of the future.
Societal Shifts – Globally the population is ageing (meaning
appropriate products and convenient ordering), urbanising (meaning
smaller kitchens and less storage) and becoming more health
conscious. Ranges and services will need to evolve to succeed.
Transformative Technology – Artificial intelligence (AI) will enable
online stores to be more personalised and to anticipate demand,
while developments in robotics can provide more convenient, efficient
fulfilment. Smart, interconnected devices mean shoppers can access the
store whenever and wherever they want.
The shopper of the future will therefore expect more choice,
convenience, inspiration, personalisation and transparency. Online
stores will play an essential part in meeting these needs.
The Online Grocery Market Worldwide
Consumers shifting channel to online is taking place not only in the
UK, but in all other markets where the service is available to them at a
competitive price.
• The US online grocery market will grow by 149% by 2023 and
account for 3.5% of the total US grocery market
• China’s online grocery market will grow by 286% by 2023 and
account for 11.2% of the total Chinese grocery market
IGD’s research notes that online and offline grocery shopping are
merging, and an online store will be increasingly vital to complement
the physical store. The digital world typically evolves faster than the
physical world, and new generations of shoppers will be more likely to
view online ordering as the norm.
Across the world, online is one of the fastest-growing grocery
channels.
Ocado acts as a key catalyst for this shift as a retailer in its
own right in the UK, and because it can license its unique and
proprietary technology to third parties in other markets.
The Options for Grocery Retailers
Aside from the choice of developing online capabilities in-house,
retailers have three main options when considering how to grow
and manage their online proposition:
1. Store pick: Fulfilment is done at a local level, in either a live store
environment or “dark” store using a degree of automation.
2. Outsourcing to third parties: A customer orders from their
chosen retailer, and their shopping is delivered through
a third-party shopping service.
3. Centralised fulfilment centre: A customer orders from their
chosen retailer who operates through a manual or automated
facility. Ocado Solutions provides the only complete package
with all the proven mechanical handling equipment and
software needed.
What This Means for Ocado
Ocado is in an advantageous position, as a leading pure online
retailer in the UK, and as a partner to other innovative and
forward-looking grocery retailers the world over.
Ocado Retail
As a pure play online retailer, we are well placed to capitalise on
the shift to online channels. We continue to grow in excess of
growth rate in the market, building capacity and capturing market
share. Growth enables us to further invest and innovate.
Ocado Solutions
Based on our Ocado Smart Platform, we are ideally positioned
to take advantage of the accelerating changes in e-commerce.
Working with the world’s leading grocery retailers, we can change
the way the world shops.
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 19
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:23 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 20
Business Model
We established our business to revolutionise the way the world shops. We provide our retail customers and Solutions partners with the best
proposition in online shopping, based on our constantly evolving proprietary, market-leading technology.
1.
Our Inputs
2.
Ocado Smart Platform
3.
People
Our business is built by passionate people who can find
solutions to problems, and go the extra mile to deliver a high
quality service. Our technology and engineering development
teams are crucial to our ability to improve and advance
our intellectual property rapidly, allowing us to maintain
technological leadership.
Read more about Our People on pages 56 and 57
Technology
Our technology estate is broad and deep, covering
real-time control systems and robotics, computer vision
systems, machine learning and AI, data science, forecasting
and routing systems, inference engines, the cloud, the
Internet of Things, big data and more.
Read more about how our technology improves our
Operational Efficiency on page 30
Intellectual property
To retain our competitive advantage through our technology,
we take rigorous measures to protect our intellectual
property, and file many patent applications to safeguard it.
Read more about Our proprietary Knowledge on
pages 32 and 33
Financial
We invest in our people, our technologies and our
infrastructure, aiming to ensure we remain a market leader.
Read more about our Capital Efficiency on page 31
OSP is our modular, automated online retail fulfilment and delivery
solution. Being modular, it will be highly scalable with the capability
of being flexible to each partner’s needs. We are continuously
developing it to support our current and future Solutions partners.
OSP gives us the opportunity to continue to disrupt retail markets
around the world, while satisfying the changing needs of consumers.
We believe it is the leading end-to-end e-commerce solution in
the world, both for the consumer experience and its operational
economics. OSP is what brings us real and sustained competitive
advantage.
Read more about Our Proprietary Knowledge
on pages 32 and 33
Our culture and values
connect, guide and
inspire our people
We are proud of what we do
Ocado AR2018 Strategic Report.indd 20
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:29 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report 21
3.
Ocado Solutions and Ocado Retail
Our Solutions business supports
our partners with their online
proposition in grocery retail
Ocado Solutions takes our online know-how to retailers around the
world. Using our proprietary best-in-class technology, combined
with the knowledge and experience of our Retail business, we
aim to become the e-commerce solutions partner of choice for
leading retailers around the world; those looking for market-leading
efficiency, with unsurpassed operational economics, consumer
experience and service. Current partners include:
Bon Preu: The leading
Catalan food retailer
Groupe Casino: A multiple
brand retailer with top-three
positions in several countries
ICA Group: Sweden’s leading
grocery retailer
Kroger: One of the world’s
largest grocery retailers and a
market leader in the US
Morrisons: A leading UK
supermarket group
Sobeys: Canada’s second
largest food retailer
Our Retail business demonstrates
the depth of our online experience
Our growing retail business encompasses both our Ocado.
com webshop and our general merchandise destination sites
Fetch, Fabled and Sizzle. Through Ocado.com, customers can
shop our extensive product range of over 54,000 products, at
competitive prices and on their chosen devices, and receive
what we believe to be industry-leading customer service levels.
We constantly improve the proposition based on continual
learning and customer feedback and needs – thus continually
improving our Solutions offer to partners and our service to
consumers.
We are in it together
We can be even better
Read more about our values in the People section on page 56
4.
Creating Value for:
Solutions Customers
We offer our retail partners a faster, more flexible and more
cost-efficient way of operating online retail.
Shareholders
As revenue grows from both our Retail customers and
from new Solutions partners, we will be able to reinvest
in innovation, grow our business and improve our
profitability, increasing shareholder value.
Retail Customers
We offer consumers a highly attractive service, wider and
fresher ranges, and competitive prices.
Our People
We invest a significant amount of time and resources in
recruiting talented employees and developing their skills,
aiming to make Ocado an employer of choice.
Society
The Ocado Foundation helps our customers and
employees make a difference through charitable and
fundraising activities across the UK.
The Environment
We aim to continually reduce our carbon emissions and
improve our waste efficiency, helped by the automation
within our infrastructure.
Read more about How We Create Value
on page 22
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 21
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:30 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 22
How We Create Value
The model below describes how we take our capital inputs and, through
a virtuous circle of investment, innovation, efficiency and growth, turn
them into value for our two business units.
By taking advantage of international opportunities, this virtuous cycle will turn faster over time, which we expect to
translate into higher returns on capital.
Investment
We continuously invest in
our people, our technology and
our platform, to ensure we maintain
a competitive edge and market
leadership. The efficiencies of our
model and the growth we achieve in
the online channel enable us to
invest to innovate and grow.
Growth
Our platform allows an
outstanding shopping experience
with high order accuracy, minimal
substitutions, fresher products due
to shorter supply chains, extensive
ranges and competitive pricing.
This helps us, and will help our
partners, attract and retain
customers for further growth
within the business.
4
1
3
2
Innovation
We have nearly 20 years’
experience of creating new
ways of making the consumer
shopping experience easier and
more exciting. We have developed
a unique end-to-end operating
solution for online grocery retail
based on proprietary technology
and IP, and we are continuously
enhancing this, to maintain
the best platform.
Efficiency
We use technology and
automation to ensure high
levels of operational efficiency
with, for example, high labour
productivity, low product waste, high
stock turnover, and high
product accuracy. We have been
able to do this with high
capital efficiency.
Ocado Solutions
Customer Segment
Ocado Retail
Customer Segment
Creating the best platform for retailers around the world
looking to build winning e-commerce operations.
Creating the best grocery shopping experience for UK retail
customers.
Value Proposition
• We offer our solutions as
• As their online retail
an end-to-end service, with
fee structures aligned to
the growth of each partner.
business grows, we can
scale our flexible solutions,
bringing cost efficiencies.
Value Proposition
• Market-leading service in
order accuracy, on-time
delivery and ease of use.
• Extensive range and fresher
products.
• Competitive prices and low
delivery fees.
Ocado AR2018 Strategic Report.indd 22
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:31 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report Our Solutions Business
23
Partnering with leading retailers
We offer the world’s retailers a unique, scalable, customised end-to-
end e-commerce and fulfilment solution. We are building a platform
that will bring them market-leading efficiency with unsurpassed
operational economics, consumer experience and service. This
ensures their continuing competitiveness against challengers, big
and small.
We partner with grocery retailers that can become market leaders
online, allowing us to be with the largest player in any given market.
The greater the potential of each retail partner, the higher the value
generated in the medium to long term.
We offer these partners:
• Software: a cloud-based architecture that allows us to deploy the
constantly updating Ocado Smart Platform.
• Fulfilment hardware: warehouse automation that can grow in a
modular way.
• Services and support: account management and support services
to enable a smooth launch and ongoing support.
Sobeys
Developing a CFC for the
Greater Toronto area
Morrisons
Two existing CFCs (including Erith)
and store pick fulfilment (for
regions not served by CFCs)
Key
Existing CFC
Planned CFC
ICA Group
Developing a CFC for Greater Stockholm
area (and store pick fulfilment nationwide)
Groupe Casino
Developing a CFC to serve
the Paris area and
neighbouring regions
Kroger
Working on three initial
CFC sites, with 20 planned
for first three years
Bon Preu
Business launched using
OSP software in manual
warehouse
How we typically structure these deals
Short-term: The signing-on fee is payable
immediately when a new deal is signed.
Medium-term (0–2 years): The CFC
preparation fees reflect the future size of the
CFC and the costs associated with adapting the
platform to the needs of the partner.
Long-term (2+ years): Capacity-related fees
which grow as the partner takes on more
capacity.
Timeline of deals
Number of
existing or
planned CFCs
or part CFCs
May
2013
August
2016
June
2017
November
2017
January
2018
May
2018
Morrisons
Morrisons
Bon Preu
Groupe Casino
Sobeys
ICA Group
1
1
1
1
1
20
May
2018
Kroger
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 23
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:32 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report
24
Our Retail Business
Ocado is online only and 100% home delivery
Ocado offers consumers a different proposition because we are built differently. We are built to be online and home delivery only. But
more importantly, we are built to offer an outstanding shopping and customer service experience, based on doing the right things for
our customers and offering them the best place to shop.
£1.6bn
sales, +12%
in 2017/18
14%
share of UK online
grocery market
721,000
active customers,
+11% in 2017/18
Dispelling the myths
Ocado Retail has demonstrated that it is
possible to make money in online food
retail, that fresh food delivery can thrive,
and that online grocery is used across all
demographics:
• Ocado Retail is profitable, with an EBITDA A
margin of 5.6%.
• Approximately half our sales are fresh
goods, and at 0.8%, our waste figures are
significantly below the industry average.
• Today, 6% of the UK grocery market
is online, and those who use Ocado
are increasingly representative of UK
population demographics.
• We continue to grow even in catchments
where more than 25% of households shop
with us regularly.
Our compelling, market-
leading proposition
We’re changing the way the world shops, with
our service, range, value and ease of use all
focused on offering our customers a superior
service.
• Industry leading service – with 99% order
accuracy and 95% of orders delivered on
time. Customers choose 1-hour delivery
slots, available every 30 minutes between
5:30am and 11:30pm.
• The widest range – 54,000 separate items
available on ocado.com, including Ocado
own-label, with freshness guaranteed.
• Attractive prices – price matched with
Tesco.com to keep us competitive, with
regular offers.
• Ease of use – simple shopping interfaces,
with continually improved functionality, via
the app, website and Alexa voice ordering,
on a customer’s chosen device.
Awards
Ocado’s proposition has been recognised
in many awards:
A See Alternative Performance
Measures on pages 229 and 230
Ocado AR2018 Strategic Report.indd 24
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:48 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report 25
The benefits our unique model brings to our consumer proposition
1.
Centralised hub and
spoke network
From four CFCs and 16 “spokes” we reach over 74%
of UK households. Around 30% of deliveries are
made directly from CFCs. The centralised network
of large CFCs allows us to offer a wider range and
fresher products than supermarkets. It also results in
lower wastage and better economies of scale.
Supplier relationships
The ability for suppliers to deliver in bulk to our CFCs brings
them a huge advantage, especially for small suppliers. Our
four CFCs offer them over 74% UK coverage, so our model
means we can support smaller suppliers. We promote this,
supporting those quality suppliers who are unable to supply
other supermarkets, in our search for the next new wave of
high-quality products.
Read more about Responsible Sourcing
on page 53
General Merchandise
Alongside our traditional grocery range we also have a growing
general merchandise business, which now contributes over 7%
of our retail revenue A . This includes categories you may typically
find in supermarkets, either available within our Ocado.com
hypermarket, or at our specialist sites. These sites include Fetch,
our specialist pet shop; Sizzle, our kitchen and dining ware store;
and Fabled, in partnership with Marie Claire, our beauty store.
These options allow us to vastly extend our range beyond that
of conventional supermarkets, while also providing existing and
expanding high street brands with an online outlet.
Read more about General Merchandise
on page 28
2. Proprietary automated
fulfilment
With our order fulfilment system, our planned sales
capacity for our Andover and Erith CFCs is £1.5
billion, which would mean over 280,000 orders per
week. Total labour hours used to fulfil an order
(including inbound delivery to CFC but not delivery
to customer) runs at 14 minutes, which we believe
typically saves up to one hour of labour when
compared with store-based fulfilment used by
supermarkets.
3.
End-to-end software
capabilities
The customer interface, fulfilment, and delivery
are all dynamically interlinked, with advanced
analytics optimising the entire process. This enables
a personalised and accurate customer experience
through real-time inventory monitoring, slot
booking, guaranteed product life, and much more.
Everything is tested in a live environment, with
real-time feedback and experience from 700,000
customers, allowing us to learn, iterate and improve
quickly.
A See Alternative Performance
Measures on pages 229 and 230
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 25
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:50 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 26
Strategic Report
Strategy
CHANGING THE WAY THE WORLD SHOPS
We are transforming shopping, making it as easy
and efficient as possible. We are online grocery
pioneers. We have unique knowledge and inspired
people delivering unsurpassed service to all our
customers and continuous advantage to our
partners with our innovative technologies and
shared expertise.
This is a transformational period for Ocado.
We have developed unique and proprietary
technology to offer retailers an end-to-end
operating solution for grocery retail that enables
them to meet the changing needs of consumers.
Tim Steiner
Chief Executive Officer
Our UK Retail business demonstrates the success of this technology
platform, and it continues to outpace our competition in service
and growth. Our new CFC in Erith, at full capacity, will be the largest
automated warehouse for online grocery retail in the world. It will
also demonstrate the success of our platform, and its scalability,
adaptability and efficiency.
We are now beginning to partner with some of the world’s biggest,
best and most innovative retailers, to help them redefine the shopping
experience for their own customers. As a result, we are beginning to
fulfil our ambition to change the way the world shops.
Driving growth: continually
enhancing the value of our
proposition for our retail customers
and Solutions partners.
Maximising efficiency: always
striving to develop our technology
and operations, to consistently
improve our economic and operating
performance.
Utilising proprietary knowledge:
using our IP to create competitive
advantages in our retail business, and
further monetising our IP through our
platform business.
Read more about Driving Growth
on pages 28 and 29
Read more about Maximising
Efficiency on pages 30 and 31
Read more about Utilising
Proprietary Knowledge on
pages 32 and 33
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018
www.ocadogroup.com
Ocado AR2018 Strategic Report.indd 26
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:52 AM
26237
5 February 2019 1:58 am
Proof 6
27
Actions
Constantly improve our
proposition to customers
For our retail customers, this is based
on service, range, price and ease of use.
For our Solutions partners, it means
continually enhancing the Ocado Smart
Platform and extending our offer with
new capabilities.
Strengthen
our brands
Develop and expand brand offerings
to our retail customers, aligning
the Ocado brand with our leading
proposition.
Reinforce the Ocado Solutions brand
based on partnership announcements
and validity of model. Promote the
strength and value of our Technology
and Engineering brands to attract the
highest quality talent.
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
customer proposition.
Capital efficiency: continuously lower
the cost of investment required for
online grocery activities, to support
growth in our own retail business and
for our platform partners.
Constantly enhance
end-to-end technology
systems
Retain our technological leadership
through ceaseless pursuit of innovation
ahead of the market.
Use this cutting-edge IP to power our
world-leading end-to-end e-commerce,
fulfilment and logistics solutions.
Enable current and
future partners’
online businesses
Continuously develop and enhance
our Ocado Smart Platform to enable
a compelling customer proposition,
which will add significant value for
partners.
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 27
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:53 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 28
Strategy
Driving Growth
Grocery retail
Ocado Retail is changing the way the world shops, demonstrating
superior service, range, value and ease of use, all focused on offering
our customers a world-class service. This breeds loyalty, and attracting
and retaining more customers drives our growth and market share.
This is why we analyse and constantly improve every element of the
consumer shopping experience, whether through the easy-to-use
interfaces, the freshness of our products, the breadth and availability
of our range, or the competitiveness or our prices.
KPIs:
296,000
Average orders per week
FY17: 264,000
£106.85
Average order size
FY17: £107.28
721,000
Active customer base
FY17: 645,000
54,000
SKU count
FY17: 49,000
6
Number of Ocado Solutions
deals signed to date
FY17: 3
Numbers on a 52 week basis
Risks:
• Risk of decline in high service levels
• Failure to develop retail proposition to appeal to broader
customer and sustain growth rates, and the risk of discontinuing
the Waitrose sourcing agreement when it expires in 2020
• Failure to develop sufficient management, technology and
engineering capability or bandwidth to achieve all our strategic
priorities
• Risk of not being able to execute effectively and efficiently the
many Ocado Solutions deals, including where the platform
performance proves to be less reliable, potentially resulting
in increased project costs and less profitable Solutions deals,
also affecting our ability to attract and retain Ocado Solutions
partners
• Risk of negative implications caused by final Brexit terms, such
as disruption to supply chains and increased in import costs or
difficulty in hiring employees
Progress
With £1.6 billion sales, we have grown strongly over the year, our 12%
growth in 2018 outperforming a slow total UK grocery market that
grew 2.8%, and outgrowing the online retail market where compound
annual growth is forecast to be 8.8% through 2023. We now have
721,000 active customers, an increase of 11% over the year.
We have introduced new ways to help customers shop, such as
our in app Meals and Lists feature. This allows customers to group
items together into a “meal” and add it to their basket with one
click. We have also added receipts into the app. This gives live
updates of when your product will expire, what you had delivered,
and the price you pay for substitutions. We are currently testing a
new “immediacy” proposition – offering groceries within the hour
in certain London postcodes. We are always experimenting, and if
customers approve of the service, we’ll be expanding it.
We have also led the market in product innovation, for example,
increasing our vegetarian and vegan ranges by 15% and adding 600
new products to our organic ranges. Ocado Own Brand continues to
grow from strength to strength. Last year sales increased by +15%,
making this a brand that is now worth over £140 million a year.
Future focus
We will continue to provide a superior proposition based upon our
ability to do unique things for our customer, and our ability to test in a
live environment, iterating quickly to refine our offering across our four
retail pillars of range, value, ease of use and service.
General merchandise retail
Thanks to our centralised operating model, we’ve been able to expand
our offer beyond what would typically be found in a supermarket.
Alongside the general merchandise products we sell on our hypermarket,
we operate three speciality destination sites. These include Fetch, our
pet store; Sizzle, our kitchen and dining store; and Fabled, in partnership
with Marie Claire, our premium beauty offering.
Progress
Our general merchandise offer continues to grow. We have
expanded our range, adding high-quality retail brands such as
Joules, FatFace and Cowshed to the market-leading brands we
offer. Such highly regarded names are helping us create an online
high street, where people need not shop anywhere but Ocado.
In addition, this year, we opened our second General Merchandise
Distribution Center (GMDC), close to Erith, as we have hit
maximum sales capacity at our first GMDC. This has given us the
capacity to continue to grow our GM business.
Ocado AR2018 Strategic Report.indd 28
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:54 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report 29
Case Study
Opening in Ohio
This is a significant step toward both solidifying
our partnership with Ocado and redefining the
Kroger customer experience. The alliance will
bring to the US Ocado’s unparalleled innovation
and technologies. This is exciting news and
will help accelerate our vision to serve America
through food inspiration and uplift.
Alex Tosolini
SVP of Business Development
In an agreement announced in May 2018, Kroger and Ocado formed a
strategic partnership. The US grocery retailer ordered three CFCs from
us by the end of 2018, and is expected to order 20 CFCs over the first
three years of the agreement. With Kroger, we’ll open the first of these
in Monroe, Ohio, just north of Cincinnati, where Kroger is based. The
investment by Kroger is intended to optimise its already significant
density in a large region, which also includes the Indianapolis,
Columbus and Louisville markets.
The Monroe facility will cover 335,000 sq ft and is expected to generate
more than 410 new jobs. It will go live in 2021, with each new CFC
expected to go live two years from the order being placed. Kroger is
investing across the business to scale its e-commerce operations,
and is investing $55 million to build the CFC. Ocado will be installing
and maintaining modules of mechanical handling equipment, and
digital and robotic capabilities sufficient to provide an agreed level of
throughput.
Solutions business
Our Solutions business offers us the ability to take advantage of our
best-in-class technology, and the knowledge and experience we
gain from our retail business. We can do this by signing partnership
agreements with leading retailers around the world, who wish to
develop and grow their online presence.
We aim to be the leading end-to-end solution anywhere in the
world, from both a consumer experience and operational economics
perspective. We believe this goal will be reinforced by working with
leading global retailers.
Progress
We signed three further international partnership agreements in 2018.
For Sobeys, Ocado will develop their first CFC in the Greater Toronto
area. Working with ICA in Sweden, we are adapting our model to suit
the needs of a different business model, based on stores owned by
independent retailers, demonstrating the adaptability of the platform.
The partnership with Kroger represents an exciting step up in scale,
with 20+ CFCs planned for the US.
In parallel, we continue to support our existing partners. For Morrisons,
this means the continued roll-out of store-picking capability, and
shipping orders from Erith. For Casino, this means the ongoing design
and development of a CFC in the South of Paris, and for Bon Preu this
means continued support of their online solution, powered by OSP,
which went live in November.
We are making the necessary changes to organisational structure
and allocation of resource to meet the increased demands of scaling
Solutions activity. As we increase in scale, we increase our ability to
innovate to improve the experience for our customers and partners.
Future focus
As the shift of shopping channel continues to accelerate around the
world, we remain well positioned to act as a market leader within
online grocery. The deals with Sobeys, ICA and Kroger provide
continued validation of our business model. We expect to do more
deals in the medium term, in a number of regions.
Key:
Constantly improve proposition to customers
Stregthen our brands
Continuously develop more capital and operationally efficient
infrastructure solutions
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 29
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:54 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 30
Strategy
Maximising Efficiency
Operational efficiency
We aim for efficiency in every process throughout our operations,
from our customer-facing interfaces in the webshop, mobile and
tablet applications, through to the routing software that supports
our deliveries. That means adhering to our key design principles of
automation, use of our own technology, and centralisation – the three
foundations behind our industry-leading CFCs.
Removing several of the typical human processes from grocery retail and
distribution helps us operate with product waste of 0.8% of retail revenue A
– which we believe is the lowest in the industry – and our digital stock
management systems enable perfect first in, first out stock rotation.
Progress
Our fulfilment solution is critical, and we are planning to roll more of
it out faster than even we anticipated. Developing a new generation
of bots helps us bring down long-term cost of ownership, the
combination of capital and running costs. In the first half of the year,
we started to take delivery of our second-generation bot. This has
about 25% new components compared to our first generation.
KPIs:
£1,601m
Gross Sales (Retail)
FY17: £1,429m
£82.5m
EBITDA (Retail) A
FY17: £79.2m
164
CFC efficiency (UPH) (Mature)
FY17: 164
194
Average deliveries per van
FY17: 182
94.9%
Delivery punctuality
FY17: 95.0%
0.8%
Product waste
FY17: 0.7%
Numbers on a 52 week basis
Risks:
• Delays in implementing new capacity for Ocado.
•
Failure to achieve projected improvements to the fulfilment
solution, impacting ability to lower long term cost of ownership
as expected
A See Alternative Performance
Measures on pages 229 and 230
While we’ve been developing this second-generation bot, which
forms the majority of the fleet in Erith, we are also developing the
third-generation bot, and we’re currently testing this. We have
concurrent teams developing new generations, because of the length
of the development cycle. This is the bot we’ll use for the majority
of our international customers. The third-generation bot is built on
75% new components compared to the second generation, so is a
significant development.
We’ve dramatically increased our testing capabilities to build this.
In 2017 we had one test grid in Hatfield that ran ten hours a day, five
days a week. We’ve now moved into a new facility three times larger,
and have six test grids running 24/7, giving us a significant increase
in our capability to design and engineer and prove new hardware.
Today, before we make a software change to the fleet running in
Andover, that software will have been through over 1,000 hours
of testing, which we weren’t previously capable of doing. All in all,
improvements mean the engineering cost on the Andover fleet is
reducing dramatically, with costs per order reduced 66% during
the year.
We measure efficiency within our CFCs by average units processed
per labour hour (UPH). In our mature CFCs, this year the UPH
figure was 164, stable on the prior year.
As we increase customer density in existing geographies this brings
efficiencies as the distances between our customer drops get shorter. We
continue to find opportunities to improve our drops per van (DPV) measure
of delivery efficiency, through improvements in our complex algorithms
which calculate delivery routes and cover variables such as timing of
delivery slot, house location and order volumes. Increased demand in our
existing catchment areas increases the density of customer orders, so we
are continuously improving the efficiency of routing.
Future focus
We are constantly looking for ways to use pioneering technology to
improve our operational efficiency. We have multiple strands of both
business-sponsored and more speculative research under way.
One example is the robotic picking and packing of customer orders.
In grocery, this challenge is made more difficult by varying product
characteristics such as the size, rigidity, and fragility of each of our
50,000+ products, coupled with the added complexity of packing
into bags. Solving this challenge requires a combination of grippers
that can mimic the capabilities of the human hand, advanced vision
systems that recognise how to pick up different products, and
advanced machine learning that can make smart decisions on the fly.
Our robotic picking cell in Andover has operated for a year now as a
“living lab”, and will go into production in 2019.
One of the most exciting applications of pioneering technology is
attaching a machine learning model to highly realistic simulations and
visualisations of our business. Similar to DeepMind’s simulation of the
game Go, this approach will enable us to discover new optimisation
strategies and solutions that might have otherwise remained hidden.
Ocado AR2018 Strategic Report.indd 30
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:09:54 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report 31
Future focus
In 2018, we successfully applied our learnings from Andover to
significantly improve our ability to deploy and ramp up our latest
generation solution in Erith. As we continue on this trajectory, we
expect to see further improvements in the speed of deployment
allowing for reduced upfront capital commitment and shorter
ROI timescales, automation enhancements that further increase
throughput, and the gradual introduction of robotic picking for
additional efficiency gains. As we continue to progress our own CFCs
and garner new learnings along the way, we naturally pass these
benefits to our Solutions partners.
Case Study
Bot Healthcare
Improves Efficiency
In 2018, our technology teams have achieved further significant
breakthroughs in applying advanced AI, machine learning, and
simulation techniques to make our systems smarter and more
autonomous than ever before. One area where we have seen
significant progress is in our ability to predict deviations in the
behaviour of bots.
With tens of thousands of bots that will run on the Ocado Smart
Platform in the foreseeable future, the real time monitoring of these
swarms of bots will soon be beyond human scale. To address this, all
the operational and sensor data from the bots are streamed to the
cloud where a machine learning based healthcare system performs
powerful predictive analytics and drives preventative maintenance.
Due to the fundamental nature of our swarm of identical bots, any
bot requiring maintenance can instantly and seamlessly be replaced
by another one, with no loss of throughput. In the future, we will
further enhance this bot healthcare by embedding machine learning
processors into each bot, enabling it to perform smart self test,
diagnostics and exception handling, in order to drive even greater
efficiencies of scale.
Capital efficiency
The core design principles behind our efficiency are automation, use of
proprietary technology, and aggregation of scale through the use of our
large CFCs. Combining these attributes, we believe we have developed
the most sophisticated and operationally efficient grocery shopping
and delivery solution in the world.
As we develop new CFCs we have been able to improve the capital
efficiency of our operations. We have demonstrated this through
continuous improvement within our mature CFCs, where we have
extracted additional capacity without significant investment. The
proprietary technology we use in our newer CFCs enables us to achieve
an attractive return on investment, estimated at over 50% for our Erith
CFC, even before any further efficiency benefits from other innovations
such as robotic picking.
Our proprietary materials handling equipment (MHE) solution in
Erith and Andover is modular, allowing for reduced upfront capital
commitment as it can be added to as volumes grow. This also means
we can build in smaller spaces if required, making our capabilities
more customisable to the varying capacity requirements of our
Solutions partners.
Progress
With our need to bring new capacity online, we have been
delighted with our successful ramp-up at Andover, more than
doubling the volume over the year. It is now running at 30,000
orders a week, almost 50% of its projected volume. We have over
600 robots on the grid, over half of the projected total.
We also opened our fourth CFC, in Erith. This is the same solution
but with some enhanced components. For example, a redesigned
grid that’s more structurally durable, and with improved
peripherals. More importantly, in its first three weeks it reached
the same volume that it took us 32 weeks to achieve in Andover.
We are designing our platform so that every lesson we learn at
Andover, every enhancement to automation and software can be
quickly transferable to every future site.
Erith is four times the size of our nearest UK competitor’s largest
automated facility, yet we expect to achieve 16 times the volume.
Our investment will achieve lower long-term cost of ownership.
Thanks to design enhancements to our bots, we have been able to
increase the weekly production of bots by 100%.
Our first two CFCs in Hatfield and Dordon continue to operate
at high levels of accuracy and with improved efficiency. With
engineers constantly on site to ensure what are they are well
maintained, we incur minimal maintenance capex. Cash flow
return from these CFCs is nearly 10% of revenue a year, illustrating
the significant cash we can generate once a CFC has scaled and
reached maturity.
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 31
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:00 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 32
Strategy
Utilising Proprietary Knowledge
Our Intellectual Property
Developing a sustainable, profitable and scalable online grocery sales
operation has, until now, been an almost unsolvable challenge. With
constantly varying product ranges with diverse shelf lives and temperature
requirements, coupled with customer demands for accuracy and reliable
delivery slots, grocery far surpasses the complexity of other retail segments.
However, we believe Ocado’s 18 years of learning, research and
development have enabled us to build the world’s most advanced end-
to-end e-commerce, fulfilment and logistics solution. Thanks to our
cutting-edge IP, we are in a favourable position to capitalise on the shift
to the online channel for grocery sales. Recognising the fundamental
competitive advantages of our pioneering technology, some of the
world’s leading grocery retailers have chosen to partner with Ocado, to
help them remain competitive, now and in the future.
Ocado operates at the intersection of five disruptive technologies:
AI, robotics, the cloud, big data, and the Internet of Things. Our
capabilities span physical infrastructure solutions, software and
systems, to provide an end-to-end solution for selling grocery online –
sustainably, profitably, and with the ability to scale.
Progress
During the last year, we have achieved significant progress in all our
divisions.
In March, we announced significant improvements in our ability to
detect fraudulent events through applying a pioneering 100% OSP
machine learning model. Instead of analysing numerous data points
to establish fraud, agents will now be able to swiftly apply a predictive
model in an excellent illustration of how technology can augment
humans for great efficiencies of scale. Other highlights include progress
in developing technologies for robotic picking and packing and
improvements in bot healthcare by using predictive analytics to drive
preventative maintenance.
To retain our leadership in technology, we have continued to
recruit. We now have over 1,300 Technology employees based
in development centres in the UK, Bulgaria, Poland and Spain
and over 500 Engineering employees. We are able to attract and
retain some of the best technology and engineering talent by
providing teams with a licence to innovate. We are not afraid to
tackle previously untouched problems, and encourage disruptive
thinking beyond conventional grocery issues, to constantly exceed
what was thought possible to achieve.
Our outstanding achievements during the last year have been
acclaimed throughout the industry, in numerous prestigious
awards, including Tech Company of the Year, Tech Pioneer of the
Year, and Best Case Study in AI Deployment.
On 9 November 2018, Catalonia-based supermarket chain Bon
Preu went live using Ocado’s store pick solution. This is the first
100% OSP partner Ocado Solutions signed.
Ocado AR2018 Strategic Report.indd 32
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:05 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report 33
Patents
Protecting our IP is instrumental to retaining our competitive
advantage.
Case Study
We take careful measures to create a web of protection to safeguard
our Solutions. During the year, we filed applications covering 19 new
innovations.
We now hold 65 granted patents across 17 innovation families.
Progress
The majority of our patents and patent applications relate to our
physical infrastructure solution and developments thereof, some of
which are operational in Andover and Erith, and some of which will
be used in our partnerships with Groupe Casino in France, Sobeys in
Canada, ICA in Sweden, and Kroger in the US.
For example, we have continued to protect a significant number of
innovations to improve operational efficiency, including our robotic
picking capabilities, our new machine-learning-based fraud detection
system, improvements to our demand forecasting models, and the
simulation of our routing system to test new algorithms.
Future focus
Our leadership in technology and innovation in one of the most
complex retail sectors – grocery – is providing significant opportunities
for growth and long-term shareholder value. As we work to optimise
every aspect of our e-commerce, fulfilment and logistics platform, we
achieve dramatic efficiencies of scale. These advancements mean we
can explore opportunities in immediacy with a potentially attractive
economic model. We are also exploring opportunities beyond the retail
sector, where we can apply our disruptive technology to tackle other
complex challenges in new and innovative ways.
Key:
Constantly enhance end-to-end technology systems
Enable current and future partners’ online businesses
Risks:
• Technology innovation supersedes our own and offers
improved methods of food distribution to consumers
• Failure to protect our IP
• Failure to ensure our technology can be freely operated without
infringing a third party’s IP
• Failure to recruit and retain the skilled people needed, as
competition for such talent intensifies.
Robotic Picking
As part of our ongoing aim to lower costs and drive efficiencies within
our model, we have been developing the technologies required to
perform robotic picking and packing within our CFCs.
In 2018, we have achieved significant progress in both of these areas,
with our first “live robotic picking lab” expected to go into production in
Andover in early 2019.
SoMa Soft Manipulation Project
Our ongoing research within the SoMa project, funded by the European
Union Horizon 2020 framework programme, has enabled us to achieve
further significant progress in our ability to handle easily damageable
and unpredictably shaped items, such as fruit and vegetables. In 2018,
we investigated a number of different grippers that could overcome
these challenges and that are also sufficiently versatile to pick a wide
variety of products. The goal is to develop robust, cost-effective, and
safe robotic grasping and manipulation capabilities for a major subset
of our 50,000+ product range.
Progress this year has included a comparison of the performance of
three different compliant grippers that employ three different actuation
mechanisms. The assessment has been performed using a scientific
benchmarking framework that our robotics team developed to reflect
the requirements of Ocado’s production process and has entailed a
significant amount of practical experimentation.
The experimental work has also moved on from manipulating single
items to using a vision system to aid the planning of manipulation
strategies in more complex, real-world scenarios that include disorderly
arrangements and additional environmental constraints.
OSPick
In 2018, we developed and trialled an alternative type of picking
station, called OSPick. OSPick is a system designed to pick a range of
groceries within our CFCs using a simple suction cup mounted on an
articulated robot arm. While the system is conceptually straightforward
from a mechanical perspective, its underlying power lies in the
intelligent vision system that can pick a wide range of products without
prior knowledge of the items presented to it.
The smart vision system can handle real-life cluttered scenes and
autonomously decide what is the best item to pick next, and how it should
be grasped in order to be safely placed into a customer’s’ shopping bag.
We expect the development and roll-out of this picking solution within
our CFCs to allow us to reduce the cost of fulfilment both within our
operations and those of our commercial partners.
Future evolutions of this robotic pick station will see the suction cup
replaced by more advanced grippers, such as those being developed
by our SoMa project.
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 33
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:05 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 34
Key Performance
Indicators
Revenue (Group) A (£m)
EBITDA (Group) A (£m)
9
9
5
,
1
4
2
4
,
1
7
6
2
,
1
4
0
1
,
1
Why we use this measure
Measures growth at Group
level reflecting our Retail and
Solutions revenue.
2018 performance
12.3% v 2017
Strategic link
0
8
8
7
5
7
0
6
Why we use this measure
Measures operating profitability
at a Group level reflecting both
our Retail and Solutions segments.
2018 performance
(20.7)% v 2017
Strategic link
2015
2016
2017
2018
Revenue (Retail) A (£m)
2015
2016
2017
2018
EBITDA (Retail) A (£m)
6
7
4
,
1
7
1
3
,
1
2
7
1
,
1
Why we use this measure
Measures revenue growth
of our Retail business.
2018 performance
12.0% v 2017
Strategic link
2015
2016
2017
2018
Revenue (Solutions) A (£m)
Why we use this measure
Measures revenue growth of
our Solutions business.
3
2
1
5
9
6
0
1
2018 performance
15.8% v 2017
Strategic link
9
7
3
8
6
7
0
2015
2016
2017
2018
EBITDA (Solutions) A (£m)
1
2017
2018
2015
2016
)
7
(
)
8
1
(
Why we use this measure
Measures operating profitability
of our Retail business.
2018 performance
4.2% v 2017
Strategic link
Why we use this measure
Measures operating profitability
of our Solutions business.
2018 performance
(171.2)% v 2017
Strategic link
2015
2016
2017
2018
PBT (Group) (£m)
Net Assets (Group) (£m)
8
8
2015
2016
2017
2018
)
0
1
(
)
4
4
(
Why we use this measure
Measures profitability at Group
level reflecting our Retail and
Solutions profit.
Strategic link
9
4
2
8
4
2
7
3
2
Why we use this measure
Measures the surplus between
total assets and total liabilities
at Group level.
7
5
5
2018 performance
124.8% v 2017
Strategic link
All numbers on this page are reported on a 52 week basis
2016
2015
A See Alternative Performance Measures on pages 229 and 230
2018
2017
Ocado AR2018 Strategic Report.indd 34
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:08 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report
35
CFC Efficiency (£m)
Product Waste (%)
0
6
1
5
5
1
4
6
1
4
6
1
2015
2016
2017
2018
Average Order Size (£)
1
1
1
8
0
1
7
0
1
7
0
1
Why we use this measure
Measures CFC operational
efficiency.
2018 performance
(0.6)% v 2017
Strategic link
Why we use this measure
Measures aggregate impact
on average shopping basket
within our Retail business.
2018 performance
(0.4)% v 2017
Strategic link
7
.
0
7
.
0
7
.
0
8
.
0
2015
2016
2017
2018
Average Orders Per Week
0
0
0
,
6
9
2
0
0
0
,
4
6
2
0
0
0
,
0
3
2
0
0
0
,
5
9
1
2015
2016
2017
2018
2015
2016
2017
2018
Average Deliveries per Van per Week
Active Customer Base
6
7
1
2
8
1
6
6
1
4
9
1
Why we use this measure
Measures efficiency of our
service delivery operation.
2018 performance
6.6% v 2017
Strategic link
0
0
0
,
0
8
5
0
0
0
,
5
4
6
0
0
0
,
9
0
5
0
0
0
,
1
2
7
Why we use this measure
Measures efficiency of our operations
in terms of waste minimisation:
the lower the better.
2018 performance
0.1ppt v 2017
Strategic link
Why we use this measure
Measures order growth in
our Retail business.
2018 performance
12.1% v 2017
Strategic link
Why we use this measure
Measures growth in our core
customers who shopped in
the last 12 weeks.
2018 performance
11.8% v 2017
Strategic link
2015
2016
2017
2018
SKU Count (Hypermarket)
2015
2016
2017
2018
Number of Ocado Solutions Partnerships Signed to date
0
0
0
,
0
5
0
0
0
,
9
4
0
0
0
,
7
4
Why we use this measure
Measures growth in range
offered at Ocado.com, not
including stand-alone sites.
0
0
0
,
4
5
2018 performance
10.2% v 2017
Strategic link
Why we use this measure
Measures partner growth
within our Solutions business.
6
3
1
1
2018 performance
100% v 2017
Strategic link
2015
2016
2017
2018
2015
2016
2017
2018
All numbers on this page are reported on a 52 week basis
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 35
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:10 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report
36
Chief Financial
Officer’s Review
The Group secured three international
partnership deals and continued to deliver
double digit revenue growth
Duncan Tatton-Brown
Chief Financial Officer
• The impact on FY 2017 results is a £9.3 million reduction in
Revenue and EBITDA.
• The estimated impact on FY 2018 compared to previous
internal forecasts, on an unaudited basis, is a £15.2 million
reduction in Revenue and £14.4 million decrease in EBITDA.
We have adopted IFRS 15 from 3 December 2017 using the full
retrospective method, thereby restating the 2017 comparatives,
to provide investors with clarity on the impact of the new
accounting standard to aid transparency of the financial results
reported.
The adoption of IFRS 15 will change the timing of revenue and
cost recognition but does not impact upon the cash flow of
contracts or the expected lifetime profitability of contracts,
nor does it have any impact on our Retail segment. The main
changes for the Group are the accounting treatment of its long-
term contracts, specifically the existing Morrisons arrangement,
along with the more recent contracts with Bon Preu, Casino,
Sobeys, ICA and Kroger.
For the period to 2 December 2018, we
maintained significant sales growth
in a competitive environment while
progressing our business further across
many fronts.
The Group secured three international partnership deals and
continued to deliver double digit revenue growth. Profitability in the
period was impacted by the investments in our platform to deliver
future growth for both our existing and future partners. It was also
impacted by share-based senior management incentive charges
following the significant share price increase in the year and by
additional depreciation following the opening of the Erith CFC. As a
consequence the loss before tax for the period was £44.4 million (2017
restated: loss of £9.8 million)
IFRS 15
Ocado Group PLC has early adopted IFRS 15, the new revenue
recognition standard, and this report on our performance in 2018
against the comparative period in 2017 is under the new standard.
The adoption of the standard has impacted our underlying results,
specifically the Solutions business in relation to the timing of
recognition of certain initial and upfront fees.
Revenue (£m)
EBITDA A (£m)
4
2
4
,
1
5
5
4
,
1
4
0
1
,
1
7
6
2
,
1
9
9
5
,
1
5
.
7
7
3
.
0
8
0
.
5
7
7
.
6
7
Profit/(loss) before Tax and
Exceptional Items A (£m)
5
.
9
5
9
.
7
5
.
0
1
52
week
2017
53
week
2017
2015
2016
)
5
.
9
(
)
0
.
8
(
2018
)
3
.
4
4
(
2015
2016
52
week
2017
53
week
2017
2018
2015
2016
52
week
2017
53
week
2017
2018
A See Alternative Performance
Measures on pages 229 and 230
Ocado AR2018 Strategic Report.indd 36
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:16 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report Chief Financial
Officer’s Review
37
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 37
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:19 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 38
Chief Financial
Officer’s Review
For a typical arrangement, the recognition of Revenue commences
when a working solution is delivered to our partners which is typically
when a CFC or Store Pick goes live. Prior to this, no revenue is
recognised. The period in which revenue is recognised is dependent
on management’s view of the estimated customer life as the contract
typically has no defined period. The balance sheet will now include
contract fulfilment assets and a significant amount of deferred income in
relation to contracts where payments have been received from partners
to undertake work prior to the recognition of revenue and planned
outcomes being delivered. The net impact of the recognition of contract
assets, contract liabilities, contract costs and other movements has
resulted in the Group reducing consolidated net assets at 2 December
2017 by £(23.1)million to £247.6 million (previously 2017: £270.7 million).
The adoption of IFRS 15 means that for the current Ocado Solutions
arrangements, Ocado will recognise losses in the early years due to the
recognition of non-capitalised costs for these arrangements and no
revenue recognised for the cash fees received. The shortfall in revenue
in early years will be compensated for with higher revenue recognised
in future years than previously expected. To aid shareholders’
understanding, we will provide information on the fees invoiced
for Ocado Solutions for each accounting period. Note 1.5 to the
consolidated financial statements outlines the relevant adjustments to
the prior year Balance Sheet.
The current period results comprise 52 weeks ended 2 December
2018. For comparability purposes 52 week data to 3 December 2017,
which excludes the final trading week of the 2017 financial year, is
used (“2017”) for comparison to the 52 weeks ended 2 December 2018
(“2018”), unless otherwise stated.
Revenue1
Gross profit
Other income
Distribution and administrative costs
Share of results from joint venture3
EBITDA*2
Depreciation, amortisation and impairment3
Net Finance costs
Exceptional items*
(Loss) before tax
FY 2018
(52 weeks)
£million
1,598.8
547.5
71.9
561.1
1.2
59.5
91.3
12.5
0.1
(44.4)
FY 2017
(52 weeks
restated)
£million
1,423.6
494.3
59.5
471.3
1.6
75.0
71.0
13.5
0.3
(9.8)
FY 2017
(53 weeks
restated)
£million
1,454.5
495.0
61.0
480.9
1.6
76.7
71.0
13.7
0.3
(8.3)
Variance
(52 weeks)
12.3%
10.8%
20.8%
19.1%
(25.0)%
(20.7)%
28.6%
(7.4)%
(66.7)%
n/a
1. Revenue is online sales (net of returns) including charges for delivery but excluding relevant vouchers/offers and value added tax. The recharge of costs to Morrisons and fees charged to
Morrisons and other solutions clients are also included in revenue
2. EBITDA* is stated before the impact of exceptional items*
3. Depreciation, amortisation and impairment and share of results from joint venture are based on a 52 weeks basis
Revenue grew by 12.3% to £1,598.8 million in comparison to 2017
revenue of £1,423.6 million. This was due to an increase in the average
number of orders a week and fees earned from our partnerships. Gross
profit increased by 10.8% year-on-year, a higher rate than revenue
reflecting faster growth in Solutions revenue with currently higher gross
profit margins compared to Retail.
EBITDA* of £59.5 million was 20.7% lower than the prior year. This was
driven by increased resources to further develop the OSP platform, the
opening of our new proprietary CFC in Erith and increased technology
headcount to support our ongoing development. Higher share based
senior management incentive charges were caused by share price
increases. This was offset by revenue from existing partners in the
Solutions segments and increased supplier income within the Retail
segment.
Depreciation, amortisation and impairment increased by 28.6% to
£91.3 million, reflecting the increased charge arising from the opening
of the Erith CFC in Summer 2018, the full year impact of Andover, the
second General Merchandise Distribution Centre (“GMDC2”) and the
associated software for these projects.
Net finance costs decreased from £13.5 million to £12.5 million year-on-
year. This is because increases in finance costs were more than offset
by a £2.0 million increase in interest income which resulted from the
cash raised by our rights issue and share placing by Kroger.
Loss before tax was £(44.4) million, down from the prior year loss of
£(9.8) million. This is primarily driven by our continued investment in
our future, the increased depreciation charge from new CFCs and the
IFRS 15 impact on timing of Solutions revenue recognition.
A See Alternative Performance Measures on pages 229 and 230
Ocado AR2018 Strategic Report.indd 38
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:19 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report 39
Trading review by segment
Retail Performance
Revenue
Gross profit
Other income
Distribution and administrative costs*1
EBITDA*2
FY 2018
(52 weeks)
£million
1,475.8
424.5
59.8
401.8
82.5
FY 2017
(52 weeks)
£million
1,317.4
378.9
49.2
348.8
79.2
FY 2017
(53 weeks)
£million
1,346.1
386.6
50.4
356.1
81.0
Variance
(52 weeks)
12.0%
12.0%
21.5%
15.2%
4.2%
1. Distribution and administrative costs exclude depreciation, amortisation and impairment for the period
2. EBITDA* does not include the impact of exceptional items*
3. There was no impact to the Retail Segment under the new accounting standard, IFRS 15, and thus no IFRS 15 restated FY2017 numbers are provided.
Retail revenue growth was driven by a 12.1% year-on-year increase in orders per week to 296,000 (2017 restated: 264,000), with the highest orders
per week of 340,000. Active customers increased by 11.1% from 649,000 to 721,000. The average price per item increased by 1.3%. This was offset
by a (0.4)% decrease in the average basket price at Ocado.com to £106.85. The general merchandise business growth was 13.0% driven by strong
growth in Fetch.co.uk and Fabled.com.
Gross profit
The increase in Gross Profit was driven by higher order volumes and improved cost prices that led to an 12.0% increase in gross profit to £424.5
million.
Other Income
Other income increased by 21.5% to £59.8 million (2017 restated: £49.2 million) with supplier income increasing year-on-year by 19.6% to £57.1
million (2017 restated: £46.5 million) equivalent to 3.9% of retail revenue (2017 restated: 3.6%).
Distribution and administrative costs
CFC
Trunking and Delivery
Other operating costs
Marketing1
Head office costs
Total retail distribution and administrative costs*2
FY 2018
(52 weeks)
£million
138.9
182.1
11.3
15.6
53.9
401.8
FY 2017
(52 weeks)3
£million
115.7
164.0
9.8
13.7
45.6
348.8
FY 2017
(53 weeks)3
£million
117.9
167.8
10.0
14.1
46.3
356.1
Variance
(52 weeks)
20.1%
11.0%
15.3%
13.9%
18.2%
15.2%
1. Marketing expenditure exclude voucher costs
2. Retail distribution and administrative costs excludes depreciation, amortisation and impairment
3. There was no impact to the Retail Segment under the new accounting standard, IFRS 15, and thus no restated FY2017 numbers are provided.
The increase in Gross Profit was driven by
higher order volumes and improved cost price
Duncan Tatton-Brown
Chief Financial Officer
A See Alternative Performance Measures on pages 229 and 230
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 39
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:19 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 40
Chief Financial
Officer’s Review
Distribution and administrative costs consist of costs for the fulfilment
and delivery operations of the business as well as head office costs.
Total distribution and administrative costs increased by 15.2% year-on-
year.
CFC costs increased from £115.7 million to £138.9 million, an increase
of 20.1% year-on-year. This was primarily due to the opening of the
Erith CFC and GMDC2 in the second half of the year both of which
are currently running unused capacity as we scale these operations.
Engineering costs were higher due to a greater mix of the new facilities
in the Andover and Erith CFCs which, at present, have a higher cost per
order despite this falling during the period across these CFCs.
Mature CFC (defined as CFC1 and CFC2) UPH remained stable at 164
UPH. There was some modest improvement driven by the Dordon CFC
productivity which regularly exceeded 182 UPH in the period offset
by operational issues caused by the severe weather conditions earlier
in the period impacting both inbound and outbound productivity.
Andover CFC UPH increased during the period and is expected to
overtake Hatfield by the end of 1H 2019.
Trunking and delivery costs increased by £18.1 million to £182.1
million, an increase of 11.0% year-on-year (2017 restated: £164.0
Solutions Performance
million). This was due to increases in wage-related and vehicle costs as
a result of greater order volumes and inflationary cost pressures.
Deliveries per van per week have risen by 6.6% to 194 (2017 restated:
182) as customer density improved, Sunday delivery slots increased,
and we made continued enhancements to our routing system,
exceeding our revised target of 190 DPV set 2 years ago.
Head office costs increased by 18.2% year-on-year from £45.6 million
to £53.9 million, reflecting increased technology headcount, from
the growth in our general merchandise business, coupled with the
annualised impact of additional space costs for our new head office
location.
Marketing costs excluding voucher spend increased from £13.7 million
to £15.6 million, 1.1% as a percentage of retail revenue and marginally
up on the prior period.
EBITDA*
EBITDA* excluding exceptional items for the retail business was £82.5
million (2017 restated: £79.2 million).
Fees invoiced
Revenue
Distribution and administrative costs*
EBITDA*
FY 2018
(52 weeks)
£million
198.5
123.0
140.9
(17.9)
FY 2017
(52 weeks
restated)
£million
146.1
106.2
112.7
(6.6)
FY 2017
(53 weeks
restated)
£million
147.0
108.4
115.1
(6.8)
Variance
(52 weeks)
35.9%
15.8%
25.0%
(171.2)%
Fees and Revenue
Fees invoiced, exclusive of VAT, amounted to £198.5 million (2017 restated: £146.1 million) are a combination of fees due for services invoiced
under existing solutions contracts and amounts received in advance of new Solutions contracts. Fees relating to OSP are not recognised as
revenue until a working solution is delivered to the partner.
Revenue from the Solutions business was £123.0 million, up from £106.2 million in 2017. This primarily comprises of fees from our original
arrangement with Morrisons, for services rendered, technology support, research and development and from management fees, and a recharge of
relevant operational variable and fixed costs.
A See Alternative Performance Measures on pages 229 and 230
Ocado AR2018 Strategic Report.indd 40
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:19 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report 41
Distribution and administrative costs
Distribution Costs
Administrative costs
Total Solutions distribution and administrative costs*
* Solutions distribution and administrative costs excludes depreciation, amortisation and impairment
FY 2018
(52 weeks)
£million
98.0
42.9
140.9
FY 2017
(52 weeks
restated)
£million
86.9
25.8
112.7
FY 2017
(53 weeks)
£million
88.6
26.5
115.1
Variance
(52 weeks)
12.8%
66.3%
25.0%
Distribution and administrative costs predominantly consist of
fulfilment and delivery operation costs for the Morrisons business and
the costs of employees developing solutions for, and supporting all
of our partnership agreements. These costs grew 25.0% year-on-year
primarily as a result of an increase in headcount to support further
improvements in our platform, to support existing international clients,
and to build further capabilities to sign future clients.
EBITDA*
EBITDA* from our Solutions activities was £(17.9) million, a decrease of
£(11.3) million.
Group Performance
EBITDA*
Depreciation, amortisation and impairment
Net Finance costs
Share of results from joint venture
(Loss) before tax
(Loss) after tax
Other Segment
EBITDA loss was £(5.1) million in the current period (2017 restated:
EBITDA profit £2.4 million), a decrease of £7.5 million primarily due
to the increase in the accounting estimates for share-based senior
management incentive charges. These charges increased in the period
predominantly as a result of the share price performance in the period.
FY 2018
(52 weeks)
£million
59.5
91.3
12.5
1.2
(44.4)
(44.9)
FY 2017
(52 weeks
restated)
£million
75.0
71.0
13.5
1.6
(9.8)
(9.8)
FY 2017
(53 weeks
restated)
£million
76.7
71.0
13.7
1.6
(8.3)
(8.3)
Variance
(52 weeks)
(20.7)%
28.6%
(7.4)%
(25.0)%
(353.1)%
(358.2)%
Depreciation, amortisation and impairment
Total depreciation and amortisation costs were £91.3 million (2017
restated: £71.0 million), an increase of 28.6% year-on-year. The increase
year-on-year costs is as a result of the commencement of operations
at the Erith CFC, increased bot numbers in our Andover and Erith CFCs
and higher levels of technology spend on over the last few years on our
platform.
Net finance costs
Net finance costs were £12.5 million, a decrease of 7.4% in comparison
toj) the prior year (2017 restated: £13.5 million). The decrease is due
to annualised impact of savings as a result of debt expiring or being
repaid with the proceeds of the Senior Secured Notes issued in the
prior year. This amount was offset by £2.2 million of finance income
earned through cash deposits held (2017 restated: £0.2 million).
£2.8 million of interest costs have been capitalised in the period in
relation to the senior secured notes and the RCF in accordance with the
relevant accounting standards (2017 restated: £4.4 million).
Share of result from joint venture
MHE JVCo Limited (“MHE JVCo”) holds Dordon CFC assets, which
Ocado uses to service its and Morrisons’ online business and is owned
jointly by Ocado and Morrisons. The Group share of MHE JVCo profit
after tax in the period amounted to £1.2 million (2017 restated: £1.6
million).
Loss before tax
Loss before tax for the period was £(44.4) million (2017 restated: loss of
£(9.8) million).
Taxation
Due to the availability of capital allowances and Group loss relief,
the Group does not expect to pay corporation tax during the period.
No deferred tax credit was recognised in the period. Ocado had
approximately £256.4 million (2017 restated: £183.6 million) of
unutilised carried forward tax losses at the end of the period.
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 41
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:25 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 42
Chief Financial
Officer’s Review
Dividend
During the period, the Group did not declare a dividend.
(Loss)/Earnings per share
Loss and diluted loss per share were (6.85)p (2017 restated: (1.38)p).
Capital expenditure
Capital expenditure for the period:
Mature CFCs
New CFCs
International CFCs
Delivery assets
Technology
Fulfilment Development
Other
Total capital expenditure1, 2
(excluding share of MHE JVCo)
Total capital expenditure3 (including
share of MHE JVCo)
FY 2018
(52 weeks)
£million
6.2
80.3
10.9
21.7
54.8
21.2
18.1
213.2
213.8
FY 2017
(53 weeks)
£million
3.1
69.7
–
16.5
42.8
15.5
10.6
158.2
160.3
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 capex in 2018 of £0.6 million
and in 2017 of £2.1 million
systems, enhancements to our customer proposition, and support for
the growth of Andover CFC, Erith CFC and existing partners future CFCs.
Fulfilment development expenditure of £21.2 million was spent in
enhancing our next generation fulfilment solutions which will be used
in our latest CFCs and within CFCs for our Solutions partners.
In the period, we incurred our share of the capital expenditure relating
to MHE JVCo of £0.6 million (2017 restated: £2.1 million) to improve
operational capacity and efficiency of the Dordon CFC and various
minor improvement projects.
Other capital expenditure of £18.1 million was incurred in the period,
of which £6.8 million related to our general merchandise business. This
was to support growth in capacity of our existing general merchandise
distribution centre and to enable the opening of our GMDC2 site in mid
2018. £5.6 million related to our trial of an immediacy offer, launching
in the coming months.
At 2 December 2018, capital commitments contracted, but not
provided for by the Group, amounted to £69.7 million (2017
restated: £45.0 million). We expect capital expenditure in 2019 to be
approximately £350 million which mainly comprises the roll out of
new equipment directly related to our Solutions partners, expansion
of our UK based CFCs, continuing investment in our infrastructure and
technology solutions, 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.
Capital expenditure in the Hatfield CFC was £5.3 million which mainly
related to a number of small projects to improve the capacity and
resiliency of this site.
Cash flow
Net operating cash flow after finance costs increased to £128.4 million,
up 9.8% from £116.9 million in 2017 as detailed below:
We incurred £80.3 million of costs in the period for our new CFCs.
This included £65.3 million relating to the Erith CFC. The Erith CFC
commenced operations in mid 2018 and is scaling up operations with
a expected eventual capacity of over 200,000 OPW. The remaining
amount related to capital developments in Andover CFC which is
scaling up operations since opening in 2016.
Total expenditure on new vehicles in the period was £21.7 million (2017
restated: £16.5 million). This expenditure enabled business growth and
replacement of vehicles that have reached or exceeded their five year
useful life, the year on year increase is due to the timing of vehicles
reaching the end of useful life.
Ocado continued to develop its own proprietary software and incurred
£54.8 million (2017 restated : £42.8 million) of internal development
costs in the period on technology, including £10.6 million (2017
restated: £7.1 million) spent on computer hardware and software. We
expanded our technology total headcount to over 1,300 staff at the end
of the period (2017: over 1,100 staff) as increased investments were
made to support our strategic initiatives. The main areas of investment
were replatforming of our technology and the greater use of public and
private cloud services, improvements in the efficiency of our routing
A See Alternative Performance Measures on pages 229 and 230
EBITDA*1
Working capital movement
Exceptional items*
Other non-cash items
Finance costs paid
Operating cash flow
Capital investment
Dividend from joint venture
(Decrease)/Increase in net debt*/
finance obligations
Proceeds from share issues
Other investing and financing activities
Movement in cash and cash
equivalents
FY 2018
(52 weeks)
£million
59.5
70.0
(0.1)
13.5
(14.5)
128.4
(170.1)
–
(32.8)
333.1
2.2
260.8
FY 2017
(53 weeks)
£million
76.7
50.5
(0.3)
4.1
(14.1)
116.9
(179.5)
7.6
152.4
1.5
0.2
99.1
1. EBITDA* is stated before the impact of exceptional items*
Ocado AR2018 Strategic Report.indd 42
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:25 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report
43
Included within property, plant and equipment is capital work-in-
progress for land and buildings of £0.1 million (2017 restated: £37.2
million) and capital work-in-progress for fixtures, fittings, plant and
machinery of £45.8 million (2017 restated: £61.6 million), the decrease
relating to the Erith CFC and the second general merchandise
distribution site, which have now opened.
Increasing financing flexibility
In the period, we issued approximately 5% of our issued share capital,
raising gross proceeds of £143 million to provide the flexibility to
take full advantage of the current opportunities to grow Ocado
Solutions and accelerate development in our platform and our Retail
business. The £100 million Revolving Credit Facility (“RCF”) which
was renegotiated in 2017 was not drawn during the year. In May 2018,
Kroger Inc. subscribed for another 5% of share capital which raised a
further £183 million.
Key performance indicators
The following table sets out a summary of selected unaudited
operating information for FY 2018 and FY 2017:
Average orders per week
Average order size (£)1
Mature CFC efficiency (units
per hour)2
Average deliveries per van
per week (DPV/week)
Average product wastage (%
of retail revenue)3
FY 2017
(52 weeks)
264,000
107.28
FY 2018
(52 weeks)
296,000
106.85
Variance
(52 weeks)
12.1%
(0.4)%
164
182
0.7
164
194
0.8
–
6.6%
(0.1)ppt
Source: the information in the table above is derived from information extracted from
internal financial and operating reporting systems and is unaudited
1. Average retail value of goods a customer receives (including VAT and delivery charge) per
order from Ocado.com
2. Measured as units dispatched from the CFC per variable hour worked by Hatfield CFC
and Dordon CFC operational personnel. We consider a CFC to be mature if it had been
open 12 months by the start of the half year reporting period
3. Value of products purged for having passed Ocado’s “use by” life guarantee divided by
retail revenue
Operating cash flow increased by £11.5 million during the year driven
by increased investment in resources for the development of the OSP
platform. The increase in working capital inflow of £19.5 million is
driven by an increase in trade and other payables (including contract
liabilities) of £56.4 million, offset by an increase in inventories of £9.8
million and trade and other receivables (including contract costs) of
£27.1 million.
During the period there was £170.1 million of capital expenditure as the
Group continues to invest for future growth comprising investments
in new CFCs, development of our next generation fulfilment solutions,
and spend on new vehicles and spoke sites.
Net financing cash flows in the period were £300.3 million comprising
£(32.8) million reduction in net debt* and financing obligations, £333.1
million of proceeds from the share placing in January 2018, the shares
subscribed for by Kroger in May 2018 and the issue of new share
capital following the exercise of employee share options. No dividend
was received from MHE JVCo in the period; this was received post the
period end .
Cash received during the year in relation to Solutions partners, excluding
VAT, amounted to £200.1 million (2017 restated: £146.1 million).
Balance sheet
The Group had cash and cash equivalents of £410.8 million at the end
of the financial year versus £150.0 million as at 3 December 2017.
Gross debt at the period end was £360.6 million (2017 restated: £378.0
million) and external gross debt*, excluding obligations under finance
leases owing to MHE JVCo, was £286.1 million (2017 restated: £283.9
million). The increase in net external cash is due to proceeds from
the issue of equity raised in anticipation of investment in improving
our platform and adding UK capacity. Net external cash at the period
end was £124.7 million (2017 restated: net debt £133.9 million), driven
mainly by cash generated from equity.
Trade and Other Receivables includes £49.1 million (2017 restated:
£28.8 million) of amounts due from suppliers in respect of commercial
and media income. Of this amount £29.9 million (2017 restated: £12.2
million) is within trade receivables, and £19.2 million (2017 restated:
£16.6 million) within accrued income.
Within deferred income, £12.5 million (2017 restated: £9.3 million)
related to delivery income received under the Ocado Smart Pass
scheme allocated to future periods, lease incentives and media income
from suppliers which relate to future periods. Within Contract liabilities,
£115.2 million (2017 restated: £49.7 million) of amounts are related to
Solution contracts, payments made for performance-based payments
or progress payments on ongoing service delivery. Where payments are
greater than the revenue recognised at the end of period, a contract
liability is recognised for the difference. Within accrued income,
£3.8 million (2017 restated: £3.1 million) is the amount due from our
Solutions customers.
A See Alternative Performance Measures on pages 229 and 230
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 43
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:25 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 44
How We Manage
Our Risks
The Risk Management Framework
Ocado’s risk management process is designed to improve the
likelihood of delivering our business objectives, 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 review and approval of the risk
management framework and for the identification of Ocado’s key
strategic and emerging risks. The Audit Committee, delegated by
the Board, is responsible for the 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 auditor, Deloitte LLP, in relation to Ocado’s control
environment and its financial reporting procedures. The review covers
all significant controls including financial, operational, compliance
controls, and risk management systems.
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;
• an executive Risk Committee and a Governance, Risk and
Compliance team which monitor Ocado’s risks;
• an Information Security Committee and an Information Security
team which monitor Ocado’s information security;
• a Personal Data Steering Committee and data protection team that
support data privacy governance;
• an Internal Audit 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
compliance.
Ocado Risk Management Process
The Ocado risk management process is designed to identify key
risks and to provide assurance that these risks are understood and
managed in line with the agreed risk appetite. The risk appetite is
reviewed by the Board as part of its annual strategy review. The risk
management process is aligned to our strategy and each principal risk
and uncertainty is considered in the context of how it relates to the
achievement of the Group’s strategic objectives.
The Risk Committee reviews an overall risk report twice a year and this
is in turn discussed by the Audit Committee and the Board. The risk
report captures the most significant risks faced by the business and
identifies the potential impact and likelihood at both inherent level
(before consideration of mitigating controls) and a residual level (after
consideration of mitigating controls). The appetite for each key risk is
also discussed and assessed with a target risk position agreed to reflect
the level of risk that the business is willing to accept. This process 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.
For further information on the review of financial reporting, refer to
page 77 of the Audit Committee report.
Principal Risks
The principal and emerging risks are discussed and monitored throughout
the year to identify changes to the risk landscape. The Board carried out
its assessment of principal risks and uncertainties towards the end of the
period. Set out overleaf are details of the principal risks and uncertainties
for the Group and the key mitigating activities used to address them. The
risks have been listed against the most relevant Group strategic objectives
and are not set out in any order of priority or importance. The inherent (or
pre-mitigation) risk movement from prior year for each principal risk and
uncertainty has been assessed and is presented (per the key on page 46).
For further information on the financial risks, see pages 193 to 195 of the
notes to the financial statements.
Brexit impact on the Group
The Group is monitoring closely the legal and political developments
in the process towards the UK’s exit from the EU (“Brexit”). A Brexit
readiness committee was established in 2018, to prepare the Group for
the post-Brexit economic arrangements. The absence of an agreed and
binding post-Brexit trade arrangement with the EU, this close to
29 March 2019, means that Brexit remains a principal risk for the Group.
The Group has considered the impact in a number of areas:
Employees
• The Group has a dedicated and talented workforce, a substantial
number of whom are EEA nationals in many different business areas.
The ability of these employees to continue to live and work in the UK
is of critical importance.
Ocado AR2018 Strategic Report.indd 44
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:28 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report 45
• Our technology division has several software development centres
in the EU who work closely with their UK based colleagues. The
efficiency of this arrangement could be impacted if post-Brexit there
are restrictions on the ability of UK and EEA nationals to travel and
to relocate between the UK and EU.
Supply Chain
• The UK imports about 30% of its food from the EU and the Group
does not differ significantly from this average. Our supply chains
have been developed as part of this established system, allowing
for wide product choice, short ordering times and low inventories.
If import tariffs are introduced, cost prices will increase and, if
border checks cause disruption, certain short-life products could
be unavailable or delisted. Although the Group can and will create
buffers of certain critical products, it is not possible to do this for
fresh and short-life perishables.
• Ocado Solutions exports UK-produced technology and equipment to
our partners in the EU. Any tariffs or other trade barriers may reduce
our competitiveness.
Technology
• A significant proportion of the components in the automation,
warehouse, delivery and maintenance equipment used in Ocado’s
operations are imported from the EU. The Group has placed
advance orders for spare parts as a buffer against supply disruption.
• The Group is closely involved in a number of EU collaborations in
research and development. Whilst the EU funding is important,
access to EU-based academic skills, knowledge and collaboration
is more important. Existing funding is expected to continue, however
it is unlikely that there would be further or new funding.
• Ocado Solutions technology and engineering teams are designing
equipment for our UK and international partners. This meets current
EU requirements and can be certified as such in the UK. This design
process could be impacted if UK certification is no longer recognised
or there is a divergence between UK and EU standards.
The Group has engaged with suppliers, partners and external
advisers to explore solutions to these risks to its business. Aside from
considering the impact of Brexit on its operations and business model,
the Board gave consideration to Brexit in the context of reviewing
its viability and going concern, as noted below. The Company also
considered the impact of Brexit as part of its post balance sheet events
review process and did not identify any adjusting events.
The Ocado risk management process is designed
to identify key risks and to provide assurance that
these risks are understood and managed in line
with the agreed risk appetite.
Robert Cooper
Chief Compliance Officer
Ocado Risk Management Process
Set
Strategy
1
3
Review
Risks
4
2
Evaluate
Risks
Implement
Mitigation
1
2
3
4
Our strategy informs the setting of objectives
across the business and is widely communicated.
Executive Directors evaluate the most significant
strategic risks for the Group. In addition, each
divisional director or selected department
head 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.
Divisional directors or department heads identify
how they will manage, and accept or mitigate,
their significant risks. These actions are then
summarised into a description of the Group-wide
mitigation process for each risk.
Group-wide risks and mitigation processes are
regularly reviewed by the Risk Committee and by
the Audit Committee.
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 45
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:28 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 46
How We Manage
Our Risks
Strategic
Objective
Driving
Growth
Risks
Mitigation Action/Control
Change During the Year
Risk of decline in high service
levels in the retail business.
• Weekly monitoring of the key indicators and the
underlying drivers against targets.
Failure to maintain a retail
proposition which appeals to a
broad customer base and sustain
growth rates while managing any
change in sourcing which may follow
the end of the current Waitrose
sourcing agreement in 2020.
Risk of not having sufficient
management, technology and
engineering capabilities to
be able to execute effectively
the requirements for multiple
Ocado Solutions contracts
simultaneously in many
international locations.
Risk of delays in the generation of
new capacity in the UK.
• Continuing initiatives intended to improve resiliency
and operational performance of the Hatfield and
Dordon CFCs. There are ongoing plans to make the
scaling of operations at Erith and Andover smoother.
These arrangements help reduce the impact of
operational problems in CFCs on customer service
levels.
• Continuation of LPP basket matching price
comparison and competitive pricing.
• 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 and other
arrangements are planned in the event that the
Waitrose sourcing relationship is not renewed.
• Continuation of investment and optimisation of the
marketing channels to acquire new customers.
• Continued improvement of webshop and apps.
• Increased hiring of staff both in UK and overseas.
• Review of team structures and creation of new key
management roles and processes to position the
Group for delivering a larger number of complex
projects.
• Increased hiring of managers and subject matter
experts in retail, operational and central support areas.
• Dedicating resources to the modularisation of
technology and logistics systems to enable faster
replication.
• New capacity continues to increase as the Andover
CFC and Erith CFC develop.
• Regular steering meetings and management
oversight for new CFC projects.
▼
The risk has decreased because
CFC capacity at both Erith and
Andover continues to increase.
▲
This risk has increased because
competitive pressure remains
high and the Group is moving
closer to the expiry of the
current sourcing arrangements.
▲
The risk has increased during
the period because the Group
needs to deliver more large-
scale and complex projects
and it is now broader, in that it
applies to developing sufficient
engineering capability.
▼
This risk has decreased during
the period because both the
Andover and Erith CFCs have
continued to increase capacity.
Key: ▲ Risk has increased
▼ Risk has decreased
▶ No change
Not applicable
Ocado AR2018 Strategic Report.indd 46
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:29 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report 47
Risks
Mitigation Action/Control
Change During the Year
Strategic
Objective
Maximising
Efficiency
Risk that the long-term cost
of ownership of our fulfilment
solutions is not priced at a level
that is attractive for our clients
while still providing acceptable
returns for our shareholders.
Utilising
Proprietary
Knowledge
Technological innovation
supersedes our own and offers
improved methods of food
distribution to consumers.
• Regular review of IT prioritisation process and rate of
software development and regular platform steering
meetings.
▶
• Resources and capabilities will be scaled and
reallocated to help meet Ocado Solutions project
deadlines. A new role of Group Transformation
Director was created to prepare and help execute
a detailed plan to ensure timely and coordinated
scaling of operations.
• There is an ongoing programme of design
improvements for the platform.
• 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.
• 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.
▲
This risk has increased because
the rate of innovation of MHE,
robotics and technology
solutions in the grocery
e-commerce market is
increasing, creating a more
competitive market for the
Ocado Solutions offer.
Protecting our IP.
• Ongoing effort to identify patentable inventions and
to apply for patents, with an increased number of
patent applications. Expansion of IP team to help
with IP protection work.
▶
• Ongoing review of our patent portfolio and
discussion of other IP issues by the Ocado Innovation
Committee.
• Where necessary we take steps to protect our IP from
unauthorised use.
Infringing a third party’s IP.
• Conducting “freedom to operate” searches on
selected technologies in selected jurisdictions and
monitoring IP filings by a large number of companies.
• Where appropriate, obtaining specialist or legal
advice including to help ensure our ability to use our
IP is not restricted by infringement claims.
▶
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 47
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:29 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 48
How We Manage
Our Risks
Strategic
Objective
Operational
Risks
Mitigation Action/Control
Change During the Year
A risk of a food safety or product
safety incident.
• Experienced legal, food and product technology
professionals monitor compliance against policies
and procedures.
• Supplier approval and certification process.
• Food and product safety policies and quality
management with operational procedures.
A risk of changes in regulations
impacting our business model or
the viability of Ocado Solutions
deals.
• Regular monitoring of regulatory developments to
ensure that changes are identified.
• Some due diligence carried out at appropriate stages
in the Ocado Solutions process.
▶
▶
Risk of negative implications
caused by final Brexit terms such
as increase in import costs or
difficulty in hiring employees.
• Regular monitoring of government reporting on
Brexit negotiations to understand impact on the
business including our ability to hire employees from
the EU, an assessment of trade tariffs on imported
goods and impact of disharmonisation of UK and EU
regulatory standards in a range of areas.
• We are taking a range of steps to mitigate the
impact of Brexit on the Group including for supply of
products and materials and for changes to regulation.
▲
Lack of clarity on any post Brexit
trade arrangements as the exit
date approaches increases
the risk and uncertainty on the
extent to which our operations
and performance will be
impacted by Brexit.
Risk of major cyber attack or data
loss impacting the retail business
or the Ocado Solutions business.
• IT systems are structured to operate reliably and
securely. The security of our IT systems is regularly
tested by third parties.
• An information security governance programme
is helping increase security and privacy internal
controls.
• No customer payment card data is held in Ocado’s
databases.
• A new Data Protection Officer was hired to oversee
the Group’s GDPR compliance programme.
Business interruption.
• IT systems are structured to operate reliably and
securely.
• Dedicated engineering teams on site with daily
maintenance programmes to support the continued
operation of equipment.
• Disaster recovery testing and business continuity
plans continue to be progressed and updated.
• High level of protection for CFCs and equipment,
combined with business interruption insurance to
transfer residual risks.
▲
The overall information security
risk exposure has increased
during the period largely as a
result of an increasing external
threat environment, the new
General Data Protection
Regulations and the increasing
overall profile of the Group.
▶
1. The risk described in the 2017 Annual Report as “Failure to develop retail proposition to appeal to broader customer base and sustain growth rates” has been expanded to reflect the
end of the current Waitrose sourcing agreement in 2020.
2. The risk described in the 2017 Annual Report as “Risk of not signing multiple Ocado Solutions deals in the medium term” is no longer considered a principal risk. Since November 2017
Ocado has signed partnership agreements with four major international grocers.
3. The risk described in the 2017 Annual Report as “Risk of not being able to executive effectively” has been revised to reflect a failure to deliver key projects effectively and efficiently that
could result in significantly increased costs and impede Ocado’s ability to execute strategic plans.
Ocado AR2018 Strategic Report.indd 48
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:29 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report 49
Assessment of the Group’s Prospects
The Directors have assessed the Group’s prospects, both as a going
concern and its longer term viability. 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’ 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 46 and 47.
Going Concern Statement
Accounting standards require that the Directors satisfy themselves that it
is reasonable for them to conclude whether it is appropriate to prepare
financial statements on a going concern basis. There has been no material
uncertainty identified which would cast significant doubt upon the Group’s
ability to continue using the going concern basis of accounting for the 12
months following the approval of this Annual Report.
In assessing going concern, the Directors take into account the Group’s
cash flows, solvency and liquidity positions and borrowing facilities. At
period end, the Group had cash and cash equivalents of £410.8 million
(2017: £150.0 million), external gross debt A of £286.1 (excluding finance
leases payable to MHE JVCo of £74.5 million (2017: £283.9 million)) and net
current assets of £247.0 million (2017: £10.3 million). The Group has a mix
of short and medium-term finance arrangements and has £250.0 million
senior secured notes due 2024 and a £100.0 million revolving credit facility
which contains typical financial covenants and runs until June 2022. 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 A 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 142 to
223. 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 14 to 43), the
Group’s principal risks and the likely effectiveness of any mitigating actions
and controls available to the Directors (see pages 46 and 47).
Viability Statement
In addition to the going concern assessment, the Directors have
considered the viability of the business.
The Directors have decided that three years was the most appropriate
period for assessing the Group’s viability. Although the Group’s strategic
plan forecasts beyond three years, the Directors also took into account
the impact on forecast outcomes of the rapid growth of the business,
its changing strategic opportunities and its investment and planning
periods. The Group’s expansion into overseas markets during 2018 has
not changed the chosen viability period as the underlying nature of
the overseas business is similar to the existing UK business in terms of
the planning and investment timeframes (including for new customer
fulfilment centres).
The Directors rely on several existing processes to justify their viability
assessment. The annual budget, is used to set targets for the Group
and is used by the Remuneration Committee to set targets for the
annual incentive plan. A longer term business model provides less
certainty of outcome, but is a sensible planning tool against which
strategic decisions can be made. The plan makes assumptions about
the business including projected capital expenditure, financing
requirements, Ocado Solutions contractual commitments, 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:
1. A material decline in the rate of revenue growth;
2. A material decline in gross margins or increase in operating cost;
3. A material increase in engineering costs for future CFCs (both on its
own and in combination with the previous stress test);
A decline in sales growth or margins can result from a range of principal
risks in the retail business including failure to maintain a competitive
pricing position, a decline in customer service levels and a delay in
implementing new capacity (see pages 46 to 48). A change to future
engineering costs is a potential consequence of other principal risks
such as not having sufficient technology and engineering resources to
continue improving our OSP solution or not delivering the expected
reductions to its long term cost of ownership. The Directors consider
it reasonable to believe that the Group’s £100 million revolving credit
facility, which runs until mid 2022, and senior secured notes due 2024,
will be refinanced or extended, or that other financing will be available,
to provide continuing finance to the Group. The Directors’ assessment
also took into account other principal risks that could impact on the
future performance of the Group and those that would threaten its
business model, solvency or liquidity and also the likely effectiveness
of any proposed mitigating actions (see pages 46 to 48). The Directors
considered the potential impact of Brexit on the Company’s viability;
in their judgment the risk of its EEA employees losing their UK
employment rights was small even in the event of a “no-deal Brexit”,
and that other potential impacts such as imposition of trade tariffs or
disruption to supply chains would be covered by the circumstances
envisaged under scenarios one and two above.
The stress tests were evaluated for various outcomes including the
impact on the Group’s net cash/(debt) A and cash flow over the three
years and an assessment of the impact of the financial covenants in
the revolving credit facility, all of which are relevant to assessing the
solvency and liquidity of the Group.
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.
For information concerning the review of going concern and viability
see the Audit Committee report (on page 79). The external auditors
have reviewed these statements and having nothing to report (see the
Independent Auditors’ report on pages 142 to 148).
A See Alternative Performance Measures on pages 229 and 230
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 49
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:29 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 50
Corporate
Responsibility
In 2018, excellent progress was made towards all four pillars of our 2020 Corporate
Responsibility strategy: The Ocado Way.
Amid a year of increased public interest in the widespread use of plastic, we worked hard to make commitments and implement changes with
positive, long-term environmental effects. We signed up to Courtauld 2025, and the UK Plastics Pact, committing to collaboratively reduce
waste from food and plastic. We also signed up to Better Retail, Better World, joining other retailers in a commitment to tackle five applicable
Sustainable Development Goals.
We won the following awards for our food redistribution projects – Global Good Awards 2018: Partnership in the Community Gold; LGC Awards
2018: Public/Private Partnership Winner; IRRV Awards 2018: Excellence in Innovation; City A.M. Business of the Year 2018.
Highlights for each of our corporate responsibility strategy pillars are featured below.
The Ocado Way: 2020 Strategy
Education
Entrepreneurship
Environment
Eating Well
Education
By sharing our expertise in food, retail, logistics and technology, we aim
to add value to our society now, and help the next generation achieve
more. In 2018, we continued to promote digital literacy, road safety,
healthy eating, and recycling. Building on our existing relationship
with HMP Northumberland recycling Ocado uniforms, we supported
an education project to upskill offenders and enable them to earn a
formal qualification.
Digital literacy
At Ocado, we passionately believe in the paramount importance
of hands-on STEM education for inspiring the next generation of
computer scientists. Code for Life, a non-profit initiative that delivers
free, open source games that help all students learn about computing,
has been widely acclaimed by teachers, parents and students alike.
In 2018, we continued to develop Rapid Router, our open source
software and guidance resource, teaching Key Stage 1 and 2 children
how to code. At the end of November 2018, there were over 99,000
registered users in the UK and over 160,000 globally; more than
3,000 schools have incorporated Rapid Router into their computing
curriculum.
Building on the success of Rapid Router, in 2018 we soft launched
AI:MMO, a Massively Multiplayer Online (MMO) adventure game that
teaches secondary school children aged between 13 and 16 skills in
Artificial Intelligence and Python coding. We plan to fully launch this
game next year.
Engineering Education
For the second year, we signed up to the Engineering Education
Scheme, partnering with Monk’s Walk School in Welwyn Garden City,
Hertfordshire. Our Logistics Development and Engineering team
mentored six A Level students, providing them with a special Ocado
challenge to solve. Further, to celebrate the Year of Engineering, we
partnered with the Engineering Development Trust (EDT) to create
a Go4SET hub, engaging students from local schools in a real-world
engineering project. Students aged 12–14 from five schools in
Staffordshire and Hertfordshire designed an environmentally friendly
factory using new and sustainable ways to create the energy it needs
to run.
Road safety
We continue to deliver road safety projects for primary and secondary
schoolchildren. New for 2018 is our Road Safety Challenge tournament
in partnership with Warwickshire County Council. This five-year
commitment gives 80 schools the chance to win an Ocado Road Safety
Trophy, along with a £500 prize for schools to spend on road safety
equipment or initiatives. This project potentially reached 14,900 primary
and secondary children in the area.
In autumn 2018, we published a second special edition of The Young
Driver’s Guide in partnership with First Car. This magazine helps
reduce road risks for new drivers; 78,600 copies were delivered to 242
schools in Warwickshire, Hertfordshire, Wiltshire and Hampshire. These
counties are CFC locations where we have a high presence on the
roads.
Ocado AR2018 Strategic Report.indd 50
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:30 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report 51
As in previous years, the fuel for our fleet remains the largest contributor
to our carbon footprint, accounting for 69.53% of our carbon emissions.
Diesel used for fleet operations continues to be our primary carbon
source. Electricity (scope 2) is the second main contributor, making
up 22.28% of our emissions, with most of this centralised in our main
CFCs. This year we purchased a significant number of renewable energy
contracts. This is the second year we have reported a market-based
figure alongside the traditional location-based method.
For the second year, we voluntarily submitted data to be assessed by
the Carbon Disclosure Project. Last year we won their Best First Time
Responder award with a score of C. We’re extremely pleased to report
that we have built on last year’s success with an improved score of B.
For the second year running we partnered with the Carbon Trust who
have carried out a limited assurance engagement on selected GHG
emissions data (table below) in accordance with ISO14064:3.
2016/17
82,305
2017/18
87,614
GHG Emissions
(tonnes CO2e)
Scope 1 – Direct
Scope 2 – Indirect
Location-based
Market-based
Total Emissions
(Location-based)
Intensity measure (tonnes CO2e/100,000 orders)
Location-based
Market-based
25,115
8,856
550.1
470.8
112,729
28,270
14,510
110,575
596.4
522.2
2012/13
39,530
21,613
n/a
61,143
823.4
n/a
Plastic
Single-use plastic is something we’ve been reviewing for some time.
It’s increasingly a topic of interest for our customers, too. In April, we
contributed £20,000 to become a founding signatory of the UK Plastics
Pact. This industry-leading initiative is backed by WRAP and the UK
Government; it tackles the issue of plastic as pollution, striving to create
a circular economy for the material, preventing it from being wasted.
By the end of 2018, we had successfully changed the main component
packaging (such as the trays used for fish) on 45% of Ocado own-
label products; we switched to widely recycled material and removed
problematic PVC and polystyrene on these items.
We continue to explore alternatives to plastic carrier bags for deliveries,
but as yet have not found a more energy efficient or effective solution for
moving products through our automated CFCs. We continue to collect
carrier bags from customers for recycling. The scheme is very successful
and this year 89% of carrier bags were handed back for recycling. Read
more about carrier bags and the proceeds from the Single Use Carrier
Bag Charge in our Ocado Foundation section below.
Recycling
Our five-year partnership with WRAP promotes recycling education
projects for primary schoolchildren. This year we donated £130,000
using carrier bag funds to continue this work.
HMP Northumberland textiles factory has processed over 70 tonnes of
used Ocado uniforms since our working partnership began in 2015.
Entrepreneurship
We provide an environment where entrepreneurs in retail, technology
and food redistribution can flourish. In 2018 we continued to find
opportunities to encourage and reward entrepreneurial thinking.
Supporting SMEs
Supply Ocado, our supplier application website makes our retail listing
process more accessible for Small to Medium-sized Enterprises (SMEs).
In FY 2018, 748 applications were made through our portal, and 20% of
suppliers met with our Buyers.
The Ocado Primary Network is a team dedicated to improving logistics
for small suppliers at launch, and to help them grow. Currently, 389
SMEs are managed by a dedicated full-time Ocado team, growing from
150 in 2017.
Britain’s Next Top Supplier, our competition awarding a small supplier
a £20,000 launch package and a six-month listing at ocado.com is now
in its fourth year. This year, 87 businesses qualified for the competition;
of seven finalists, 2018 winner Sweet Revolution launched on our
webshop with a range of six products.
Environment
We continue to work on environmental data management with
Ecometrica to provide a centralised data management system. We
track carbon emissions from our CFCs, spokes and vehicles. We are
expanding this to track all operational waste.
Being involved in this competition has been an
amazing experience for us. It’s enabled us to
access a major retailer for the first time and also
provided the means of promoting our products
onsite, which we would have found very difficult
otherwise. Everyone at Ocado has been very
approachable and helpful, and we’ll definitely be
recommending it to other small companies.
Jane Nicholls
Sweet Revolution
Greenhouse gas emissions
This reporting period saw our absolute location based emissions
(scope 1 & 2) increase by approximately 1.95%, due to our continued
growth. Despite this, we have improved efficiency with a 33% decrease
in our CO2 intensity-based figure against our 2012 baseline year.
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 51
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:30 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 52
Corporate
Responsibility
Waste
In 2018 just 0.029% of food as a percentage of total sales was wasted.
We’re committed to ensuring no food goes into landfill; inedible food
is sent to anaerobic digestion, and edible food is redistributed. We
redistributed 1,721 tonnes of food surplus in FY18, with over 90 tonnes
of fresh and ambient food surplus donated to food banks and charities
through our Donate Food with Ocado scheme. Since the scheme
launched in December 2014, we’ve donated over 180 tonnes of food,
demonstrating our commitment to strengthening food partnerships
in the past 12 months. We contributed a total of £18,000 to support
the Courtauld 2025 Commitment, a voluntary agreement that brings
together organisations across the food system – from producer to
consumer – to strive for more sustainable food and drink consumption.
Our uniform recycling project with HMP Northumberland (described in
Education) continues to grow, and has now prevented 70 tonnes of old
Ocado uniforms from being sent to landfill sites.
Eating Well
As an online grocer, we have a natural connection with food. We’ve
continued to focus on reducing food poverty in the UK, growing our
food partnerships with food banks and charities. We’ve maintained our
promise to encourage our customers to eat well by having at least 100
promotions on fresh fruit and vegetables at all times.
Fresh Fruit and Vegetables on Promotion 2018
350
0
2
3
6
8
2
5
8
2
8
3
2
5
4
2
4
3
2
2
3
2
9
2
2
5
8
5 2
4
2
5
8
2
8
1
3
300
250
200
150
100
50
0
r
e
b
m
e
c
e
D
y
r
a
u
n
a
J
y
r
a
u
r
b
e
F
h
c
r
a
M
l
i
r
p
A
y
a
M
e
n
u
J
y
l
u
J
t
s
u
g
u
A
r
e
b
m
e
t
p
e
S
r
e
b
o
t
c
O
r
e
b
m
e
v
o
N
To encourage children to think creatively and get excited about
vegetables, we sponsored the 2018 Young Pea Chef of the Year. This
nationwide competition challenged schoolchildren at both primary
and secondary level to invent a recipe using peas. Over 200 children
entered the competition and over 2,000 people voted to choose the
winning three entries.
Donate Food with Ocado
For every £1 our customers give in Donate Food With Ocado vouchers,
we give £2 worth of food to our Food Partners. Rather than food banks
and charities being overloaded with overstocks, they choose what
they need most from a long list of fresh and ambient products. In FY18,
an additional two charities were brought into the scheme. Customers
donated £0.6 million, and we donated 90.3 tonnes of food to our
charitable food partners, bringing the total tonnes of food donated since
the scheme began in December 2014 to over 180 tonnes.
Ocado AR2018 Strategic Report.indd 52
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:33 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report 53
Case Study
Our Food Partner DENS
Ocado donations provide quality produce
enabling our residents at The Elms, our service
users at our Day Centre, and those accessing
the Foodbank to enjoy a healthy and nutritious
diet. Without Ocado, we know there would be
families going hungry each day in Dacorum so
Thank YOU. We look forward to working with
you in 2019.
Wendy Lewington
DENS Chief Executive
For over 15 years, Dacorum Emergency Night Shelter (DENS) has
offered a range of services to tackle homelessness and poverty in the
borough of Dacorum, just north of Hatfield CFC. They have been a
Food Partner for over ten years. In 2015 DENS began regular collections
of fresh surplus through our Donate Food with Ocado scheme, and
in 2017 they received one of our charitable refrigerated vans to help
sustainably upscale their collections using funds from the Single Use
Carrier Bag Charge.
In FY 2017/18, we donated 13.9 tonnes of food to DENS. This was
used to prepare over 21,900 meals at their 44-bed hostel, 4,415 meals
at their Day Centre and to supplement 739 otherwise ambient food
parcels feeding 1,975 local people, including 841 children. Food
surplus used for meal preparation saved DENS £32,000 over the year.
Alongside food redistribution, we provided additional support this
year in the form of a Corporate Volunteering day in November, the
donation of personal care products, and donations to support a variety
of fundraising events throughout the year.
Responsible sourcing
We aim to conduct all of our business in an honest and ethical way.
We take a zero-tolerance approach to modern slavery and expect our
business partners to do the same. In FY18 we became sponsors of
Stronger Together, a business-led initiative aiming to reduce modern
slavery particularly forced labour, labour trafficking and other hidden
third party exploitation of workers. With their help, we rolled out
training to identify and prevent modern slavery to our teams. We
have robust policies in place designed to convey the professional
standards we hold and provide a framework through which incidents
of exploitation can be reported. Our full modern slavery statement can
be found on www.ocadogroup.com.
No donations were made by the Group to any political party,
organisation or candidate during the period (2017: nil).
The Ocado Foundation
The Ocado Foundation launched in April 2015; it’s the home of our
charitable and fundraising activity, both internally and externally.
We help employees across the UK make a difference at a local level.
We do this through donations to multiple small, local projects and
charities where impact will be greatest, rather than supporting a single
national charity.
Matching our employees’ fundraising and volunteering activity
resulted in donations of just over £25,000 for charities and community
organisations across the UK through the Ocado Foundation in the last
12 months. Ocado employees have volunteered more than 1,830 hours
to a variety of good causes.
Carrier bags
Legislation came into effect in October 2015 requiring 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
this is best achieved by removing bags from circulation, and financially
incentivise customers for their return through our Bag Buy Back
scheme. During the period, we collected over 135 million bags from
customers, preventing them from becoming litter in the first place.
The Ocado Foundation is the custodian of the remaining funds from
the carrier bag charge, which are used to support waste, litter and
recycling charities across the UK. This further supports the desire of
the legislation to see some of the money raised support environmental
causes. This year we donated £130,000 of carrier bag funds to WRAP,
supporting recycling education projects; £60,000 was spent on two
additional refrigerated vans for our Food Partners, bringing our total
number donated to ten. We also donated £50,000 to CleanupUK, a
charity which helps people combat litter in their community.
Cool vans
We ask our charity Food Partners to use refrigerated transport when
collecting fresh donations. This year we’ve donated an additional two
refrigerated vans, bringing our total donated to ten, and paid for the
dual branding, leasing, maintenance, tax and insurance on their behalf.
Our Food Partners’ van drivers have also completed our Driver Risk
Management training programme, to help keep them safe on the road.
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 53
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:34 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 54
Our People
Building a Workforce for the Future
Ocado’s current and future success is dependent on our employees –
people who innovate, find solutions and deliver world-class service. We
are committed to sourcing and developing the highest quality talent
throughout Ocado, while the continuous growth of the business has
meant that hiring employees globally remains key.
Our fourth CFC in Erith has been steadily increasing its workforce as
the demands of our UK retail business increase. The growth of Ocado
Solutions has given us new focus as we deliver to our international
business customers.
Our focus on growing and developing our people is a key message
that Ocado uses to attract and retain individuals. We also understand
that employee benefits make an important contribution to both
employee engagement and the attractiveness of Ocado as a place
to work. We are committed to continuing to provide a competitive
compensation package inclusive of salary, pensions and other benefits.
Ocado actively encourages employees to own Ocado shares, offering
Free Shares at 1% of salary to all employees. We also offer both an
employee Share Incentive Plan (SIP) and a Sharesave scheme, with
participation at 7.4% and 16% respectively.
In addition to the share schemes, we provide access to a number of benefit
choices for employees, including Neyber, a financial awareness initiative,
alongside Bike Solutions schemes, car leasing and other health-care
services, all of which are part of our wider Health and Well-being strategy.
Supporting the training and development of our workforce is crucial to
delivering our mission: changing the way the world shops. The consistently
high performance in our UK grocery business provides the shop window
for our business-to-business proposition. A stable, well-trained workforce
is vital to achieve this, which is why we invest in developing technical
skills and also encourage personal development to support future career
progression for both monthly and hourly paid employees.
In September 2018 we brought in a record 59 university graduates
under our nine separate training schemes, covering General
Management, Retail, HR, Finance, Engineering, Engineering Operations,
Operations Management, Logistics and Technology, cementing our
place as a significant employer and creator of new graduate jobs.
Use of the Apprenticeship Levy has also increased with the scheme
being used to fund many professional qualifications such as CIMA and
specialist engineering courses as well as entry level employees.
• This year we were delighted to launch our new online learning
community for all Ocado employees. Called MiLearning, the site
provides easy to navigate online content to help with day-to-day
work as well as employees’ personal and professional development.
• This mobile first, easy to use platform encourages employees to
explore their learning needs and find what support is available as
well as being able to search for learning content to develop core,
business and management skills all in the same place. It is available
to employees 24/7.
• The Learning & Development Team have not only focused on
providing work related learning but supporting personal well-being
too. It now offers additional learning support around dyslexia and
autism as well as online resources for building personal resilience
and developing English language skills.
• The blended learning approach also supports the roll-out of
mandatory training such as the recent GDPR compliance training
that all monthly paid employees are required to complete –
providing a detailed audit trail.
The safety and wellbeing of Ocado’s employees and associates is of the
utmost importance. The Company’s objective is to ensure the safety of
all employees inline with Ocado’s Health and Safety Policy and to ensure
that its activities do not harm the public, customers or employees.
Ocado does not tolerate any form of corruption, fraud or criminality,
of the giving or receiving of bribes for any purpose. Ocado’s Anti-
Bribery and Money Laundering Policy details definitions of bribery and
corruption, as well as how to report any cases of suspected wrongdoing.
During the year, the Company introduced an independent and
confidential whistleblowing service that allows our employees, suppliers
and other third parties to raise concerns about possible improprieties.
Ocado AR2018 Strategic Report.indd 54
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:36 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report 55
All Employees
14,163
12,799
11,902
10,181
2015
2016
2017
2018
Female
Male
Senior Managers
27
56
All Employees by Gender
2,648
11,515
Directors
3
14,163
12,799
11,902
10,181
9
2015
2016
2017
2018
Female
Male
Diversity
We are committed to ensuring that the Ocado workforce has the
diversity of talent and expertise that it needs and which will enable the
business to continuing growing and innovating.
The metrics required to be reported under the gender pay gap
legislation can be found on www.ocadogroup.com and the
Government’s online portal.
Our equal opportunities policy is dedicated to creating an environment
for our employees that is free from discrimination, harassment
and victimisation, reflecting our commitment to creating a diverse
workforce and environment that supports all individuals irrespective
of their gender, age, race, disability, sexual orientation, or religion. For
more information about diversity on our Board, see page 75.
Applications for employment by people with disability are always
given full and fair consideration, 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 appropriate training is given and 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.
This year we were have extended our Disability Confident Leader status
to cover the whole of our business, having successfully achieved this
at our CFC in Dordon in 2017. We have appointed a number of CSTMs
and a team manager this year who are profoundly deaf, ensuring their
training and ongoing support meets their specific requirements.
Other areas of focus have received national recognition, including our
work championing the care of expectant parents within Ocado.
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 55
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:39 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report 56
Our People
Our values
The pace and change of our business prompted a review of our
People Values this year. The guiding principle was that any changes
would have to be relevant to all employees irrespective of their
work area and location. After lengthy consultation they have been
reduced from four to three and the underpinning behaviours
simplified using short, more memorable phrases.
The Ocado Way behaviours
C rucial to how we embed the Group People Values is a manager
behaviour programme, which is designed to encourage those key
behaviours that we expect all of our employees, but particularly our
People Managers, to demonstrate.
It is a developmental programme that supports managers in their
career at Ocado.
These are the five key ways that we believe managers can demonstrate
to our people that we care, that they are valued and are an important
part of our business.
We are in it
together
We can be
even better
The aim of this programme is to develop and support our people
managers so that they are the best manager they can be.
We...
▶ fight for the common
purpose
▶ show trust and respect
We can be
▶ care for each other
even better
We...
▶ never stop improving
▶ thrive on change
▶ learn from our mistakes
We can be
even better
We...
We...
▶ never stop improving
▶ thrive on change
▶ never stop improving
▶ learn from our mistakes
▶ thrive on change
▶ learn from our mistakes
Our Group People Values and the associated behaviours now act
as an umbrella for the different ways of working that exist across
our diverse network of teams and business areas.
We are proud
of what we do
We...
▶ go the extra mile for our
customers
▶ do the right thing
We are in it
We are in it
▶ celebrate our successes
together
together
We...
We...
▶ fight for the common
purpose
▶ fight for the common
▶ show trust and respect
purpose
▶ care for each other
▶ show trust and respect
We can be
We can be
▶ care for each other
even better
even better
We...
We...
▶ never stop improving
▶ never stop improving
▶ thrive on change
▶ thrive on change
▶ learn from our mistakes
▶ learn from our mistakes
We are proud
We are proud
of what we do
of what we do
We...
We...
▶ go the extra mile for our
customers
▶ go the extra mile for our
▶ do the right thing
customers
▶ celebrate our successes
▶ do the right thing
We are in it
We are in it
▶ celebrate our successes
together
together
We...
We...
▶ fight for the common
▶ fight for the common
purpose
purpose
▶ show trust and respect
▶ care for each other
▶ show trust and respect
▶ care for each other
We can be
even better
We...
▶ never stop improving
▶ thrive on change
▶ learn from our mistakes
We are proud
of what we do
We are proud
of what we do
▶ go the extra mile for our
▶ go the extra mile for our
customers
▶ do the right thing
▶ celebrate our successes
We...
We...
customers
We are proud
of what we do
We...
customers
▶ do the right thing
▶ celebrate our successes
▶ go the extra mile for our
▶ fight for the common
We...
purpose
▶ show trust and respect
▶ care for each other
▶ do the right thing
▶ celebrate our successes
We are in it
together
Ocado AR2018 Strategic Report.indd 56
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:44 AM
26237
5 February 2019 1:58 am
Proof 6
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comStrategic Report The Citizenship Code
The Ocado Citizenship Code ensures everyone at Ocado understands
how we conduct our business, and explains the values and principles
behind Ocado. The Citizenship Code was created by examining
our business procedures and governance process, pulling all this
information together, alongside our policies and procedures, into a
single document.
The Citizenship Code is the place where we cement and express the
importance of our values and principles, as well as setting out our
major policies which embed these values, in one easy to find place.
Engaging People
Giving our people a voice, communicating directly with them on
Company achievements and celebrating our successes in line with our
refreshed Group People Values, are key objectives for our Engagement
team. The Ocado Council remains an important method of engaging
with our employees. Now extending to our European sites, this body
of elected employee representatives helps us to identify areas where
we can improve as an employer and encourage participation and
consultation in the decisions we make.
Each business area council is chaired by a member of our Management
Committee while an Executive Director attends each Group Council
meeting to update and take questions from representatives about
the business. Minutes from each meeting are published on Fuse, our
mobile first communications platform to which all employees have
access. We now have eight communications channels ranging from
weekly briefs to our in-house magazine. In January we introduced our
new mobile comms app which can be accessed by all our employees.
57
Case Study
Wellbeing at work
I had received a wealth of training opportunities
and I really loved working for Ocado, but it was
disappointing there was no process in place to
support a smooth return to work after maternity
or paternity leave. I’m pleased to say that’s all
changed now
Zuzana Starjakova
Team manager
Ha tfield warehouse Team Manager Zuzana Starjakova was awarded
the Barclaycard Everywoman in Retail “Above and Beyond” Award for
her work championing the care of expectant parents within Ocado.
Zuzana used her own experience to create new practices including:
taking steps to educate managers about resources; starting an online
social community within Ocado for expectant and new parents;
creating shareable information packs; and also ensuring that on
their return to work mothers felt comfortable and cared for by their
managers (including a formal catch-up with the manager, mother and
new baby and an eight week transition process back into work).
This year we have also made good progress with our Health and
Wellbeing Strategy. This is delivered in a number of ways, with recent
attention being given to raising awareness about mental health.
Our People professionals have completed an externally recognised
training qualification and an Aviva Train the Trainer course, which
allows them to present the ‘Ocado Managing Mental Health in Your
Teams’ course accredited by Aviva, to people managers. This and
other training will continue to roll out in 2019 as an essential core
course for managers’ personal development, along with an awareness
campaign aimed at encouraging employees to ask for support when
they need it.
Strategic Report Approval
The Company’s Strategic Report is set out on pages 14 to 57.
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
Registered in England and Wales
Number 07098618
5 February 2019
26237
5 February 2019 1:58 am
Proof 6
Ocado AR2018 Strategic Report.indd 57
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:10:46 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Strategic Report Ocado AR2018 Governance.indd 58
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:07:40 AM
26237
4 February 2019 10:05 pm
Proof 1
3.
OUR
GOVERNANCE
60 Chairman’s Governance Overview
61 Board of Directors
62 Corporate Governance Statement
74 Nomination Committee Report
76 Audit Committee Report
82 Directors’ Remuneration Report
– Annual Statement from the
Remuneration Committee Chairman
– Remuneration at a Glance
– Description of the Remuneration
Committee
– Annual Report on Remuneration – 2018
– Annual Report on Remuneration –
Implementation of Policy for 2019
– Remuneration Policy Report
130 Directors’ Report
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 59
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:07:40 AM
60
Chairman’s Governance
Overview
The Ocado Board has long been mindful of the
importance of good corporate governance and
the role it plays in supporting the long-term
success and sustainability of the business.
Lord Rose
Chairman
Governance Highlights
• Luke Jensen joined the Board in March 2018 as an Executive
Director.
• Julie Southern joined the Board in September 2018 as an
independent Non-Executive Director and Chairman-elect of the
Audit Committee.
• A review of the 2019 Directors’ Remuneration Policy completed
by the Remuneration Committee, to be approved by
shareholders at the 2019 Annual General Meeting.
• A review of the UK Corporate Governance Code 2018, with steps
taken towards full compliance prior to it applying to Ocado.
Dear Shareholder
I am pleased to introduce the Corporate Governance Statement
outlining the Company’s approach to corporate governance.
The Ocado Board has long been mindful of the importance of good
corporate governance and the role it plays in supporting the long-term
success and sustainability of the business. We are reporting against
the UK Corporate Governance Code 2016 (the “Code”) for this report.
We welcomed the publication of the new UK Corporate Governance
Code 2018 (the “2018 Code”) by the Financial Reporting Council. We are
preparing for the implementation of the 2018 Code and while this Annual
Report provides some additional information on engagement and other
issues, we expect to report in more detail on these matters when the new
reporting requirements apply to Ocado in the next financial year.
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. As the Group’s strategy
and development evolves, we expect to continue to engage with our
shareholders on changes to the executive remuneration arrangements.
The Remuneration Committee oversees the Directors’ Remuneration Policy
and this year has made a number of significant changes to it in order to
further align it with best practice from a corporate governance perspective
and with shareholder expectations. The new 2019 Directors’ Remuneration
Policy (the “2019 Policy”) will be put to shareholders at the Annual General
Meeting on 1 May 2019 (the “AGM”). The 2019 Policy has been simplified
but retains its emphasis on long-term incentives and rewarding long-term
outperformance in the value of the Group relative to the FTSE. Further detail
and the 2019 Policy can be found in the Directors’ Remuneration Report on
pages 82 to 129.
Accountability and Risk
The Board formally reviews the Group’s risk appetite annually and
periodically discusses principal risks facing the Group and appropriate
controls. Risk identification, controls and cost-benefit analysis regularly
form part of the Board’s deliberations on strategic decisions. Monitoring
the Group’s risk and assurance systems is important. In line with the new
2018 Code requirements, the Board approved a refreshed whistleblowing
policy and process for the Group. For more information about how the
Company manages risk please see pages 44 to 49.
Leadership and Board Effectiveness
The Board needs to ensure that we have the right people and leadership
in our Group to support the strategy and plans of the Group. As well as
reviewing management succession plans, the Board has considered
Board composition and the existing and desired skill sets of the
Board. This important piece of work continues to form the basis of
Board discussions in 2019 as we consider the make-up of the Board
that will best support the Company as it moves into the next stage of
development. In response to the 2018 Code, the terms of reference of
the Nomination Committee were broadened to include oversight of the
development of a diverse pipeline for succession to the Board.
Lord Rose
Chairman
5 February 2019
Ocado AR2018 Governance.indd 60
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:07:42 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance Board of Directors
61
Standing (left to right)
Andrew Harrison
Non-Executive Director
Luke Jensen
CEO, Ocado Solutions
Ruth Anderson
Non-Executive Director
Mark Richardson
Chief Operations Officer
Age: 48
Age: 52
Age: 65
Age: 54
JÖrn Rausing
Non-Executive Director
Duncan Tatton-Brown
Chief Financial Officer
Douglas McCallum
Non-Executive Director
Age: 58
Age: 53
Age: 52
Seated (left to right)
Neill Abrams
Group General Counsel
and Company Secretary
Age: 54
Lord Rose
Chairman
Age: 69
Emma Lloyd
Non-Executive Director
Tim Steiner, OBE
Chief Executive Officer
Julie Southern
Non-Executive Director
Age: 49
Age: 49
Age: 58
Read the Directors’ Biographies
on pages 138 and 139
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 61
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:07:57 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 62
Corporate Governance Statement
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.
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.
Chairman
• Leads the Board
• Promotes high standards
of governance and ensures
effectiveness
• Sets the Board’s agenda
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 auditor and the
effectiveness of the Internal Audit
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.
Nomination
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.
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.
Personal
Data
Steering
Committee
Supports
and drives
data privacy
governance
and provides
assurance that
best practice
mechanisms
are in place.
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
• Ensures that information flows
between management, the
Board and its committees
Indicates delegation
Indicates Board support
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 to ensure 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 twelve members of management.
The reports by each Board committee are given in this Annual Report. The full terms of reference for each Board committee are available
on the Company’s corporate website www.ocadogroup.com.
Ocado AR2018 Governance.indd 62
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:07:58 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 63
What the Board Did This Year
The Board’s activities are structured through the year to develop and support the delivery of the Group’s strategy. The Board’s discussions
throughout the year were focused on our strategic objectives: Driving Growth, Maximising Efficiency and Utilising Proprietary Knowledge and the
actions taken by the Board throughout the period reflected these strategic goals. The Board also regularly discussed governance, risk
management and the Group’s financial performance. The table below sets out some of the Board’s key areas of focus and discussions through the
year and how these developed and supported our strategy.
Responsibility
Strategy, Performance
and Financing
Reporting, Risk
Management and
Accountability Controls
Oversight of the Group’s
Operations and Technology
Development
People, Governance and
Corporate Responsibility
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
e
l
o
R
e
c
n
a
n
r
e
v
o
G
/
c
i
g
e
t
a
r
t
S
s
’
d
r
a
o
B
e
h
T
Annual strategy conference
to review and set the Group’s
strategy and medium-term plan.
Annual review of key risks and
risk appetite and reviewing
reports of risk management.
Approving the annual budget, the
business plan for the Group and
individual capital expenditure projects.
Overseeing Ocado Solutions
negotiations and discussions.
Monitoring grocery retail
competitor activity.
Review of reports on specific
risk areas including OSP control
environment.
Reviewing and approving
the Group’s regulatory
announcements and reports.
Receiving reports on patent protection of
the Group’s technology.
Receiving regular reports on key
projects including new technologies,
IT replatforming and development and
ramp-up of the Andover and Erith CFCs.
Receiving reports from senior
management on trading,
business performance and
financing.
Reviewing reports on health and
safety, environment, litigation,
investor relations and legal and
company secretarial matters.
Receiving regular reports on ongoing retail
trading and customer service metrics,
including call centre performance.
Providing entrepreneurial
leadership to the Group with
overall responsibility for driving
performance through debate
and constructive challenge of
management.
Developing effective leadership
in the Board and throughout the
business and ensuring the right
personnel are in place.
The Board is ultimately responsible
for the Company’s risk appetite and
viability and therefore plays a key
role in reviewing the risks that face
that business and ensuring that it
has and retains oversight of specific,
high-risk areas.
The Board discusses Company-
specific risks and uncertainties,
including the environment in
which the business operates
such as cybercrime and Brexit.
Operational efficiency is regularly
discussed and challenged at Board
meetings and is considered an important
driver for both growth and developing
our proprietary knowledge, and therefore
the Group’s strategy.
The Board discusses the status and
progress of the implementation of key
projects including Solutions contracts.
Receiving reports on people
issues. Discussing Corporate
Responsibility goals and
progress.
Approving the Group’s new
whistleblowing policy and
modern slavery statement.
Receiving various reports on
governance and regulatory
changes, including the Group
becoming regulated under
GSCOP.
Receiving reports on the Group’s
environmental initiatives and
responsibilities and approving
the tax strategy statement.
The Board discusses
stakeholder issues through
the year, including investor,
customer and employee
issues. The Board is updated
regularly on governance
matters.
The Board receives updates
throughout the year on
recruitment and retention,
and discussed the potential
impact of Brexit on the
Group’s operations, including
the impact on the Group’s
operational strategy.
As a significant part of the growth
strategy, reviewing the strategy
of overseas expansion and the
capabilities required to make this
successful.
The Board reviews the
Company’s viability statement.
The commercialisation of Ocado
Solutions is a key strategy for the Group.
The Board reviews IP strategy and Ocado
Solutions negotiations at each Board
meeting.
Indicates Board support
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 63
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:07:58 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance
64
Corporate Governance Statement
Composition of the Board
Review of Board and Board Committee Composition
As noted on page 75, 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.
Board Tenure
The Board also takes into account the length of tenure of existing Directors when considering reappointment and succession planning. Jörn
Rausing has served as a Non-Executive Director for over 15 years, seven of which were before the Company’s IPO, and Ruth Anderson will have
served nine years (in March 2019) as a Non-Executive Director. Accordingly, the recommendation of their reappointment to the Board was subject
to particular scrutiny (including the importance of maintaining Board continuity). The first chart below illustrates the tenure of Directors.
Board Diversity
The Board and Nomination Committee are mindful of the corporate governance developments in the areas of diversity. The second chart below
illustrates the gender diversity of the Board. The Board has reviewed its policy and objectives on diversity and more detail on this review can be
found on page 75.
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 were six Non-Executive Directors all determined by the Board to be independent and five
Executive Directors, the Board complies with this recommendation at the end of the period. The third chart below illustrates the composition of
the Board in respect of the independence of its members as at the end of the period.
Similarly, the composition of the Audit Committee, Nomination Committee and Remuneration Committee comply in all respects with the
independence provisions of the Code.
Length of Tenure of Chairman and
Non-Executive Directors
Gender Diversity
Board Independence
3
9
2
1
1
5
3
50%
4
3
42%
0‒3
years
3‒6
years
6‒10
years
10+
years
Whole Board
Executive
Non-Executive
Male
Female
8%
Executive Directors
Independent Non-Executive Directors
Chairman
Ocado AR2018 Governance.indd 64
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:08:04 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 65
The Board has scrutinised the factors relevant to its determination of the independence of Non-Executive Directors Jörn Rausing and Ruth
Anderson.
Jörn Rausing
Jörn Rausing has been a Director for almost 16 years, albeit less than nine of these in the era of the Company being listed. Jörn is a beneficiary
of the Apple III Trust, which owns Apple III Limited (together, “Apple”), a significant (approximately 10%) shareholder of the Company. Jörn is not
a representative of Apple, nor does Apple have any right to appoint a Director to the Board.
The Board considers his continuing Directorship to benefit the Group and support the principles of the Code. Jörn’s significant experience as
an owner and manager at Tetra Laval, a global technology and industrial group, enhances the skills and experience on the Board in addition to
bringing international expertise during a period when the Group is expanding substantially outside of the UK. Jörn also ensures there is a long-
term perspective brought to the Board’s decision-making reflecting the approach adopted at Tetra Laval to its own technology development and
commercial expansion.
The Board considers Jörn to be independent in character and judgement and does not believe the size of Apple’s shareholding nor the duration
of Jörn’s tenure on the Board amounts to a relationship or circumstance which may affect his judgement. Jörn has stood for re-election annually
since 2011 and on each occasion has been re-elected by a substantial majority of shareholders.
Ruth Anderson
Ruth Anderson will have been a Non-Executive Director for nine years in March 2019. The Board considers her continuing Directorship to benefit
the Group and support the principles of the Code. Ruth’s membership of the Board brings continuity and stability to the Board. Ruth will be
stepping down as Chairman of the Audit Committee from April 2019.
Board Independence
Mix of knowledge and experience on the Board
50%
42%
8%
Chairman
RETAIL
6
TECHNOLOGY
5
INTERNATIONAL
OPERATIONS
5
E-COMMERCE
3
FINANCE/
ACCOUNTING
3
AUTOMATED
ENGINEERING
4
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 65
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:08:04 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 66
Corporate Governance Statement
Review of Board Effectiveness
An annual effectiveness review of the Board is conducted to evaluate the performance of the Board. The review is an important opportunity
to be able to recognise individual and collective strengths and weaknesses, which prompt required changes and are also taken into account
during the Board succession process.
2016
2017
2018
Independent, externally
facilitated review
Internal performance
review – progress against
external review assessed
Internal performance
review of progress
Board Effectiveness Review Cycle
This year, a Board evaluation was facilitated internally using a specialist platform containing online questionnaires which included
a range of questions based on the best practice recommendations described in the UK Corporate Governance Code 2016 and other
guidelines.
It was agreed that the review would be carried out with the
same support from an external, independent consultant,
Independent Audit Limited, who provided online questionnaires
for the 2017 review. The evaluation process was led by the
Chairman and supported by the Company Secretary.
The questionnaire prepared for the Board covered specific
areas relating to leadership, strategy, risk management
and culture, and focused on the Board’s involvement and
understanding of the business. It also sought to highlight any
improvement in processes, effectiveness of decision-making,
and composition, skills, balance and diversity of the Board.
The questionnaire designed for the individual Directors
questioned how well each Director continues to contribute
effectively to the meetings and demonstrates commitment
to the role (including time for Board and committee meetings
and other duties).
d E f e c t i veness Review Cycle
r
a
o
B
Completion of
online questionnaires
on the effectiveness of
the Board, its Directors
and individual
committees
Key areas identified
and action plan
prepared and
approved by
the Board
4
1
3
2
Collation of results
and preparation
of a detailed report
on the findings and
actions
Board evaluation
report discussed
in the Board and
committee meetings
Board Ef ectiveness R e v i e w C
c l e
y
Ocado AR2018 Governance.indd 66
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:08:04 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 67
Internal Board Evaluation Results
The results of the review were evaluated by the Company Secretary and the Chairman, and a Board evaluation report was prepared and produced
to the Board for discussion. The results indicated that the consensus view was that the Board and its committees work in a constructive and
collaborative way, and were operating effectively. However, the review highlighted a number of focus areas for the Board and its committees to
consider during 2019, including:
Some key areas identified
Leadership required to support senior management
with technological development internationally.
Action to be taken in 2019 (based on the results of review and
specific issues flagged)
Consider the appointment of Non-Executive Directors with software
and e-commerce experience to complement existing experience.
Progress made
from 2017 review
N/A
Succession planning for senior management
to ensure it has the right balance of skills and
experience to drive forward the international
expansion of the business.
Increase the focus on building up the senior management team.
More informal time together outside of the
Boardroom.
Add into the Board calendar pre-meeting and post-meeting social
events away from the Boardroom, such as breakfast and dinners.
Shifting the Board agenda focus areas.
Spend more time on discussing and reviewing progress made
delivering Ocado Solutions objectives and commitments.
▲
▶
N/A
d E f e c t i veness Review Cycle
r
a
o
B
Board Ef ectiveness R e v i e w C
c l e
y
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 67
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:08:13 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance
68
Corporate Governance Statement
Board Attendance – Executive Directors
Board Attendance – Non-Executive Directors
Tim Steiner – 11/11
Lord Rose – 11/11
Duncan Tatton-Brown – 11/11
JÖrn Rausing – 8/11
Mark Richardson – 11/11
Douglas McCallum – 11/11
Neill Abrams – 11/11
Andrew Harrison – 10/11
Luke Jensen1 – 8/8
Ruth Anderson – 11/11
1. Luke Jensen joined the Board on 1 March 2018.
Emma Lloyd – 11/11
Julie Southern2 – 3/3
Actual meetings
attended
Possible meetings the Director
could have attended
2. Julie Southern joined the Board on 1 September 2018.
Ocado AR2018 Governance.indd 68
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:08:17 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 69
Director Meetings
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
11 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.
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 2 May 2018, all of the current Directors (except Julie Southern who had
not yet been appointed) stood for re-appointment, and were duly elected with a range of 96.29% to 99.94% of votes cast by shareholders in favour
of re-appointment.
All Directors will 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 on page 67, on the reviews of the Chairman 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 in this report) and other responsibilities, taking into
account a number of considerations including outside commitments and any changes thereof (outlined below) during the period.
The rules that the Company has about the appointment and replacement of Directors are described in the Directors’ Report on page 131.
External Board Appointments and Conflicts
There have been a number of changes to the Directors’ external appointments during the period 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. These
are monitored to ensure that each Director has sufficient time to fulfil his obligations. Each Director’s biographical details and significant time
commitments outside of the Company are set out in the Directors’ Biographies section on pages 138 and 139.
Director
Andrew Harrison
Lord Rose
Ruth Anderson
Duncan Tatton-Brown
Julie Southern
Andrew Harrison
Andrew Harrison
Change in Commitment
Appointed as Chairman of Housesimple Limited
Resigned as director of Woolworths Holdings Limited, listed in South Africa
Resigned as director of Coats Group plc
Resigned as director of ZPG Limited
Appointed as director of EasyJet plc
Appointed as director of Chik’n Ltd
Resigned as director of The Carphone Warehouse Limited
Effective Date of Change
February 2018
May 2018
May 2018
July 2018
August 2018
September 2018
November 2018
Whenever a Director takes on additional external responsibilities, the Board considers and monitors any potential conflicts that could arise. 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 Company’s 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 interest to the Company.
Thereafter, each Director has an opportunity to disclose conflicts at the beginning of each Board and Board committee meeting and as part of an
annual review. Two Directors declared a potential conflict of interest in relation to a matter which was being discussed by the Board and as such
did not participate in the meetings regarding these matters. None of the other Directors 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 throughout the period.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 69
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:08:18 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 70
Corporate Governance Statement
Board Induction and Professional Development
On joining the Board, it is the responsibility of the Chairman and Company Secretary to ensure that all newly appointed Directors receive a full and
formal induction which is tailored to their individual needs. The induction programme includes a comprehensive overview of the Group, dedicated
time with Executive Directors and senior management, as well as guidance on the duties, responsibilities and liabilities as a director of a listed
company. Directors visit CFCs and participate in van delivery routes to allow them to gain sufficient knowledge and understanding of the business,
operations and culture. These activities formed part of the induction programme for Julie Southern, who joined the Board in September 2018.
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 including on the new remuneration reporting market practices. Members of the Audit Committee receive
written technical updates from the external auditor to keep them abreast of the latest accounting, auditing, tax and reporting developments.
The Board have also received briefings from external advisers on a range of strategic matters. Independent professional advice is available at the
Company’s expense if necessary and the Directors have access to the advice and services of the Company Secretary when required.
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.
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 biannual investor roadshows in line with the reporting cycle 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,
advisers 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 and the Board of Directors are available to the Company’s shareholders for discussions, and have met with various investors throughout
the year to discuss matters such as strategy, corporate governance and executive remuneration. We held a number of investor days at our new
CFCs in 2018 to enable our investors to view the progress at the new sites.
The Group also engages with shareholders in the event of a substantial vote against a resolution proposed at an annual general meeting. More
information about this can be found in the Directors’ Report on page 133. For more information on the resolutions proposed for the 2019 AGM,
please refer to the Directors’ Report on pages 130 to 139.
Directors’ Remuneration Policy
This year the Remuneration Committee has proposed a number of changes to the Directors’ Remuneration Policy. The 2019 Policy will be put to
shareholders to vote on at the 2019 AGM. The Company consulted its largest shareholders on the key changes to the policy. For more information
on the consultation and the 2019 Policy, please refer to the Directors’ Remuneration Report on pages 82 to 129.
Ocado AR2018 Governance.indd 70
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:08:18 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 71
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 Company reports its quarterly trading performance, including information on the growth of the Group’s revenue, average order numbers and size
and its cash and borrowings position. The Company believes that it is important to update the market on a quarterly basis due to the importance
shareholders place on receiving regular updates about sales and the current competitive pressures in the UK grocery market. The Group’s rate of sales
growth is key to understanding the extent to which it is achieving one of its key strategic objectives: Driving Growth.
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 136 and 137 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 preliminary announcement, 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;
•
in-depth 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 76 to 81);
• Board and Audit Committee review of a supporting paper specifically highlighting the parts of this Annual Report that best evidenced how this
Annual Report was fair, balanced and understandable;
• paper from the Company Secretary highlighting how reporting, regulatory and governance issues had been addressed in this Annual Report;
• 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, governance and disclosure obligations;
• discussions between contributors and management to identify relevant and material information;
• detailed debates and discussions concerning the principal risks and uncertainties;
• checking of factual statements and financial information against source materials;
• specific Board review of Directors’ belief statement and key statements; 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 Auditor’s Report on pages 142 to 148.
In addition to this Annual Report, the Group provides other statements to its shareholders regarding the Group and its operations, including the
modern slavery statement, tax strategy statement, gender pay and supplier payments. For further information on the Group’s activities in these
areas, see the Strategy Report on pages 4 to 57.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 71
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:08:18 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 72
Corporate Governance Statement
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 10am on 1 May 2019 at Numis
Securities Limited, The London Stock Exchange Building, 10 Paternoster Square, London, EC4M 7LT.
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 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 79.91% to 99.94%.
Compliance with the UK Corporate Governance Code 2016
This Corporate Governance Statement explains how the Company applies the main principles and complies with all relevant provisions set out in
the UK Corporate Governance Code 2016 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 Corporate Governance Statement as required by the UK Financial Conduct Authority’s Disclosure Guidance and Transparency Rules (DTR 7.2.)
forms part of the Directors’ Report, and has been prepared in accordance with the principles of the Code. A copy of the Code, as applicable to the
Company for the year ended 2 December 2018, can be found at the Financial Reporting Council’s website, www.frc.org.uk.
The Financial Reporting Council updated the UK Corporate Governance Code in July 2018 (the “2018 Code”). The 2018 Code applies to reporting
periods beginning on or after 1 January 2019, and so does not apply to the Company’s reporting period ended 2 December 2018. The Board
has, where appropriate and feasible, adopted the new provisions in the 2018 Code earlier than required and provides disclosure against these
requirements in this Annual Report. Further information on the 2018 Code can be found on the Financial Reporting Council’s website, www.frc.org.uk.
The Board and committee composition and diversity policy can be found on pages 64 and 65. The Group’s risk management and internal control
framework and the Group’s principal risks and uncertainties are described on pages 44 to 49. The Directors’ Remuneration Report on pages 82 to
129, the Directors’ Report on pages 130 to 137 and the going concern and viability statements on page 79 all contain information required to be
included in this Corporate Governance Statement, and so are incorporated into this statement by reference.
The terms of reference for each of the main Board committees can be found on our website. This Corporate Governance Statement for 2018
covers the following areas:
• Board structure and composition;
• Leadership;
• The Board’s effectiveness;
• Accountability; and
• Relations with the Company’s shareholders and the AGM.
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 (up to
the date of this Annual Report). The Company has applied the principles and complied with the provisions of the Code, except for provisions A.1.2,
D.1.1 and Schedule A and D.2.2. These areas of non-compliance are explained below.
Code Provision Area
A.1.2
D.1.1 and
Schedule A
D.2.2
Senior Independent Director
Explanation
As explained on page 75, the Company has not yet appointed a successor
Senior Independent Director but this is part of the current succession planning.
Design of performance-based remuneration Under the current Directors’ Remuneration Policy, Directors are not required to
retain shares for a period after leaving the Company. Under the proposed 2019
Directors’ Remuneration Policy, a post-cessation shareholding requirement will
be introduced as explained on page 121.
As explained on page 87, the Remuneration Committee monitors, but does not
make recommendations concerning, the level and structure of remuneration for
senior management of the Company other than the Executive Directors.
Senior management remuneration
Ocado AR2018 Governance.indd 72
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:08:18 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 73
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. The Company’s disclosures on its application of the main principles in the Code
can be found as follows:
Section
Principle
Leadership
Effectiveness
Every company should be headed by an effective board which is collectively responsible for the long-term
success of the company.
There should be a clear division of responsibilities at the head of the company between the running of the board
and the executive responsibility for the running of the company’s business. No one individual should have unfettered
powers of decision.
The chairman is responsible for leadership of the board and ensuring its effectiveness on all aspects of its role.
As part of their role as members of a unitary board, non-executive directors should constructively challenge
and help develop proposals on strategy.
The board and its committees should have the appropriate balance of skills, experience, independence and
knowledge of the company to enable them to discharge their respective duties and responsibilities effectively.
There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board.
All directors should be able to allocate sufficient time to the company to discharge their responsibilities effectively.
All directors should receive induction on joining the board and should regularly update and refresh their skills
and knowledge.
The board should be supplied in a timely manner with information in a form and of a quality appropriate to
enable it to discharge its duties.
The board should undertake a formal and rigorous annual evaluation of its own performance and that of its
committees and individual directors.
All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance.
The board should present a fair, balanced and understandable assessment of the company’s position and
prospects.
Accountability
The board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its
strategic objectives. The board should maintain sound risk management and internal control systems.
The board should establish formal and transparent arrangements for considering how they should apply the
corporate reporting, risk management and internal control principles and for maintaining an appropriate
relationship with the company’s auditor.
Executive directors’ remuneration should be designed to promote the long-term success of the company.
Performance-related elements should be transparent, stretching and rigorously applied.
There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the
remuneration packages of individual directors. No director should be involved in deciding his or her own remuneration.
There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a
whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place.
The board should use general meetings to communicate with investors and to encourage their participation.
Remuneration
Relations with
shareholders
Section of
Annual Report
Page
Board of Directors,
Composition of the Board
Board Structure
61
64
62
Board Structure
Board structure, Board
Responsibilities and Actions
Board of Directors,
Director Biographies
Director Election
External Board
Appointments and
Conflicts
Board Induction and
Professional Development
Information for Directors
62
62
63
61
138
69
69
70
70
66
Review of Board
Effectiveness
Director Election
Strategic Report,
How We Manage Our Risks,
Going Concern Statement,
Viability Statement,
Corporate Governance
Statement
62
How We Manage Our Risks 44
69
13
44
49
Audit Committee Report
76
Directors’ Remuneration
Report
Directors’ Remuneration
Report
Engagement with
Shareholders
Engagement with
Shareholders
82
82
70
70
Certain parts of this Corporate Governance Statement have been reviewed by the Company’s external auditor, Deloitte LLP, for compliance with
the Code, to the extent required.
Board Approval of the Corporate Governance Statement
This separate Corporate Governance Statement 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
5 February 2019
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 73
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:08:18 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance
74
Nomination Committee Report
Membership and Meetings
The membership and attendance of
the Nomination Committee, together
with the appointment dates, are set
out below:
Lord Rose
Chairman
Jörn Rausing
Ruth Anderson
Nomination Committee
member since 11 March
2013
Nomination Committee
member since 9 March
2010
Nomination Committee
member since 9 March
2010
3/3
3/3
3/3
Douglas
McCallum
Andrew Harrison
Emma Lloyd
Nomination Committee
member since 3 October
2011
Nomination Committee
member since 1 March
2016
Nomination Committee
member since
1 December 2016
3/3
3/3
3/3
Dear Shareholder
I am pleased to present the report of the Nomination Committee for
the 52 weeks ended 2 December 2018.
During the year, the Nomination Committee has undertaken a number
of activities, the results of which led to the appointment of Julie
Southern with effect from 1 September 2018. This followed the earlier
appointment of Luke Jensen to the Board as an Executive Director
from 1 March 2018, as announced in last year’s report. While reviewing
the composition of the Board it was noted that a number of Directors
were approaching or had exceeded six years on the Board and as such
further changes to the Board are likely in the medium term.
During the year, the Committee undertook a thorough review of the
Board’s composition, succession plans and its diversity policy.
More information about the work of the Committee during the year
can be found below.
I will be available at the AGM to answer any questions about the work
of the Nomination Committee.
Lord Rose
Nomination Committee Chairman
5 February 2019
During the year, the Committee undertook
a thorough review of the Board’s composition,
succession plans and its diversity policy.
Lord Rose
Nomination Committee Chairman
Julie Southern
Nomination Committee
member since
1 September 2018
1/1
Actual meetings attended
Possible meetings the Director
could have attended
Ocado AR2018 Governance.indd 74
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:08:48 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance Membership and Meetings
75
As required under the terms of reference, the Nomination Committee has seven members, all of whom are independent Non-Executive Directors,
and holds a minimum of two meetings a year. Julie Southern became a member of the Nomination Committee on her appointment to the Board
on 1 September 2018. The biography of each member of the Nomination Committee is set out on pages 138 and 139. Other attendees at Committee
meetings include the Chief Executive Officer and the People Director. The Deputy Company Secretary is the secretary to the Committee.
How the Committee Spent its Time in 2018
The Nomination Committee undertook a number of activities during the period as described below.
Board Composition and Succession Planning
The Committee seeks to ensure that the Board’s composition, and that of its committees, is appropriate to discharge its duties effectively. During the
prior year the Nomination Committee undertook a thorough review of the Board’s composition. This review took into account various considerations
including tenure of Director, independence, diversity and ensuring a balance of Board knowledge, experience and skills. This review preceded the
Board agreeing changes to the composition of the Board over the last 12 months. The Company separately announced the appointment of Luke
Jensen as Executive Director with effect from 1 March 2018 and the appointment of Julie Southern as Non-Executive Director with effect from
1 September 2018. More information about the Board’s composition, independence and effectiveness can be found on pages 64 to 67.
The Nomination Committee continues to review Board composition to ensure that there is effective succession planning at Board level. This
includes the review of a regularly updated skills matrix for all Directors. Based on the skill set analysis, the Board expects to meet in early 2019
to identify and agree some objectives and timing for planned changes to the Board. It is likely the Board will make a number of Non-Executive
Director appointments in the medium term, both to prepare the Board for the departure of retiring Directors and to identify candidates meeting
the required skill sets. The Company has not yet appointed a Senior Independent Director following the resignation of Alex Mahon, and this is part
of the succession planning discussions currently being had by the Committee.
In addition to reviewing Board composition, the Nomination Committee oversees the process of succession and management development for
the Executive Directors and the next layer of management, the Management Committee. With regard to the development of the management
team, two senior managers regularly attend the Board meetings to report on their respective business areas, while the Board has exposure
to other senior managers who present or report to the Board on their business areas or particular projects. The Nomination Committee is
mindful that it could improve the extent of its exposure to the senior management and plans to expand on existing arrangements for building
relationships between Non-Executive Directors and senior management outside of formal Board meetings.
Board Diversity
The Nomination Committee recognises the importance of diversity and inclusion both in the boardroom and throughout the organisation and
understands that a diverse board will offer wider perspectives which lead to better decision-making, enabling it to meet its responsibilities.
The Board’s diversity policy, which was reviewed in the year, considers a broad range of characteristics when considering diversity including age,
disability, social and educational background, as well as gender and ethnicity. This policy includes a commitment to having a one-third female Board
representation by the end of 2020 and a minimum of one non-white Board Director by the end of 2021 and to including diversity principles in the
recruitment process at both Board and senior management level. At the end of the period, the Board had 25% female representation, which fell from 27%
last year due to the appointment of Luke Jensen as an Executive Director. Improvements were seen at the Management Committee level with female
representation also rising from 13% to 33%. We will report progress against the policy in future years. The Board is committed not only to increasing the
percentage of women and ethnically diverse individuals on the Board, but also in senior positions in the Company and recognises that there is further
work to be done to achieve that. The Board is committed to supporting workforce initiatives that promote a culture of inclusion and diversity.
Any future Board appointments will continue to be based on objective criteria to ensure that the best individuals are appointed for the role.
Wherever possible, the search pool will be widened and where executive search firms are used, Ocado will only engage with those firms that have
adopted the “Voluntary Code of Conduct for Executive Search Firms”. This includes Russell Reynolds, who were engaged to help the Company
secure new Non-Executive Directors for the Group. The Nomination Committee monitors these objectives and will evaluate the balance of skills,
experience, knowledge and diversity on the Board.
For more information on diversity in respect of all the Group’s employees, see the Our People section on pages 54 to 57. The chart on page 55
illustrates the diversity of the Board in terms of gender as at the period end on 2 December 2018.
Annual Review
In addition to its annual performance evaluation, discussed in the Corporate Governance Statement on page 62, the Nomination Committee
carried out a review of its Terms of Reference during the period. The Nomination Committee is mindful that the 2018 Code expands its remit in
relation to succession planning and a diverse pipeline and has updated its Terms of Reference accordingly to address these issues in the coming
year. The Committee’s Terms of Reference can be found on ocadogroup.com.
Possible meetings the Director
could have attended
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 75
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:08:48 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 76
Audit Committee Report
Membership and Meetings
The membership and attendance of the
Audit Committee, together with the
appointment dates, are set out below:
Dear Shareholder
As Chairman of the Audit Committee, I am pleased to present the report
of the Audit Committee for the 52 weeks ended 2 December 2018.
In this report, we aim to share some of the Committee’s discussions
from the year, providing insight regarding the role of the Committee,
the Committee’s essential function in ensuring the integrity of the
Company’s financial reporting, and in reviewing the effectiveness of
the Group’s assurance framework and internal controls.
This report details the significant accounting matters and issues in
relation to the Group’s financial statements that the Committee has
assessed during the year and in this report we explain why the issues
were considered significant, which provides context for understanding
the Group’s accounting policies and financial statements for the
period.
In April, I will be stepping down as Chairman of the Audit Committee
and I am pleased to hand responsibility to Julie Southern.
I will be available at the AGM to answer any questions about our work.
Ruth Anderson
Audit Committee Chairman
5 February 2019
Ruth Anderson
Chairman
Andrew Harrison
Audit Committee
member since 9 March
2010
Audit Committee
member since 1 March
2016
Relevant sector
experience: Retail
4/4
Relevant sector experience:
Retail, Technology
4/4
Julie Southern
Audit Committee
member since
1 September 2018
Relevant sector
experience: Retail
1/1
This report aims to share some of the Committee’s
discussions from the year, providing insight
regarding the role of the Committee, the
Committee’s essential function in ensuring the
integrity of the Company’s financial reporting,
and the effectiveness of the assurance
framework and internal controls.
Ruth Anderson
Audit Committee Chairman
Actual meetings attended
Possible meetings the Director
could have attended
At least two members of the Audit Committee (Ruth Anderson and
Julie Southern) are considered by the Board to have competence
in accounting and all members have recent and relevant financial
experience. Ruth Anderson and Julie Southern are chartered
accountants 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 Directors’
Report section on pages 138 and 139.
Ocado AR2018 Governance.indd 76
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:04 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance Membership and Meetings
Possible meetings the Director
could have attended
77
As required under the Terms of Reference, the Audit Committee members are independent Non-Executive Directors and the Audit Committee has held three
meetings during the year. During the year, composition of the Audit Committee changed as a result of the retirement from the Board and Audit Committee of
Alex Mahon in December 2017 and the appointment of Julie Southern. Julie Southern became a member of the Audit Committee on her appointment to the
Board on 1 September 2018. With effect from 1 April 2019, Julie Southern will succeed Ruth Anderson as Chairman of the Audit Committee.
The timing of meetings coincide with key intervals in the reporting and audit cycle for the Group. The Chairman of the Audit Committee reports at
each Board meeting on the business conducted at the previous Audit Committee meeting, any recommendations made by the Audit Committee
and the discharge of its responsibilities as set out in this report.
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 the external auditor. Other attendees who attend as required include the Chief Executive
Officer, the Chairman, a number of senior members of the finance department, other members of senior management and operational teams and
other advisers to the Company. The Deputy Company Secretary is the secretary to the Audit Committee.
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 auditor. As part of the year end reporting process the Audit Committee reviewed this Annual
Report, a management report on accounting estimates and judgements, the external auditor’s 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. For information concerning the process followed by the
Company in preparing this Annual Report see pages 72 and 73 of the Corporate Governance Statement. 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 key sources of estimation uncertainty: The Audit Committee reviewed and discussed reports from management
on accounting policies, current accounting issues and the key judgements and estimates in relation to this Annual Report. It assessed whether
suitable accounting policies had been adopted and the reasonableness of the judgements and estimates that had been made by management.
This section outlines 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.
Accounting for revenue: The Audit Committee reviewed the impact of the new accounting standard, International Financial Reporting Standard
(IFRS) 15 “Revenue from Contracts with Customers”, on the accounting for revenue received from the Group’s customers, which includes contracts
signed with new Ocado Solutions partners at the end of 2017 and during 2018, the existing Morrisons contracts and the customers of the retail
business segment.
The Audit Committee considered and agreed with management’s proposal to adopt early the new accounting standard because several Ocado
Solutions contracts were signed in the period, which would in any case result in additional reporting disclosures and restated comparable numbers.
The Audit Committee reviewed the effect of the standard on the restatement of results included in this Annual Report and the related disclosure in the
notes to the financial statements concerning the significant changes to the Group’s accounting policies in respect of revenue recognition.
The timing of revenue recognition requires management judgement. The Audit Committee considered reports from management on its detailed
review of the Ocado Solutions contracts, the judgements made in particular with regards to contract life, the amount and timing of revenue
recognition (both commencement date and time period for recognition) for the relevant performance obligations and the evidence used to
support those judgements. The Audit Committee also received reports from the auditors with regards to their audit procedures, including their
review of the Ocado Solutions contracts and accounting treatment applied by management. Adoption of the new standard has meant that
revenue recognised is restated in respect of the 2017 financial year and resulted in a reduction in revenue recognised for that period of £9.3
million and has resulted in a reduction in net assets and retained earnings of £23.1 million. The overall impact also means that less revenue will
be recognised in the period than otherwise would have been the case under the old accounting standard. See notes 1.4, 1.5, 2.1 and 2.4 to the
consolidated financial statements on pages 156, 161 and 166.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 77
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:04 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 78
Audit Committee Report
Area
Issue and Nature of Judgement
or Estimate
Accounting for
Ocado Solutions
contracts –
balance sheet
restatement
under IFRS 15
The adoption of IFRS 15 has led to
significant changes in the revenue
recognition policies for Ocado Solutions
contracts and significant restatement of
prior period balance sheets and income
statements.
Factors and Reasons Considered and
Conclusion
The Audit Committee reviewed
the management proposal for the
restatement of the balance sheet
included in this Annual Report and
approved the proposed restatement of
the Balance Sheet.
Impact on Financial Information
and Disclosure in Financial
Statements
The Group restated the 2017
results for the adoption of IFRS
15. The Group’s accounting policy
for revenue has been rewritten to
reflect the adoption of IFRS 15.
This new policy is included in full
in Note 2.1 to the consolidated
statements. The new policy also
includes disclosure of significant
judgements and estimates in
relation to the application of these
accounting policies.
The accounting treatment is
included in the Consolidated
Income Statement on page 149.
There is no impact to the financial
statements and no additional
disclosures required.
The Audit Committee reviewed the
appropriateness of management’s
proposed accounting treatment of existing
and new revenue streams in light of IFRS 15.
The Audit Committee approved the new
accounting policies associated with the
revenue recognition standard and taking
into account the views of the external
auditor.
The Audit Committee considered
the management report concerning
the progress of all current Solutions
projects. It was concluded that there
were no material risks to key milestones
and hence there were no contingent
liabilities to disclose.
Accounting for
Ocado Solutions
contracts
– revenue
recognition
under IFRS 15
IAS 37 -
Provisions,
Contingent
Liabilities and
Contingent
Assets
IAS 38 -
(Intangible
Assets) –
Capitalisation
of Internal
Development
Time and Costs
Management judgement is required for
recognition of revenue due to the evolving
nature of the business and new services
that are being provided. The accounting for
new Ocado Solutions contracts with a range
of deliverables and fees is complex. They
require management judgement, including
with regards to the timing of recognition,
estimated contract life, expected customer
life and classification of income under the
accounting standard.
The implementation of OSP for each
Solutions customer is a complex project.
A typical Solutions contract includes a
number of key milestones during the
project implementation phase. Failure to
achieve these key events can be subject to
contractual financial penalties. Management
judgement is required to review the progress
of ongoing projects and determine whether
there is a risk that Ocado will not meet the
agreed key milestones and thus incur a
financial penalty.
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, and the
risk of impairment when new technology
supersedes previously capitalised projects.
Details of material technology projects
which are being capitalised along with
the rationale for capitalisation were
reviewed by the Audit Committee. The
criteria for identification of projects which
may be treated as intangible assets, the
process to capture the costs of these
technology projects and any potential
impairments were discussed by the Audit
Committee. The audit procedures carried
out on the management controls by the
auditors were considered.
The amount of £51.5 million
of internal development costs
has been capitalised and an
impairment charge of £0.4 million
has been recognised within
intangible non-current assets, as set
out in Note 3.1 to the consolidated
financial statements on page 175.
Ocado AR2018 Governance.indd 78
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:04 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 79
Area
Recognition
of deferred tax
asset
Issue and Nature of Judgement
or Estimate
The estimates used to support the future
business profitability and recognised
deferred tax asset which requires
management estimate.
Impact on Financial Information
and Disclosure in Financial
Statements
The amount of £16.6 million was
recognised in the Consolidated
Balance Sheet for the period.
Details of the deferred tax asset
are set out in Note 2.9 to the
consolidated financial statements
on pages 170 to 172.
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 review included
the recent changes in UK tax legislation
on the treatment of losses and the impact
of international expansion on the Ocado
business model. The Audit Committee
supported the reasonableness of the
assumptions underlying the Group’s future
profits forecasts including the impact of
the new Solutions contracts.
The Audit Committee reviewed an update on the impact of the new international accounting standard relating to leases (IFRS 16) on the Group’s
financial statements. The Group has not adopted this standard early. IFRS 16 is expected to have a material impact on the Group’s financial results and
financial position for future periods (when adopted), including requiring the Group to bring large operating lease commitments onto the balance sheet
and the impact on the Group’s EBITDA A , depreciation, debt and operating profit (as well as other measures). Given their significance, management
updated the quantitative analysis of the estimated impacts of IFRS 16 for recent developments. The Audit Committee reviewed the disclosure contained
in this Annual Report regarding the anticipated impact of the standards on the Group’s financial results and position (see note 1.2 to the consolidated
financial statements on pages 154 and 155). Our review of IFRS 16 indicates that the financial impact will result in an increase in finance leased assets of
approximately £278 million, and a corresponding increase in financial liabilities of £297 million, on the consolidated balance sheet of the Group’s financial
statements.
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. Accounting for the judgemental nature surrounding commercial income for the retail business, accounting for share based
payments and exceptional items A are recurring issues for the Group, but did not require a significant change in the basis of the estimate or judgement during
the period, unlike some previous periods. The accounting treatment of all significant issues and judgements was subject to review by the external auditor. For
a discussion of the areas of particular audit focus by the external auditor, refer to pages 142 to 148 of the Independent Auditor’s Report. The Audit Committee
considers that the Company has adopted appropriate accounting policies and made appropriate estimates and judgements.
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 49) and the assessment reports prepared by management in support of such statements. The report on the viability statement
included updated downside scenarios in light of the agreements signed by Ocado with Solutions partners during the period. The Audit Committee
gave careful consideration to the period of assessment used for the viability statement. It took into account a wide range of factors (as set out on
page 49) and concluded the time period of three years remained appropriate. The external auditor discussed the statements with management
and approved of the conclusions reached by management regarding concern and viability.
Tax Review: The Board reviewed and approved the Group’s tax strategy and related statement, which was published during the year.
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
Governance, Risk and Compliance, a regular finance controls self-assessment report by management, Internal Audit assurance reports and the assurance
provided by the external auditor and other third parties in specific risk areas.
The Audit Committee has reviewed and the Board has agreed the continued effectiveness of the Group’s system of internal control, including risk
management. The Board confirms that no significant failings or weaknesses were identified during the year and up to the date of this Annual Report.
Where areas for improvement have been identified, plans have been proposed to ensure that necessary action is taken and that progress is monitored.
A See Alternative Performance Measures on pages 229 and 230
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 79
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:05 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 80
Audit Committee Report
The Board discussed and reviewed the Group’s risk appetite when reviewing the principal risks and the strategy 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 the 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 Group’s information security controls and assurance plans for the existing systems, the programme for complying with the new General
Data Protection Regulation and the programme for the new Ocado Solutions platform security and privacy internal control systems. 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 44 to 49.
Internal Audit: 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. The Audit Committee reviewed the Internal Audit plan in January 2018 and considered it appropriate to the Group
having regard to the principal risks of the business.
The Internal Audit plan, which is risk-based, sets out a number of activities for the period and the 2019 Financial Year, including key assurance
programmes, most notably the work on the Ocado Solutions platform security and privacy internal control system. The programme also included
operational audits for key operational risk areas such as physical site security, supplier payments and the Group’s business continuity and disaster
recovery plans. The Audit Committee reviews the planned Internal Audit activities, and its resourcing and prioritisation. Internal Audit reports
to each Audit Committee meeting. Management actions are tracked and the status of these actions is reported alongside progress against the
Internal Audit plan. These reports enable the Audit Committee to monitor progress, and to discuss key findings and the plans to address them.
The Audit Committee is satisfied that the Internal Audit plan provides appropriate assurance on the controls in place to manage the principal risks
facing the Group.
Internal Audit Effectiveness Review: A review of the effectiveness of the Internal Audit function was carried out during the period by way of a
questionnaire completed by members of management and business operations, the Audit Committee members and the external auditor, as well as
a self-assessment by the Head of Internal Audit. 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 auditor provided during the period, the Audit Committee concluded that the Internal Audit function was effective.
During the period, the Audit Committee met with the Head of Internal Audit, without management present.
Annual Review: In addition to its annual performance evaluation, discussed in the Corporate Governance Statement on page 67, the Audit
Committee carried out a review of its terms of reference. The review resulted in changes to the terms of reference to reflect the new 2018 Code.
The Audit Committee’s terms of reference can be found on www.ocadogroup.com.
Assessing the Effectiveness of the External Audit Process and the External Auditor
The Audit Committee places great importance on ensuring that there are high standards of quality and effectiveness in the external audit. Given
Deloitte transitioned into the external auditor role during the prior period, the Audit Committee assessment covers the first full period of Deloitte as the
Company’s external auditor. The Audit Committee reviewed and approved 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 Deloitte 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 Auditor’s Report on pages 142 to 148). The Audit Committee also considered the audit scope and materiality threshold. The Audit
Committee met with Deloitte at various stages during the period, including without management present, to discuss their remit and any issues arising
from the work of the auditor.
At the end of the period, the Audit Committee reviewed the performance of Deloitte 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 questionnaire was completed by members of the Audit
Committee, members of the finance department and senior members of management. The results of the questionnaire were reviewed by the
Audit Committee. The Audit Committee also met with management, including without Deloitte present, to hear their views on the effectiveness of
the external auditor.
The Audit Committee concluded that Deloitte had remained effective in their role.
Independence and Objectivity: The Audit Committee considered the safeguards in place to protect the external auditor’s independence. Deloitte
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 auditor’s independence and concluded that Deloitte remained independent and objective in relation to the audit.
Ocado AR2018 Governance.indd 80
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:05 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 81
Non-Audit Work Carried Out by the External Auditor: To help protect auditor objectivity and independence, the provision of any non-audit services
provided by the external auditor requires prior approval, as set out in the table below. These thresholds are unchanged.
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 auditor 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 so 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 auditor’s 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 the external auditor
during the period is set out in Note 2.6 to the consolidated financial statements on page 168. The non-audit service fees of £39,000 (2017: £311,000)
paid to Deloitte during the period related to audit-related assurance services for an interim review. All non-audit work engagements were approved by
the Chief Financial Officer and Audit Committee Chairman as the fees concerned were within the approval thresholds set under the policy.
The Audit Committee received a regular report from management regarding the extent of non-audit services performed by the external auditor.
Deloitte 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 13% of the audit fees) charged had any impact on its
independence as statutory auditor. It was concluded that appropriate safeguards were in place to prevent a compromise of auditor independence.
The Audit Committee was satisfied this was the case and so concluded that the auditor’s independence from the Group was not compromised.
Audit Fees: The Audit Committee was satisfied that the level of audit fees payable in respect of the audit services provided (excluding audit-
related services) (being £456,000 (2017: £345,000)) 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 auditor is derived from the shareholder approval granted
at the Company’s annual general meeting in 2018. At the annual general meeting in 2018, 99.92% of votes cast by shareholders were in favour of
granting the Directors this authority.
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), including with respect to the Audit Committee’s
responsibilities for agreeing the audit scope and fees and authorising non-audit services.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 81
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:07 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 82
Directors’ Remuneration Report
Dear Shareholder,
On behalf of the Board, I am pleased to present the Directors’ Remuneration Report for 2018.
The performance of the Group saw continued growth in the retail business, steady improvement in the efficiency of the platform and a very rapid
expansion of the Solutions business. The Group achieved strong gross sales A and customer growth and increased EBITDA A for the 52 weeks ended
2 December 2018. The shareholders recognise the strong growth of the Group, with the share price having increased 129% from December 2017 to
December 2018.
The Remuneration Committee is committed to ensuring the Company’s leadership is motivated to deliver long-term sustainable growth through
successful implementation of the strategy. This year we are putting forward a revised 2019 Directors’ Remuneration Policy (the “2019 Policy”) for
shareholder approval at the Annual General Meeting on 1 May 2019. In addition, we have taken on board feedback received from shareholders
both through consultation for the 2019 Policy and in previous years on matters related to remuneration and governance structures, as well as
carefully considering the changing legislative and regulatory environment in both Ocado’s remuneration and disclosures.
Relationship Between Pay and Performance
We have approved a bonus payment to the Executive Directors based on 69% to 72% achievement against objectives under the Annual Incentive
Plan (“AIP”) for the period. More detail about the bonus plan can be found on pages 93 to 94.
During the period, we reviewed the performance against the 2016 Long Term Incentive Plan (“LTIP”) award targets, which had a performance
period ending on 2 December 2018. The 2016 LTIP awards were subject to the achievement of targets relating to the retail business and the
platform business, including the operational efficiency and the capital costs for the Ocado Smart Platform. Based on the results to the end of the
performance period, the Directors achieved 50% against the performance targets as a result of progress made in improving the Andover CFC. The
2016 LTIP awards are expected to vest in March 2019. More detail about the LTIP vesting can be found on page 95.
In 2014, the Remuneration Committee implemented a one-off five-year Growth Incentive Plan (GIP) to incentivise a focus on the key strategic
drivers and delivery of exceptional growth and return to shareholders over the long-term. The GIP is due to vest in May 2019 dependent on
Ocado’s share price growth relative to the FTSE 100 over the five-year performance period exceeding the threshold. While the GIP has been
successful in incentivising management to deliver the growth experienced in the last year, it was not without its structural flaws, in particular its
point-to-point measurement leading to a very binary outcome; it was effectively “underwater” for four of the five performance years and therefore
potentially ineffective as an incentive and retention arrangement for this period.
Base salaries, which underpin retention of the Executive Directors, were reviewed during the period. An increase of 3% was approved, which
is broadly in line with the Group’s employee salary percentage increase and business plans and will be reviewed in the coming period. When
reviewing base salaries, the Committee is mindful of Group performance and the increasing complexity of the business.
The Annual Report on Remuneration on pages 88 to 103 contains details of the remuneration paid to Executive Directors during the period.
The 2019 Directors’ Remuneration Policy and Key Changes to Executive Director Remuneration
The Remuneration Committee works to ensure that the remuneration framework helps support and drive the Company’s strategy.
Under the current schemes, the commercial sensitivity of much of Ocado’s long-term strategic plans meant that the Committee has in the past faced
some criticism from shareholders and advisory bodies where targets were not disclosed in sufficient detail.
It is the view of the Board that the key measure of the success of the implementation of the Company’s strategy over the next period remains the
generation of substantial and sustained total shareholder return. The Committee has worked hard to formulate the 2019 Policy and incentive plans
that drive exceptional, sustainable growth, also rewarding short-term operational and strategic decisions while addressing the flaws that underlie the
long-term plans used historically.
A See Alternative Performance Measures on pages 229 and 230
Ocado AR2018 Governance.indd 82
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:08 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 83
The proposed changes are as follows:
• Simplification of the current remuneration structure through the replacement of the LTIP and AIP with a new AIP, leading to an overall reduction
in total annual variable remuneration opportunity (excluding the one-off plans);
• Mandatory deferral of at least half of any AIP payment into shares (released after five years), with the maximum amount of AIP that can be paid
in cash capped at 100% of salary;
• Introduction of a new one-off Value Creation Plan (the “VCP”), where participants share in the Total Shareholder Return (“TSR”) generated above
10% Compound Annual Growth Rate (“CAGR”) at 2.75% of the value created, measured and banked annually over a five year period. Banked value
is subject to phased vesting in years three, four and five, and achievement of a compound TSR underpin of 10% CAGR at each vesting date;
• Additional holding periods such that vested shares become unrestricted no earlier than five years from start of the VCP and the amount that can
vest in any given year is capped, with any excess eligible to vest in future years;
• Increase to the minimum shareholding requirement and introduction of a post-cessation employment shareholding requirement; and
• Reduction in the maximum Director pension contribution.
The Remuneration Committee believes that the proposed changes to the 2019 Policy address the challenges set out above and will achieve the
goal of motivating and retaining the Executive Directors. The 2019 Policy on pages 107 to 129 will be put to shareholders to vote on at the 2019
AGM. The AIP and VCP are also subject to shareholder approval at the 2019 AGM.
Changes To Non-Executive Director Remuneration
The Non-Executive Directors’ annual fees were subject to annual review and, as a result of this review, the basic fees for Non-Executive Directors
were increased to £52,000 (2017: £50,000). Fee levels have only increased once since April 2014.
The Committee reviewed the Chairman’s remuneration arrangements and have proposed some changes. Upon appointment as Chairman,
Lord Rose received a one-off award of 452,284 shares (the “Matching Shares”), which was approved by shareholders at the 2013 annual general
meeting. Prior to joining the Board, the Chairman had purchased 750,000 shares on his own account (the “Acquired Shares”). The proposal is to
seek shareholder approval to amend the terms of this arrangement to remove a restriction in the terms that prevents the Chairman from selling
the Acquired Shares while he remains a Director of the Company. The Committee believes that since the Matching Shares, which vested in May
2016 and belong to the Chairman, would remain subject to an ongoing restriction that prevents sale of these shares, these arrangements alone
provide sufficient alignment of interests between the Company and its shareholders and the Chairman.
Shareholder Consultation and Remuneration Disclosure
In preparing the 2019 Policy, an extensive shareholder consultation exercise was carried out with the Company’s largest shareholders and
representative bodies. In formulating the proposals, the Remuneration Committee carefully considered the shareholder feedback that had been
received. We contacted the 20 largest shareholders, as well as Glass Lewis, The Investment Association and ISS, to consult on proposed changes to
the policy, and I would like to take the opportunity to thank them again for their input. Further details on the consultation can be found on page 110.
While the UK Corporate Governance Code 2018 (the “2018 Code”) does not apply to the Company yet, the Company is able to evidence that it is
compliant with a number of the provisions of the 2018 Code from a remuneration perspective, including with regards to the proposed 2019 Policy
and the disclosures throughout this report.
Executive Remuneration and the Broader Context
Ocado is committed to ensuring its workforce has the diversity of talent and expertise that it needs for the business to continue to grow and
innovate. Our people are critical to us achieving the strategy and we are committed to hiring and developing the highest quality talent throughout
Ocado, ensuring our people are rewarded fairly and competitively for their contribution to the Company’s success. When making decisions on
executive remuneration, the Committee references a number of factors related to the wider workforce, including the all-employee remuneration
report. Further details on workforce remuneration can be found on page 111.
I will be available at the AGM to answer any questions about the work of the Remuneration Committee.
Andrew Harrison
Remuneration Committee Chairman
5 February 2019
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 83
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:08 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 84
Directors’ Remuneration Report
Remuneration at a Glance
Highlights for 2018
The table below provides a summary total single figure of remuneration for 2018. Further details are set out on page 91 in the Annual Report on
Remuneration.
Executive Director
Tim Steiner
Duncan Tatton-Brown
Mark Richardson
Neill Abrams
Luke Jensen
Total 2018
(£’000)
3,077
1,540
1,532
1,149
1,734
Total 2017
(£’000)
1,137
725
710
587
–
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.
Non-Executive Director base
fees were increased by 4%
in the period.
Read more on pages 92 and 96.
Pensions
Company contributions
to pensions for Executive
Directors did not change
during the period.
Read more on page 92.
AIP
Total bonus earned by
Executive Directors for 2018
based on achievement
of 68.75% to 71.75% of
performance target, was
£1,561,000.
Read more on pages 93
and 94.
Long-Term Incentives
Awards were granted
under the LTIP.
For the 2016 LTIP awards,
which are due to vest in March
2019, achievement was 50%.
Read more on page 95.
All-Employee Schemes
Ongoing participation in
the SIP and Sharesave
schemes.
Read more on page 96.
2018 Annual Incentive Plan (AIP)
Under this plan, 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. A summary of the outcomes is as follows. Further details are set out on pages 93 and 94 in the Annual Report on Remuneration.
Threshold
(6.25% of award payable)
Maximum
(25% of award
payable)
Outcome
(% total award)
10.6
13.4
25
19.75–22.75
68.75–71.75
Retail gross sales
EBITDA A
No of Solutions deals
Individual objectives
Total
2016 Long Term Incentive Plan (LTIP)
Under this plan, the Chief Executive Officer was granted an award of 200% of salary and the other Executive Directors were granted awards of
150% of salary, with the exception of Neill Abrams who was granted an award of 120% of salary. A summary of the outcomes is as follows. Further
details are set out on page 95 in the Annual Report on Remuneration.
Threshold
(6.25% of award payable)
Maximum
(25% of award payable)
Outcome
(% total award)
2018 Retail revenue A
2018 Adjusted Retail EBT
Platform operating efficiency
Platform capital efficiency
Total
A See Alternative Performance Measures on pages 229 and 230
0
0
25
25
50
Ocado AR2018 Governance.indd 84
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:18 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 85
Membership and Meetings
The membership and attendance of the
Remuneration Committee, together with
the appointment dates, are set out below:
Andrew Harrison
Chairman
Ruth Anderson
Remuneration Committee
member since 1 March 2016
Remuneration Committee
member since 9 March 2010
4*/6
6/6
Douglas McCallum
Remuneration Committee
member since 3 October 2011
6/6
* Andrew Harrison did not attend one
meeting due to a prior long-standing
commitment and one meeting due
to family circumstances.
Actual meetings attended
Possible meetings the Director
could have attended
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.
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. The biography of each member of
the Remuneration Committee is set out in the Directors' Report section on
pages 138 and 139.
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.
The Chairman, 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.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 85
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:27 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 86
Directors’ Remuneration Report
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
PricewaterhouseCoopers LLP
Retained by
Remuneration
Committee
Services Provided to the
Remuneration Committee
Other Services Provided
by PwC
Executive remuneration advice including a new
policy and schemes for 2019 and benchmarking
review of Executive Director remuneration.
Advice on a range of remuneration issues for
the Company.
Advice on a range of issues for the
Company, including: cyber security, risk
management, accounting advice and
transaction consulting.
PricewaterhouseCoopers LLP Re-appointment and Review
The Remuneration Committee considered the re-appointment of PricewaterhouseCoopers LLP (“PwC”). This review took into account PwC’s
effectiveness, independence, period of appointment and fees. PwC were appointed by the Remuneration Committee in 2017 following a tender
process led by the Remuneration Committee.
The Remuneration Committee reviewed the performance of PwC 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 PwC remained effective.
The Remuneration Committee considered the independence and objectivity of PwC. PwC 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. PwC confirmed to the Company that they are a member of the Remuneration Consultants Group and as such
operate under the code of conduct in relation to executive remuneration consulting in the UK. The Remuneration Committee is, following its
annual review, satisfied that PwC have maintained independence and objectivity.
For the period, £161,833 in advisory fees were paid or payable to PwC for services provided to the Remuneration Committee. The basis for this is a
fixed retainer fee and a time-based fee for additional work including the 2019 Directors’ Remuneration Policy.
Following the review by the Remuneration Committee, it was agreed that PwC should be re-appointed.
Ocado AR2018 Governance.indd 86
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:29 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 87
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.
How the Committee Spent its Time in 2018
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 62. In line with its terms of reference, the Remuneration Committee’s
work during the period included the following:
• approving the Directors’ Remuneration Report;
• approving the Directors’ Remuneration Policy;
• consulting with shareholders on the proposed 2019 Directors’ Remuneration Policy;
• reviewing performance under the 2017 AIP and consideration of any bonuses payable;
• approving the 2018 AIP performance targets;
• approving the 2018 LTIP awards and performance targets;
• reviewing performance against LTIP awards;
• receiving executive remuneration advice from advisers in respect of a range of matters considered by the Remuneration Committee during
the year;
• receiving a report from the Company Secretary on the implications of the 2018 Code;
• receiving a report on Group-wide and management remuneration for 2018;
• consulting the Chief Executive Officer and the Chairman on performance and remuneration of the Executive Directors;
• receiving reports from advisers on senior executive pay, market themes and trends;
• receiving a report on the Group’s share schemes and plans for 2019;
• receiving a report on shareholder feedback on the 2017 annual report and 2018 annual general meeting; and
• reviewing the performance of advisers.
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. In line with the 2018 Code, the Remuneration Committee will set
remuneration for the Management Committee in future years.
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.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 87
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:29 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 88
Directors’ Remuneration Report
Annual Report on Remuneration — 2018
Introduction
This part of the Directors’ Remuneration Report sets out the Directors’ remuneration paid in respect of the 2018 Financial Year. It details the
payments to Directors and 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 85 and 86, constitutes the Annual Report on Remuneration, and will be put to an
advisory shareholder vote at the Company’s AGM.
Wider Workforce Considerations and Our Approach to Fairness
Ocado is committed to ensuring our workforce has the diversity of talent and expertise that it needs for the business to continue to grow and
innovate. Our people are critical to us achieving our strategy and the Remuneration Committee is aware that ensuring our people are rewarded
fairly and competitively for their contribution to our success is important for hiring, developing and retaining the highest quality of talent
throughout Ocado.
The 2019 Policy is designed in line with the remuneration principles outlined on page 107, 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.
The Remuneration Committee receives an annual report from management on Group-wide remuneration. This review covers changes to pay,
benefits, pensions 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. The Remuneration Committee carefully considers the
relevant parts of this report when making decisions on executive remuneration.
To help support alignment across the Group and with the interests of shareholders and reward for company performance, all UK employees are
eligible to participate in the Group Share Incentive Plan and Sharesave plan. The Management Committee participate in an annual bonus plan and
the LTIP, with no share deferral or holding periods operating on these plans. For some small groups of senior employees, the Group operates some
tailored bonus and long-term incentive arrangements such as the cash-based long-term incentive scheme and management incentive plans.
Employment at Ocado
Our business is built on innovation, on finding solutions, and on delivering world-class service. Our people are critical to us achieving our strategy.
We are committed to hiring and developing the highest quality talent throughout Ocado. We operate in sectors and locations where there is
strong competition for workers. We keep our recruitment processes under constant review and evolve them to make it easy to apply to work for
Ocado while maintaining our high standards. This has allowed us to remain flexible and agile and respond to the changing labour market by using
new attraction methods.
Total Shareholder Return
The following graph shows the Total Shareholder Return (TSR) performance of an investment of £100 in Ocado shares from its Admission to
the end of the period compared with an equivalent investment in the FTSE 100 and FTSE 250 Indices over the past nine years. These indices
were chosen as Ocado has historically been a constituent of the FTSE 250 Index, and has entered the FTSE 100 this year. Both represent a broad
equity market index against which the Company can be compared historically. The Company has not paid a dividend since its Admission so the
Company’s TSR does not factor in dividends reinvested in shares.
As shown in the chart opposite, Ocado’s TSR outperformed the FTSE 250 and FTSE 100 indices over the period.
Ocado AR2018 Governance.indd 88
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:30 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 89
Ocado TSR
FTSE 100 TSR
FTSE 250 TSR
0
0
1
£
f
o
t
n
e
m
t
s
e
v
n
I
n
a
f
o
e
c
n
a
m
r
o
f
r
e
P
R
S
T
600
500
400
300
200
100
0
20 July 2010
26 Nov 2010
25 Nov 2011
30 Nov 2012
29 Nov 2013
28 Nov 2014
27 Nov 2015
25 Nov 2016
01 Dec 2017
30 Nov 2018
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 eight financial years.
Year
2018
2017
2016
2015
2014
2013
2012
2011
2010
Chief Executive Officer
Total Remuneration
(£’000)
3,077
1,337
1,141
5,098
6,483
1,011
483
987
599
AIP or Bonus Payment as
a Percentage of Maximum
Target Achievement
(% of maximum)
70.5
41.8
43.6
65.0
56.0
98.3
29.7
0
n/a
Value of AIP or Bonus
Payment
(£’000)
539
310
315
459
385
528
104
0
220
Long-Term Incentives as
a Percentage of Maximum
Opportunity
(% of maximum)
50
33.4
43.2
90.8
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) under the new regulations (which first applied to the 2013 financial period).
2. From 2010, the Company had the JSOS as the main form of long-term incentive plan. In 2011, the first tranche of JSOS shares vested in that period. 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 above). 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.
3. The total remuneration amounts shown above are the amounts restated to account for the final vesting of each of the LTIP awards. For an explanation of this restatement in respect of
the 2017 period see note 1 of the total remuneration table on page 91. For details of the 2018 period LTIP value, see note 2 of the total remuneration table.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 89
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:30 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance
90
Directors’ Remuneration Report
Chief Executive Officer Percentage Change Versus 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 UK employees from the preceding period to the current period.
Percentage change in salary from 2017 to 2018
Percentage change in taxable benefits from 2017 to 2018
Percentage change in AIP earned from 2017 to 2018
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 employees is on a per capita basis.
3. The change in taxable benefits for the Chief Executive Officer is as set out on pages 91 and 92.
4. UK employees has been chosen as the majority of our workforce is UK-based.
Chief
Executive
Officer
3%
475%
174%
UK
employees
3.2%
6%
208%
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 nor previous year. The information shown in this chart is:
• Loss – Group loss before tax as set out in Note 2.9 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 2.7 to the consolidated financial statements.
Loss before tax
Total gross employee pay
A
2 December
2018
(£m)
(44.4)
388.4
3 December
2017
Restated*
(£m)
(8.3)
335.9
*2017 restatement was due to the adoption of IFRS 15 during the year. Refer to Note 1.5 to the consolidated financial statements for further details.
Company Share Price
The closing market price of the Company’s shares as at 30 November 2018, being the last trading day in the period ended 2 December 2018, was
831.2 pence per ordinary share (2017: 363.5 pence) and the share price range applicable during the period was 337 pence to 1,146 pence per
ordinary share.
Ocado AR2018 Governance.indd 90
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:30 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 91
Executive Directors
Total Remuneration (Audited)
The total remuneration for the period for each of the Executive Directors is set out in the table below.
Tim Steiner
2018
£’000
606
19
54
679
539
2017
£’000
589
4
47
640
310
Duncan
Tatton-Brown
2017
2018
£’000
£’000
364
374
1
2
26
29
391
405
153
266
1,218
950
671
1,848
–
–
–
11
–
1,859
–
3,077
383
–
–
–
4
–
387
–
1,337
858
–
–
–
11
–
869
–
1,540
544
178
–
–
–
3
–
181
–
725
Mark Richardson
Neill Abrams
Luke Jensen
Total
2018
£’000
374
2
27
403
260
663
858
–
–
–
11
–
869
–
1,532
2017
£’000
364
1
12
377
152
529
178
–
–
–
3
–
181
–
710
2018
£’000
314
2
25
341
225
566
574
–
–
–
9
–
583
–
1,149
2017
£’000
305
1
30
336
129
465
119
–
–
–
3
–
122
–
587
2018
£’000
281
5
21
307
271
578
–
1,156
–
–
–
–
1,156
–
1,734
2017
£’000
–
–
–
–
–
2018
£’000
1,949
30
156
2,135
1,561
2017
£’000
1,622
7
115
1,744
744
–
–
–
–
–
–
–
–
–
–
3,696
2,488
4,138
1,156
–
–
42
–
5,336
–
9,032
858
–
–
–
13
–
871
–
3,359
Salary
Taxable Benefits
Pensions
Total Fixed Pay
AIP
Total Remuneration
in cash
Share Plans
LTIP
Cash LTIP
GIP
ESOS and 2014 ESOS
SIP
Sharesave
Total for Share Plans
Recovery of Sums Paid
Total Remuneration
1. The value of LTIP awards for 2015 included in the column for the 2017 financial year has been restated to show the actual vested amount (based on the vesting of the award on
22 March 2018 at a price of 527 pence per share). The actual vested amount is £389,000 higher than the estimated vested amount stated in the 2017 annual report of £469,000. The
estimated vested amount was based on the three-month average share price from 1 September 2017 to 3 December 2017 of 288 pence per share. No dividends were paid.
2. The value of LTIP awards for 2016 included in the column for the financial year has been based on 50% vesting and estimated using the three-month average share price from 30 August
2018 to 2 December 2018 of 860.03 pence per share, as these awards are not capable of vesting until after the end of the period, on 20 March 2019. This value assumes no dividends will
be payable and that the Executive Director 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. Luke Jensen was granted a Cash LTIP award in 2017 prior to becoming an Executive Director. The value of the Cash LTIP award for 2017 included in the column for the financial year is
based on 100% vesting and estimated using the average share price in the final twenty business days of the period, being 804.5 pence per share. The award will vest after the end of the
period on 15 March 2019. More detail can be found on page 96.
4. Under the Share Incentive Plan, awards of Free Shares and Matching Shares became unrestricted during the period. These awards are explained on page 102 of this report.
5. Taxable benefits includes one or more of: private healthcare life assurance private use of a company driver; or a car allowance.
6. Luke Jensen was appointed as an Executive Director with effect from 1 March 2018.
Awards granted under long-term incentive plans and share 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. An explanation of each element of remuneration paid in the table
is set out in the following section.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 91
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:31 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 92
Directors’ Remuneration 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
Luke Jensen
Salary 2017
Salary 2018
(£)
594,000
612,000
367,000
378,000
367,000
378,000
308,000
317,200
378,000 352,000
(£) Effective from
01/04/2018
01/04/2018
01/04/2018
01/04/2018
01/04/2018
The changes to base salary were made in line with the Directors’ Remuneration Policy. The Executive Directors received an increase in base pay of
3% (rounded accordingly) which was in line with the percentage salary increases for the monthly paid employees of the Group in the period.
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 discount. The taxable benefits shown in the Total Remuneration Table on page 91 include the private use of a
company driver for Tim Steiner, and a car allowance for Luke Jensen. 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. These benefit arrangements were made in line with the
Directors’ Remuneration Policy which allows the Company to provide a broad range of employee benefits.
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 contributions during the period made on behalf of the Executive Directors were 8% of base salary. These contributions were made in line
with the Directors’ Remuneration Policy.
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 Directors’ Remuneration Policy. In accordance with this policy, Tim Steiner, Mark Richardson, Luke Jensen and Neill Abrams have elected
to receive part of their pension contributions as an equivalent cash allowance. Duncan Tatton-Brown has elected to receive all of his pension
contribution as cash in line with the Company policy.
Ocado AR2018 Governance.indd 92
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:31 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 93
Annual Incentive Plan (Audited)
The 2018 AIP was based on the performance targets and weightings set out below. 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.
Weighting
of each
condition
Performance targets
required
Actual
Performance
Percentage
of maximum
performance
achieved
Annual bonus value achieved (£’000)
Tim
Steiner
Duncan
Tatton-
Brown
Mark
Richardson
Neill
Abrams
Luke
Jensen
25% Threshold
£56.2m
Maximum £64.2m
25% Threshold £1,580m
Maximum £1,670m
£59.5m
13.4%
103
£1,598.8m
10.6%
81
Commercially
sensitive
See details
below
25%
25%
100%
25%
19.75 –
22.75%
191
164
539
51
40
94
81
266
51
40
94
75
260
42
34
79
70
225
51
40
94
86
271
Performance
conditions
Group
EBITDA A
(Retail) Gross
sales A
No. of
Solutions
deals
Individual
objectives
Total
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 or Solutions performance measure, 6.25% of total bonus is payable and at “maximum” performance, 25% of total bonus is payable.
A straight-line sliding scale applies in relation to the intermediate points between the “threshold” and “maximum”.
2. There is no threshold or maximum target set for the individual objectives. Each objective is weighted and scored to provide a total score out of 25. Performance may range from zero to 25.
3. The applicable salary used for calculating the bonus payment under the rules of the 2018 AIP is the applicable base salary on the date of payment.
Under the AIP, 50% of any bonus paid is deferred in shares for Executive Directors who have not met their shareholding requirement.
Luke Jensen was appointed as an Executive Director during the period, and as such the amount in the table above represents the award he
received prior to his appointment as an Executive Director under the equivalent scheme for senior management.
Individual Objectives
The Remuneration Committee reviewed performance against the objectives listed in the table below. 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 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.
Objective
Tim Steiner
•
•
•
•
•
Successful growth of Ocado.com and other retail platforms
in line with business plans.
Launch and ramp up Erith CFC and continued ramp up of
Andover CFC.
Successful signing of platform deal(s) and set up of internal
programmes to deliver all deals.
Drive the delivery and costs of technology projects to
ensure successful execution of signed Ocado Solutions
deals to support UK business growth.
Lead and motivate the senior team to deliver the
strategy while driving scale and efficiency where possible
throughout the business.
Achievement
Continued growth of the retail business, with 12% growth in
sales in 2017/18.
Erith CFC successfully launched and ramped in 2018 and
successful ramp up of Andover CFC.
Three platform deals signed in the period, with delivery
programmes established.
Significant progress made against strategic objectives relating
to technology projects.
Continued strong leadership of senior management.
Overall performance against individual strategic objectives (maximum opportunity: 25%):
A See Alternative Performance Measures on pages 229 and 230
Outcome
Met/
ongoing
Met/
ongoing
Met
Ongoing
Met/
ongoing
21.5%
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 93
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:31 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 94
Directors’ Remuneration Report
Objective
Duncan Tatton-Brown
•
To prepare and execute a financing strategy to provide
financing for Ocado Solutions obligations and future deals.
To improve Group communications, particularly in relation
to the building of our Solutions business and the Group’s
transition to segmental reporting.
To continue to operate an efficient and effective finance,
strategy and business development function.
Provide more challenges to capabilities, particularly for
cost effectiveness of technology and development spend.
Achievement
Presentation of financing strategy to Board and successful
execution.
Communications improved, with clear presentation of both the
Solutions deals and segmental reporting.
High quality financial and management reporting delivered by
finance team.
Challenges made throughout financial year, with some
improved cost efficiencies.
Overall performance against individual strategic objectives (maximum opportunity: 25%):
Mark Richardson
•
Target OPW rate fully achieved in Andover CFC.
To increase OPW in Andover CFC in line with Ocado’s
growth target.
To ensure development of technology projects continues
on track to enable Solutions partners to go-live in line with
target dates.
To ensure bot improvement programme continues.
To increase CFC productivity in line with agreed targets.
Demonstrate improvements in hourly paid employees’
working conditions.
Tracked monthly in reports to the Board, with all projects on
track.
Tracked monthly in reports to the Board and continuing
improvements ongoing.
CFC productivity continued to improve in the financial year.
Regular updates to the Board, ongoing improvements being
made.
Overall performance against individual strategic objectives (maximum opportunity: 25%):
Neill Abrams
•
To lead business support departments, ensuring they are
able to service changing business needs.
Implement GDPR compliance programme successfully.
Overall performance against individual strategic objectives (maximum opportunity: 25%):
Luke Jensen
•
Legal support for additional Ocado Solutions deals and
execution of existing Ocado Solutions deals (including
international corporate structure and regulatory
compliance). Support for negotiations with existing
partners.
Successful management of IP portfolio to support business
growth.
Establish Ocado Solutions as an international solutions
partner in grocery e-commerce.
Sign a number of Ocado Solutions deals in the year, with
further commercially sensitive details.
To develop an efficient and capable Solutions team, with
appointment and integration of a Commercial Director and
a Chief Product Officer.
Delivery and effective operation of Ocado Solutions deals
in line with budgets.
Business support departments continued to deliver a good
service, with positive feedback received from the business.
DPO hired, with documented compliance programme in place
and no significant negative impact on business operations.
Execution of three Solutions deals and support provided on
negotiation of Solutions deals. Support provided for existing
partners, including advice and negotiations.
Tracked monthly in reports to the Board, ongoing extension of
IP portfolio.
Ocado Solutions established with the signing of three Solutions
deals in the financial year.
Three Solutions deals signed in the financial year and good
progress on commercially sensitive targets.
Ocado Solutions team continued to develop in the year.
Commercial Director and Chief Product Officer appointed.
Significant progress made in delivery of partnerships.
Programme and account management teams put in place for all
partners.
Continued contribution at Board and executive level.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Make an effective contribution to the broader management
of the business at Board and executive level.
Overall performance against individual strategic objectives (maximum opportunity: 25%):
Outcome
Met/
ongoing
Met/
ongoing
Met/
ongoing
Ongoing
21.44%
Met
Met
Ongoing
Met
Ongoing
19.75%
Met
Met/
ongoing
Met
Met
22%
Met
Ongoing
Met/
ongoing
Met/
ongoing
Ongoing
22.75%
Ocado AR2018 Governance.indd 94
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:31 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 95
LTIP (Audited)
The three-year performance period for the 2016 LTIP awards expired at the end of the financial year. The Remuneration Committee reviewed the
performance against the four equally weighted performance conditions for the 2018 Financial Year and has recommended overall vesting of 50%.
The value of the 2016 LTIP awards in the total remuneration table and below is estimated based on the average Company share price for the
final three months of the period, being 860.03 pence per share. The expected vesting date of the 2016 LTIP award is 20 March 2019. Subject to the
continued satisfaction of the award conditions, final vesting will be determined.
Performance
conditions
Retail Revenue A
Weighting
of each
condition
25%
Adjusted retail EBT
25%
Performance targets
required
Threshold
£1,500m
Maximum £,1650m
£20m
Threshold
£30m
Maximum
Actual
Performance
£1,476m
£9.6m
Percentage
of maximum
performance
achieved
0%
w
0%
Estimated LTIP value (£’000)
Tim
Steiner
0
Duncan
Tatton-
Brown
0
Mark
Richardson
0
Neill
Abrams
0
0
0
0
0
Platform
Operational
Efficiency
Platform Capital
Efficiency
Total
Commercially
sensitive
Commercially
sensitive
25%
25%
100%
25%
25%
25%
924
924
1,848
429
429
858
429
429
858
287
287
574
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, 6.25% of the total award will vest and 25% 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 2016 LTIP awards are shown in the table on page 99.
3. Luke Jensen was not an employee at the time of the 2016 LTIP awards and therefore does not have a vesting award.
4. The performance targets and actual performance numbers shown for the retail business have not been adjusted for any impact of IFRS 15 on the Group.
Neither retail business target met the threshold. The revenue used as a performance condition for the LTIP includes Retail revenue A generated by
Ocado.com and the other Retail sites – Fetch, Sizzle and Fabled – but excludes revenue from Morrisons and the Solutions business.
The adjusted retail EBT measure is not consistent with the segmental reporting changes made in 2017. The performance target for adjusted retail
EBT is based on Group EBT less an apportionment of certain costs in a number of areas relating to the Solutions business and is based on 52
weeks. This measure is used by the Remuneration Committee to assess management performance for the 2016 LTIP only. It is not considered an
Alternative Performance Measure.
Specific details of the achievement of Platform Operational Efficiency and Platform Capital Efficiency solution for the Financial Year are not
disclosed. Although the Remuneration Committee is conscious of the regulations and the Code requirement that performance targets should be
transparent, it considers that disclosure of the achievement against these specific targets remains commercially sensitive to the Company and if
disclosed could damage the Company’s commercial interests. The Remuneration Committee believes that the targets were stretching and have
been applied vigorously.
A See Alternative Performance Measures on pages 229 and 230
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 95
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:32 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 96
Directors’ Remuneration Report
Cash LTIP (Audited)
Luke Jensen was granted an award under the Cash LTIP scheme in February 2017, prior to his appointment as an Executive Director.
The Cash LTIP is an amount of money that is based on the value of 143,632 of the Company’s shares. The final cash amount that Luke Jensen is
eligible to receive depends on the extent to which the Company achieves a performance target linked to the number of Ocado Solutions deals
signed by the Group during the performance period.
The Cash LTIP has a three-year performance period. The performance conditions for the 2017 Cash LTIP allow for the early payment of the award
in the event that the maximum performance conditions are satisfied prior to the end of the 2017/18 Financial Year. The performance conditions
were satisfied in full during the period and therefore the award will vest in March 2019. Payout of the full value of the award will be based on the
average share price of the Company’s shares in the twenty business days prior to the payout date.
Share Incentive Plan
The 2015 award of Free Shares made under the SIP became unrestricted during the period on 10 September 2018. Certain Matching Shares also
became unrestricted during the period. Free Shares 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 Shares and Matching Shares will be forfeited. 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. Only the
value of Free Shares and Matching Shares that became unrestricted during the period are shown in the total remuneration table. The value shown
is the value of the shares on the date that they became unrestricted. Unrestricted shares can be held in Trust under the SIP for as long as the
Executive Director remains an employee of the Company.
Recovery of Sums Paid (Audited)
No sums paid or payable to the Executive Directors were sought to be recovered by the Group.
Non-Executive Directors
Total Fees (Audited)
The fees paid to the Non-Executive Directors and the Chairman during the period are set out in the remuneration table below. The Non-Executive
Directors received no remuneration from the Group other than their annual fee.
Fees
Taxable
Benefits
Non-Executive
Director
Lord Rose
Ruth Anderson
Jörn Rausing
Douglas McCallum
Andrew Harrison
Emma Lloyd
Julie Southern
Alex Mahon
Robert Gorrie
Total
2018
£’000
200
65
52
56
59
52
11
2
–
497
2017
£’000
200
62
50
62
50
50
–
62
25
561
2018
£’000
–
–
–
–
–
–
–
–
–
–
2017
£’000
–
–
–
–
–
–
–
–
–
–
Pension
Entitlements
2017
2018
£’000
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Annual
Bonus
2018
£’000
–
–
–
–
–
–
–
–
–
–
2017
£’000
–
–
–
–
–
–
–
–
–
–
Long-Term
Incentives
2018
£’000
–
–
–
–
–
–
–
–
–
–
2017
£’000
–
–
–
–
–
–
–
–
–
–
Recovery of
Sums Paid
2018
£’000
–
–
–
–
–
–
–
–
–
–
2017
£’000
–
–
–
–
–
–
–
–
–
–
Total
Remuneration
2017
2018
£’000
£’000
200
200
62
65
50
52
62
56
50
59
50
52
–
11
62
2
25
–
561
497
1. Alex Mahon retired from the Board with effect from 13 December 2017.
2. Andrew Harrison took over as Remuneration Committee chairman on 11 April 2018.
3. Julie Southern joined the Board with effect from 1 September 2018.
4. Robert Gorrie retired from the Board with effect from the 2017 annual general meeting on 13 May 2017.
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 £52,000 (2017: £50,000), while the fee for chairing a
committee was increased to £13,000 (2017: £12,000).
The Chairman’s fee was reviewed by the Remuneration Committee and was not changed. The Chairman’s fee has not changed since the
Chairman’s appointment in March 2013.
Ocado AR2018 Governance.indd 96
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:32 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 97
Other Remuneration for the Non-Executive Directors (Audited)
In addition to the fees, the Non-Executive Directors are entitled to a staff shopping discount in line with the Group’s employees.
The Company has obtained a written confirmation from each Non-Executive Director that they have not received any other items in the nature of
remuneration from the Group, other than those already referred to in this report.
Recovery of Sums Paid (Audited)
No sums paid or payable to the Non-Executive Directors were sought to be recovered by the Group.
Other Remuneration Disclosures
Executive Directors’ Service Contracts
Each of the Executive Directors has a service contract with the Group. The terms of these contracts are consistent with the Directors’ Remuneration
Policy, though the contracts provide for payment in lieu of notice of one times basic salary only (and do not include other fixed elements of pay,
which are permitted by the policy). The service contracts for each of the Executive Directors are continuous until terminated by either party (on 12
months’ notice if terminated by the Company, or six months’ notice if terminated by the Director).
Non-Executive Directors’ Letters of Appointment
The Chairman and the Non-Executive Directors do not have service contracts and were appointed by letter of appointment for an initial period of
three years, subject to annual re-appointment at the annual general meeting and usually for a maximum of nine years. There are no provisions in
the letters of appointment for payment for early termination. A Non-Executive Director’s 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. Copies of the
letters of appointment and the service contracts of the Executive Directors are available for inspection at the Company’s registered office.
Director
Stuart Rose
Ruth Anderson
Andrew Harrison
Emma Lloyd
Douglas McCallum
Jörn Rausing
Julie Southern
Date of Appointment
11 March 2013
9 March 2010
1 March 2016
1 December 2016
3 October 2011
13 March 2003
1 September 2018
Notice Period
6 Months
1 Month
1 Month
1 Month
1 Month
1 Month
1 Month
Expiry of
Nine Year Term
Mar 2022
Mar 2019
Mar 2025
Dec 2025
Oct 2020
N/A
Sep 2027
Director Retirement Arrangements and Payments for Loss of Office (Audited)
As announced on 14 December 2017, it was determined in accordance with the Directors’ Remuneration Policy that the arrangements set out
below should apply in relation to Alex Mahon’s remuneration on retirement.
Element of Remuneration
Remuneration Payments
Payment for Loss of Office
Share Schemes
Treatment
All outstanding fees were paid to Alex Mahon up to 13 December 2017 in accordance with the
terms of her letter of appointment. No payments are expected after the date of retirement.
No payment for loss of office or other remuneration payment was made or is expected to be made
to Alex Mahon.
At the time of retirement, Alex Mahon was not a participant in a Group share scheme.
Director Appointment Arrangements (Audited)
As announced on 5 July 2018, Julie Southern was appointed to the Board as a Non-Executive Director with effect from 1 September 2018. Julie
Southern’s remuneration is in line with the Directors’ Remuneration Policy. On appointment, Julie Southern’s basic annual fee was £52,000,
which was in line with the other Non-Executive Directors. Julie Southern will not receive any other benefits or payments, in line with the Directors’
Remuneration Policy.
Payments to Past Directors (Audited)
The Company does not have any arrangements for payments to any former Directors of the Company.
Enforcing the Directors’ Remuneration Policy
The Company has not made any payments to a Director outside of the Directors’ Remuneration Policy. All of the decisions regarding executive
remuneration for the period have been made in line with the Directors’ Remuneration Policy.
No Director has options over Company shares outside one of the Company’s recognised share schemes.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 97
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:32 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 98
Directors’ Remuneration Report
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, a
FTSE/JSE Top 40 company listed on the Johannesburg Stock Exchange. Neill does not receive any remuneration for carrying out that role.
• 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.
• In addition to his role as Executive Director of the Company, Luke Jensen is a non-executive director of Hana Group SAS, registered in France. In
2018 he received Board attendance fees of €25,000 for this role.
Director Shareholdings (Audited)
The table below shows 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. The table also shows current compliance with the Director shareholding
requirements in the Directors’ Remuneration Policy as at the date of this Annual Report. All Directors comply with the Director shareholding
requirements.
Ordinary Shares of
2 Pence each held at
2 December 2018
Direct
Holding
23,475,936
1,202,284
1,400,753
1,482,032
3,050,825
94,656
80,000
18,166
17,300
100,000
Indirect
Holding
7,411
–
67,235
12,361
1,265,268
83,109
–
–
–
–
– 69,015,602
–
3,779
Ordinary Shares of
2 Pence each held at
3 December 2017
Direct
Holding
15,245,052
1,202,284
583,041
265,530
768,867
n/a
80,000
18,166
17,300
100,000
–
n/a
Indirect
Holding
14,293,130
–
61,869
6,994
1,319,704
n/a
–
–
–
–
69,015,602
n/a
Minimum
shareholding
requirement
(% of Base
Salary or Fee)
200
100
200
200
200
200
100
100
100
100
100
100
Met minimum
shareholding?
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
n/a
Basis for compliance
Indirect and direct shareholdings
Direct shareholdings
Indirect and direct shareholdings
Indirect and direct shareholdings
Indirect and direct shareholdings
Indirect and direct shareholdings
Direct shareholdings
Direct shareholdings
Direct shareholdings
Direct shareholdings
Indirect shareholdings
n/a
Director
Tim Steiner
Lord Rose
Duncan Tatton-Brown
Mark Richardson
Neill Abrams
Luke Jensen
Ruth Anderson
Andrew Harrison
Emma Lloyd
Douglas McCallum
Jörn Rausing
Julie Southern
1. The indirect holding for Neill Abrams includes holdings of Caryn Abrams (wife of Neill Abrams) who holds 78,109 (2017: 79,701) ordinary shares, Daniella Abrams (daughter of Neill
Abrams) who holds 1,363 (2017: 1,363) ordinary shares, Mia Abrams (daughter of Neill Abrams) who holds 2,143 (2017: 1,363) ordinary shares, Joshua Abrams (son of Neill Abrams) who
holds 2,143 (2017: 1,363) ordinary shares and as a discretionary beneficiary of a trust holding 74,100 (2017: 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 49,889 (2017: 59,889) ordinary shares.
3. The indirect holding for Mark Richardson includes a holding by Rebecca Richardson (wife of Mark Richardson) who holds 4,970 (2017: 4,970) ordinary shares.
4. The indirect holding for Luke Jensen includes a holding by Sandrine Jensen (wife of Luke Jensen) who holds 74,670 ordinary shares.
5. On 31 August 2018, Tim Steiner re-registered 8,192,395 JSOS shares into his own name, leaving no interests in the JSOS.
6. On 20 September 2018, Duncan Tatton-Brown re-registered 799,867 JSOS shares into his own name, leaving no interests in the JSOS.
7. On 20 September 2018, Mark Richardson re-registered 1,198,657 JSOS shares into his own name, leaving no interests in the JSOS.
8. On 21 September 2018, Neill Abrams re-registered 2,766,458 JSOS shares into his own name, leaving no interests in the JSOS.
9. 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 102.
10. No Director had an interest in any of the Company’s subsidiaries at the beginning or end of the period.
11. 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.
12. 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.
13. Where applicable, the above indirect holdings include SIP Partnership and Free Shares held under the SIP, which are held in trust.
14. The Executive Director shareholdings have increased during the period due to the vesting of the 2015 LTIP awards. Read more on page 95.
15. Julie Southern was appointed on 1 September 2018. 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 Julie Southern does not hold the requisite number of shares to comply with the shareholding requirement currently, she is compliant with the policy.
16. The assessment for shareholding compliance is based on the current annualised salary or fee (as set out in the total remuneration tables) which applied on 21 January 2019 (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 885.60 pence per share on
21 January 2019), of the relevant shareholdings.
Ocado AR2018 Governance.indd 98
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:32 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 99
Director Interests in Share Schemes (Audited)
LTIP (Audited)
At the end of the period, the Executive Directors’ total LTIP awards were as follows:
Director
Tim Steiner
Duncan Tatton-Brown
Mark Richardson
Neill Abrams
Luke Jensen
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
Conditional shares
Conditional shares
Basis on
Which Award
is made
(% of Salary)
200
200
200
150
150
150
150
150
150
120
120
120
150
150
Date of
Grant
17/03/16
20/02/17
01/03/18
17/03/16
20/02/17
01/03/18
17/03/16
20/02/17
01/03/18
17/03/16
20/02/17
01/03/18
20/02/17
01/03/18
Number of
Shares
429,885
452,881
219,621
199,310
209,972
101,769
199,310
209,972
101,769
133,655
141,077
68,326
206,913
97,609
Face Value of
Award
(£)
1,122,000
1,155,658
1,187,996
520,000
535,805
550,499
520,000
535,805
550,499
349,000
359,999
369,596
527,996
527,999
End of
Performance
Period
02/12/18
01/12/19
03/12/20
02/12/18
01/12/19
03/12/20
02/12/18
01/12/19
03/12/20
02/12/18
01/12/19
03/12/20
01/12/19
03/12/20
Expected
Vesting Date
20/03/19
20/02/20
18/03/21
20/03/19
20/02/20
18/03/21
20/03/19
20/02/20
18/03/21
20/03/19
20/02/20
18/03/21
20/02/20
18/03/21
1. The award given to Neill Abrams in 2017 was wrongly stated in the 2017 annual report as 150% of his salary at 176,346 shares and has been restated here as the correct figure of 120% of
his salary.
Granted: LTIP awards were made to Executive Directors in respect of 2018 of up to 150% of annual base salary and in the case of the Chief
Executive Officer, an LTIP award with a total value of up to 200% of annual base salary. Such awards were made in accordance with the Directors’
Remuneration Policy. The number of shares subject to an LTIP award was determined based on a price of 540.93 pence per share, being the volume
weighted average price of the Company’s ordinary shares on the three trading days prior to 1 March 2018 (being the LTIP grant date).
The 2018 LTIP awards are subject to four performance metrics. The rationale for, and basis of measurement of, the performance metrics is as
follows:
Performance target
Commercial rationale
Basis of measurement
Vesting Schedule
Retail business –
profitability and revenue
(25% each)
Platform business –
Platform Efficiency and
the Ocado Solutions
revenue A (25% each)
Rewards top-line sales growth
for the Retail business in line
with the Group’s strategy
and the creation of financial
returns to shareholders.
Rewards progress and
achievement with the
proprietary infrastructure
solution and Solutions
business, which is a key
strategy objective.
Earnings before interest and
tax and revenue for the Retail
business for the 2019/20
Financial Year.
Threshold performance: 25% vests (6.25% of each
condition).
Maximum performance: 100% vests (25% of each
condition).
Vesting will be on a straight-line basis between the
“threshold” and the “maximum”.
Each target is discrete and can be achieved
separately. Full vesting will only occur where
exceptional performance levels have been met and
significant shareholder value created.
Efficiency of the platform
business and Ocado Solutions
revenue A .
The platform efficiency target
is made up of two separate
targets, each comprising
12.5%, and being platform
operational efficiency and
platform capital efficiency.
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 of disclosure.
A See Alternative Performance Measures on pages 229 and 230
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 99
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:33 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 100
Directors’ Remuneration Report
Vested: The 2015 LTIP awards had a vesting date of 22 March 2018 for a three-year performance period that ended with the 2016/17 Financial
Year. As explained in the 2017 annual report, the Remuneration Committee reviewed the performance against the award’s four equally weighted
performance conditions, which were Retail Revenue A , adjusted retail EBT*, Platform Operational Efficiency and Platform Capital Efficiency for the
2016/17 Financial Year. Achievement against the performance targets was 25%.
The performance period for the 2016 LTIP awards finished in the year, although these awards are not capable of vesting until 20 March 2019. More
detail can be found on page 95.
* This measure is used by the Remuneration Committee to assess management performance for the LTIP only. It is not considered an Alternative Performance Measure.
Sold: As a result of the vesting of the 2015 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
13/03/15
13/03/15
13/03/15
13/03/15
Grant Price
(£)
3.78
3.78
3.78
3.78
1. For more details see the total remuneration table on page 91.
Lapsed: No LTIP awards lapsed during the period.
Number
of Shares
Vested
72,751
33,730
33,730
22,619
Date of
Vesting and
Sale
22/03/18
22/03/18
22/03/18
22/03/18
Share Price
on Vesting
(£)
5.265
5.265
5.265
5.265
Value of
Shares
Vested (£)
383,034
177,588
177,588
119,089
Shares Sold
on Vesting
34,262
15,885
15,885
10,653
Shares
Retained on
Vesting
38,489
17,845
17,845
11,966
GIP (Audited)
At the end of the period, the Executive Directors’ total GIP awards were as follows:
Director
Tim Steiner
Duncan Tatton-Brown
Mark Richardson
Luke Jensen
Type of Interest
Option with nil exercise price
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
22/02/17
Number
of Share
Options
4,000,000
1,000,000
1,000,000
470,000
Face Value of
Award
(£)
12,744,000
3,186,000
3,186,000
1,191,450
End of
Performance
Period
08/05/19
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
08/05/19 – 31/05/24
1. Luke Jensen was awarded a GIP award on his joining the Group but prior to becoming a Director.
The GIP operates as follows:
Award
2014 GIP
Grant Details
Performance Conditions
Vesting Schedule
Face value of the options determined
based on a price of 318.60 pence per
share, being the price on date of grant.
The face value of the options awarded
to Luke Jensen is based on a price of
253.5 pence per share, being the price
on date of grant.
Single performance condition to be
satisfied over five years:
Performance schedule set out in the
table below.
Share price of the Company relative to
the growth of the FTSE 100 Share Index
over that period.
Assessed using a three-month
averaging period.
Condition of vesting that each Executive
Director holds, and retains throughout
the performance period, shares in the
Company equivalent to:
• CEO: 100% of annual salary;
• CFO and COO: 50% of annual salary;
at the date of the award.
Granted: No awards under the GIP were granted during the period.
Ocado AR2018 Governance.indd 100
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:33 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance Performance Schedule
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)
101
Percentage of
Award Vesting (%)
0
25
50
75
100
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 and 2014 ESOS (Audited)
At the end of the period, the Executive Directors held options under the ESOS or 2014 ESOS as follows:
Director
Duncan Tatton-Brown
Luke Jensen
Type of
Interest
Option
Option
Date of
Grant
12/08/13
15/03/17
Number
of Share
Options
9,923
11,709
Exercise
Price
(£)
3.02
2.562
Face Value of
Grant
(£)
29,967
29,998
Exercise
Period
08/07/16 – 07/07/23
15/03/20 – 14/03/27
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 or 2014 ESOS to the existing Executive Directors. Existing options held by the Executive Directors under the ESOS were granted to
Duncan Tatton-Brown on his appointment in 2013 and Luke Jensen on his joining the Group, but prior to becoming a Director in 2017. None of the
grants of ESOS options to the Executive Directors are subject to performance conditions.
Vested: No awards under the ESOS vested during the period.
Sold: During the period, Mark Richardson exercised 70,000 options with an exercise price of 120.00 pence per option. The gain made by Mark
Richardson on the exercise of share options was £540,300.
Director
Mark Richardson
Date of
Grant
31/05/09
Number of
Options
70,000
Exercise
Price
(£)
1.20
Date of
Exercise
31/05/18
Gain
(£)
540,300
Lapsed: No options under the ESOS lapsed during the period.
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
289
288
289
289
288
Matching
Shares
Awarded in
the Year
42
42
41
41
42
Free Shares
Awarded in
the Year
400
400
400
352
400
Total Face Value
of Free Shares
and Matching
Shares Awarded
in the Year
(£)
3,858
3,858
3,855
3,424
3,858
Total SIP
Shares Held
02/12/2018
7,728
7,670
7,721
6,940
2,181
SIP Shares
that Became
Unrestricted
in the Period
1,137
1,098
1,098
932
–
Total
Unrestricted
SIP Shares
Held at
02/12/2018
4,533
4,486
4,538
4,194
497
Director
Tim Steiner
Duncan Tatton-Brown
Mark Richardson
Neill Abrams
Luke Jensen
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.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 101
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:33 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 102
Directors’ Remuneration Report
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 2018 under the
terms of the SIP and the 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 Directors’ Remuneration Policy. For more details about the SIP, please see page 118.
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 21 January 2019, 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
Luke Jensen
Partnership
Shares
Acquired
35
35
35
35
36
Matching
Shares
Awarded
5
5
5
5
5
Total Face Value
of Free Shares and
Matching Shares
(£)
43
43
42
42
43
Free Shares
Award
–
–
–
–
–
Total SIP
Shares
Held at
21/01/19
7,768
7,710
7,761
6,980
2,222
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: For details of Free Shares and Matching Shares that became unrestricted in the period, see page 101.
Sold: No shares held under the SIP have been sold by an Executive Director.
Lapsed: No shares held by an Executive Director under the SIP lapsed during the period.
Sharesave Scheme (Audited)
At the end of the period, the Executive Directors’ option interests in the Sharesave scheme were as follows:
Director
Tim Steiner
Duncan Tatton-Brown
Mark Richardson
Neill Abrams
Type of
Interest
Options
Options
Options
Options
Date of
Grant
05/08/16
05/08/16
05/08/16
05/08/16
Number
of Share
Options
7,894
7,894
7,894
7,894
Exercise
Price
(£)
2.28
2.28
2.28
2.28
Face Value
(£)
17,998
17,998
17,998
17,998
Exercise Period
01/12/19 – 01/05/20
01/12/19 – 01/05/20
01/12/19 – 01/05/20
01/12/19 – 01/05/20
Granted: No awards under the Sharesave were granted during the period.
Vested: No awards under the Sharesave in which the Executive Directors had Sharesave options vested during the year.
Exercised: No awards under the Sharesave were exercised or sold by the Executive Directors during the period.
Ocado AR2018 Governance.indd 102
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:33 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 103
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. 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 (where available). Awards vesting under the LTIP are typically satisfied by the issue of new shares
and transfer of existing shares by the EBT.
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 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.
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 21 January 2019, to issue new shares in
respect of its share schemes assuming all performance conditions are met, all award holders remain in employment to the vesting date and all
awards are settled in newly issued shares. For these purposes, no account is taken of ordinary shares allocated prior to the Company’s Admission.
All Share Plans
Discretionary Share Plans
%
0
0
.
0
1
%
2
7
.
5
%
0
0
.
5
%
4
1
.
3
Actual
Limit
Actual
Limit
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 103
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:34 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 104
Directors’ Remuneration Report
Annual Report on Remuneration — Implementation of Policy for 2019
Introduction
This part of the Directors’ Remuneration Report sets out the implementation of the Directors’ Remuneration Policy for 2019.
Summary of Changes for Executive Directors
This table briefly summarises the proposals for the Directors’ remuneration arrangements for 2019 when compared to the arrangements for the
previous period, subject to shareholder approval.
Base Salary and
Benefits
Base salary will be
subject to annual review.
Pension
AIP
Long-term Incentives
All-employee Schemes
Reduction in maximum
pension contribution
from 30% of salary to 8%
of salary, to bring this
fully in line with the level
currently offered to all
employees and Executive
Directors.
Simplification via replacement
of LTIP and AIP with a single
new AIP, leading to reduction
in total annual variable
remuneration opportunity.
Mandatory deferral of at least
50% of any bonus earned.
No future LTIP awards to be
made. A new VCP, subject
to shareholder approval,
to replace the GIP, which
gives Executive Directors
the opportunity to share
in 2.75% of the total value
created for shareholders
above a Threshold TSR.
Ongoing participation in
the SIP and Sharesave.
Base Salary and Benefits
The Remuneration Committee expects to finalise its annual review of the Executive Directors’ base salaries later in 2019, in line with the timing of
pay reviews for all of the Group’s employees.
The benefits in kind offered to the Executive Directors are expected to remain unchanged.
Pensions
Pension contributions for Executive Directors will continue to be 8% of salary in 2019.
2019 AIP
The 2019 AIP will operate in line with the 2019 Policy, subject to shareholder approval.
The AIP potential is 275% of salary for the Chief Executive Officer, 215% of salary for the Chief Financial Officer, Chief Operating Officer, Chief
Executive Officer of Solutions, and 190% of salary for the General Counsel and Company Secretary. Any payout is subject to mandatory deferral
of at least half of any AIP award into shares. The maximum amount of AIP award that can be paid in cash is 100% of salary. Shares vest after three
years but are subject to a further two-year holding period, during which they cannot be sold.
There will be four measures in the 2019 AIP, with the weighting for each element as detailed below:
• Retail revenue A (20%): a measure concerning the reported revenue for the Retail segment of the Group.
• Retail profitability (20%): a measure concerning the reported EBITDA A for the Retail segment of the Group.
• Solutions commitments (40%): a measure concerning the number of new commitments from Solutions partners for the Solutions offer,
weighted according to a pre-determined scale linked to the size of the commitment.
• Operational and strategic objectives (20%): as agreed between the Executive Director and the CEO or the Chairman and reviewed by the
Remuneration Committee, which will be in relation to, for example, growth in client bases, platform costs, capacity and productivity targets,
and technology developments.
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, 5% of total
bonus is payable and at “maximum” performance, 20% of total bonus is payable (except for the Solutions commitments target, which is 10% and
40%, respectively). A straight-line sliding scale will apply in relation to the intermediate points between the “threshold” and “maximum”. Each
target is discrete and can be earned separately.
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 expects to disclose achievement against the targets after the end of the performance period.
A See Alternative Performance Measures on pages 229 and 230
Ocado AR2018 Governance.indd 104
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:35 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 105
Value Creation Plan
The new VCP will operate in line with the 2019 Policy, subject to shareholder approval.
The award has no value on grant but gives the Executive Directors the opportunity to share in a proportion of the total value created for shareholders
above a hurdle (“Threshold Total Shareholder Return”) at the end of each year (“Measurement Date”) over a five-year VCP period. At each Measurement
Date, 2.75% of the value created above the hurdle will be “banked” in the form of share awards which will be released in line with the vesting schedule.
The 2.75% will be allocated as follows:
• Chief Executive Officer: 1% of share capital,
• Other Executive Directors: 0.25% each of share capital; and
• 0.75% of share capital in total unallocated for potential future participants.
The initial price for the VCP will be the average share price over the 30-day period prior to the Annual General Meeting (the “Initial Price”). The
Executive Directors will receive the right at the end of each year of the performance period to the share awards with a value representing the
level of the Company’s total shareholder return (“Measurement Total Shareholder Return”) above the Threshold Total Shareholder Return at
the relevant Measurement Date. The share price used at the Measurement Date will be the 30-day average following the announcement of the
Company’s results for the relevant financial year plus the value of any dividends in respect of that year.
The Threshold Total Shareholder Return or hurdle which has to be exceeded before share awards can be earned by the Executive Directors is the higher of:
• The highest previous Measurement Total Shareholder Return; and
• The Initial Price compounded by 10% p.a.
If the value created at the end of a given year does not exceed the Threshold Total Shareholder Return, nothing will accrue in that year under the VCP.
The vesting schedule provides that 50% of the cumulative number of share awards will vest following the third Measurement Date, 50% of the
cumulative balance following the fourth Measurement Date, with 100% of the cumulative number of share awards vesting following the fifth
Measurement Date. At each vesting date, vesting of awards is subject to:
i. A minimum Total Shareholder Return underpin of 10% Compound Annual Growth Rate being maintained:
• Where the Total Shareholder Return underpin has been achieved at the third Measurement Date, 50% of the cumulative balance will vest. If
the underpin has not been achieved no share awards will vest at this point but they will not lapse;
• Where the Total Shareholder Return underpin has been achieved at the fourth Measurement Date, 50% of the cumulative balance will vest. If
the underpin has not been achieved no share awards will vest at this point but they will not lapse; and
• Where the Total Shareholder Return underpin has been achieved at the fifth Measurement Date, 100% of the cumulative balance will vest. If the
underpin has not been achieved no share awards will vest at this point and the remaining cumulative balance will lapse;
ii. Any shares vesting cannot be sold prior to the fifth anniversary of the date of the implementation of the VCP; and
iii. An annual cap on vesting of £20 million for the Chief Executive Officer and a proportionate limit for other Executive Directors. In the event that
in any year vesting as described above would exceed the annual cap, any share awards above the cap will be rolled forward and allowed to vest
in subsequent years provided the cap is not exceeded in those years, until the VCP is fully paid out or after five years after the fifth Measurement
Date when any unvested share awards will automatically vest. Rolled forward share awards will not be subject to further underpins, performance
conditions or service conditions.
In addition, the Remuneration Committee will adjust VCP vesting levels if it believes they are not reflective of underlying business or personal
performance or any other factors it considers appropriate. As part of this, the Remuneration Committee will consider the operational and strategic
performance under the AIP as part of its consideration each year when calculating the VCP banked share awards and on vesting.
The table below shows indicative figures of the value delivered to shareholders and the Executive Directors under the VCP, for three different Total
Shareholder Return performance scenarios.
End share price (after five years)
Additional value created for shareholders over the five years
Chief Executive Officer payout
Other Executive Director payouts (each)
1. These figures are based on an Inital Price of £8.50 and linear growth.
Scenario 1:
10% p.a.
growth
£13.69
£3,624m
Nil
Nil
Scenario 2:
12% p.a.
growth
£14.98
£4,525m
£26m
£6m
Scenario 3:
15% p.a.
growth
£17.00
£5,935m
£55m
£14m
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 105
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:35 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 106
Directors’ Remuneration Report
By using linear growth, the maximum likely value that could be received by the Executive Directors is modelled to ensure shareholders are given a clear
indication of the total that could be earned. If share price growth is not linear the actual level of benefits to the Executive Directors are likely to be less.
The Executive Directors in the VCP may choose to purchase linked jointly owned equity (“JOE”) awards. Under a JOE award the Executive Directors acquire
shares jointly with the Employee Benefit Trust (the “EBT”) trustee where the Executive Directors have an interest in the growth in value of the jointly-owned
shares above a hurdle price. The Executive Directors may only realise value from the JOE award at the same time and to the same extent as from a linked
nil-cost option, and any value the Executive Directors receive from the JOE award will be offset against the value that the Executive Directors may receive
under the linked nil-cost option. Therefore acquisition of a JOE award does not increase the gross value that the Executive Directors may obtain under the
VCP, nor does it allow the Executive Directors to obtain this any earlier. JOE awards are forfeitable in certain circumstances, in particular, where no value will be
delivered to the Executive Directors under the VCP.
SIP
The Executive Directors are expected to continue their participation in the SIP scheme in 2019.
Sharesave
The Executive Directors will be invited to participate in the next offer of Sharesave, expected to be made in 2019.
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.
The Remuneration Committee reviewed the Chairman remuneration arrangements and have proposed some changes. Upon appointment as
Chairman, Lord Rose received a one-off award of 452,284 shares (the “Matching Shares”), which was approved by shareholders at the 2013 annual
general meeting. Prior to joining the Board, the Chairman had purchased 750,000 shares on his own account (the “Acquired Shares”). The Matching
Shares vested in May 2016.
The terms of the award prevent the Chairman from disposing of the Acquired Shares whilst he remains a director of the Company and prevent the
Chairman from disposing of the Matching Shares until the first anniversary of his ceasing to be a director of the Company. The proposal is to seek
shareholder approval to amend the terms of this arrangement to release the Chairman from the disposal restriction in relation to the Acquired Shares.
The Matching Shares vested in May 2016. At this point in line with normal market practice, the restrictions on the sale of the Acquired Shares would
usually be expected to fall away. However under the terms of the award, the removal of the sale restrictions on the Acquired Shares purchased by
Lord Rose requires shareholder approval. The Remuneration Committee believes that since the Matching Shares would remain subject to an ongoing
restriction that prevents sale of these shares, these arrangements alone provide sufficient alignment of interests between the Company and its
shareholders and Lord Rose.
Shareholder Approval and Votes at AGM
The 2018 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 2019 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
2018 AGM
Approve the 2018 Directors’ Remuneration Report
2017 AGM
Approve the 2017 Directors’ Remuneration Policy
Approve the 2016 Directors’ Remuneration Report
2016 AGM
Approve the 2015 Directors’ Remuneration Report
Votes For
% For
Votes
Against
% Against
Total Votes
Votes
Withheld
439,218,285
83.535
86,597,696
16.475
525,815,981
94,803
416,068,306
413,472,812
93.75
93.16
27,747,647
30,342,020
6.25
6.84
448,607,479
448,607,479
4,791,526
4,792,647
314,587,371
91.48
29,304,819
8.52
345,048,769
1,156,579
Ocado AR2018 Governance.indd 106
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:35 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 107
Remuneration Policy Report
Introduction
Ocado is seeking shareholder approval for a new Directors’ Remuneration Policy (the “2019 Policy”) at the 2019 AGM. If approved, it will apply to
payments made from this date. The 2019 Policy is intended to apply for a period of three years from the AGM.
The Directors’ Remuneration Policy was approved by shareholders at the 2017 annual general meeting. The current Directors’ Remuneration
Policy includes three variable remuneration plans: the Annual Incentive Plan, Long Term Incentive Plan and Growth Incentive Plan. The Company
is seeking to reduce the number of plans to two by consolidating the current AIP and LTIP into a single incentive plan based on a new AIP and
introducing a Value Creation Plan.
The Remuneration Committee has taken on board the feedback received from shareholders both in previous years on matters related to
remuneration and governance, and also in respect of the extensive shareholder consultation carried out in advance of putting this 2019 Policy to
shareholders for approval.
Our remuneration principles, which we also aim to cascade throughout the business, underpin our remuneration policy. These principles are that
our remuneration should:
• Support long-term success of the business and sustainable long-term shareholder value.
• Be relevant and aligned to the business strategy and achievement of planned business goals.
• Reflect and support the entrepreneurial and high performance culture of the business.
• Be compatible with the Group’s risk policies and systems.
• Link above-market payouts only to outstanding results.
• Ensure that performance-related pay constitutes a proportion of the overall package appropriate to each level of the organisation.
• Provide a balance between attracting, retaining and motivating the right calibre of candidates and supporting equal opportunity and diversity
of talent.
• Be clear and explainable to appropriate stakeholders.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 107
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:44 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 108
Directors’ Remuneration Report
Link with Strategy
The key objective to be achieved through
the 2019 Policy is to support the Group’s
main strategic objectives of expansion and
high growth. The incentive schemes 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 A (Retail) targets) and the
objectives of creating long-term success and
sustainable long-term shareholder value (for
example, key strategic targets concerning the
delivery of new Solutions partnerships).
The 2019 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 2019 Policy” on
pages 128 and 129. The deferral and holding
periods and the minimum shareholding
requirements 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
Annual
Incentive
Plan
Incentivises achievement of
annual objectives
Deferred
Bonus Under
AIP
Aligns Director and shareholder
interests by delivering bonus
payments in deferred shares with
a holding period
One-off
Plans
Motivates key individuals to achieve
long-term targets and exceptional
levels of performance
Variable
Ocado AR2018 Governance.indd 108
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:44 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 109
Remuneration Committee Discretion and Judgement
In formulating the 2019 Directors’ Remuneration Policy, the Remuneration Committee sought to allow it sufficient operational flexibility over
Director remuneration for three years. While the 2019 Policy provides the boundaries for remuneration arrangements, it is intended to provide
some isolated discretion for the Remuneration Committee to use in various circumstances relating to particular components of remuneration.
The 2019 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 including
whether awards should be time pro-rated
Determination of the treatment of leavers based on the rules of the plan and the appropriate
treatment chosen including whether awards should be time pro-rated
Adjustments to terms of awards required in certain corporate 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 control
Application of malus and clawback
AIP
Y
Y
Y
Y
LTIP
Y
Y
Y
Y
GIP
Y
Y
Y
Y
VCP
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
N
N
Y
Y
Y
Y
N
N
Y
Y
The use of discretion in relation to the Company’s ESOS or 2014 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.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 109
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:44 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 110
Directors’ Remuneration Report
Development of the 2019 Directors’ Remuneration Policy
Shareholder Consultation and Views Obtained
In preparing the 2019 Policy, the Company carried out an extensive shareholder consultation exercise with our largest shareholders and
representative bodies to seek feedback on the main changes proposed.
The Remuneration Committee was pleased with the support most of our largest shareholders gave to our original proposals, in particular the
recognition of the challenges the Remuneration Committee faces in setting Director remuneration at Ocado, and the understanding of our
rationale for the main changes proposed. In finalising our proposals, shareholder feedback received to date was carefully considered, in particular
the feedback on the proposed one-off VCP.
The Company’s 20 largest shareholders were contacted, representing over 80% of our issued share capital at the time of consultation as well as
Glass Lewis, The Investment Association and ISS, to consult on proposed changes to our policy. We carefully considered all feedback, and made
some changes to the proposals in response. The following table sets out full details of the Remuneration Committee’s rationale for the proposed
changes to the current policy, shareholder feedback during the consultation and the final position reached.
Key proposed change
Simplification of the current
remuneration through the
replacement of the LTIP and
AIP with a single new AIP
Rationale, shareholder feedback and Committee response
The Remuneration Committee recognises that short-term incentives (albeit with a large portion of deferral) have a
greater perceived value to participants as the performance period is shorter meaning there is greater certainty of
value sooner compared to the LTIP. For this reason, the proposed annual opportunity has been reduced, with the
calculation set out below:
Executive Director
CEO
CFO, COO, CEO of Ocado Solutions
General Counsel
Current AIP
(% of salary)
125%
100%
100%
Current LTIP
(% of salary)
200%
150%
120%
75% of LTIP
(% of salary)
150%
112.5%
90%
Proposed
AIP (% of
salary)
275%
215%
190%
1. Proposed AIP is equal to the current AIP level plus 75% of the LTIP. Rounded for the CFO, COO and CEO of Ocado Solutions.
The Remuneration Committee believes that the best remuneration vehicle to operate alongside the VCP is a new
AIP to replace the current AIP and LTIP for the following reasons:
a. The issues associated with choosing meaningful three-year strategically-aligned performance measures have
led some stakeholders to comment that the LTIP is not satisfactory. The commercial sensitivity of long-term
targets under the LTIP has prevented the Remuneration Committee from full disclosure about remuneration
arrangements to date;
b. Meaningful and robust one-year annual performance targets can be set under the AIP and can usually be
disclosed retrospectively in line with best practice;
c. Deferred AIP shares vest after three years and are subject to a further two-year holding period. This is in line with
the 2018 Code which states that shares should be subject to a five-year vesting/holding period in order to align
management’s interests with those of shareholders; and
d. Management will remain incentivised to meet financial and operational targets with the prospect of being
remunerated in both cash and deferred shares.
Shareholders supported the simplification of the remuneration structure and commitment to transparency in
targets and performance against them. Some commented positively on the operational nature of the AIP measures
proposed for 2019. For more details see page 115.
Ocado AR2018 Governance.indd 110
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:44 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 111
Key proposed change
Introduction of a new one-
off VCP
Rationale, shareholder feedback and Committee response
The VCP looks to address a number of challenges the Remuneration Committee faces in setting Director
remuneration in Ocado.
The single total shareholder return performance measure of the VCP enables the Remuneration Committee to be
fully transparent about targets and performance against them and there is no requirement to adjust the parameters
of the VCP once set if the Group strategy implementation shifts.
The plan incentivises significant and sustained growth over both the full performance period and each year of the
period, and directly supports the Board’s view that the key output of the effective implementation of the Company’s
strategy is substantial and sustained total shareholder return.
There is a direct alignment between shareholders’ and management’s interests, with the benefit received by
management being proportionate to the return received by shareholders. There is a substantial risk that where
performance has been good but not exceptional the Executive Directors will not benefit, but this is balanced by the
potential for a higher level of reward when stretching levels of return are achieved. The cap on annual vesting, where
the excess is rolled forward and eligible to vest in future years, provides an ongoing locked-in shareholding, which is
aligned with shareholders’ interests.
During the consultation, many shareholders agreed that the VCP was the appropriate incentive plan for the
Company, due to the Company’s ambitious management team and the strategic rationale presented. The long-term
nature of the plan, direct shareholder alignment, and annual cap on vesting were features particularly supported by
shareholders.
In response to shareholder concerns, the Remuneration Committee reduced the proposed potential quantum
delivered under the VCP, and, in addition, increased the hurdle rate to ensure the plan delivered value to the
Executive Directors only in the case of the achievement of exceptional growth.
Vested shares become unrestricted no earlier than five years from the start of the relevant AIP award and the VCP.
This ensures alignment with the 2018 Code, and further increases the alignment of Director interests with those of
the shareholders.
Additional holding periods
Increase to the minimum
shareholding requirement
This change was supported by shareholders.
Increasing the shareholding requirement for the Executive Directors will further link their interests with that of
shareholders.
Introduction of a post-
cessation shareholding
requirement
This change was supported by shareholders.
Introducing a post-cessation shareholding requirement for the Executive Directors ensures that they consider
effective succession planning and provides an ongoing exposure to the impact of decisions made during their
employment through the Company share price post-cessation. This is also in line with the 2018 Code requirements.
This was supported by shareholders.
Reduction in maximum
Executive Director pension
contribution
Although the Executive Directors’ pension contributions are currently 8%, the change to the 2019 Policy means that
pension contributions for any new appointments to the Board will not exceed 8%, thereby ensuring greater fairness
across the Company. This is also in line with the 2018 Code requirements.
This was supported by shareholders.
Statement of Consideration of Employment Conditions Elsewhere in the Company
The 2019 Policy is designed in line with the remuneration principles outlined on page 107. A key remuneration principle for the Group is that share
awards be used to recognise and reward good performance and attract and retain employees.
The Remuneration Committee receives an annual report from management on Group-wide remuneration. This review covers changes to pay, benefits,
pension and share schemes for all employees in the Group, including the percentage increases in base pay for monthly and hourly paid employees.
When making decisions on Executive Remuneration, the Remuneration Committee did not consult with employees when drawing up the 2019 Policy, but
referenced a number of factors related to the wider workforce, including the all-employee remuneration report and potential cascade of remuneration
framework changes.
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.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 111
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:44 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance
112
Directors’ Remuneration Report
Alignment of proposed 2019 Policy with the requirements under the UK Corporate Governance Code 2018
Under the headings prescribed by the UK Corporate Governance Code 2018, the rationale for the main changes to the 2019 Policy are:
Clarity
2018 Code provision: remuneration arrangements should be transparent
and promote effective engagement with shareholders and the workforce
• The complexity of setting three-year performance targets under
the current LTIP along with the commercial sensitivity of much
of Ocado’s long-term strategic plans meant that the targets
and performance against them were not sufficiently clear to
shareholders.
• The single total shareholder return performance measure of the
VCP enables the Remuneration Committee to be fully transparent
about targets and performance against them.
• Under the AIP, it is easier to set meaningful and robust one-
year annual performance targets, which can be fully disclosed
retrospectively.
Simplicity
2018 Code provision: remuneration structures should avoid
complexity and their rationale and operation should be easy to
understand
term of the VCP, leading to substantial long-term shareholder
alignment.
• There is an ability to override formulaic outcomes produced
by the performance conditions where in the Remuneration
Committee’s opinion they do not reflect the true performance of
the business over the period, individual performance or where
the outcome will not deliver the policy intentions.
• In addition, malus and clawback provisions are contained in both
plans.
Predictability
2018 Code provision: the range of possible values of rewards to
individual directors and any other limits or discretions should be
identified and explained at the time of approving the policy
• Payouts under the VCP are presented based on three different
share price growth assumptions on page 105. The award limits
and operation of a cap on annual vesting ensure the potential
payouts under the VCP are limited both annually and, in terms of
number of awards, over the entire life of the VCP.
• Simple payment mechanism – under the VCP, the Executive
Directors receive 2.75% of the value above the hurdle calculated
on an annual basis with the shares received at the end of three,
four and five years from the start of the VCP period.
Proportionality
2018 Code provision: the link between individual awards, the delivery
of strategy and the long-term performance of the company should be
clear. Outcomes should not reward poor performance
• Simple performance condition – the VCP rewards absolute
returns to shareholders.
• Simplified package – number of plans in operation reduced from
three to two with the removal of the LTIP.
Risk
2018 Code provision: remuneration arrangements should ensure
reputational and other risks from excessive rewards, and behavioural
risks that can arise from target-based incentive plans, are identified
and mitigated
• The combination of reward for short-term strategic decisions
(paid part in cash and part in deferred shares) and long-term,
sustainable shareholder returns ensures the Company’s Executive
Director incentives together drive the right behaviours for the
Company and shareholders.
• The caps within the VCP mitigate against excessive reward. There
is a cap on the total number of share awards which may vest
under the VCP of 2.75% of the issued share capital. The cap on
annual vesting (£20 million for the Chief Executive Officer and
a proportionate limit for other Executive Directors), where the
excess is rolled forward and eligible to vest in future years, means
the more successful the growth of the Company, the longer the
• Under the VCP, there is a clear and direct link between Company
performance and individual rewards. The Executive Directors
receive 2.75% of the value created above the threshold hurdle,
and nothing if the threshold growth rate is not achieved.
• The underpin in the VCP operates such that share awards will
only vest if Total Shareholder Return is 10% Compound Annual
Growth Rate or more and if not achieved at the final vesting date,
any unvested share awards will lapse – so there can be no payout
for poor performance.
Alignment to Culture
2018 Code provision: incentive schemes should drive behaviours
consistent with company purpose, values and strategy
• The Remuneration Committee is satisfied that the VCP
incentivises and retains the highly entrepreneurial Chief Executive
Officers and Executive Directors in Ocado.
• Strategic implementation within Ocado is not linear, with
priorities shifting and developing often in the short-term and the
Remuneration Committee has worked hard to formulate a Policy
and incentive plans that drive exceptional, sustainable growth
while also rewarding appropriate short-term strategic decisions.
Ocado AR2018 Governance.indd 112
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:45 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 113
2019 Directors’ Remuneration Policy Table: Elements of Executive Director Remuneration
The following table sets out the key elements of remuneration for the Executive Directors.
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.
How it Operates
Performance
Conditions
Maximum
Opportunity
Recovery or
Withholding
No contractual provisions for
malus or clawback.
Paid monthly in cash.
Not performance linked.
Reviewed annually or when
there is a change in position
or responsibility 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.
Changes from previous Policy
None.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 113
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:45 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 114
Directors’ Remuneration Report
Performance
Conditions
Not performance linked.
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
Any benefits allowances will be
paid in cash monthly and will not
form part of pensionable salary.
The Company provides a range of
benefits which are aligned with
those provided to monthly paid
employees under the Company’s
flexible benefits policy.
Benefits include private medical
insurance and health assessments,
life assurance, travel insurance,
income protection, travel/car
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.
The Company provides Directors’
and Officers’ Liability Insurance
and may provide an indemnity to
the fullest extent permitted by the
Companies Act.
Not performance linked.
Changes from previous Policy
None.
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.
Maximum
Opportunity
Recovery or
Withholding
No contractual provisions for
malus or clawback.
No contractual provisions for
malus or clawback.
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.
Pension contributions
for UK based Executive
Directors will not exceed
8% of annual base salary,
in line with the other
scheme participants.
For Executive Directors
outside the UK, provision
for an executive pension
will be set taking into
account local market rates.
Changes from previous Policy
• For the defined contribution pension scheme, reduction in maximum pension contribution from 30% of salary to up to 8% of salary, to bring
this fully in line with the level currently offered to all employees and Executive Directors.
Ocado AR2018 Governance.indd 114
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:45 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 115
Purpose and
Link to Strategy
Variable Pay
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.
To support long-
term shareholder
alignment
through deferral
into shares and
holding periods.
How it Operates
Performance
Conditions
Maximum
Opportunity
Recovery or
Withholding
The maximum bonus is
275% of salary.
Malus and clawback provisions
will apply to the AIP.
The maximum bonus
payable for the relevant
financial year for each
Executive Director
is described in the
Annual Report on
Remuneration.
Malus will apply to the cash
payments up to the date of
payment of a cash bonus. Malus
will apply to the deferred share
award for three years (or longer,
if the Remuneration Committee
determines) from the date of
grant of a deferred award.
Clawback will apply to cash
payments for three years (or
longer, if the Remuneration
Committee determines) from
the date of payment. Clawback
will apply to the deferred share
award for two years from the
date of vesting.
Read more on page 122.
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 operational and
strategic objectives.
For threshold performance
no more than 25% of the
maximum opportunity
will be earned. For stretch
performance, the maximum
opportunity will be earned.
Details of the performance
conditions, targets and their
level of satisfaction for the
year being reported on will be
set out in the Annual Report
on Remuneration.
The Company will set out
the nature of the targets and
their weighting in the section
headed Implementation of
Policy for the upcoming year.
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.
Up to 50% of any bonus earned
will be paid in cash (up to a
maximum of 100% of salary) and
at least 50% will be deferred into
shares.
The main terms of the deferred
shares are:
• Minimum deferral period of
three years from the date of
grant;
• Additional two-year post
vesting holding period (or
such other period as the
Remuneration Committee may
determine);
• The Executive Director’s
continued employment to
the end of the deferral period
unless he/she is a “good leaver”
(see page 125).
The Remuneration Committee
may award dividend equivalents
on deferred shares to Executive
Directors to the extent that they vest
until the end of any relevant post-
vesting holding period.
Changes from previous Policy
• Simplification of package through replacement of the current LTIP and AIP with a single new AIP, leading to an overall reduction in total annual
variable remuneration opportunity.
• Mandatory deferral of at least 50% of any bonus earned to further support shareholder alignment. Previously, deferral was only required if an
Executive Director had yet to meet their shareholding requirement.
• Additional two-year post-vesting holding period applicable to deferred shares such that the overall time horizon until deferred shares are
released is five years, further supporting shareholder alignment and the phasing of payments.
• Increase in maximum AIP opportunity from 200% of salary to 275% of salary. Overall reduction in total annual variable remuneration
opportunity (excluding the one-off plans) given no further grants under the LTIP.
Purpose and
Link to Strategy
How it Operates
Performance
Conditions
Maximum
Opportunity
Recovery or
Withholding
Any benefits allowances will be
Not performance linked.
Benefits for Executive
No contractual provisions for
malus or clawback.
Contributions, allowances and
Not performance linked.
pension choices for the Executive
Directors are on the same terms
calibre of senior
as for other employees.
No contractual provisions for
malus or clawback.
Benefits
To attract and
retain the right
calibre of senior
executive required
to support
the long-term
interests of the
business.
paid in cash monthly and will not
form part of pensionable salary.
The Company provides a range of
benefits which are aligned with
those provided to monthly paid
employees under the Company’s
flexible benefits policy.
Benefits include private medical
insurance and health assessments,
life assurance, travel insurance,
income protection, travel/car
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.
The Company provides Directors’
and Officers’ Liability Insurance
and may provide an indemnity to
the fullest extent permitted by the
Companies Act.
Changes from previous Policy
None.
Pension
To attract and
retain the right
executive required
to support
the long-term
interests of the
business.
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.
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.
Pension contributions
for UK based Executive
Directors will not exceed
8% of annual base salary,
in line with the other
scheme participants.
For Executive Directors
outside the UK, provision
for an executive pension
will be set taking into
account local market rates.
Changes from previous Policy
• For the defined contribution pension scheme, reduction in maximum pension contribution from 30% of salary to up to 8% of salary, to bring
this fully in line with the level currently offered to all employees and Executive Directors.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 115
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:45 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 116
Directors’ Remuneration Report
Purpose and
Link to Strategy
One-off plan:
Value Creation
Plan (“VCP”)
To attract, retain
and incentivise
senior executives.
To align the
interests of senior
executives and
shareholders,
by incentivising
senior executives
to deliver
substantial and
sustained total
shareholder
return over the
long term.
How it Operates
Performance
Conditions
Maximum
Opportunity
Recovery or
Withholding
A one-off award that grants
Executive Directors the
opportunity to earn share awards
over a five-year performance
period with a vesting period of up
to ten years.
The starting share price for
the beginning of the VCP
performance period will be
the 30-day average prior to
the date of approval of the
VCP by shareholders.
The award gives Executive
Directors the opportunity to
share in 2.75% of the total value
created for shareholders above
a hurdle measured on a date
shortly after the end of each year
(“Measurement Date”) of the five-
year performance period.
The share price used at each
Measurement Date shall be
the 30-day average following
the announcement of the
Company’s results for the
relevant financial year plus
the value of any dividends
payable in respect of that year.
Executive Directors may choose
to receive their share awards by
acquiring linked jointly owned
equity awards at the time that
they are invited to join the VCP.
Fifty percent of the cumulative
number of share awards will vest
following the third and fourth
Measurement Dates, with 100%
of the cumulative number of the
share awards vesting following the
fifth Measurement Date. Additional
holding periods apply such that
vested shares become unrestricted
no earlier than the end of the five
year performance period.
If the minimum return of 10% p.a.
(the “underpin”) has not been
achieved at the third and fourth
Measurement Dates, no share
awards will vest at this point but
they will not lapse. If the underpin
has not been achieved at the
fifth Measurement Date, no share
awards will vest at this point and the
remaining cumulative balance will
lapse.
The Remuneration Committee
may vary the level of vesting of a
share award, if it determines that
the formulaic vesting level would
not reflect business or personal
performance or such other factors
as it may consider appropriate.
The maximum number
of share awards which
may vest under the VCP
is 2.75% of the issued
share capital.
For the Executive
Directors, the following
maximum limits apply:
• CEO: 1% of issued
share capital; and
Malus and clawback
provisions will apply to VCP
awards.
Malus will operate throughout
the performance periods.
The clawback period will be
two years (or longer, if the
Remuneration Committee
determines) from the date of
vesting.
• Other current
Read more on page 122.
Executive Directors:
0.25% of issued share
capital each.
Awards are subject to
an additional cap on
the value on vesting
of £20 million in any
given year for the Chief
Executive Officer and a
proportionate limit for
other Executive Directors
(based on their level of
participation). Any share
awards worth in excess
of this cap will be rolled
forward and eligible to
vest in subsequent years,
so long as the cap is not
breached in those years,
until the VCP is fully paid
out or five years after
the fifth Measurement
Date when any unvested
share awards will
automatically vest.
Rolled forward share
awards are not subject
to the underpin.
The cap on the value
on vesting may lead
to share awards
vesting over a ten-year
period for exceptional
performance.
Changes from previous Policy
• A new plan, operating alongside the AIP as the only other incentive plan.
• Combination of the VCP and AIP aims to ensure the package aligns to Ocado’s purpose, values and strategy and supports strong shareholder
alignment through a simplified and transparent remuneration package.
Ocado AR2018 Governance.indd 116
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:45 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance Purpose and
Link to Strategy
How it Operates
Performance
Conditions
Maximum
Opportunity
Recovery or
Withholding
Purpose and
Link to Strategy
How it Operates
Performance
Conditions
Maximum
Opportunity
Recovery or
Withholding
117
The intention is to allow
legacy LTIP awards
granted prior to 2019
to vest in line with the
previous Policy.
The maximum
opportunity under the
LTIP is 200%.
No future awards will be
granted to the Executive
Directors under the LTIP.
Malus and clawback
provisions will apply to LTIP
awards.
Malus will apply over the
vesting and holding period.
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.
Read more on page 122.
Long-term
Incentive Plan
(“LTIP”)
No future
awards will
be granted to
the Executive
Directors under
the LTIP (subject
to shareholder
approval of the
VCP).
To attract,
retain and
incentivise
senior
executives over
the longer term.
To align the
interests of
the senior
executives
and the
shareholders.
An annual award over a fixed
number of shares. Awards made
in the form of nil-cost options
or conditional share awards
will ordinarily vest three years
from the date of grant, subject
to continued service and the
achievement of performance
conditions and other conditions.
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.
Dividend equivalents may be paid
in cash or additional shares on
LTIP awards that vest (and where
relevant up to the end of any
holding period).
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 be earned.
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.
Changes from previous Policy
• The Remuneration Committee will not make awards under the LTIP to participants in the VCP (subject to shareholder approval of the VCP).
A one-off award that grants
Executive Directors the
The starting share price for
The maximum number
Malus and clawback
the beginning of the VCP
of share awards which
provisions will apply to VCP
opportunity to earn share awards
performance period will be
may vest under the VCP
awards.
over a five-year performance
the 30-day average prior to
is 2.75% of the issued
period with a vesting period of up
the date of approval of the
share capital.
to ten years.
VCP by shareholders.
For the Executive
The award gives Executive
Directors the opportunity to
The share price used at each
Directors, the following
Measurement Date shall be
maximum limits apply:
share in 2.75% of the total value
the 30-day average following
created for shareholders above
the announcement of the
a hurdle measured on a date
Company’s results for the
• CEO: 1% of issued
share capital; and
vesting.
Malus will operate throughout
the performance periods.
The clawback period will be
two years (or longer, if the
Remuneration Committee
determines) from the date of
shortly after the end of each year
relevant financial year plus
• Other current
Read more on page 122.
(“Measurement Date”) of the five-
the value of any dividends
year performance period.
payable in respect of that year.
One-off plan:
Value Creation
Plan (“VCP”)
To attract, retain
and incentivise
senior executives.
To align the
interests of senior
executives and
shareholders,
by incentivising
senior executives
to deliver
substantial and
sustained total
shareholder
return over the
long term.
Executive Directors may choose
to receive their share awards by
acquiring linked jointly owned
equity awards at the time that
they are invited to join the VCP.
Fifty percent of the cumulative
number of share awards will vest
following the third and fourth
Measurement Dates, with 100%
of the cumulative number of the
share awards vesting following the
fifth Measurement Date. Additional
holding periods apply such that
vested shares become unrestricted
no earlier than the end of the five
year performance period.
If the minimum return of 10% p.a.
(the “underpin”) has not been
achieved at the third and fourth
Measurement Dates, no share
awards will vest at this point but
they will not lapse. If the underpin
has not been achieved at the
fifth Measurement Date, no share
awards will vest at this point and the
remaining cumulative balance will
lapse.
The Remuneration Committee
may vary the level of vesting of a
share award, if it determines that
the formulaic vesting level would
not reflect business or personal
performance or such other factors
as it may consider appropriate.
Executive Directors:
0.25% of issued share
capital each.
Awards are subject to
an additional cap on
the value on vesting
of £20 million in any
given year for the Chief
Executive Officer and a
proportionate limit for
other Executive Directors
(based on their level of
participation). Any share
awards worth in excess
of this cap will be rolled
forward and eligible to
vest in subsequent years,
so long as the cap is not
breached in those years,
until the VCP is fully paid
out or five years after
the fifth Measurement
Date when any unvested
share awards will
automatically vest.
Rolled forward share
awards are not subject
to the underpin.
The cap on the value
on vesting may lead
to share awards
vesting over a ten-year
period for exceptional
performance.
Changes from previous Policy
• A new plan, operating alongside the AIP as the only other incentive plan.
• Combination of the VCP and AIP aims to ensure the package aligns to Ocado’s purpose, values and strategy and supports strong shareholder
alignment through a simplified and transparent remuneration package.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 117
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:45 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 118
Directors’ Remuneration Report
All Employee Share Plans
The table below summarises the All Employee Share Plans operated by the Group, and which the Executive Directors are able to participate in.
Performance
Conditions
Maximum
Opportunity
Recovery or
Withholding
The scheme rules do
not provide for malus or
clawback provisions.
Not performance linked. 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.
Not performance linked. Maximum opportunity
for awards and
purchases are kept in
line with HMRC limits.
The scheme rules do
not provide for malus or
clawback provisions.
Purpose and Link to
Strategy
Sharesave
To provide all
employees, including
Executive Directors,
the opportunity to
voluntarily invest in
Company shares and be
aligned with the interests
of shareholders.
How it Operates
All employees, including
Executive Directors, are eligible to
participate in this all employee tax
advantaged share scheme.
The Company grants options
over shares in the Company to
employees.
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.
Changes from previous Policy
None.
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.
All employees are eligible to
participate in this all employee
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.
Changes from previous Policy
None.
Ocado AR2018 Governance.indd 118
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:45 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 119
Non-Executive Directors
The following table sets out the key elements of remuneration for the Non-Executive Directors.
Performance
Conditions
Maximum
Opportunity
Recovery or
Withholding
Not performance linked.
How it Operates
The fee is paid monthly as a mix
of cash and shares, as determined
by the Remuneration Committee.
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.
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.
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, a
Board committee chair or other
additional responsibility.
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.
No contractual provisions
for clawback or malus.
No contractual provisions
for clawback or malus.
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.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 119
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:46 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 120
Directors’ Remuneration Report
Purpose and Link to
Strategy
Travel and expenses
To support the Directors
in the fulfilment of their
duties.
Other arrangements
Performance
Conditions
Maximum
Opportunity
Recovery or
Withholding
No contractual provisions
for clawback or malus.
Not applicable.
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.
How it Operates
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.
Ocado AR2018 Governance.indd 120
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:46 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 121
Purpose and
Link to Strategy
Minimum
Shareholding
requirement
To align Executive
Directors and
shareholders.
How it Operates
The Remuneration Committee has adopted formal shareholding requirements that will encourage Directors to build up
over a five year period and then subsequently hold a shareholding equivalent to a percentage of base salary. Adherence to
these guidelines is a condition of continued participation in the equity incentive arrangements for Executive Directors. This
policy ensures that the interests of Directors and those of shareholders are closely aligned.
The following table sets out the minimum shareholding requirements:
Role
Shareholding Requirement (% salary)
Group Chief Executive Officer
400%
Other current Executive Directors
300%
Other future Executive Directors
300%
Chairman
Non-Executive Directors
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.
The Remuneration Committee retains the discretion to increase the shareholding requirements.
In addition, a post-cessation shareholding requirement will apply to Executive Directors who leave the Company. Leavers
will have a requirement to hold 100% of their pre-cessation shareholding requirement for 12 months from leaving.
Changes from previous Policy
• Minimum shareholding requirements increased for all existing Executive Directors from 200% of salary, and post-cessation shareholding
requirement introduced.
• Increased shareholding requirement for existing Executive Directors further supports shareholder alignment, encouraging sustainable share
price growth. The higher requirement for existing Executives is fulfilled by the current shareholdings that Directors already hold.
• Introducing a post-cessation shareholding requirement for Executive Directors will ensure Executive Directors consider effective succession
planning and provides an ongoing exposure to the impact of decisions made during their employment through the share price of Ocado
post-cessation.
Notes to the Policy Tables
Other than as described in the Policy table, there are no components of the Executive Directors’ remuneration that are not subject to performance
conditions.
Under a jointly owned equity (“JOE”) award the Executive Director acquires shares jointly with the trustee of the Company’s Employee Benefit
Trust, where the Executive Director has an interest in the growth in value of the jointly-owned shares above a hurdle price. The Executive Director
may only realise value from the JOE award at the same times and to the same extent as from a linked share award, and any value the Executive
Director receives from the JOE award will be offset against the value that the Executive Director may receive under the linked share award. No
incremental remuneration arises from the operation of the JOE award.
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.
The Company may make any remuneration payment or payment for loss of office (including exercising any discretion in connection with such
payments) notwithstanding that they are not in line with the policy table set out above if the terms of that payment were agreed (i) before the
Company’s first shareholder-approved directors’ remuneration policy came into effect; (ii) before the 2019 Policy came into effect provided that
those terms were in line with the directors’ remuneration policy in force at the time; or (iii) at a time when the individual was not a Director of the
Company and the Remuneration Committee determines that they payment was not in consideration for the individual becoming a Director. For
these purposes, payments include awards of variable remuneration and the terms of such a payment are “agreed” when the award is granted.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 121
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:46 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 122
Directors’ Remuneration Report
Malus and Clawback Provisions
The AIP, LTIP, GIP and VCP scheme rules contain malus and/or clawback provisions that allow the Remuneration Committee to reduce or retrieve
a payment or an award.
Malus is the adjustment of the AIP payments, unvested AIP deferred shares, unvested LTIP awards, or unvested VCP awards because of the
occurrence of one or more circumstances listed below. The adjustment may result in the value being reduced to nil. Clawback is the recovery of
cash payments made under the AIP or vested LTIP, deferred AIP and VCP awards as a result of the occurrence of one or more circumstances listed
below. Clawback may apply to all or part of an Executive Director’s payment under the AIP, LTIP or VCP award and may be effected, among other
means, by requiring the transfer of shares, payment of cash or reduction of awards or bonuses.
The Remuneration Committee may apply malus/clawback when there are exceptional circumstances. Such exceptional circumstances include
(without limitation):
• a material mis-statement in the published results of the Group or one of its members;
• an error in assessing any applicable performance condition or the number of shares subject to an award;
• misconduct on the part of the Executive Director concerned;
• 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 omissions or (ii) inappropriate values or
behaviour;
• 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 corporate failure of the Company;
• a Group member being censured by a regulatory body; and
• events or behaviour on the part of the Executive Director leading to significant reputational damage to the Group.
The first four of the above triggers are applicable to the LTIP and GIP, and all seven triggers are applicable to the AIP and the VCP. The following
table summarises the application of malus and clawback in respect of the incentive plans.
Malus
Clawback
Annual Incentive
Plan (cash)
Up to the date of
payment of a cash
bonus.
Three years from the
date of payment of a
bonus.
Annual Incentive
Plan (deferred
shares)
Three years from the
grant of a deferred
award.
Two years following the
vesting of an award.
LTIP
Over the vesting period. Over the vesting period. Over the vesting period.
VCP
GIP
Two years following the
vesting of an award.
Two years following the
vesting of any share
awards.
Two years from the end
of the vesting period.
Ocado AR2018 Governance.indd 122
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:46 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 123
Loss of Service or Termination Policy
When considering compensation for loss of office, the Remuneration Committee will always seek to minimise the cost to the Company while
applying the following philosophy:
Remuneration
element
General
Treatment on Cessation of Employment
Each of the Executive Directors is employed pursuant to a service contract with Ocado Central Services Limited.
An Executive Directors’ 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. 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.
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.
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 but not limited to:
• 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
• Outplacement and relocation costs for returning the departing Executive Director and his family.
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 2019 Directors’ Remuneration Policy.
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.
In addition to the discretion listed below, in each case the Remuneration Committee has the discretion to determine that an
Executive Director is a good leaver (see Note 1 at the bottom of the table). It is the Remuneration Committee’s intention to
only use this discretion in circumstances where appropriate, which will be explained to shareholders.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 123
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:46 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 124
Directors’ Remuneration Report
Remuneration
element
AIP – Cash
Awards
AIP – Deferred
Share Awards
VCP
Treatment on Cessation of Employment
Good leaver
Bad leaver
Discretion
The Executive Director service contracts
do not oblige the Company to pay a bonus
if the Executive Director is under notice of
termination.
However, under the rules of the AIP, the
Executive Director may receive a bonus that
the Remuneration Committee determines
would otherwise have been payable or
granted to him under the rules reduced pro-
rata reflecting the proportion of the year that
has elapsed to the date of cessation.
The award will normally be paid at the
usual payment date and may be made in
such proportions of cash and shares as the
Remuneration Committee may determine.
In the event of death, the award will be
determined as soon as reasonably practicable
after the date of death and will, unless
the Remuneration Committee determines
otherwise, be satisfied as a cash payment as
soon as reasonably practicable.
The Executive Director will normally receive
the award at the usual vesting date on the
same timetable as if he had not left, subject to
Remuneration Committee discretion.
In the event of death, any outstanding
deferred shares will vest and be released from
any holding periods as soon as reasonably
practicable after the date of death.
If the Executive Director leaves employment
there will be no further Measurement Dates
and ability to accrue share awards.
Accrued share awards will vest at the normal
vesting and will normally remain subject to
the holding period (other than in the event of
death).
Any deferred awards (that have previously
been rolled forward subject to the cap) will
vest on the normal date.
No payment of cash bonus
for that year.
The Remuneration Committee has the
following elements of discretion for a good
leaver:
• Determine that an award be made;
• Determine whether the awards should be
reduced pro-rata; and
• Determine the timing of the payment.
Lapse of any unvested
deferred share awards
on the date the Executive
Director ceases to be an
employee.
Accrued share awards
(other than deferred
awards) will lapse on
the date of cessation of
employment.
The Remuneration Committee has the
following elements of discretion for a good
leaver:
• Determine that the individual is a good
leaver;
• Determine the timing of the payment; and
• Determine whether the holding period
should apply.
The Remuneration Committee has the
following elements of discretion for a good
leaver:
• Allow an Executive Director to continue
to participate in the VCP until the next
Measurement Date following his cessation
of employment;
• Reduce pro-rata the award to reflect the
period elapsed between the date of the
award and the date of cessation; and
• Determine whether the holding period
should apply.
Ocado AR2018 Governance.indd 124
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:46 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 125
Remuneration
element
LTIP
GIP
Treatment on Cessation of Employment
Good leaver
Bad leaver
Discretion
Unvested LTIP awards will vest on the vesting
date but only to the extent that the performance
conditions have been satisfied.
Awards will normally 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 an Executive Director dies, his LTIP awards
will vest on the date of his death and the
performance conditions will not apply but the
LTIP award will be normally 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 an Executive Director 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 normally
continue to apply.
See LTIP above, as the same leaver rules apply
(except with respect to holding periods which
do not apply to GIP awards).
Lapse of any unvested
LTIP awards. Vested LTIP
options will only lapse if
the Executive Director is
summarily dismissed.
The Remuneration Committee has the
following elements of discretion:
• To determine whether or not to pro-rate
the number of shares. The Remuneration
Committee’s normal policy is that it
will pro-rate awards for time. It is the
Remuneration Committee’s intention
to use discretion to not pro-rate in
circumstances where there is an
appropriate business case which will be
explained in full to shareholders;
• To allow the awards to vest earlier (to the
extent the performance conditions have been
met); and
• Not to apply the post-vesting holding
period to an LTIP award.
See LTIP above, as the
same leaver rules apply
(except with respect to
holding periods which do
not apply to GIP awards).
See LTIP above, as the same leaver rules
apply (except with respect to holding periods
which do not apply to GIP awards).
All-Employee
Share Plans
Leavers will be treated a set out within the
scheme rules.
(1) A good leaver reason is defined as cessation in the following circumstances:
(a) a transfer of the undertaking, or part of the undertaking, in which the Executive Director works to a person which is neither under the control
of the sale of the Executive Directors’ employing company or business out of the Group;
(b) death; or
(c) any other reason determined at the discretion of the Remuneration Committee.
Cessation of employment in circumstances other than those set out above is deemed a bad leaver reason.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 125
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:47 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 126
Directors’ Remuneration Report
Change of Control Policy
The incentive schemes contain change of control provisions, as set out in the relevant scheme rules. These are summarised in the table below.
Executive Director service contracts do not contain any specific provisions relating to a change of control of the business.
If other corporate events occur such as a winding-up of the Company, demerger, special dividend or other event which, in the Remuneration
Committee’s opinion, may materially affect the value of shares, and the Remuneration Committee determines it would not be appropriate or
practicable to adjust awards, the Remuneration Committee may determine that Awards will vest (and be released from any holding periods) on
the same basis as for a change of control.
Name of
Incentive Plan
AIP – Cash
Awards
AIP – Deferred
Share Awards
VCP
Change of Control
Discretion
Pro-rated for time and performance to the date of the
change of control.
The Remuneration Committee has discretion to determine
otherwise.
Subsisting deferred share awards will vest early on a
change of control, and any awards subject to a holding
period will be released.
The Remuneration Committee has discretion to not release the
award early and instead roll the award into an equivalent award in
the acquiring company.
There will be a Measurement Date on the change of
control and the value of additional share awards will be
calculated as at any other Measurement Date.
The Remuneration Committee has discretion to not release the
award early and instead roll the award into an equivalent award in
the acquiring company.
The share price used to calculate the Total Shareholder
Return will be the offer price for the Company.
Accrued share awards will immediately vest (and be
released from any holding periods) on the date of the
change of control.
LTIP
The number of shares subject to subsisting LTIP awards
will vest on a change of control, subject to the following:
• The extent that the performance and other conditions
have been satisfied at that time; and
• Unless the Remuneration Committee determines
otherwise, pro-rating to reflect the proportion of the
normal performance period that has elapsed at the
date of that event.
GIP
Options may be exercised early subject to the
performance target being satisfied, and unless the
Remuneration Committee determines otherwise, in
proportion to the amount of the performance period
that has elapsed.
The Remuneration Committee has discretion regarding whether to
pro-rate the LTIP awards for time. The Remuneration Committee’s
normal policy is that it will pro-rate the LTIP awards for time. It is the
Remuneration Committee’s intention to use its discretion to not pro-rate
in circumstances only where appropriate, which will be explained in full
to shareholders.
The Remuneration Committee may also, 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.
The Remuneration Committee has discretion regarding whether to
pro-rate the GIP awards to time. The Remuneration Committee’s
normal policy is that it will pro-rate the GIP awards for time. It
is the Remuneration Committee’s intention to use its discretion
to not pro-rate if it is deemed inappropriate in the particular
circumstances.
The Remuneration Committee has discretion to not release the
award early and instead roll the award into an equivalent award in
the acquiring company.
Ocado AR2018 Governance.indd 126
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:47 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 127
Recruitment Policy
The Remuneration Committee will seek to align the remuneration package of a newly appointed Executive Director with the directors’
remuneration policy that is in force at the time of appointment. 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.
Where promotion to an Executive Director role is from within the Company, prevailing elements of the remuneration package for an existing
employee would be honoured and form part of the ongoing remuneration of the person concerned, provided such element (if not otherwise
within the terms of this Policy) was not made in contemplation of such person becoming an Executive Director.
The Company’s detailed policy when setting remuneration for the appointment of new Executive Directors is summarised in the table below:
Remuneration
element
Salary, Benefits
and Pension
AIP
VCP
LTIP
“Buy-Out”
of incentives
forfeited on
cessation of
employment
Recruitment Policy
Salary, benefits and pension will be set in line with the 2019 Policy for existing Executive Directors.
Maximum annual participation will be set in line with the 2019 Policy and will not exceed 275% of salary.
The Plan will allow for grants to new joiners as approved by the Remuneration Committee. The new Executive Director’s
share may be reduced to reflect the time elapsed from the grant of the initial awards, and the date of joining.
The hurdle will remain unchanged and the starting price will be set at a minimum at the starting price for other Executive
Directors.
All awards limits and caps, as set out in the 2019 Policy, will apply to any new joiner.
No LTIP awards will be granted to new recruits in line with the operation of the 2019 Policy.
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.
Relocation
Policies
In instances where the new Executive Director is required to relocate or spend significant time away from their normal
residence, the Company may provide one-off compensation to reflect the cost of relocation for the 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.
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.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 127
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:47 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 128
Directors’ Remuneration Report
Illustration of 2019 Directors’ Remuneration Policy
The charts below provide estimates of the potential future reward opportunity for each of the Executive Directors based on the 2019 Policy
outlined on pages 107 to 129.
Tim Steiner, Chief Executive Officer (£m)
Minimum
£0.71
93%
7%
Target
16%
20%
63%
£4.23
1%
Maximum
8.4%
22%
69%
£7.75
0.6%
0
1
2
3
4
5
6
7
8
9
Salary and benefits
Pension
AIP
VCP
Duncan Tatton-Brown, Chief Financial Officer (£m)
Minimum
93%
£0.41
Target
26%
Maximum
15%
7%
2%
1%
27%
45%
£1.49
32%
52%
£2.56
0
0.5
1.0
1.5
2.0
2.5
3.0
Salary and benefits
Pension
AIP
VCP
Mark Richardson, Chief Operations Officer (£m)
Minimum
£0.41
93%
Target
26%
Maximum
15%
7%
2%
1%
27%
45%
£1.49
32%
52%
£2.56
0
0.5
1.0
1.5
2.0
2.5
3.0
Salary and benefits
Pension
AIP
VCP
Neill Abrams, Group General Counsel and Company Secretary (£m)
Minimum
93%
£0.34
23%
51%
£1.32
Target
24%
Maximum
14%
7%
2%
1%
26%
0
0.5
Salary and benefits
Pension
AIP
VCP
59%
1.0
£2.29
1.5
2.0
2.5
Ocado AR2018 Governance.indd 128
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:48 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 129
Luke Jensen, CEO, Ocado Solutions (£m)
Minimum
93%
£0.41
Target
26%
Maximum
15%
7%
2%
1%
27%
45%
£1.49
32%
52%
£2.57
0
0.5
1.0
1.5
2.0
2.5
3.0
Salary and benefits
Pension
AIP
VCP
The table below sets out the assumptions used to calculate the elements of remuneration for each of the scenarios.
Minimum
Target or at
Expectation
AIP
Performance is below threshold on each
metric – no annual variable
Performance is in line with the Company’s
expectations – 50% of maximum bonus
Maximum
Maximum performance is achieved on
each metric – 100% of maximum bonus
VCP
Performance is below threshold on each
metric – no multiple year variable
Performance is in line with the Company’s
expectations – 50% of the average annual
initial estimate of the accounting cost of
award
Maximum performance is achieved
– 100% of the average annual initial
estimate of the accounting cost of award
Base salary, Benefits and Pension
Fixed – included
Fixed – included
Fixed – included
1. Maximum bonus under the AIP is 275% of salary for the Chief Executive Officer, 190% for the Group General Counsel and Company Secretary and 215% for all other Executive Directors.
2. The VCP is a one-off award with a performance period of five years and a minimum release period of five years. The maximum value represents 100% of the average annual initial estimate
of the accounting cost of the award, which is intended to give an estimate of the value of the award on grant. The target value represents 50% of the average annual initial estimate of the
accounting cost of the award. For this illustration, the average annual value has been calculated by dividing the total initial estimate of the accounting cost of the award by five.
The figures use the 2018 base salary, benefits received in 2018 and a pension of 8% of base salary. The performance related pay figures are based
on the proposed awards for 2019, subject to the approval of the 2019 Directors’ Remuneration Policy at the 2019 AGM.
The Company is aware of the revised regulations requiring the maximum scenario in the above charts to reflect Company share price appreciation
of 50% during the relevant performance period for performance targets or measures relating to more than one financial year (i.e. Ocado’s VCP).
For the proposed VCP a share price appreciation of 50% over five years would result in a payout which is less than the payout shown in the target
scenario above. As such, the 50% share price growth scenario has not been included. In addition, dividend equivalents have not been added to
the AIP or VCP share awards.
Basis of Preparation and Audit
This report is a Directors’ Remuneration Report for the 52 weeks ended 2 December 2018, 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 and the
Listing 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 auditor, Deloitte 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:
Andrew Harrison
Remuneration Committee Chairman
Ocado Group plc
5 February 2019
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 129
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:49 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 130
Directors’ Report
Introduction
This section of this Annual Report is a Directors’ Report required
by the Companies Act 2006 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 13 to 57) which includes Corporate
Responsibility (pages 50 to 53), and the Corporate Governance
Statement (defined in the index below as the “CG Statement”)
(pages 62 to 73), which are incorporated by reference into this
Directors’ Report.
The information required to be disclosed in the Directors’
Report can be found in this Annual Report on the pages listed
below. Pursuant to Listing Rule 9.8.4C, the information required
to be disclosed in the Annual Report under Listing Rule 9.8.4R is
marked with an asterisk (*).
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 auditor
Diversity
Employee engagement
Employees with disabilities
Future developments of the business
Going concern and viability
statements*
Greenhouse gas emissions
Independent auditor
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
Corporate governance statement
Strategic Report
Voting rights
131
134
131
CG Statement 61, 138-139
135
Corporate Responsibility 50-53
131
CG Statement 70
Directors’ Remuneration Report 98
136–137
136
Our People 55
Our People 57
136
Strategic Report 13-57
Strategic Report 49
Corporate Responsibility 51
136
Directors’ Remuneration Report
82-129
Corporate Responsibility 53
136
133
CG Statement 62-63
136
Strategic Report 13-57
132
132
Strategic Report 44-49
193-195
132
135
134
133-134
CG Statement 62-73
13-57, 131
132
Ocado AR2018 Governance.indd 130
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:56 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance
Directors’ Report
131
This Annual Report
The Directors are required under the Companies Act 2006 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 13 to 57. The Non-Financial Reporting
Statement on page 137 forms part of the Strategic Report.
The Company has chosen to include some of the information required to be disclosed in the Directors’ Report within the Strategic Report (pages
13 to 57), 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 Corporate Governance Statement, as noted in the index on page 130.
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 Corporate Governance
Statement on pages 62 to 73 and the Directors’ responsibility statement on pages 136 and 137.
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 Corporate Governance Statement on pages 62 to 73.
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.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 131
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:59 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 132
Directors’ Report
Share Capital
The Company’s authorised and issued ordinary share capital as at 2 December 2018 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 21 January 2019, being the last practicable date prior to publication of this report, the Company’s issued share capital consisted of 698,309,337
issued ordinary shares, compared with 631,298,705 issued ordinary shares per the 2017 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 4.9 to the consolidated financial statements. During the
year, the Company completed two placings of shares. More information can be found on pages 196 and 197.
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, as at 2 December 2018, 6,401,306 (2017: 32,800,390) were 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 4,516,292 of these ordinary shares, although it may at the request of a participant
vote in respect of 1,885,014 ordinary shares which have vested under the JSOS and remain in the trust at period end. The total of 6,401,306 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 6,401,306 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.
Ocado AR2018 Governance.indd 132
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:59 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 133
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 98 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 2 May 2018, 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 2 May 2018, 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 1 August 2019).
The Directors were also granted authority at the previous annual general meeting on 2 May 2018 to disapply pre-emption rights. This resolution
(which is in accordance with the guidance issued by the Pre-Emption Group (the “PEG Principles”)) sought the authority to disapply pre-emption
rights over 5% of the Company’s issued ordinary share capital. A further authority was granted to the Directors to disapply pre-emption rights for an
additional 5% for certain acquisitions or specified capital investments as allowed by the PEG Principles. The Company sought similar authorities at
the 2017 annual general meeting, though not in respect of the additional 5%.
The Company will, consistent with the 2018 annual general meeting, continue to seek authority to allot shares on the basis of the authorities sought
at the 2018 annual general meeting. The Company believes such approach is appropriate given that it follows the guidance set by the Pre-Emption
Group and Investment Association on the allotment of shares.
During the period, shares in the Company were issued to satisfy options and awards under the Company’s option and incentive schemes and to
do share placings. During the period, on 6 February 2018, the Company used the relevant authorities to place 31,463,500 new ordinary shares. The
placing represented approximately 5% of the issued ordinary share capital of the Company prior to the placing. On 24 May 2018, the Company used
the relevant authorities to issue 33,146,200 new ordinary shares. The placing represented approximately 5% of the issued ordinary share capital of the
Company prior to the issue.
Engagement with Shareholders
At the 2018 annual general meeting, the Company’s share allotment resolution in connection with a rights issue only (Resolution 18) received
less support than expected by management. The Company consulted the large shareholders who did not support the resolution. The Company
Secretary received feedback from the larger unsupportive shareholders that indicated they had governance policies that were not wholly aligned
with the Pre-Emption Group’s Statement of Principles and Investment Association guidance. The Company will propose an equivalent resolution
at the 2019 AGM that follows this guidance, in line with previous years.
This year the Company has conducted an extensive consultation with shareholders about the 2019 Directors’ Remuneration Policy. More
information about the consultation can be found on pages 83, 110 and 111.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 133
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:59 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 134
Directors’ Report
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 & Amsterdam Trust Company Limited
The Capital Group Companies, Inc.
The Kroger Co.
Citigroup Global Markets Limited
Generation Investment Management LLP
Number of
Ordinary
Shares/Voting
Rights
105,041,409
94,134,661
42,282,300
35,272,069
28,618,673
Percentage of
Issued Share
Capital
15.05
13.50
6.06
5.31
4.54
Nature of
Holding
Direct/Indirect
Indirect
Direct
Direct/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 2 December 2018
and 21 January 2019 (being not more than one month prior to the date of the Notice of Meeting), except as set out in the table below:
The Capital Group Companies, Inc.
Number of
Ordinary
Shares/Voting
Rights
90,697,454
Percentage of
Issued Share
Capital
12.9885%
Nature of
Holding
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 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.
Senior Secured Notes Due 2024 and Irish Stock Exchange
The Company has Senior Secured Notes due 2024 (the “Notes”) listed on the Irish Stock Exchange and trade on the Global Exchange Market which
is the exchange regulated market of the Irish Stock Exchange. The ISIN of the Notes is XS163400189. Interest on the notes is payable semi-annually
in arrears. The Notes will mature on 15 June 2024.
The Company may redeem the Notes in whole or in part at any time on or after 15 June 2020, in each case, at the redemption prices set out as
part of the offering. Prior to 15 June 2020, the Company will be entitled to redeem, at its option, all or a portion of the Notes at a redemption price
equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest and additional amounts, if any, to the redemption date,
plus a “make-whole” premium. Prior to 15 June 2020, the Company may, at its option, and on one or more occasions, also redeem up to 40% of
the original aggregate principal amount of the Notes with the net proceeds from certain equity offerings. Prior to 15 June 2020, the Company may
redeem during each 12-month period commencing on the Issue Date up to 10% of the aggregate principal amount of the Notes originally issued
(including the aggregate principal amount of any additional Notes) at a redemption price equal to 103% of the principal amount thereof, plus
accrued and unpaid interest to the applicable redemption date. Additionally, the Company may redeem the Notes in whole, but not in part, at a
price equal to their principal amount plus accrued and unpaid interest and additional amounts, if any, upon the occurrence of certain changes in
applicable tax law.
Significant Related Party Agreements
There were no contracts of significance during the period between the Company or any Group company and: (1) a Director of the Company; (2) a
close member of a Director’s family; or (3) a controlling shareholder of the Company.
Ocado AR2018 Governance.indd 134
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:59 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 135
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 126.
Significant Agreements
There are a number of key agreements to which the Group is a party that contain certain rights triggered on the change of control of the Company.
Details of the significant agreements are summarised below.
Solutions agreements: The Group has a number of agreements to provide overseas retailers with access to the Ocado Smart Platform
(comprising the Ocado Group’s proprietary MHE and end-to-end software platform). The key Solutions agreements are those with Casino Supply
Chain SAS, Sobeys Capital Incorporated, ICA Sverige AB and The Kroger Co.
Under those agreements, the retailer is entitled to terminate for convenience at any time following the commencement date of the relevant
services. On termination in these circumstances the client would be obliged to pay Ocado termination fees calculated relative to the length
of time for which the service has been live. However, such termination fees are not payable should the client terminate within a certain period
following the Company coming under the control of certain of the retailer’s competitors or if there is a marked deterioration in service levels
following the Company coming under the control of any person.
Morrisons Agreements: 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 agreements 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 retail 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.
Amended and Restated Credit Facility Agreement: The Group has an unsecured £100 million credit facility with Barclays Bank PLC, HSBC
Bank plc, The Royal Bank of Scotland plc, Cooperative Rabobank UA and Goldman Sachs Bank USA 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.
Senior Secured Notes due 2024: Following a change of control of the Company, holders of the Senior Secured Notes may require it to
repurchase all or part of their holding at a purchase price in cash equal to 101% of the aggregate principal amount of their holding, plus accrued
and unpaid interest.
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 13 to 57.
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 135
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:59 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 136
Directors’ Report
Future Developments of the Business
The Group’s likely future developments including its strategy are described in the Strategic Report on pages 13 to 57.
Employees with Disabilities
Applications for employment by people with disability are given full and fair consideration 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 appropriate training is given and 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 pages 149 and 150. The Group’s loss before tax for the
period amounted to £(44.4) million (2017: £(8.3) million).
The Directors do not propose to pay a dividend for the period (2017: £nil).
Post-Balance Sheet Events
There have been no material events after the balance sheet date of 2 December 2018 to the date of this Annual Report.
Independent Auditor
The Company’s auditor, Deloitte, have indicated their willingness to continue their role as the Company’s auditor. Resolutions concerning the re-
appointment of Deloitte as auditor of the Company and to authorise the Directors to determine their remuneration will be proposed at the AGM and
set out in the Notice of Meeting. For further information on the re-appointment of the auditor, refer to pages 80 and 81 of the Audit Committee report.
Disclosure of Information to Auditor
In accordance with Section 418 of the Companies Act 2016, 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 page 61 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 auditor is 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
auditor is 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
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 to 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.
Ocado AR2018 Governance.indd 136
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:09:59 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 137
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 page 61 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 131) 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.
Non-Financial Information Statement
The table below sets out where stakeholders can find information in our strategic report that relates to non-financial matters, as required under
the new requirements.
Relevant Ocado policies and procedures
Where to read more in this report
Reporting
requirement
Business model
Non-financial
KPIs
Employee
Engagement
The Ocado Citizenship Code
The Ocado Way
Group Health and Safety policy
Whistleblowing policy
Ocado Council
Board diversity policy
Employee engagement platform – Fuse
Human rights
The Ocado Citizenship Code
Human Rights policy
Social matters
The Ocado Way
Our Business Model
Our Strategic Objectives: Driving Growth
Our Strategic Objectives: Maximising Efficiency
Key Performance Indicators
Our Business Model
Our People
Audit Committee Report
Nomination Committee Report
Directors’ Remuneration Report
Directors’ Report
Our people
Corporate Responsibility
Our people
Anti-bribery and
corruption
Environmental
matters
Anti-Bribery and Money Laundering policy
Our people
The Ocado Way
Corporate Responsibility
Page
20
28
30
34–35
20
54–57
55
75
76–81
82–129
54–57
50–53
54–57
54–57
50–53
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 137
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:10:00 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance 138
Directors’ Report
Lord Rose
Chairman, 69
Appointment to the Board
11 March 2013
Committee Membership
Nomination (Chairman)
External Appointments
Chairman of Fat Face Group Limited; Chairman of
Stylemania Limited, trading as Dressipi; Non-
Executive Director of RM2 International S.A.;
Chairman of Majid Al Futtaim Retail based in Dubai;
Non-Executive Director of Time Out Group plc;
Chairman of Zenith
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.
Mark Richardson
Chief Operations Officer, 54
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.
Tim Steiner, OBE
Chief Executive Officer, 49
Appointment to the Board
13 April 2000
Duncan Tatton-Brown
Chief Financial Officer, 53
Appointment to the Board
1 September 2012
Relevant Experience
Tim is the founding Chief Executive Officer of Ocado,
which he started in 2000. Prior to Ocado, he spent
eight years 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.
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. He has previously held Non-Executive Director
positions at Rentokil Initial plc and ZPG plc.
Neill Abrams
Group General Counsel and
Company Secretary, 54
Appointment to the Board
8 September 2000
Luke Jensen
Chief Executive Officer,
Ocado Solutions, 52
Appointment to the Board
1 March 2018
External Appointments
Non-Executive Director of Mr Price Group Limited,
listed in South Africa
External Appointments
Non-Executive Director of Hana Group SAS,
registered in France
Relevant Experience
Neill was on the founding team of Ocado, joining
the Board in September 2000. He has Board
responsibility for the General Merchandise division
and the Corporate Infrastructure departments –
Legal, Governance, Insurance, Real Estate, Human
Resources, Government Relations 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 admitted as a barrister in England & Wales,
an attorney in New York and an advocate in South
Africa.
Relevant Experience
Luke joined Ocado as Chief Executive Officer of
Ocado Solutions in 2017, before joining the Board
in 2018. Prior to joining Ocado, Luke was a Senior
Advisor at Boston Consulting Group and previously
Group Development Director at Sainsbury’s, where
he was responsible for online and digital and all
customer facing digital activities. During his career,
Luke has also worked at OC&C Strategy Consultants
where he was Partner and Head of the Retail and
Consumer practice. He graduated from ESCP and
holds a Masters in Business and Administration
from INSEAD.
Ruth Anderson
Non-Executive Director, 65
Appointment to the Board
9 March 2010
Committee Membership
Audit (Chairman), Remuneration, Nomination
External Appointments
Non-Executive Director of Travis Perkins plc; Trustee
and Director of The Royal Parks; Trustee and
Director of The Duke of Edinburgh’s Award
Relevant Experience
Since retiring from KPMG ten years ago, Ruth has
been a non-executive director at three UK listed
companies. Following her retirement from the
Coats Group plc board last year she chairs the audit
committee of two listed companies and of The
Royal Parks charitable public corporation. She was a
vice chairman of KPMG in the UK from 2004 to 2009
and prior to that 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. Ruth
holds a BA (joint honours) degree in French and
Spanish from the University of Bradford.
Andrew Harrison
Non-Executive Director, 48
Appointment to the Board
1 March 2016
Committee Membership
Audit, Remuneration (Chairman), Nomination
External Appointments
Trustee of The Mix; Chairman of House Simple
Ltd; Partner of Freston Ventures Investments LLP;
Director of Chik’n Ltd
Relevant Experience
Andrew is a partner at Freston Road Investments
which invests in consumer brands that challenge
the status quo. He chairs one of the investments,
House Simple, an online estate agent, and advises
and works with others such as Five Guys, MOD Pizza,
Secret Cinema, Cubitts. Andrew previously served
as Chairman of Carphone Warehouse Ltd and was
formerly Group CEO of Carphone Warehouse PLC
before its merger which he led with Dixon’s Group
plc. During his career he has successfully grown
numerous new businesses, has international retail
experience and developed and ran a global services
business. Andrew graduated from The University of
Leeds with a BA (Hons) in Management Studies in
1992.
Ocado AR2018 Governance.indd 138
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:10:00 AM
26237
4 February 2019 10:05 pm
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Governance 139
Duncan Tatton-Brown
Chief Financial Officer, 53
Appointment to the Board
1 September 2012
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. He has previously held Non-Executive Director
positions at Rentokil Initial plc and ZPG plc.
Luke Jensen
Chief Executive Officer,
Ocado Solutions, 52
Appointment to the Board
1 March 2018
External Appointments
Non-Executive Director of Hana Group SAS,
registered in France
Relevant Experience
Luke joined Ocado as Chief Executive Officer of
Ocado Solutions in 2017, before joining the Board
in 2018. Prior to joining Ocado, Luke was a Senior
Advisor at Boston Consulting Group and previously
Group Development Director at Sainsbury’s, where
he was responsible for online and digital and all
customer facing digital activities. During his career,
Luke has also worked at OC&C Strategy Consultants
where he was Partner and Head of the Retail and
Consumer practice. He graduated from ESCP and
holds a Masters in Business and Administration
from INSEAD.
Ruth Anderson
Non-Executive Director, 65
Appointment to the Board
9 March 2010
Douglas McCallum
Non-Executive Director, 52
Appointment to the Board
3 October 2011
Committee Membership
Audit (Chairman), Remuneration, Nomination
Committee Membership
Remuneration, Nomination
Jörn Rausing
Non-Executive Director, 58
Appointment to the Board
13 March 2003
Committee Membership
Nomination
External Appointments
Non-Executive Director of Travis Perkins plc; Trustee
and Director of The Royal Parks; Trustee and
Director of The Duke of Edinburgh’s Award
Relevant Experience
Since retiring from KPMG ten years ago, Ruth has
been a non-executive director at three UK listed
companies. Following her retirement from the
Coats Group plc board last year she chairs the audit
committee of two listed companies and of The
Royal Parks charitable public corporation. She was a
vice chairman of KPMG in the UK from 2004 to 2009
and prior to that 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. Ruth
holds a BA (joint honours) degree in French and
Spanish from the University of Bradford.
External Appointments
Chairman of Trainline and PhotoBox
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 Philosophy, Politics and
Economics at the University of Oxford, and has an
MBA from Harvard Business School.
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.
Andrew Harrison
Non-Executive Director, 48
Appointment to the Board
1 March 2016
Emma Lloyd
Non-Executive Director, 49
Appointment to the Board
1 December 2016
Committee Membership
Audit, Remuneration (Chairman), Nomination
Committee Membership
Nomination
Julie Southern
Non-Executive Director, 58
Appointment to the Board
1 September 2018
Committee Membership
Audit, Nomination
External Appointments
Trustee of The Mix; Chairman of House Simple
Ltd; Partner of Freston Ventures Investments LLP;
Director of Chik’n Ltd
External Appointments
Group Director of Business Development, Strategic
Partnerships and Investments of Sky, a Comcast
Company
Relevant Experience
Andrew is a partner at Freston Road Investments
which invests in consumer brands that challenge
the status quo. He chairs one of the investments,
House Simple, an online estate agent, and advises
and works with others such as Five Guys, MOD Pizza,
Secret Cinema, Cubitts. Andrew previously served
as Chairman of Carphone Warehouse Ltd and was
formerly Group CEO of Carphone Warehouse PLC
before its merger which he led with Dixon’s Group
plc. During his career he has successfully grown
numerous new businesses, has international retail
experience and developed and ran a global services
business. Andrew graduated from The University of
Leeds with a BA (Hons) in Management Studies in
1992.
Relevant Experience
As Sky’s Group Director of Business Development
and Strategic Partnerships, Emma identifies and
nurtures key strategic relationships with Sky’s
technology and content partners. Emma has
overseen the creation of Sky’s start-up venture
investment function and US presence, leading to the
investment in over 25 technology start-ups. Emma
graduated with a BA Joint Hons in Management
Studies and Geography from the University of Leeds
in 1992.
External Appointments
Non-Executive Director and Chairman of the Audit
Committee of Cineworld Group plc; Non-Executive
Director and Chairman of the Audit Committee of
DFS Furniture plc (stepping down on 31 March 2019);
Non-Executive Director and Chairman of the Audit
Committee of Rentokil Initial plc; Non-Executive
Director and Chairman of the Audit Committee at
NXP Semiconductors NV; Non-Executive Director and
Chairman of the Audit Committee of easyJet plc
Relevant Experience
Previously a finance director at Virgin Atlantic and at
Porsche Cars Great Britain, Julie has extensive executive
experience and has chaired audit committees at
various FTSE listed companies with operations both in
the UK and internationally. She is also an experienced
remuneration committee chairman. Julie holds a BA
(Hons) in Economics from the University of Cambridge
and is a Chartered Accountant.
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
5 February 2019
26237
4 February 2019 10:05 pm
Proof 1
Ocado AR2018 Governance.indd 139
26237
4 February 2019 10:05 pm
Proof 1
05-Feb-19 2:10:00 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Governance Ocado AR2018 Financials.indd 140
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:25 AM
26237
5 February 2019 2:06 am
Proof 1
4.
OUR GROUP
FINANCIALS
142 Independent Auditors’ Report
149 Consolidated Income Statement
150 Consolidated Statement of
Comprehensive Income
151 Consolidated Balance Sheet
152 Consolidated Statement of
Changes in Equity
153 Consolidated Statement of Cash Flows
154 Notes to the Financial Statements
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 141
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:25 AM
142
Independent Auditor’s Report
to the members of Ocado Group plc
Report on the audit of the financial statements
Opinion
In our opinion:
•
•
•
•
the financial statements of Ocado Group plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of the state of the group’s
and of the parent company’s affairs as at 2 December 2018 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the
European Union;
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in
accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial
statements, Article 4 of the IAS Regulation.
We have audited the financial statements which comprise:
•
•
•
•
•
•
the consolidated income statement;
the consolidated statement of comprehensive income;
the consolidated and parent company balance sheets;
the consolidated and parent company statements of changes in equity;
the consolidated and parent company statement of cash flows; and
the related notes 1 to 5.5 to the consolidated financial statements and notes 1 to 5.2 to the parent company financial statements.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union and, as
regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest entities, and we have
fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC’s Ethical
Standard were not provided to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year and prior year were:
Materiality
Scoping
Significant changes in our approach
•
•
Accounting for Solutions contracts
Capitalised project costs
Key audit matters have been updated for the current year where required.
The materiality that we used for the group financial statements was £6.6 million which was determined on the
basis of revenue.
The scope of our group audit includes all significant trading companies in the UK, whose results taken
together account for over 95% of the group’s revenue, profit after tax and net assets. All entities are managed
from one central location in the UK and all audit work is completed by the group audit team. We performed
analytical procedures over the remaining trading entities, the group’s captive insurance company in Malta and
development operations in Poland, Bulgaria and Spain.
In the prior year accounting for commercial income arrangements was included as a key audit matter. This
has not been included in the current year as there is a consistent approach to the treatment of the commercial
income year on year.
There have been no significant changes in our approach in the period to 2 December 2018 compared to the
prior period.
Ocado AR2018 Financials.indd 142
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:25 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 143
Conclusions relating to going concern, principal risks and viability statement
Going concern
We have reviewed the directors’ statement in note 1.2 to the financial statements about whether they
considered it appropriate to adopt the going concern basis of accounting in preparing them and their
identification of any material uncertainties to the group’s and company’s ability to continue to do so over a
period of at least twelve months from the date of approval of the financial statements.
We considered as part of our risk assessment the nature of the company, its business model and related risks,
including where relevant the impact of Brexit, the requirements of the applicable financial reporting framework
and the system of internal control. We evaluated the directors’ assessment of the company’s ability to
continue as a going concern, including challenging the underlying data and key assumptions used to make the
assessment and evaluating the directors’ plans for future actions in relation to the going concern assessment.
We are required to state whether we have anything material to add or draw attention to in relation to that
statement required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent with our
knowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were consistent with the
knowledge we obtained in the course of the audit, including the knowledge obtained in the evaluation of the
directors’ assessment of the group’s and the company’s ability to continue as a going concern, we are required
to state whether we have anything material to add or draw attention to in relation to:
•
•
•
the disclosures on pages 46 to 48 that describe the principal risks and explain how they are being managed
or mitigated;
the directors’ confirmation on page 45 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; or
the directors’ explanation on page 49 as to how they have assessed the prospects of the group, over what
period they have done so and why they consider that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the group will be able to continue in operation and meet
its liabilities as they fall due over the period of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
We are also required to report whether the directors’ statement relating to the prospects of the group required
by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
We confirm that we have nothing
material to report, add or draw
attention to in respect of these
matters.
We confirm that we have nothing
material to report, add or draw
attention to in respect of these
matters.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included
those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Accounting for Solutions contracts
Key audit matter description
A number of Solutions contracts were signed with customers during the year. The accounting for Ocado Solutions
contracts, which generally have a range of deliverables and therefore possible performance obligations, is
complex and requires judgement, particularly as to the timing of revenue recognition. There is a potential risk of
misstatement due to fraud or error if an inappropriate approach to revenue recognition is taken.
The group has elected to adopt IFRS 15 “Revenue from Contracts with Customers” (“IFRS 15”) a year earlier
than required by the accounting standard.
Payments received in respect of these contracts during the year amounted to £200.1m (2017: £146.1m). The
group recognised revenue of £123.0m (2017: £108.4m) in the Income Statement.
The key audit matter for our audit is whether management has applied the principles of IFRS15 appropriately
to each of the material Solutions contracts and therefore recognised the appropriate amount of revenue in the
year. In particular our work has focused on the identification of, and value allocated to, distinct performance
obligations and the profile and period over which revenue is recognised.
Refer to pages 77 and 78 (Audit Committee report), note 1.5 to the consolidated financial statements on the
impact of adopting the new standard including the restatement of the prior year comparative, note 2.2 to
the consolidated financial statements on segmental reporting, and note 1 on the related Critical Accounting
Judgements and Key Sources of Estimation Uncertainty.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 143
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:25 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 144
Independent Auditor’s Report
to the members of Ocado Group plc
Accounting for Solutions contracts
How the scope of our audit
responded to the key audit matter
Our audit procedures included:
•
assessing the design and implementation of management’s controls over the accounting for Solutions
contracts including the impact of transition to IFRS 15;
• meeting with senior management involved with the negotiation of the contracts, in particular the CEO of
Ocado Solutions and the Deputy Legal Counsel to understand the substance of the agreements;
•
•
•
•
•
•
engaging with our internal specialists on the appropriate interpretation of the technical requirements in order
to assess whether the accounting treatment applied by management for each contract is in line with IFRS 15;
reviewing each contract to understand the substance of the arrangement and to identify the potential
accounting matters;
assessing the various deliverables inherent in each contract such as: exclusivity arrangements; set-up
services; provision of software; and design and build of customer fulfilment centres (“CFC”) to ascertain
whether they constitute potential separate performance obligations;
assessing the fees that the Group will receive over the course of the contract in order to ascertain the
appropriate amount of revenue that should be allocated to each performance obligation and the time period
and profile over which that revenue should be recognised through consideration of the customer life;
obtaining evidence to support transactions such as invoices for services, cash receipts, or proof of delivery
for software solutions; and
consideration of the complex disclosure requirements of IFRS 15 and obtaining evidence to support the
amounts disclosed.
Key observations
We are satisfied that revenue from the Ocado Solutions contracts has been recognised appropriately in line
with the contractual agreements and IFRS 15.
Capitalised project costs
Key audit matter description
The Group has invested significantly in developing the software and associated tangible assets it uses to
operate the retail business and to provide the end-to-end Ocado Solutions Platform (“OSP”) to Solutions
partners.
During the year the group invested £212.2m (2017: £160.1m) in capital expenditure. The carrying value of
property, plant and equipment at the year end is £545.8m (2017: £453.7m) and for intangible assets is £143.7m
(2017: £112.4m). Amounts capitalised included a internal development costs of £68.7m (2017: £54.5m).
We identified this as a key audit matter due to the significant amounts invested and the level of judgement
involved, for example in considering whether existing assets are potentially impaired (due to technology being
superseded) and also the appropriateness of the useful economic life assigned to project assets. As assessment
of useful life or potential impairment of assets requires considerable judgement and has an impact on the
amounts recorded as an expense in the Income Statement, there is a potential risk of misstatement due to
fraud or error.
In the current year we focused our audit procedures on the risk of impairment, given the significant sums being
invested and the fast pace of development. New technology could supersede previously capitalised projects or
inappropriate amortisation rates could be used.
Refer to page 78 (Audit Committee statement), notes 3.1 and 3.2 to the financial statements and the disclosures
in respect of Critical Accounting Judgements and Key Sources of Estimation Uncertainty in note 1.
Ocado AR2018 Financials.indd 144
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:25 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 145
Capitalised project costs
How the scope of our audit
responded to the key audit matter
Our audit procedures included:
•
•
•
•
•
•
•
assessing the design and implementation of management’s controls over their process for assessing
impairment, for example a half-yearly review of project status involving project managers and
finance;
for the most significant projects, meeting with project managers responsible to inform our assessment of
the feasibility and economic benefits of the projects, and to identify any indicators of impairment;
reviewing a sample of existing projects for indicators of impairment, including reviewing the profile of all
project additions to assess whether abandoned or put on hold;
reviewing a sample of new projects to assess if they supersede previously capitalised assets;
reviewing amounts capitalised for projects that are still in progress and as a result are not being
depreciated or amortised; this included reviewing the ageing of costs capitalised, as well as considering
whether the classification is appropriate given our understanding of the projects and their likely future
benefit;
benchmarking the useful economic lives applied by management against comparators; and
performing a series of analytic tests on the costs capitalised to identify items that in our judgement are
unusual, and obtaining explanations and supporting evidence from management, for example challenging
projects with limited or negative costs capitalised in the period, or project descriptions that could indicate
impairment of assets already capitalised.
Key observations
Based on the audit procedures performed we are satisfied that the amounts capitalised are appropriate.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of
our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
Basis for determining materiality
Group financial statements
£6.6 million (2017: £6.0 million)
We determined materiality to be £6.6 million based
on revenue. As a percentage, materiality is 0.4% of
revenue (2017: 0.4% of revenue).
Rationale for the benchmark applied This has been based on professional judgement and
the requirement of auditing standards. We believe
revenue to be the financial measure most relevant
to users of the financial statements given Ocado’s
performance, in particular its levels of profitability and
the significant investment in technology.
Parent company financial statements
£6.5 million (2017: £5.6 million)
Parent company materiality equates to 1% (2017: 1%)
of net assets.
The parent company does not generate significant
revenues but instead incurs costs and as such net
assets are an appropriate base to use to determine
materiality.
On the basis of our risk assessment, together with our assessment of the group’s control environment and the history of error we also set performance
materiality for the group at £4.6 million (2017: £4.2 million) which represents 70% (2017: 70%) of materiality. We use performance materiality to determine
the extent of our testing; it is lower than planning materiality to reflect our assessment of the risk of errors remaining undetected by our sample testing or
uncorrected in the financial statements.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £330,000 (2017: £300,000), as well as
differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure
matters that we identified when assessing the overall presentation of the financial statements.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 145
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:25 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 146
Independent Auditor’s Report
to the members of Ocado Group plc
An overview of the scope of our audit
This was our second year as auditor of Ocado and as such our audit approach included furthering our understanding of the business, the key processes
and the controls supporting the group’s transactions to assess the risks of material misstatement for each account balance and disclosure item. In line
with our audit plan we relied on the key business and IT controls over the following business processes: capitalisation of tangible and intangible assets;
inventory; supplier income; operating expenses; and payroll. We also used IT specialists to test the general IT controls over the key financial reporting
systems (Oracle and the Warehouse Management Systems).
We visited three of the four operating Customer Fulfilment Centres (“CFCs”), the two General Merchandise Distribution Centres (“GMDCs”) and the Fabled
store. The Audit Partner met members of the Audit Committee, the Chairman, and Executive Directors. In addition as part of understanding the business
and performing our audit procedures we met with senior management across the group. Taken together, this informed our group audit scope.
The scope of our group audit includes all significant trading companies in the UK, including the joint venture with Wm Morrisons Supermarket Plc. The
results for these entities account for over 95% (2017: 97%) of the group’s revenue, profit after tax and net assets. For the entities not subject to detailed
audit work, the group’s captive insurance company in Malta and the development operations in Bulgaria, Poland and Spain, we tested the consolidation
process and carried out analytical procedures to confirm our conclusion there were no material misstatements in the aggregated financial information. All
entities are managed from one central location in the UK and all audit work is completed by the group audit team.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report, other than the financial statements and our auditor’s report thereon.
We have nothing to report in respect of
these matters.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial statements or
our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material misstatements
of the other information include where we conclude that:
•
•
Fair, balanced and understandable – the statement given by the directors that they consider the annual
report and financial statements taken as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the group’s position and performance, business model
and strategy, is materially inconsistent with our knowledge obtained in the audit; or
Audit committee reporting – the section describing the work of the audit committee does not appropriately
address matters communicated by us to the audit committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the directors’
statement required under the Listing Rules relating to the company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule
9.8.10R (2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance
Code.
Responsibilities of directors
As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to
liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Ocado AR2018 Financials.indd 146
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:25 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 147
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these financial statements.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and perform audit
procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, our
procedures included the following:
•
•
•
enquiring of management and the audit committee, including obtaining and reviewing supporting documentation, concerning the group’s policies
and procedures relating to:
•
•
•
identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and
the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations;
discussing among the engagement team and involving relevant internal specialists, including tax and IT regarding how and where fraud might occur
in the financial statements and any potential indicators of fraud. As part of this discussion, we identified potential for fraud in the following areas:
accounting for Solutions contracts and capitalised project assets; and
obtaining an understanding of the legal and regulatory framework that the group operates in, focusing on those laws and regulations that had a direct
effect on the financial statements or that had a fundamental effect on the operations of the group. The key laws and regulations we considered in this
context included the UK Companies Act, Listing Rules and relevant tax legislation.
Audit response to risks identified
As a result of performing the above, we identified accounting for Solutions contracts and capitalised project costs as key audit matters. The key audit
matters section of our report explains the matters in more detail and also describes the specific procedures we performed in response to those key audit
matters.
In addition to the above our procedures to respond to risks identified included the following:
•
reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws and regulations
discussed above;
•
•
•
•
enquiring of management, the audit committee and in-house legal counsel concerning actual and potential litigation and claims;
performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;
reading minutes of meetings of those charged with governance and reviewing internal audit reports; and
in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments;
assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of
any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal specialists,
and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 147
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:25 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 148
Independent Auditor’s Report
to the members of Ocado Group plc
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent
with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and of the parent company and their environment obtained in the course of the audit, we
have not identified any material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
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 parent company, or returns adequate for our audit
have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’
remuneration have not been made or the part of the directors’ remuneration report to be audited is not in
agreement with the accounting records and returns.
We have nothing to report in respect of
these matters.
We have nothing to report in respect of
these matters.
Other matters
Auditor tenure
Following the recommendation of the audit committee, we were appointed by the Board of Directors on 3 May 2017 to audit the financial statements for
the period ended 3 December 2017 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and
reappointments of the firm is 2 years, covering periods ending 3 December 2017 to the period ending 2 December 2018.
Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work
has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s
members as a body, for our audit work, for this report, or for the opinions we have formed.
Mark Lee-Amies FCA (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, UK
5 February 2019
Ocado AR2018 Financials.indd 148
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:26 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials Consolidated Income Statement
for the 52 weeks ended 2 December 2018
Revenue
Cost of sales
Gross profit
Other income
Distribution costs
Administrative expenses
Operating (loss)/profit before result from joint venture and exceptional items A
Share of result from joint venture
Exceptional items A
Operating (loss)/profit
Finance income
Finance costs
Loss before tax
Taxation
Loss for the period
Loss per share
Basic and diluted loss per share
149
52 Weeks
Ended
2 December
2018
£m
1,598.8
(1,051.3)
547.5
71.9
(485.4)
(167.0)
(33.0)
1.2
(0.1)
(31.9)
2.2
(14.7)
(44.4)
(0.5)
(44.9)
53 Weeks
Ended
3 December
2017
Restated*
£m
1,454.5
(959.5)
495.0
61.0
(434.2)
(117.7)
4.1
1.6
(0.3)
5.4
0.2
(13.9)
(8.3)
–
(8.3)
Notes
2.2–2.4
2.5
3.5
2.8
2.6
4.5
4.5
2.9
2.10
pence
(6.85)
pence
(1.38)
Non-GAAP measure: Earnings before interest, taxation, depreciation, amortisation, impairment and exceptional items (EBITDA) A
52 Weeks
Ended
2 December
2018
£m
(31.9)
53 Weeks
Ended
3 December
2017
Restated*
£m
5.4
63.3
27.1
0.5
0.4
0.1
59.5
55.0
15.4
0.4
0.2
0.3
76.7
Notes
3.2
3.1
3.2
3.1
2.8
Operating (loss)/profit
Adjustments for:
Depreciation of property, plant and equipment
Amortisation expense
Impairment of property, plant and equipment
Impairment of intangible assets
Exceptional items A – other
EBITDA A
*2017 restatement was due to the adoption of IFRS 15 during the year. Refer to note 1.5 for further details.
The notes on pages 154 to 209 form part of these financial statements.
A See Alternative Performance Measures on pages 229 and 230
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 149
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:26 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 150
Consolidated Statement Of Comprehensive Income
for the 52 weeks ended 2 December 2018
Loss for the period
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Cash flow hedges
– Gains arising on hedging contracts
– Losses arising on hedging contracts
Foreign exchange (loss)/gains on translation of foreign subsidiary
Other comprehensive income for the period, net of tax
Total comprehensive expense for the period
* 2017 restatement was due to the adoption of IFRS 15 during the year. Refer to note 1.5 for further details.
The notes on pages 154 to 209 form part of these financial statements.
52 Weeks
Ended
2 December
2018
£m
(44.9)
53 Weeks
Ended
3 December
2017
Restated*
£m
(8.3)
1.0
–
(0.3)
0.7
(44.2)
0.5
(0.2)
0.2
0.5
(7.8)
Notes
4.9
4.9
4.9
Ocado AR2018 Financials.indd 150
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:26 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials Consolidated Balance Sheet
as at 2 December 2018
151
Non-Current Assets
Intangible assets
Property, plant and equipment
Deferred tax asset
Costs to obtain contracts
Financial assets
Investment in joint ventures
Current Assets
Asset held for sale
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total Assets
Current Liabilities
Trade and other payables
Contract liabilities
Borrowings
Obligations under finance leases
Derivative financial instruments
Provisions
Net Current Assets/(Liabilities)
Non-Current Liabilities
Contract 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
2 December
2018
£m
Notes
3 December
2017
Restated*
£m
28 November
2016
Restated*
£m
3.1
3.2
2.9
2.4
3.4
3.5
3.3
3.8
3.9
4.6
3.10
3.11
2.4
4.2
4.3
4.6
3.12
2.4
4.2
4.3
3.12
2.9
4.9
4.9
4.9
4.9
4.9
143.2
556.7
16.6
0.8
4.1
52.2
773.6
4.2
56.5
104.7
0.1
410.8
576.3
1,349.9
(291.0)
(6.6)
–
(22.9)
(0.5)
(8.3)
(329.3)
247.0
(108.6)
(244.3)
(93.4)
(8.8)
(8.9)
(464.0)
556.6
14.0
587.0
(9.2)
(116.2)
1.4
79.6
556.6
112.4
468.2
14.3
–
3.0
51.0
648.9
–
42.9
66.8
0.4
150.0
260.1
909.0
(216.5)
(4.7)
–
(27.2)
(0.1)
(1.3)
(249.8)
10.3
(45.0)
(243.3)
(107.5)
(8.8)
(7.0)
(411.6)
247.6
12.6
258.4
(48.0)
(116.2)
0.7
140.1
247.6
79.7
400.3
14.2
–
2.6
57.1
553.9
–
39.1
59.4
0.3
50.9
149.7
703.6
(192.4)
(5.9)
(52.9)
(29.8)
(0.2)
(2.4)
(283.6)
(133.9)
(24.1)
(6.1)
(127.0)
(7.3)
(6.9)
(171.4)
248.6
12.6
256.9
(48.0)
(116.2)
0.2
143.1
248.6
* 2016 and 2017 restatement was due to the adoption of IFRS 15 during the year. Refer to note 1.5 for further details.
The notes on pages 154 to 209 form part of these financial statements.
The Consolidated financial statements on pages 149 to 209 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)
5 February 2019
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 151
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:27 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 152
Consolidated Statement of Changes in Equity
for the 52 weeks ended 2 December 2018
Balance at 27 November 2016
IFRS 15: Impact of change in accounting policy
Restated balance at 27 November 2016*
Restated loss for the period*
Other comprehensive income:
Cash flow hedges
– Gains arising on hedging contracts
– Losses arising on hedging contracts
Translation of foreign subsidiary
Restated Total Comprehensive Income/
(Expense) for the Period Ended 3 December
2017*
Transactions with owners:
– Issues of ordinary shares
– Allotted in respect of share option schemes
– Share-based payments charge
Total Transactions with Owners
Restated Balance at 3 December 2017*
Loss for the period
Other comprehensive income:
Cash flow hedges
– Gains arising on hedging contracts
– Losses arising on hedging contracts
Translation of foreign subsidiary
Total Comprehensive Income/(Expense) for
the Period Ended 2 December 2018
Transactions with owners:
– Issues of ordinary shares
– Allotted in respect of share option schemes
– Disposal of treasury shares
– Transfer of treasury shares to participants
– Reclassification between reserves
– Share-based payments charge
– Disposal of Ocado Information Technology Ltd
Total Transactions with Owners
Balance at 2 December 2018
Notes
4.9
4.9
4.9
4.9
4.9
4.10
4.9
4.9
4.9
4.9
4.9
4.9
4.9
4.9
4.10 4.10
Share
Capital
£m
12.6
–
12.6
–
Share
Premium
£m
256.9
–
256.9
–
Treasury
Shares
Reserve
£m
(48.0)
–
(48.0)
–
Reverse
Acquisition
Reserve
£m
(116.2)
–
(116.2)
–
Other
Reserves
£m
0.2
–
0.2
–
Retained
Earnings
£m
156.9
(13.8)
143.1
(8.3)
–
–
–
–
–
–
–
–
12.6
–
–
–
–
–
1.3
0.1
–
–
–
–
–
1.4
14.0
–
–
–
–
0.9
0.6
–
1.5
258.4
–
–
–
–
–
322.1
6.2
–
–
0.3
–
–
328.6
587.0
–
–
–
–
–
–
–
–
(48.0)
–
–
–
–
–
–
–
11.7
27.8
(0.7)
–
–
38.8
(9.2)
–
–
–
–
–
–
–
–
(116.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
(116.2)
0.5
(0.2)
0.2
0.5
–
–
–
–
0.7
–
1.0
–
(0.3)
0.7
–
–
–
–
–
–
–
–
1.4
Total
Equity
£m
262.4
(13.8)
248.6
(8.3)
0.5
(0.2)
0.2
–
–
–
(8.3)
(7.8)
–
–
5.3
5.3
140.1
(44.9)
–
–
–
0.9
0.6
5.3
6.8
247.6
(44.9)
1.0
–
(0.3)
(44.9)
(44.2)
–
–
3.5
(27.8)
0.4
6.1
2.2
(15.6)
79.6
323.4
6.3
15.2
–
–
6.1
2.2
353.2
556.6
* 2016 and 2017 restatement was due to the adoption of IFRS 15 during the year. Refer to note 1.5 for further details.
The notes on pages 154 to 209 form part of these financial statements.
Ocado AR2018 Financials.indd 152
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:27 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials Consolidated Statement of Cash Flows
for the 52 weeks ended 2 December 2018
153
Cash Flows from Operating Activities
Loss 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
– Movement in costs to obtain contracts
Changes in working capital:
– Movement in inventories
– Movement in trade and other receivables
– Movement in trade and other payables
– Movement in contract liabilities
Settlement of cash flow hedges
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 used in 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
Net Cash Flows from Financing Activities
Net Increase 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
* 2017 restatement was due to the adoption of IFRS 15 during the year. Refer to note 1.5 for further details.
The notes on pages 154 to 209 form part of these financial statements.
52 weeks
Ended
2 December
2018
£m
53 Weeks
Ended
3 December
2017
Restated*
£m
(44.4)
91.3
7.0
(1.2)
6.1
12.5
(0.8)
(13.6)
(36.1)
55.0
65.5
1.6
142.9
(14.5)
128.4
(112.8)
(57.3)
–
2.2
(167.9)
333.1
–
–
(32.0)
(0.8)
300.3
260.8
150.0
410.8
(8.3)
71.0
0.4
(1.6)
5.3
13.7
–
(3.8)
(10.2)
46.2
19.7
–
132.4
(14.1)
118.3
(131.0)
(49.9)
7.6
0.2
(173.1)
1.5
307.5
(110.0)
(36.5)
(8.6)
153.9
99.1
50.9
150.0
Notes
3.1, 3.2
3.12
3.5
2.7
4.5
2.4
3.8
2.4
3.10
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 153
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:27 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 154
Notes to the Consolidated Financial Statements
Section 1 — Basis of Preparation
1.1 General Information
Ocado Group plc (hereafter “the Company”) is a listed company incorporated in the United Kingdom under the Companies Act 2006 (Registration number
07098618). The Company is the parent and the ultimate parent of the Group. The address of its registered office is Buildings 1 & 2 Trident Place, Mosquito
Way, Hatfield, Hertfordshire, AL10 9UL. 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 2 December 2018. The prior financial period
represents the 53 weeks ended 3 December 2017. The principal activities of the Group are described in the Strategic Report on pages 14 to 57.
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 53 weeks ended 3
December 2017 of Ocado Group plc, with the exception of the early adoption of IFRS 15 “Revenue from Contracts with Customers” and “Clarifications to IFRS
15 Revenue from Contracts with Customers”.
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.
New standards, amendments and interpretations issued that are effective for the current year
In the current year, the Group has early adopted IFRS 15 “Revenue from Contracts with Customers” as several Ocado Solutions contracts were signed
during the year which are impacted by the adoption of IFRS 15. The adoption has had a material impact on the disclosures and amounts reported in these
financial statements. See note 1.5 for further information.
The Group has also considered the following new standards, interpretations and amendments to published standards that are effective for the Group
for the financial year beginning 4 December 2017 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 other than disclosures:
Various
IAS 7
IAS 12
Amendments to various IFRSs and IASs including those arising from the IASB’s annual improvements project
Statement of cash flows (amendments)
Income taxes (amendments)
Effective Date
1 January 2017
1 January 2017
1 January 2017
New standards, amendments and interpretations not yet 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 4 December 2017 and have not been adopted early:
IFRS 2
IFRS 9
IFRS 16
IFRS 10
IAS 28
IFRIC 22
IFRIC 23
Various
Share-based payments (amendments)
Financial instruments
Leases
Consolidated financial statements (amendments)
Investments in associates and joint ventures (amendments)
Foreign Currency Transactions and Advance Consideration
Uncertainty over Income Tax Treatments
Amendments to various IFRSs and IASs including those arising from the IASB’s annual improvements project
The following new standards are not yet effective and the impact on the Group is currently under review:
Effective Date
1 January 2018
1 January 2018
1 January 2019
Deferred
Deferred
1 January 2018
1 January 2019
Various
− IFRS 9 “Financial Instruments”, published in July 2014, replaces the existing guidance in IAS 39 “Financial Instruments: Recognition and Measurement”.
IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for
calculating impairment on financial assets and the new general hedge accounting requirements. It also carries forward the guidance on recognition and
derecognition of financial instruments from IAS 39. The Group is assessing the potential impact on its consolidated financial statements resulting from
the application of IFRS 9. Our review of IFRS 9 has indicated that the impact of this new standard on the Group’s results is not anticipated to be material.
− 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. IFRS 16 is
expected to have a significant impact on the amounts recognised in the Group’s consolidated financial statements. On adoption of IFRS 16 the Group
will recognise within the balance sheet a right of use asset and lease liability for all applicable leases. Within the income statement, rent expense will be
replaced by depreciation and interest expense. This will result in a decrease in operating expenses and an increase in finance costs with no net impact.
A See Alternative Performance Measures on pages 229 and 230
Ocado AR2018 Financials.indd 154
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:28 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 155
1.2 Basis of Preparation (continued)
The standard will also impact a number of statutory measures such as operating profit, cash generated from operations and alternative performance
measures, such as EBITDA A , that are used by the Group. The Group’s ongoing review of IFRS 16 indicates that the financial impact will result in an increase
in finance leased assets of approximately £278 million, and a corresponding increase in financial liabilities of £297 million, on the Consolidated Balance
Sheet based on the current portfolio at the year end.
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 listed in note 5.1.
Ocado Polska Sp. z o.o. has a year end of 30 November 2018, 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. and Ocado Bulgaria EOOD have a year end of 31 December 2018, 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 2 December 2018.
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 Presentational 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”). Pound sterling is the Company’s functional and the Group’s presentational 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.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 155
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:28 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 156
Notes to the Consolidated Financial Statements
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.
Key estimation uncertainties are the key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period that
may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Significant
judgements are those that the Group have made in the process of applying the Group’s accounting policies and that have the most significant effect on the
amounts recognised in the financial statements.
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, key estimation uncertainties, and judgements are provided below.
Accounting policies that are significant due to the nature of business:
Area
Revenue
recognition
Policy
For Ocado Retail; revenue from the sale of goods is recognised when the customer obtains controls of the goods, which is
generally on delivery to the customer’s home for Ocado deliveries and upon transfer of goods to the courier for third party
deliveries.
For Ocado Solutions; revenue from the rendering of services is recognised over the life of the contract from the date the
customer benefits from those services.
Key estimation uncertainties:
Area
Cost of Sales
Recognition of
deferred tax assets
Useful economic
life and residual
value of assets
Estimate
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. These post year end amounts are further outlined in note 3.9 on page 182.
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 estimates regarding the prudent forecasting
of future taxable profits of the business and in applying an appropriate risk adjustment factor.
The assessment of the useful economic life and residual value of the Group’s assets involves a significant amount of
judgement 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. Given the significant investment in technology and other assets, the Group
undertakes a review of the remaining useful lives of assets each year and will reduce the remaining useful lives, or impair
where necessary, assets that are being superceded by new technology.
Significant Judgements:
Area
Revenue from
contracts with
customers
Judgement
Due to the size and complexity of some of the Ocado Solutions contracts, there are significant judgements to be applied,
particularly the duration of the contract and the expected customer life as the majority of the contracts do not have a fixed
term. This key judgement determines the amount of deferred income released each year and impacts related balance sheet
items such as accrued income and contract liabilities.
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.
A typical Solutions contract includes numerous key milestones and failure to achieve these can be subject to contractual
financial penalties. Management judgement is required to review the progress of ongoing projects and determine whether
there is a risk that the Group will not meet the agreed milestones and potentially incur a financial penalty.
Intangible assets
(capitalisation of
software costs)
Provisions,
contingent
liabilities and
contingent assets
Exceptional items A The Group applies judgement in identifying the significant non-recurring items of income and expense that are recognised as
Share options
and other equity
instruments
exceptional to help provide an indication of the Group’s underlying business performance.
When determining the fair value of equity instruments granted, the Group applies a valuation technique. The selection of
which option pricing model is most appropriate for each scheme requires careful consideration and the Group will review
each scheme’s particular features.
Note
2.1
Note
2.1
2.9
3.1/3.2
Note
2.1
3.1
3.12
2.8
4.10
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 pages 229 and 230
Ocado AR2018 Financials.indd 156
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:28 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 157
1.5 Changes in Significant Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year except for the early adoption of IFRS 15 “Revenue from Contracts
with Customers” and “Clarifications to IFRS 15 Revenue from Contracts with Customers”.
Initial adoption of IFRS 15 “Revenue from Contracts with Customers”
The standard has an effective date of 1 January 2018 but the Group has decided to early adopt this standard with a date of initial application to the Group
of 4 December 2017 using the full retrospective method.
IFRS 15 replaces all existing revenue requirements in IFRS and applies to all revenue arising from contracts with customers unless the contracts are within
the scope of other standards such as IAS 17 “Leases”.
The standard outlines the principles that entities must apply to measure and recognise revenue with the core principle being that entities should
recognise revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for fulfilling its performance
obligations to a customer.
The principles in IFRS 15 must be applied using the following 5 step model:
1. Identify the contract(s) with a customer;
2. Identify the performance obligations in the contract;
3. Determine the transaction price;
4. Allocate the transaction price to the performance obligations in the contract; and
5. Recognise revenue when or as the entity satisfies its performance obligations.
The standard requires entities to exercise considerable judgement taking into account all the relevant facts and circumstances when applying each step
of this model to its contracts with customers. The standard also specifies how to account for the incremental costs of obtaining a contract and the costs
directly related to fulfilling a contract, as well as requirements covering matters such as licences of intellectual property, warranties, principal versus agent
assessment and options to acquire additional goods or services.
The Group has applied IFRS 15 fully retrospectively in accordance with paragraph C3 (a) of the standard, restating the prior period’s comparatives and
electing to use the following practical expedient:
•
in respect of completed contracts that have variable consideration, the Group will use the transaction price at the date the contract was completed
rather than estimating variable consideration amounts in the comparative periods (para. C5(b));
Details of the change in the Group’s accounting policy in respect of revenue recognition are set out in note 2.1.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 157
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:28 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 158
Notes to the Consolidated Financial Statements
1.5 Changes in Significant Accounting Policies (continued)
The Group early adopted IFRS 15 “Revenue from Contracts with Customers” (IFRS 15) using the full retrospective method. This note details the Group’s new
accounting policy for revenue and shows the impact of the adoption of IFRS 15 on the Group’s primary financial statements.
Below is a description of the IFRS 15 impact on material areas requiring reclassification or restatement:
Consolidated Income Statement Restatement under IFRS 15
Revenue
Cost of sales
Gross profit
Other income
Distribution costs
Administrative expenses
Operating profit before result from joint venture and exceptional items A
Share of result from joint venture
Exceptional items A
Operating profit
Finance income
Finance costs
Profit/(loss) for the period
Taxation
Profit/(loss) for the period
Earnings/(loss) per share
Basic and diluted earnings/(loss) per share
As previously
reported,
53 Weeks Ended
3 December
2017
£m
1,463.8
(959.5)
504.3
61.0
(434.2)
(117.7)
13.4
1.6
(0.3)
14.7
0.2
(13.9)
1.0
—
1.0
pence
0.16
Notes
2.3–2.4
2.5
3.5
2.8
2.6
4.5
4.5
2.9
2.10
53 Weeks
Ended
3 December
2017
Restated
£m
1,454.5
(959.5)
495.0
61.0
(434.2)
(117.7)
4.1
1.6
(0.3)
5.4
0.2
(13.9)
(8.3)
—
(8.3)
pence
(1.38)
Impact
of IFRS 15
(9.3)
(9.3)
(9.3)
(9.3)
(9.3)
—
(9.3)
pence
(1.54)
Recognition of Revenue:
Under the Group’s previous accounting policy, revenue for certain contracts was recognised under the percentage of completion method based upon
costs incurred to date as a proportion of the estimated full cost of completing the contract and applying the percentage to the total revenue expected to
be earned. Such percentage of completion accounting would typically result in higher levels of revenue recognised in the earlier stages of a contract in line
with the profile of costs incurred.
Under IFRS 15 revenue is recognised once, or as, a performance obligation is fulfilled. Typically, in an Ocado Solutions contract, revenue recognition would
not commence until the date of “go-live”. Previously revenue was typically recognised in the earlier development stages of a contract. This change has
resulted in a reduction of £9.3 million in revenue recognised in the period to 3 December 2017. Under IFRS 15, revenue is now spread over the period the
services are provided.
A See Alternative Performance Measures on pages 229 and 230
Ocado AR2018 Financials.indd 158
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:29 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 159
1.5 Changes in Significant Accounting Policies (continued)
Consolidated Balance Sheet Restatement under IFRS 15
As previously
reported,
28 November
2016
£m
Notes
Impact of
IFRS 15
£m
28 November
2016
Restated
£m
As previously
reported,
3 December
2017
£m
Impact of
IFRS 15
£m
3 December
2017
Restated
£m
Non-Current Assets
Intangible assets
Property, plant and equipment
Deferred tax asset
Costs to obtain contracts
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
Contract liabilities
Borrowings
Obligations under finance leases
Derivative financial instruments
Provisions
Net Current (Liabilities)/Assets
Non-Current Liabilities
Contract 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
3.1
3.2
2.9
2.4
3.4
3.5
3.8
3.9
4.6
3.10
3.11
2.4
4.2
4.3
4.6
3.12
2.4
4.2
4.3
3.12
2.9
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
3.0
3.0
–
3.0
13.2
(5.9)
7.3
7.3
(24.1)
(24.1)
(13.8)
(13.8)
(13.8)
79.7
400.3
14.2
–
2.6
57.1
553.9
39.1
59.4
0.3
50.9
149.7
703.6
(192.4)
(5.9)
(52.9)
(29.8)
(0.2)
(2.4)
(283.6)
(133.9)
(24.1)
(6.1)
(127.0)
(7.3)
(6.9)
(171.4)
248.6
12.6
256.9
(48.0)
(116.2)
0.2
143.1
248.6
112.4
453.7
14.3
–
3.0
51.0
634.4
42.9
66.8
0.4
150.0
260.1
894.5
(228.6)
–
–
(27.2)
(0.1)
(1.3)
(257.2)
2.9
–
(243.3)
(107.5)
(8.8)
(7.0)
(366.6)
270.7
12.6
258.4
(48.0)
(116.2)
0.7
163.2
270.7
14.5
14.5
–
14.5
12.1
(4.7)
7.4
7.4
(45.0)
(45.0)
(23.1)
(23.1)
(23.1)
112.4
468.2
14.3
–
3.0
51.0
648.9
42.9
66.8
0.4
150.0
260.1
909.0
(216.5)
(4.7)
–
(27.2)
(0.1)
(1.3)
(249.8)
10.3
(45.0)
(243.3)
(107.5)
(8.8)
(7.0)
(411.6)
247.6
12.6
258.4
(48.0)
(116.2)
0.7
140.1
247.6
The cumulative effect of the adoption of IFRS 15 has resulted in a decrease in net assets of £23.1 million as at 3 December 2017 (28 November 2016 : £13.8
million) and a corresponding decrease in retained earnings. This reflects an important change in accounting policy as the Group moves from percentage of
completion to a methodology that is focused on aligning revenue recognition to the delivery of their performance obligation as described in note 2.1. The
new policy results in lower levels of revenue being recognised in the early stages of a contract but higher levels towards the end of a contract.
The decrease in trade and other payables relates to the reclassification and restatement of deferred income as non-current and current contract liabilities.
Prior to adoption of IFRS 15 deferred income was classified within ‘Trade and other payables’.
The increase in property, plant and equipment relates to contributions received from a customer towards the cost of an asset. These are within the scope of
IFRS 15 and are therefore recognised as contract liabilities and released over the life of the contract but were previously offset against the cost of the asset.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 159
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:29 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 160
Notes to the Consolidated Financial Statements
1.5 Changes in Significant Accounting Policies (continued)
Consolidated Statement of Cash Flows Restatement under IFRS 15
Cash Flows from Operating Activities
Profit/(loss) before tax
Adjustments for:
– Depreciation, amortisation and impairment losses
– Movement in provisions
– Share of profit in joint venture
– Share-based payments charge
– Net Finance costs
Changes in working capital:
– Movement in inventories
– Movement in trade and other receivables
– Movement in trade and other payables
– Movement in contract liabilities
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 used in Investing Activities
Cash Flows from Financing Activities
Proceeds from the issue of ordinary share capital
Proceeds from borrowings
Repayment of borrowings
Repayments of obligations under finance leases
Payment of financing fees
Net Cash Flows from Financing Activities
Net Increase 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
As previously
reported,
53 weeks
Ended
3 December
2017
£m
1.0
71.0
0.4
(1.6)
5.3
13.7
(3.8)
(10.2)
45.1
—
120.9
(14.1)
106.8
(119.5)
(49.9)
7.6
0.2
(161.6)
1.5
307.5
(110.0)
(36.5)
(8.6)
153.9
99.1
50.9
150.0
Notes
3.1, 3.2
3.12
3.5
2.7
4.5
2.4
3.10
53 weeks
Ended
3 December
2017
Restated
£m
(8.3)
71.0
0.4
(1.6)
5.3
13.7
(3.8)
(10.2)
46.2
19.7
132.4
(14.1)
118.3
(131.0)
(49.9)
7.6
0.2
(173.1)
1.5
307.5
(110.0)
(36.5)
(8.6)
153.9
99.1
50.9
150.0
Impact of
IFRS 15
(9.3)
1.1
19.7
11.5
11.5
(11.5)
(11.5)
—
—
—
—-
As a result of the adoption of IFRS 15, certain reclassifications are required in relation to the cash flow movements between relevant balance sheet accounts. There has
been no change in the net increase in cash and cash equivalents as a result of these reclassifications or the restatement of these balance sheet accounts.
1.6 Going Concern Basis
Accounting standards require that Directors satisfy themselves that it is reasonable for them to conclude whether it is appropriate to prepare financial
statements on the 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 £410.8 million (2017: £150.0 million), external gross debt A (excluding finance leases payable to MHE JVCo)
of £286.1 million (2017: £283.9 million) and net current assets of £247.0 million (2017: £10.3 million). The Group has a mix of short and medium term finance
arrangements and has £250 million senior secured notes due 2024 and a £100 million revolving credit facility which contains typical financial covenants
and runs until June 2022. The facility has not 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 142 to 223. 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 Our Strategy on pages 26 and 27) and the
Group’s principal risks and the likely effectiveness of any mitigating actions and controls available to the Directors (see pages 44 to 49).
Further details of the Group’s considerations are provided in the Group’s Viability and Going Concern Statement on page 49.
A See Alternative Performance Measures on pages 229 and 230
Ocado AR2018 Financials.indd 160
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:29 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 161
Section 2 — Results for the Year
2.1 Loss Before Tax
Accounting Policies
Revenue
Revenue represents the transaction price that Ocado expects to be entitled to in return for delivering the goods or services to its customers. The value
recognised in any period is based on a judgement of when the customer is able to benefit from the goods or services and an assessment of the progress made
towards completely satisfying each obligation. The following provides information about the nature and timing of the satisfaction of performance obligations
in our contracts and the related revenue recognition policies, categorised by reportable segments. For information about reportable segments, see note 2.2.
Retail Segment
Identification of the Performance Obligations
In a typical retail contract there is one performance obligation which is to deliver goods ordered online to the retail customer at the scheduled time and to
the agreed address. “Ocado Smart Pass”, the Group’s discounted pre-pay membership scheme, is a separate contract with a customer and has a separate
single performance obligation which is to provide delivery services for an agreed period of time. Ocado is able to apply the practical expedient allowed in
the standard to apply the standard requirements to a portfolio of contracts, rather than individual contracts, as it believes the characteristics of each sale
are similar and the effects on the financial statements of doing so would not differ materially from applying the standard to individual contracts.
Determining the Transaction Price
Customers pay in full at point of sale. The retail transaction price is based on the aggregation of all order values shown net of any material adjustment for
expected returns or expected future redemption of marketing vouchers in accordance with IFRS 15 guidance on variable consideration. Standard delivery
charges and carrier bag receipts are included in the transaction price. Smart Pass transaction price is as per the contracted value of the membership for
the agreed period of delivery services.
Allocation of Transaction Price to the Performance Obligations
Each contract has a single performance obligation and so all the transaction price is assigned to that single obligation. At the end of each reporting period
management will review and adjust for elements of variable consideration such as expected refunds or expected voucher redemptions.
Revenue Recognition
Revenue from online grocery orders is recognised at a point in time when the customer obtains control of the goods, which for deliveries performed by Ocado
occurs when the goods are delivered to and have been accepted at 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. 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. Revenue from Ocado Smart Pass is recognised over the duration of the membership on a time elapsed, straight-line basis.
Solutions Segment
Identification of the Performance Obligations
Each Solutions contract is considered on a case by case basis. A typical Ocado Solutions contract has a single performance obligation – “to enable the
client to access the OSP end-to-end online grocery platform from the go-live date, with an agreed physical capacity, from a CFC for example, for the use of
its retail brands”. The ability to derive independent benefit is a key determinant. For example, there are several critical contractual milestones which occur
before the service is operational such as the design of the CFC for the client or preparation of the OSP. However, management has concluded that the
customer is not able to derive any benefit from these individual elements until the service is operational and they are able to fulfil an order. Consequently,
designing the CFC or building the customer OSP is not a performance obligation and no revenue can be assigned to satisfying these aspects of the
contract. Some contracts however will have multiple components for example, the addition of Store Pick services or additional CFCs, which could lead
to additional distinct performance obligations. In these situations, management will use their judgement to determine whether there are separable
performance obligations that the customer is able to benefit from independently.
Determining the Transaction Price
At contract inception, the total transaction price is estimated, being the amount to which the Group expects to be entitled over the expected duration of
the contract, based on the rights it has under the present contract. Such expected amounts are only included to the extent that it is highly probable that
no revenue reversal will occur.
In order to arrive at the transaction price, management are initially required to make a judgement on contract duration. The majority of our Solutions
contracts do not have a fixed contract term, but instead run for an indefinite period until cancelled. For the purposes of applying IFRS 15, and in particular
the disclosures in respect of unsatisfied performance obligations, management determines contract duration having considered the type of contract,
performance against contract SLAs and termination provisions. The point from which any termination penalties payable by the customer would no longer be
considered “substantive” is particularly relevant. This key judgement on contract duration defines the period for which unsatisfied and partially unsatisfied
performance obligations are measured and disclosed when calculating the transaction price.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 161
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:29 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 162
Notes to the Consolidated Financial Statements
2.1 Loss Before Tax (continued)
Typically, our Solutions contracts include both upfront fees, paid by the customer in the period prior to the solution going live, and subsequent annual
amounts that are either recurring or variable. The upfront fees are one-off payments and are included in the transaction price and recognised over the
expected customer life. Expected customer life is a key judgement as it affects the amount of deferred upfront fees that are released as revenue each year
and the factors considered in reaching the judgement on expected customer life include the nature of the performance obligation, the scale of current and
future planned investment, performance against contract SLAs, the evolving technology and competitive landscape. The judgements made for contract
duration may be different than those judgements for expected customer life.
A Solutions contract often includes recurring fees which are repeated on an annual basis throughout the contract, which are recognised over the contract
duration and are included in the estimate of total transaction price.
Variable amounts are annual fees whereby typically the variability relates to the volume of sales transactions processed or variable costs associated with
providing the service to the customer. We determine that these variable amounts should be recognised in the period in which they arise, because they
relate to the services provided in that period. In determining the total transaction price for disclosure we have estimated the amount of future variable
consideration for the contract duration described above.
IFRS 15 requires estimates of future variable consideration to adopt a conservative amount that is ‘highly probable’ to become due. In respect of
agreements that are already operating, we have based our constrained estimate by assuming 90% of FY18 performance. This estimate also excludes
potential benefits from both indexation and future revenue growth from capacity improvements and the continued channel shift to online in the industry.
It also considers potential risks from new entrants to the online fulfilment market as it continues to grow and the competitive nature of the grocery market
itself which could have an adverse impact on volumes.
Although for most Solutions contracts there is the possibility that the customer will add capacity in the form of additional modules in existing CFCs or
additional CFCs in new locations, which would lead to increased revenue, this has been excluded from the calculation of the estimated transaction price.
Taken together we therefore consider that this approach represents a suitably conservative view of future estimated revenue in the disclosures of
unsatisfied obligations as required by IFRS 15.
For each Solutions contract an assessment has been made by the Group as to whether there is a significant finance benefit arising from the timing of
payments required from the customer. Judgement is required to choose an appropriate interest rate used in the assessment and to set a reasonable
threshold for determining that any finance benefit is significant.
Allocation of Transaction Price to the Performance Obligations
Single component contracts have a single performance obligation and all the transaction price is assigned to that single deliverable. Multiple component
contracts will have more than one obligation, each with its own contract duration as judged by management. Each contract clearly states the fees relating
to each component. This provides management with a basis for allocation of the calculated transaction price to the performance obligations as required
by the standard in proportion to their relative revenue value in the contract.
Revenue Recognition
For each performance obligation and its allocated transaction price, recognition of the revenue is made from the point at which the customer starts to
benefit from the services and over the period the services are provided. The nature of the services provided, that is the ability to fulfil online grocery orders,
represents equal value to the customer every day that the service is provided. This uniformity of value to the customer over time has led the Group to the
decision that the most appropriate method of measuring the satisfaction of obligations should be on a straight-line time-elapsed basis. IFRS 15 defines
this as an “output method” which recognises revenue by reference to the value to the customer.
Judgement is applied in relation to contract and customer lives as typically, contracts have no end date. Depending on the expected contract life, the
amount and timing of revenue recognised may be different in the relevant accounting periods. As the Group has not yet launched a CFC internationally,
the Directors have limited relevant historical information on which to base their assumptions. Therefore, in making their judgements, the Directors have
considered qualitative and quantitative reasonable and supportable information such as market evidence and certain clauses contained within Solutions’
contracts.
Contract Modifications
The Group’s contracts may be amended for changes in contract specifications and requirements. Contract modifications exist when the amendment either
creates new or changes the existing enforceable rights and obligations. The effect of a contract modification on the transaction price and the Group’s
measure of progress for the performance obligation to which it relates, is recognised as an adjustment to revenue in one of the following ways:
a. prospectively as an additional separate contract;
b. prospectively as a termination of the existing contract and creation of a new contract
c. as part of the original contract using a cumulative catch up; or
d. as a combination of b) and c)
Ocado AR2018 Financials.indd 162
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:30 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 163
2.1 Loss Before Tax (continued)
For contracts for which the Group has decided there is a series of distinct goods and services that are substantially the same and have the same pattern of
transfer where revenue is recognised over time, the modification will always be treated under a) or b).
The facts and circumstances of any contract modification are considered individually as the types of modifications will vary contract by contract and may
result in different accounting outcomes.
Judgement is applied in relation to the accounting for such modifications where the final terms or legal contracts have not been agreed prior to the
period end as management need to determine if a modification has been approved and if it either creates new or changes existing enforceable rights
and obligations of the parties. Depending upon the outcome of such negotiations, the timing and amount of revenue recognised may be different in the
relevant accounting periods. Modification and amendments to contracts are undertaken via an agreed formal process. For example, if a change in scope
has been approved but the corresponding change in price is still being negotiated, management use their judgement to estimate the change to the total
transaction price. Importantly any variable consideration is only recognised to the extent that it is highly probable that no revenue reversal will occur.
Contract Costs and Liabilities
As a result of the contracts which the Group enters into with its clients, a number of different assets and liabilities are recognised on the Group’s balance
sheet. These include but are not limited to:
− Property, plant and equipment
− Intangible assets
− Costs to obtain contracts
− Contract liabilities
Incremental Costs of Obtaining a Contract
These are costs that are incurred to obtain a contract with a customer that would not have been incurred if the contract had not been obtained. Costs to
obtain a contract that would have been incurred regardless of whether the contract was obtained shall be recognised as an expense when incurred, unless
those costs are explicitly chargeable to the customer regardless of whether the contract is obtained.
The incremental costs of obtaining a contract with a customer are recognised as an asset if they are expected to be recoverable.
Utilisation, Derecognition and Impairment of Costs to Obtain a Contract
Incremental costs to obtain a contract shall be amortised on a basis that is consistent with the transfer to the customer of the goods or services to which
the asset relates.
Incremental costs to obtain a contract are derecognised either when they are disposed of or when no further economic benefits are expected to flow from
their use or disposal.
Management is required to determine the recoverability of contract related assets within property, plant and equipment, intangible assets as well as
capitalised costs to obtain a contract, accrued income and trade receivables. At each reporting date, the Group determines whether or not the capitalised
costs to obtain a contract are impaired by comparing the carrying amount of the asset to the remaining amount of consideration that the Group expects to
receive less the costs that relate to providing services under the relevant contract. In determining the estimated amount of consideration, the Group uses
the same principles as it does to determine the contract transaction price, except that any constraints used to reduce the transaction price will be removed
for the impairment test.
Contract Liabilities
The Group’s customer contracts include a diverse range of payment schedules dependent upon the nature and type of goods and services being provided.
The Group often agrees payment schedules at the inception of long-term contracts under which it receives payments throughout the term of the contracts.
These payment schedules may include performance-based payments or progress payments as well as regular monthly or quarterly payments for ongoing
service delivery. Payments for transactional goods and services may be at delivery date, in arrears or part payment in advance. Where payments made, or
when the Group has an unconditional right to payment, are greater than the revenue recognised at the period end date, the Group recognises a contract
liability. Where payments made are less than the revenue recognised at the period end date, and the Group have an unconditional right to payment, the
Group recognises accrued income for this difference.
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 2 December
2018, promotional allowances represent 80% (2017: 81%) of commercial income, with volume-related rebates representing 20% (2017: 19%).
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 163
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:30 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 164
Notes to the Consolidated Financial Statements
2.1 Loss Before Tax (continued)
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 is
administered by Legal & General, and a defined contribution Money Purchase Scheme administered by People’s Pensions. Legacy employer contributions
to the schemes are calculated as a percentage of salary based on length of scheme membership. From October 2017 new members to the scheme are
enrolled into a matching contribution structure. Contributions are charged to the income statement in the period to which they relate.
Distribution Costs
Distribution costs consist of all the costs incurred, excluding product costs, to the point of sale. In most cases, this is the customer’s home. This includes
the payroll-related expenses for the picking, dispatch and delivery of products sold to the point of sale, the cost of making those deliveries, including fuel,
tolls, maintenance of vehicles, the operating costs of the properties required for the picking, dispatch and onward delivery operations and all associated
depreciation, amortisation and impairment charges, call centre costs and payment processing charges. This includes costs incurred on behalf of Morrisons
which are subsequently recharged.
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 non-recurring 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 A , 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.
A See Alternative Performance Measures on pages 229 and 230
Ocado AR2018 Financials.indd 164
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:30 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 165
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. 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”), 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.
During the period, the Group determined it has two reportable segments: Retail and Solutions. The Retail segment provides online grocery and general
merchandise offerings to customers within the UK. The Solutions segment provides end-to-end online retail solutions to corporate customers within and
outside of the UK. In order to reconcile segment revenues A to the Group revenue and profit, a third category entitled “Other” shows unallocated costs
such as central business activities.
The Board assesses the performance of all segments on the basis of EBITDA. EBITDA A as reported internally by segment, is the key measure utilised in
assessing the performance of operating segments within the Group.
The accounting policies of the segments are the same as those for the Group as a whole. Any transactions between the business segments are subject to
normal commercial terms and market conditions. Segment results and assets include items directly attributable to a segment as well as those that can be
allocated on a reasonable basis.
Segment Revenue and EBITDA A
2017 (restated)*
Segment revenue A
Segment EBITDA A
2018
Segment revenue A
Segment EBITDA A
Retail
£m
Solutions
£m
1,346.1
81.0
1,475.8
82.5
108.4
(6.9)
123.0
(17.9)
Other
£m
—
2.6
—
(5.1)
Total
£m
1,454.5
76.7
1,598.8
59.5
*2017 restatement was due to the adoption of IFRS 15 during the year. Refer to note 1.5 for further details.
No measure of total assets and total liabilities are reported for each reportable segment, as such amounts are not regularly provided to the chief operating
decision-maker.
2.3 Gross Sales A
The reconciliation of revenue to gross sales A is as follows:
52 Weeks
Ended
2 December
2018
£m
1,598.8
124.0
25.5
53 Weeks
Ended
3 December
2017
£m
1,454.5
113.1
22.7
1,748.3
1,590.3
Revenue
VAT
Marketing vouchers
Gross sales A
A See Alternative Performance Measures on pages 229 and 230
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 165
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:30 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 166
Notes to the Consolidated Financial Statements
2.4 Revenue from Contracts with Customers
Disaggregation of revenue from contracts with customers
Set out below is the disaggregation of the Group’s revenue from contracts with customers:
Segment Revenue A
Retail
Solutions
Timing of Revenue Recognition
At a point in time
Over time
Contract Balances
Trade receivables
Contract liabilities
Analysis of total contract liabilities:
Current
Non-current
52 Weeks
Ended
2 December
2018
£’000
1,475.8
123.0
1,598.8
1,475.8
123.0
1,598.8
53 Weeks
Ended
3 December
2017
£’000
1,346.1
108.4
1,454.5
1,346.1
108.4
1,454.5
Notes
3.9
2 December
2018
£m
8.6
(115.2)
3 December
2017
Restated*
£m
8.6
(49.7)
28 November
2016
Restated*
£m
6.0
(30.0)
2 December
2018
£m
(6.6)
(108.6)
(115.2)
3 December
2017
Restated*
£m
(4.7)
(45.0)
(49.7)
28 November
2016
Restated*
£m
(5.9)
(24.1)
(30.0)
The contract liabilities primarily relate to the advance consideration received from customers for Solutions contracts, for which revenue is recognised as
the performance obligation is satisfied.
Significant changes in the contract liabilities balance during the period is as follows:
2 December
2018
Contract
liabilities
£m
(49.7)
(70.2)
4.7
(115.2)
3 December
2017
Contract
liabilities
£m
(30.0)
(25.6)
5.9
(49.7)
At beginning of the period
Increase due to the cash received
Recognised as revenue
At the end of the period
* 2016 and 2017 restatement was due to the adoption of IFRS 15 during the year. Refer to note 1.5 for further details.
A See Alternative Performance Measures on pages 229 and 230
Ocado AR2018 Financials.indd 166
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:31 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 2.4 Revenue from Contracts with Customers (continued)
Set out below is the amount of revenue recognised from:
Amount included in the contract liabilities at the beginning of the year
167
52 Weeks
Ended
2 December
2018
£m
4.7
53 Weeks
Ended
3 December
2017
£m
5.9
The transaction price allocated to the remaining performance obligations (unsatisfied or partially unsatisfied) are, as follows:
Within one year
Between one and five years
More than five years
Total transaction price
2 December
2018
£m
112
833
2,136
3,081
3 December
2017
£m
123
487
1,713
2,323
Total transaction price includes £1,736.3 million (2017: £1,827.2 million) in respect of potential revenues in relation to the recovery of costs that are
expected to be incurred in exisiting Solutions contracts.
The amounts disclosed above in respect of unsatisfied and partially unsatisfied performance obligations do not include estimates of any amounts that will
arise if the customer continues to receive services beyond our estimate of the contract term. In addition, they are reduced, during the contract term, so as
to limit our estimate of future variable amounts to a conservative amount that is ‘highly probable’. For additional information in respect of key judgements,
please refer to note 2.1. The figures disclosed do not include any incremental amounts in relation to CFCs and other solutions to which a customer is
not yet committed. However, they do include any amounts that are payable by the customer irrespective of whether an option for future CFCs and other
solutions is exercised (e.g. amounts that are equivalent to a non-refundable deposit).
Costs to Obtain Contracts
As at 4 December 2017
Additions
Impairment and derecognition
Amortised in the year
As at 2 December 2018
£m
—
0.8
—
—
0.8
Management expects that the incremental costs of obtaining the contract i.e. sales bonus are recoverable. The Group has therefore capitalised them as
costs to obtain contracts of £0.8 million as at 2 December 2018 (2017: £nil).
These capitalised costs will be amortised over the period of transferring goods or services to the customer.
2.5 Other Income
Other income comprises:
Media and other income
Rental income
Other income
52 Weeks
Ended
2 December
2018
£m
58.5
13.4
71.9
53 Weeks
Ended
3 December
2017
£m
48.1
12.9
61.0
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 167
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:31 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 168
Notes to the Consolidated Financial Statements
2.6 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
Impairment of intangible assets, included in:
– Administrative expenses
Impairment of receivables
Research and development costs
Operating lease rentals:
– Land and buildings
– Other leases
Net foreign exchange movements
During the period, the Group obtained the following services from its auditor:
Notes
2.7
3.1
3.2
3.2
3.1
3.9
Fees payable to the Company’s auditor and their associates for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor and their associates for the audit of the Company’s subsidiaries
Audit other
Total audit fees
– Audit related assurance services
– Other assurance services
– Corporate finance services
Total non-audit fees
52 Weeks
Ended
2 December
2018
£m
1,035.5
319.7
27.1
63.3
53 Weeks
Ended
3 December
2017
£m
944.3
285.2
15.4
55.0
0.5
0.4
(1.1)
—
20.9
—
0.1
0.4
0.2
(0.2)
0.2
22.7
0.1
0.3
52 Weeks
Ended
2 December
2018
£’000
75
356
25
456
39
—
—
39
495
53 Weeks
Ended
3 December
2017
£’000
70
275
—
345
40
51
220
311
656
Ocado AR2018 Financials.indd 168
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:31 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 2.7 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
169
Notes
3.1
3.2
52 Weeks
Ended
2 December
2018
£m
53 Weeks
Ended
3 December
2017
£m
337.8
29.8
7.7
13.1
388.4
(51.5)
(17.2)
319.7
11,199
2,253
13,452
297.4
25.7
5.9
6.9
335.9
(38.9)
(11.8)
285.2
10,267
1,966
12,233
* Included in the share-based payment expense is the IFRS 2 equity-settled charge of £6.1 million (2017: £5.3 million) and an additional provision of £7.0 million (2017: £1.6 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.
2.8 Exceptional Items A
Head office relocation costs
Litigation costs
52 Weeks
Ended
2 December
2018
£m
—
0.1
0.1
53 Weeks
Ended
3 December
2017
£m
0.2
0.1
0.3
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.
Head office relocation costs
In the prior period, the Group relocated its head office. The move to the new premises was completed in stages to minimise the impact on the business
and the Group incurred dual running costs as it transitioned to the new premises. Due to the one-off nature of the head office move, these costs were
treated as exceptional.
A See Alternative Performance Measures on pages 229 and 230
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 169
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:31 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 170
Notes to the Consolidated Financial Statements
2.9 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 risk-adjusted 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.
During the year the Group claimed a credit of £3.0 million for the 53 weeks ended 3 December 2017 (2016: £2.4 million for the 52 weeks ended
27 November 2016).
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.
The Group’s future tax charge, and effective tax rate, could be affected by several factors including; tax reform in countries around the world, including any
arising from the OECD’s or European Commission’s work on the taxation of the digital economy and European Commission initiatives such as the anti tax
avoidance directive.
We do not anticipate any significant impact on our future tax charge, liabilities or assets, as a result of the triggering of Article 50(2) of the Treaty on
European Union but cannot rule out the possibility that, for example, a failure to reach satisfactory arrangements for the UK’s future relationship with the
European Union, could have an impact on such matters. We continue to monitor developments in this area.
Ocado AR2018 Financials.indd 170
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:31 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 2.9 Taxation (continued)
Taxation — Income Statement
Recognised in the Consolidated Income Statement
Current tax:
UK corporation tax on profits of the period
Adjustments in respect of prior periods
Total current tax
Deferred tax:
Overseas deferred tax on profits of the period
Origination and reversal of temporary differences
Total deferred tax
Income tax expense
171
52 Weeks
Ended
2 December
2018
£m
53 Weeks
Ended
3 December
2017
£m
—
(0.1)
(0.1)
(0.4)
—
(0.4)
(0.5)
—
—
—
—
—
—
The tax on the Group’s loss before tax differs from the theoretical amount that would arise using the effective tax rate applicable to profits of the Group
as follows:
Loss before tax
Effective tax charge at the UK tax rate of 19% (2017: 19%)
Effect of:
Losses arising in year on which no deferred tax is recognised
Permanent differences
Temporary differences on which no deferred tax recognised
Prior year adjustments
IFRS 15 adjustment in respect of prior years
Income tax charge for the period
Taxation — Balance Sheet
Movement in the deferred tax asset is as follows:
As at 27 November 2016
Recognised through the Consolidated Income Statement
As at 3 December 2017
Recognised through the Consolidated Income Statement
As at 2 December 2018
52 Weeks
Ended
2 December
2018
£m
(44.4)
(8.4)
53 Weeks
Ended
3 December
2017
£m
(8.3)
(1.6)
(2.0)
(9.1)
19.1
(0.1)
—
(0.5)
Tax Losses
Carried
Forward
£m
14.2
0.1
Other Short
Term Timing
Differences
£m
—
—
14.3
(4.8)
9.5
—
7.1
7.1
(3.9)
2.7
1.0
—
1.8
—
Total
£m
14.2
0.1
14.3
2.3
16.6
The Finance Act 2016 included legislation to reduce the main rate of UK corporation tax from 19% 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.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 171
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:32 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 172
Notes to the Consolidated Financial Statements
2.9 Taxation (continued)
Movement in the unrecognised deferred tax asset is set out below:
As at 27 November 2016
Effect of change in UK corporation tax rate
Potential movement in the period unrecognised through:
— Consolidated Income Statement
IFRS 15 Prior year adjustment
As at 3 December 2017
Effect of change in UK corporation tax rate
Potential movement in the period unrecognised through:
— Consolidated Income Statement
As at 2 December 2018
Tax Losses
Carried
Forward
£m
34.2
(2.7)
Accelerated
Capital
Allowances
£m
11.6
8.8
Other
Short-Term
Timing
Differences
£m
–
0.2
(15.0)
4.4
20.9
13.7
34.6
2.3
–
22.7
(2.3)
20.4
1.1
(4.4)
(3.1)
4.1
1.0
Total
£m
45.8
6.3
(11.6)
–
40.5
15.5
56.0
As at 2 December 2018 the Group had approximately £256.4 million of unutilised tax losses (2017: approximately £183.6 million) available for offset against
future profits. A deferred tax asset of £9.5 million (2017: £14.3 million) has been recognised in respect of £55.9 million (2017: £84.0 million) of such losses,
the recovery of which is supported by the expected level of future profits of the Group. The recognition of the deferred tax asset is based on forecast
operating results calculated in approved business plans and a review of tax planning opportunities.
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.
Management have concluded that there is sufficient evidence for the recognition of the deferred tax asset of £16.6 million (2017: £14.3 million).
Movement in the recognised deferred tax liability is set out below:
As at 27 November 2016
Effect of change in UK corporation tax rate
Recognised through the Consolidated Income Statement
As at 3 December 2017
Recognised through the Consolidated Income Statement
As at 2 December 2018
£m
(6.9)
–
(0.1)
(7.0)
(1.9)
(8.9)
For the year ended 2 December 2018 the Group has recognised a deferred tax liability of £8.9 million (2017: £7.0 million). Of this amount, £8.8 million (2017:
£4.5 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 from 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
Ocado AR2018 Financials.indd 172
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:32 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 173
2.10 Loss Per Share
Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in
issue during the period, excluding ordinary shares held pursuant to the Group’s JSOS, which are accounted for as treasury shares.
Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion or vesting of all
dilutive potential shares. The Company has three classes of instruments that are potentially dilutive: share options, share interests held pursuant to the
Group’s Joint Share Ownership scheme and shares under the Group’s staff incentive plans.
There was no difference in the weighted average number of shares used for the calculation of basic and diluted loss per share as the effect of all potentially
dilutive shares outstanding was anti-dilutive.
Basic loss and diluted loss per share have been calculated as follows:
Issued shares at the beginning of the period, excluding treasury shares
Effect of share options exercised in the period
Effect of treasury shares disposed of in the period
Effect of treasury shares transferred to participants in the period
Effect of shares issued in the period
Weighed average number of shares at the end of the period
Loss attributable to the owners of the Company
Basic and diluted loss per share
52 Weeks
Ended
2 December
2018
£m
601.4
20.7
(5.0)
(4.4)
42.7
655.4
£m
(44.9)
pence
(6.85)
53 Weeks
Ended
3 December
2017
£m
598.8
0.7
–
–
–
599.5
£m
(8.3)
pence
(1.38)
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 173
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:32 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 174
Notes to the Consolidated Financial Statements
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, CFC and General Merchandise
Distribution Centre, and the enhancement and efficiency improvements of existing warehouse system capabilities to accommodate expanding capacity
and scalable opportunities. Time has also been spent to continuously implement and integrate the functionality of the Ocado Smart Platform 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.
Ocado AR2018 Financials.indd 174
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:32 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 175
3.1 Intangible Assets (continued)
Of the internally generated assets capitalised, 25% (2017: 22%) relates to asset additions within property, plant and equipment.
Estimation of Useful Life
The charge in respect of periodic amortisation is derived by estimating an asset’s expected useful life and the expected residual value at the end of its life.
Increasing an asset’s expected life or its residual value would result in a reduced amortisation charge in the 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 27 November 2016
Additions
Internal development costs capitalised
Disposals
At 3 December 2017
Additions
Internal development costs capitalised
Disposals
At 2 December 2018
Accumulated Amortisation
At 27 November 2016
Charge for the period
Impairment
Disposals
At 3 December 2017
Charge for the period
Impairment
Disposals
At 2 December 2018
Net Book Value
At 3 December 2017
At 2 December 2018
Internally
Generated
Assets
£m
Other
Intangible
Assets
£m
Total
Intangible
Assets
£m
117.6
–
42.7
–
160.3
–
51.5
(0.4)
211.4
(55.0)
(13.6)
(0.2)
–
(68.8)
(23.6)
(0.4)
0.4
(92.4)
91.5
119.0
22.3
5.6
–
–
27.9
6.8
–
–
34.7
(5.2)
(1.8)
–
–
(7.0)
(3.5)
–
–
(10.5)
20.9
24.2
139.9
5.6
42.7
–
188.2
6.8
51.5
(0.4)
246.1
(60.2)
(15.4)
(0.2)
–
(75.8)
(27.1)
(0.4))
[0.4
(102.9)
112.4
143.2
Included within intangible assets is capital work-in-progress for internally generated assets of £10.9 million (2017: £15.1 million) and capital work-in-
progress for other intangible assets of £2.9 million (2017: £1.7 million).
The net book value of intangible assets held under finance leases is analysed below:
Cost
Accumulated amortisation
Net book value
52 Weeks
Ended
2 December
2018
£m
14.4
(13.8)
0.6
53 Weeks
Ended
3 December
2017
£m
14.4
(13.0)
1.4
For the 52 weeks ended 2 December 2018, internal development costs capitalised represented approximately 88% (2017: 88%) of expenditure on
intangible assets and 24% (2017: 27%) of total capital spend including property, plant and equipment.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 175
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:33 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 176
Notes to the Consolidated Financial Statements
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 41% of the total asset base of the Group in 2018 (2017: 52%). 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. The Ocado Smart Platform has been identified as a standalone
intangible asset, because it has been developed and used to deliver the Group’s third and fourth CFCs in Andover and Erith, and will be used to provide part of
the foundation software for future CFCs. Similarly, the restructuring of the software which manages CFC operations to increase modularity is identified as an
asset because it will improve software stability for both existing operational CFCs.
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
30 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
Land is held at cost and not depreciated.
Assets in the course of construction are carried at cost less any recognised impairment loss. Cost includes professional fees and other directly attributable costs.
Depreciation of these assets commences when the assets are ready for their intended use, on the same basis as other property assets.
Gains and losses on disposal are determined by comparing proceeds with the asset’s carrying amount and are recognised within operating profit.
For more information on the Group’s policy on capitalisation of borrowings costs, see note 4.1.
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. A review of useful lives took place in the current year and no changes in useful lives was required.
Ocado AR2018 Financials.indd 176
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:33 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 177
3.2 Property, Plant and Equipment (continued)
Impairment of Non-Financial Assets (Including Intangible Assets)
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. Management make an assessment based on the current usage level and condition of the assets and
assess whether the asset will continue to stay in use for the remainder of its useful life. 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 Retail and Solutions segments. 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.
Cost
At 27 November 2016 (restated)*
Additions
Internal development costs capitalised
Disposals
At 3 December 2017 (restated)*
Additions
Internal development costs capitalised
Disposals
Transfer of non-current asset held for sale
At 2 December 2018
Accumulated Depreciation
At 27 November 2016
Charge for the period
Impairment
Disposals
At 3 December 2017
Charge for the period
Impairment
Disposals
Transfer of non-current asset held for sale
At 2 December 2018
Net Book Value
At 3 December 2017
At 2 December 2018
Fixtures,
Fittings,
Plant and
Machinery
£m
Land and
Buildings
£m
Motor
Vehicles
£m
110.7
19.8
–
–
130.5
5.8
–
–
(5.8)
130.5
(22.3)
(2.9)
–
–
(25.2)
(4.2)
–
–
1.6
(27.8)
105.3
102.7
472.7
77.1
11.8
(1.3)
560.3
119.8
17.2
(0.3)
–
697.0
(199.5)
(39.3)
(0.4)
1.3
(237.9)
(45.2)
(0.5)
0.3
–
(283.3)
322.4
413.7
64.3
14.6
–
(4.8)
74.1
13.7
–
(5.3)
–
82.5
(25.6)
(12.8)
–
4.8
(33.6)
(13.9)
–
5.3
–
(42.2)
40.5
40.3
Total
£m
647.7
111.5
11.8
(6.1)
764.9
139.3
17.2
(5.6)
(5.8)
910.0
(247.4)
(55.0)
(0.4)
6.1
(296.7)
(63.3)
(0.5)
5.6
1.6
(353.3)
468.2
556.7
* 2016 and 2017 restatement was due to the adoption of IFRS 15 during the year. Refer to note 1.5 for further details.
Included within property, plant and equipment is capital work-in-progress for land and buildings of £0.1 million (2017: £37.2 million) and capital work-in-
progress for fixtures, fittings, plant and machinery of £45.8 million (2017: £61.6 million).
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 177
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:33 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 178
Notes to the Consolidated Financial Statements
3.2 Property, Plant and Equipment (continued)
The net book value of non-current assets held under finance leases is set out below:
At 3 December 2017
Cost
Accumulated depreciation and impairment
Net book value
At 2 December 2018
Cost
Accumulated depreciation and impairment
Net book value
Fixtures,
Fittings,
Plant and
Machinery
£m
211.1
(127.8)
83.3
211.1
(143.2)
67.9
Land and
Buildings
£m
31.9
(21.2)
10.7
32.4
(23.2)
9.2
Motor
Vehicles
£m
61.5
(26.2)
35.3
69.8
(32.8)
37.0
Total
£m
304.5
(175.2)
129.3
313.3
(199.2)
114.1
3.3 Non-Current Asset Held for Sale
Accounting Policies
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell.
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather
than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for
immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed
sale within one year from the date of classification.
Non-Current Assets Held for Sale and Discontinued Operations
The non-current asset held for sale of £4.2 million represents the carrying value of a UK property that was previously used in the Group’s distribution
network that the Group is in the process of selling. Sale negotiations are well advanced and the sale is expected to complete within one year of the balance
sheet date. The proceeds of disposal are expected to exceed the book value and accordingly no gain or loss was recognised on the classification of the
property as held for sale.
3.4 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
2 December
2018
£m
0.4
2.2
1.5
4.1
3 December
2017
£m
0.4
1.1
1.5
3.0
Ocado AR2018 Financials.indd 178
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:33 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 179
3.4 Financial Assets (continued)
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.
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.
3.5 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.
Investment in Joint Ventures
The Group has an equity interest of £52.2 million (2017: £51.0 million) in MHE JVCo, a joint venture company. MHE JVCo is 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 £nil (2017:
£7.6 million) from MHE JVCo. The Group made no additional capital contributions into MHE JVCo.
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
2 December
2018
£m
2.2
(1.0)
1.2
3 December
2017
£m
2.6
(1.0)
1.6
At the period end the Group’s share of the net assets of MHE JVCo were valued at £52.2 million (2017: £51.0 million) The principal movements during the
year were the £1.2 million Group share of profit after tax and a dividend of £nil paid by MHE JVCo to the Group.
For the 52 weeks ended 2 December 2018 the entity, MHE JVCo Limited, has recognised net interest income of £4.4 million (2017: £5.2 million). Costs
incurred by MHE JVCo include depreciation of £2.0 million (2017: £1.9 million) and a tax charge of £nil (2017: £nil). Material amounts held on its balance
sheet as at 2 December 2018 include finance lease receivables of £74.5 million (2017: £94.1 million), £9.2 million (2017: £9.4 million) of property, plant and
equipment, £1.2 million (2017: £0.1 million) of cash and cash equivalents and £3.9 million (2017: £1.7 million) of trade and other payables, contributing
towards net assets of £105.2 million (2017: £102.8 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 154.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 179
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:34 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 180
Notes to the Consolidated Financial Statements
3.6 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 significant investments in new subsidiaries during the 52 weeks to 2 December 2018.
3.7 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 historical 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.
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 non-interest bearing and are on commercial terms. 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.
Ocado AR2018 Financials.indd 180
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:34 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 181
3.7 Working Capital (continued)
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.
3.8 Inventories
Goods for resale
Consumables
Write down of inventories amounted to £0.6 million (2017: £0.3 million) in the Consolidated Income Statement.
2 December
2018
£m
55.3
1.2
56.5
3 December
2017
£m
42.3
0.6
42.9
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 181
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:34 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 182
Notes to the Consolidated Financial Statements
3.9 Trade and Other Receivables
Trade receivables
Less: provision for impairment of trade receivables
Net trade receivables
Other receivables
Prepayments
Accrued income
2 December
2018
£m
53.9
(1.5)
52.4
10.0
12.9
29.4
104.7
3 December
2017
£m
30.7
(2.6)
28.1
6.6
12.9
19.2
66.8
Included within trade receivables is a balance of £3.3 million (2017: £1.7 million) owed by MHE JVCo. £8.6 million (2017: £8.6 million) of trade receivables in
the year related to contract balances outstanding for Solutions contracts. See note 2.4 for more detail.
Included in trade receivables is £29.9 million (2017: £12.2 million) due from suppliers in relation to commercial and media income. As at 6 January 2019
£26.7 million has been received. Included in accrued income is £8.4 million (2017: £8.6 million) to be invoiced to suppliers in relation to supplier funded
promotional activity and £10.8 million (2017: £8.0 million) to be invoiced to suppliers in relation to volume-related rebate amounts. As at 6 January 2019
£8.1 million of accrued income has been invoiced.
Also included in accrued income is £3.8 million (2017: £3.1 million) relating to the Group’s right to consideration for work completed but not billed at the
reporting date on Solutions contracts.
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
2 December 2018
3 December 2017
Gross
£m
89.0
2.8
0.4
1.1
93.3
Impairment
£m
–
(0.2)
(0.2)
(1.1)
(1.5)
Gross
£m
50.1
4.0
0.1
2.3
56.5
Impairment
£m
–
(0.2)
(0.1)
(2.3)
(2.6)
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 £2.8 million (2017: £3.8
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
3.10 Cash and Cash Equivalents
Cash at bank and in hand
2 December
2018
£m
2.6
0.2
–
2.8
3 December
2017
£m
3.8
–
–
3.8
2 December
2018
£m
410.8
3 December
2017
£m
150.0
£2.5 million (2017: £3.3 million) of the Group’s cash and cash equivalents are held by the Group’s captive insurance company to maintain its solvency
requirements. Included in this amount are credit card payments of £28.2 million (2017: £25.6 million) received within 10 days. A further £1.2 million (2017:
£0.8 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.
Ocado AR2018 Financials.indd 182
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:34 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 3.11 Trade and Other Payables
Trade payables
Taxation and social security
Accruals and other payables
Deferred income
183
2 December
2018
£m
133.4
9.9
135.2
12.5
291.0
3 December
2017
£m
92.9
8.3
106.0
9.3
216.5
Deferred income represents the value of delivery income received under the Ocado Smart Pass scheme allocated to future periods, lease incentives and
media income from suppliers which relate to future periods.
3.12 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 the 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.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 183
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:34 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 184
Notes to the Consolidated Financial Statements
3.12 Provisions (continued)
Provisions
As at 27 November 2016
Charged/(credited) to the Consolidated Income Statement
– additional provision
– unused amounts reversed
Used during the period
Unwinding of discount
As at 3 December 2017
Charged/(credited) to the Consolidated Income Statement
– additional provision
– unused amounts reversed
Used during the period
As at 2 December 2018
Analysis of total provisions as at 3 December 2017
Current
Non-current
Analysis of total provisions as at 2 December 2018
Current
Non-current
Insurance
Claims
£m
1.2
Dilapidations
£m
6.0
Employee
Incentive
Schemes
£m
2.5
0.3
(0.4)
(0.6)
–
0.5
0.2
(0.1)
(0.3)
0.3
1.3
(0.8)
(0.3)
–
6.2
0.8
–
(0.1)
6.9
Insurance
Claims
£m
0.1
0.4
0.5
Dilapidations
£m
0.4
5.8
6.2
Insurance
Claims
£m
0.1
0.2
0.3
Dilapidations
£m
0.6
6.3
6.9
1.7
(0.1)
(0.7)
–
3.4
7.2
(0.2)
(0.5)
9.9
Employee
Incentive
Schemes
£m
0.8
2.6
3.4
Employee
Incentive
Schemes
£m
7.6
2.3
9.9
Total
£m
9.7
3.3
(1.3)
(1.6)
–
10.1
8.2
(0.3)
(0.9)
17.1
Total
£m
1.3
8.8
10.1
Total
£m
8.3
8.8
17.1
Insurance Claims
The Ocado Cell uses statistical information built up over several years to estimate, as accurately as possible, the future out-turn of the total claims value
incurred but not reported as at the balance sheet date. In practice the Ocado Cell receives newly reported claims after the end of the underwriting period
that have to be allocated to the year of loss (i.e. the underwriting year of occurrence). The calculation of this provision involves estimating a number of
variables, principally the level of claims which may be received and the level of any compensation which may be payable. Uncertainty associated with
these factors may result in the ultimate liability being different from the reported provision. Although it is expected that £0.1 million claims will be settled
within 12 months of the balance sheet date, the exact timing of utilisation of the provision is uncertain.
Ocado AR2018 Financials.indd 184
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:34 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 185
3.12 Provisions (continued)
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, the Andover CFC lease expires in 2092, the Erith CFC lease expires in 2046, the
GMDC leases expire between 2022 and 2037, head office leases expire between 2019 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 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 (f)).
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 2019 and 2021.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 185
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:35 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 186
Notes to the Consolidated Financial Statements
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 the Hatfield, 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.
A See Alternative Performance Measures on pages 229 and 230
Ocado AR2018 Financials.indd 186
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:35 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 187
2 December
2018
£m
3 December
2017
£m
22.9
22.9
244.3
93.4
337.7
360.6
Over
Five Years
£m
243.3
243.3
244.3
244.3
27.2
27.2
243.3
107.5
350.8
378.0
Total
£m
243.3
243.3
244.3
244.3
Notes
4.3
4.3
Less Than
One Year
£m
Between
One Year and
Two Years
£m
Between
Two Years and
Five Years
£m
–
–
–
–
–
–
–
–
–
–
–
–
4.2 Borrowings and Finance Leases
Current Liabilities
Obligations under finance leases
Non-Current Liabilities
Borrowings
Obligations under finance leases
Total borrowings and finance leases
Borrowings
As at 3 December 2017
Senior secured notes
Total borrowings
As at 2 December 2018
Senior secured notes
Total borrowings
The loans outstanding at the period end can be analysed as follows:
Inception
June 2017
Security
Held
Collateral
Current
Interest Rate
4%
Instalment
Frequency
Semi-annually
Principal amount
£m
250.0
Disclosed as:
Current
Non-current
Final
Payment
Due
June 2024
Carrying
Amount as at
2 December
2018
£m
244.3
244.3
Carrying
Amount as at
3 December
2017
£m
243.3
243.3
–
244.3
244.3
–
243.3
243.3
In the current year, the unsecured £100 million revolving facility expiring in 2022 has not been utilised. Senior secured notes were issued in June 2017
raising £250 million; this is shown net of transaction fees. The senior secured notes are secured by charges over the issued share capital of the subsidiary
undertakings that acted as guarantors for the notes.
The Group regularly reviews its financing arrangements. The revolving facility and the senior secured notes contain typical restrictions concerning dividend
payments and additional debt and leases.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 187
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:35 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials
188
Notes to the Consolidated Financial Statements
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
2 December
2018
£m
3 December
2017
£m
22.9
26.7
60.9
5.8
116.3
27.2
24.6
65.3
17.6
134.7
External obligations under finance leases are £41.8 million (2017: £40.6 million) excluding £74.5 million (2017: £94.1 million) payable to MHE JVCo, a joint
venture company.
Minimum lease payments due:
Within one year
Between one and two years
Between two and five years
After five years
Less: future finance charges
Present value of finance lease liabilities
Disclosed as:
Current
Non-current
2 December
2018
£m
3 December
2017
£m
35.8
30.6
65.7
12.9
145.0
(28.7)
116.3
22.9
93.4
116.3
33.6
29.3
72.7
18.3
153.9
(19.2)
134.7
27.2
107.5
134.7
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 Cash/(Debt) A
Net Cash /(Debt) A
Current Assets
Cash and cash equivalents
Current Liabilities
Obligations under finance leases
Non-Current Liabilities
Borrowings
Obligations under finance leases
Total net cash/(debt) A
Notes
3.10
4.2
4.2
4.2
2 December
2018
£m
3 December
2017
£m
410.8
(22.9)
(22.9)
(244.3)
(93.4)
(337.7)
50.2
150.0
(27.2)
(27.2)
(243.3)
(107.5)
(350.8)
(228.0)
Net cash position is £124.7 million (2017: £133.9 million net debt A ), excluding finance lease obligations of £74.5 million (2017: £94.1 million) payable to
MHE JVCo, a joint venture company. £3.7 million (2017: £4.1 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 3.10.
A See Alternative Performance Measures on pages 229 and 230
Ocado AR2018 Financials.indd 188
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:36 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 4.4 Analysis of Net Cash/(Debt) A (continued)
Reconciliation of Net Cash Flow to Movement in Net Cash/(Debt) A
Net increase in cash and cash equivalents
Net decrease/(increase) in debt and lease financing
Non-cash movements:
– Assets acquired under finance lease
Movement in net cash/(debt) A in the period
Opening net debt A
Closing net cash/(debt) A
189
2 December
2018
£m
260.8
31.0
3 December
2017
£m
99.1
(147.7)
(13.6)
278.2
(228.0)
50.2
(14.5)
(63.1)
(164.9)
(228.0)
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.
Borrowing costs capitalised during the year is £2.8 million (2017: £1.6 million). The capitalisation rate used to determine the amount of finance costs
capitalised during the year is 4% (2017: 4%).
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
Finance costs
Net finance costs
52 Weeks
Ended
2 December
2018
£m
2.2
2.2
53 Weeks
Ended
3 December
2017
£m
0.2
0.2
(6.5)
(8.2)
(14.7)
(12.5)
(8.2)
(5.7)
(13.9)
(13.7)
The carrying value of the finance income and costs approximates their fair value.
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 2 December 2018 and at 3 December 2017, 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.
A See Alternative Performance Measures on pages 229 and 230
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 189
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:36 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 190
Notes to the Consolidated Financial Statements
4.6 Derivative Financial Instruments (continued)
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 2 December 2018 were £11.3 million (2017: £6.9 million). The hedged
highly probable forecast transactions are expected to occur at various dates during the next 12 months. Cumulative net gains of £1.0 million have been
recognised in the hedging reserve within other comprehensive income. These gains and losses are recognised in the Consolidated Income Statement in
periods during which the hedged forecast transaction affects the Consolidated Income Statement.
Commodity swap contracts
Derivative asset
Derivative liability
2 December
2018
£m
3 December
2017
£m
0.1
(0.5)
(0.4)
0.4
(0.1)
0.3
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:
loans and receivables;
• available-for-sale;
•
• 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.
Ocado AR2018 Financials.indd 190
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:36 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 191
4.7 Financial Instruments (continued)
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.
Financial Assets and Liabilities at Fair Value
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); and
Inputs for the assets or liabilities that are not based on observable market data (level 3).
The Group’s derivative assets and liabilities other than the senior secured notes are all classified as level 2. The senior secured notes are classified as level 1.
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
Non-current financial assets
Derivative assets
Total financial assets
Financial Liabilities
Trade payables
Other payables
Senior secured notes
Finance lease obligations
Derivative liabilities
Total financial liabilities
2 December 2018
3 December 2017
Notes
3.10
3.9
3.9
3.4
4.6
3.11
3.11
4.2
4.3
4.6
Carrying
Value
£’000
410.8
52.4
39.4
4.1
0.1
506.8
(133.4)
(135.2)
(244.3)
(116.3)
(0.5)
(629.7)
Fair
Value
£’000
410.8
52.4
39.4
4.1
0.1
506.8
(133.4)
(135.2)
(238.6)
(116.3)
(0.5)
(624.0)
Carrying
Value
£’000
150.0
28.1
25.8
3.0
0.4
207.3
(92.9)
(106.0)
(243.3)
(134.7)
(0.1)
(577.0)
Fair
Value
£’000
150.0
28.1
25.8
3.0
0.4
207.3
(92.9)
(106.0)
(240.9)
(134.7)
(0.1)
(574.6)
The derivative assets and liabilities relate to forward commodity swap contracts.
The Group’s non current financial assets consist of an unlisted equity investment, prepaid financing fees and contribution towards dilapidation costs.
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.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 191
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:37 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 192
Notes to the Consolidated Financial Statements
4.7 Financial Instruments (continued)
The fair value of the senior secured notes is determined based on the quoted price in the active market. The carrying value in the table above is stated after
deduction of issue costs of £5.7 million.
The fair values of all other financial assets and liabilities have been calculated by discounting the expected future cash flows at prevailing market interest rates.
The Group has categorised its financial instruments as follows:
Financial
Liabilities at
Fair Value
Through
Profit and
Loss
£m
Financial
Liabilities at
Amortised
Cost
£m
Available-
for-Sale
£m
Loans and
Receivables
£m
–
–
–
0.4
–
0.4
–
–
–
–
–
–
150.0
28.1
25.8
2.6
–
206.5
–
–
–
–
–
–
–
–
–
–
–
–
(92.9)
(106.0)
(243.3)
(134.7)
–
(576.9)
–
–
–
–
0.4
0.4
–
–
–
–
(0.1)
(0.1)
Financial
Liabilities at
Fair Value
Through
Profit and
Loss
£m
Financial
Liabilities at
Amortised
Cost
£m
Available-
for-Sale
£m
Loans and
Receivables
£m
–
–
–
0.4
–
0.4
–
–
–
–
–
–
410.8
52.4
39.4
3.7
–
506.3
–
–
–
–
–
–
–
–
–
–
–
–
(133.4)
(135.2)
(244.3)
(116.3)
–
(629.2)
–
–
–
–
0.1
0.1
–
–
–
–
(0.5)
(0.5)
Notes
3.10
3.9
3.9
3.4
4.6
3.11
3.11
4.2
4.3
4.6
Notes
3.10
3.9
3.9
3.4
4.6
3.11
3.11
4.2
4.3
4.6
Total
£m
150.0
28.1
25.8
3.0
0.4
207.3
(92.9)
(106.0)
(243.3)
(134.7)
(0.1)
(577.0)
Total
£m
410.8
52.4
39.4
4.1
0.1
506.8
(133.4)
(135.2)
(244.3)
(116.3)
(0.5)
(629.7)
As at 3 December 2017
Financial Assets as per the Consolidated Balance Sheet
Cash and cash equivalents
Trade receivables
Other receivables
Financial assets
Derivative assets
Total
Financial Liabilities as per the Consolidated Balance Sheet
Trade payables
Other payables
Senior secured notes
Obligations under finance leases
Derivative liabilities
Total
As at 2 December 2018
Financial Assets as per the Consolidated Balance Sheet
Cash and cash equivalents
Trade receivables
Other receivables
Financial assets
Derivative assets
Total
Financial Liabilities as per the Consolidated Balance Sheet
Trade payables
Other payables
Senior secured notes
Obligations under finance leases
Derivative liabilities
Total
Ocado AR2018 Financials.indd 192
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:37 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials
193
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
2 December
2018
£m
(2.6)
(1.2)
1.7
0.6
(1.5)
3 December
2017
£m
(2.8)
(0.3)
(0.7)
1.2
(2.6)
Notes
3.9
The Group has adequate cash resources to manage the short-term working capital needs of the business. In the prior year, the unsecured £210 million
revolving facility was reduced to £100 million and extended by three years to 2022. As at 2 December 2018 the facility has not been utilised. Senior secured
notes were issued in June 2017, raising £250 million. The Group regularly reviews its financing arrangements. For further details of the review please refer
to the Group’s Viability Statement on page 49.
The Group monitors its liquidity requirements to ensure it has sufficient cash to meet operational needs. For further details see note 4.11.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 193
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:37 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 194
Notes to the Consolidated Financial Statements
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
Other payables
Senior secured notes
Obligations under finance leases
Derivative liabilities
3 December 2017
Financial Liabilities
Trade payables
Other payables
Senior secured notes
Obligations under finance leases
Derivative liabilities
2 December 2018
Notes
3.11
3.11
4.2
4.3
4.6
Notes
3.11
3.11
4.2
4.3
4.6
Carrying
Value
£m
Contractual
Cash Flows
£m
1 Year or
Less
£m
(92.9)
(106.0)
(243.3)
(134.7)
(0.1)
(577.0)
(92.9)
(106.0)
(243.3)
(153.9)
(0.1)
(596.2)
(92.9)
(106.0)
–
(33.6)
(0.1)
(232.6)
Carrying
Value
£m
Contractual
Cash Flows
£m
1 Year or
Less
£m
(133.4)
(135.2)
(244.3)
(116.3)
(0.5)
(629.7)
(133.4)
(135.2)
(244.3)
(145.0)
(0.5)
(658.4)
(133.4)
(135.2)
–
(35.8)
(0.5)
(304.9)
1–2
Years
£m
–
–
–
(29.3)
–
(29.3)
1–2
Years
£m
–
–
–
(30.6)
–
(30.6)
2–5
Years
£m
–
–
–
(72.7)
–
(72.7)
2–5
Years
£m
–
–
–
(65.7)
–
(65.7)
More Than
5 Years
£m
–
–
(243.3)
(18.3)
—
(261.6)
More Than
5 Years
£m
–
–
(244.3)
(12.9)
—
(257.2)
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
Cash and cash equivalents – USD
Trade payables at period end – EUR
Trade payables at period end – PLN
Trade payables at period end – USD
2 December
2018
£m
1.2
2.9
2.9
(0.4)
(2.1)
(1.2)
3.3
3 December
2017
£m
–
3.4
–
(0.1)
(0.1)
(1.0)
2.2
Ocado AR2018 Financials.indd 194
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:38 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 195
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
2 December 2018
3 December 2017
Increase/
(Decrease)
in Income
£m
0.3
(0.4)
Increase/
(Decrease)
in Equity
£m
–
–
Increase/
(Decrease)
in Income
£m
0.2
(0.2)
Increase/
(Decrease)
in Equity
£m
–
–
A movement of the euro, as indicated, against sterling at 2 December 2018 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
2 December
2018
£m
3 December
2017
£m
408.8
(360.6)
2.0
–
149.5
(376.7)
0.5
–
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
2 December
2018
£m
3 December
2017
£m
–
–
–
(0.2)
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 195
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:38 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 196
Notes to the Consolidated Financial Statements
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 2 December 2018, the number of ordinary shares available for issue under the Block Listing Facilities was 10,014,711 (2017: 12,083,504). 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.
The reclassification is correcting both the accounting for the reacquisition of bad leaver JSOS interests in 2015 and the inception to date reclassification to
retained earnings of gains on disposal of JSOS interests previously recognised in the share premium reserve.
The movements in the called up share capital and share premium accounts are set out below:
At 27 November 2016
Issues of ordinary shares
Allotted in respect of share option schemes
At 3 December 2017
Issues of ordinary shares
Allotted in respect of share option schemes
Reclassification between reserves
At 2 December 2018
Ordinary
Shares
Number of
Shares
(million)
629.2
1.1
0.4
630.7
65.0
2.6
–
698.3
Ordinary
Shares
£m
12.6
–
–
12.6
1.3
0.1
–
14.0
Share
Premium
£m
256.9
0.9
0.6
258.4
322.1
6.2
0.3
587.0
Included in the total number of ordinary shares outstanding above are 6,438,706 (2017: 32,803,390) 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 loss per share calculation in note 2.10 as basic
loss 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 27 November 2016
Movement on derivative financial instruments
Translation of foreign subsidiary
At 3 December 2017
Movement on derivative financial instruments
Disposal of treasury shares
Transfer of shares to participants
Reclassification between reserves
Translation of foreign subsidiary
At 2 December 2018
Notes
4.9(b)
4.9(b)
4.9(a)
Treasury
Shares
Reserve
£m
(48.0)
–
–
(48.0)
–
11.7
27.8
(0.7)
–
(9.2)
Reverse
Acquisition
Reserve
£m
(116.2)
–
–
(116.2)
–
–
–
-
–
(116.2)
Fair Value
Reserve
£m
0.2
0.3
0.2
0.7
1.0
–
–
-
(0.3)
1.4
Ocado AR2018 Financials.indd 196
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:38 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 197
4.9 Share Capital and Reserves (continued)
(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. See note 4.10(b) for
more information on the JSOS.
(b) Other Reserves
The fair value reserve comprises gains and losses on movements in the Group’s cash flow hedges, which consist of commodity swaps and foreign currency
hedges.
The acquisition by the Company of the entire issued share capital in 2010 of Ocado Limited was accounted for as a reverse acquisition under IFRS 3
(revised). Consequently, the previously recognised book values and assets and liabilities have been retained and the consolidated financial information
for the period to 2 December 2018 has been presented as if the Company had always been the parent company of the Group.
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 3.12 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 3.12
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 £13.1 million (2017: £6.9 million), of which £6.1 million (2017: £5.3
million) related to equity-settled share-based payment transactions and £7.0 million (2017: £1.6 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 3.12 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.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 197
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:38 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 198
Notes to the Consolidated Financial Statements
4.10 Share Options and Other Equity Instruments (continued)
Under the ESOS, Ocado or the trustees of an employee trust may grant options over shares in the Company to eligible employees. The eligible employees
to whom options are granted and the terms of such options will be determined by the Directors of Ocado or the trustees. The employees who are eligible
to participate in the ESOS are all Ocado’s Executive Directors and employees, including the employees of the Company’s subsidiaries. Options are not
transferable. The exercise price of options may not be less than the market value of the Company’s shares on the date of grant. If the trustees or the
Directors have determined that the exercise of an option will be satisfied by the issue of ordinary shares, the exercise price may also not be less than the
nominal value of ordinary shares.
The Directors of Ocado or the trustees may impose a performance target and any further condition determined to be appropriate on the exercise of an
option. In most cases any performance target must be measured over a period of at least three years. There are currently no options granted which are
subject to performance targets that have not yet been met. The vesting period for the ESOS is three years. If the options remain unexercised after a period
of ten years from the date of grant or the employee leaves the Group, the options expire (subject to a limited number of exceptions).
At each respective balance sheet date the outstanding options were as follows:
Approved
Year of Issue
2 December
2018
Exercise
Price
(£)
3 December
2017
Exercise
Price
(£)
2008
2008
2009
2009
2010
2011
2011
2012
2012
2012
2013
2013
2014
2014
2015
2015
2015
2016
2016
20 2017
2017
2018
2018
2009
2012
2014
2014
2014
2015
2015
2015
2016
2016
2017
2017
2018
2018
–
–
16,339
55,460
100,754
72,932
5,800
77,827
218,417
18,149
95,591
47,955
10,594
151,907
144,814
19,166
19,061
486,334
26,757
992,286
16,464
351,865
21,264
2,949,736
39,000
77,294
19,286
6,955
2,954
8,056
11,443
8,494
127,784
50,810
187,100
87,443
72,718
30,207
729,544
3,679,280
–
–
1.20
1.35
1.65
2.55
1.89
1.03
1.05
0.85
1.28
3.02
5.10
4.84
3.77
4.46
4.39
2.70
2.59
2.56
2.92
5.68
10.45
1.20
1.05
4.84
3.36
3.27
3.77
4.46
4.39
2.70
2.59
2.56
2.92
5.68
10.45
6,695
19,710
25,106
97,743
163,049
163,777
52,839
192,174
418,925
90,747
246,073
116,506
40,579
357,294
369,011
22,980
30,435
549,780
31,196
1,119,038
23,667
–
–
4,137,324
122,600
119,088
23,945
27,901
10,617
28,807
16,222
16,740
139,674
58,933
204,616
96,956
–
–
866,099
5,003,423
1.35
1.20
1.20
1.35
1.65
2.55
1.89
1.03
1.05
0.85
1.28
3.02
5.10
4.84
3.77
4.46
4.39
2.70
2.59
2.56
2.92
–
–
1.20
1.05
4.84
3.36
3.27
3.77
4.46
4.39
2.70
2.59
2.56
2. 2.92
–
–
Total approved options
Non-Approved
Total non-approved options
Total
Exercise Period
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
14/02/14–13/02/21
19/07/14–18/07/21
21/02/15–13/02/22
09/03/15–08/03/22
27/06/15–26/06/22
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
14/03/20–13/03/27
15/08/20–14/08/27
21/03/21–20/03/28
13/08/21–12/08/27
31/05/12–30/05/19
09/03/15–08/03/22
17/03/17–16/03/24
01/08/17–31/07/24
08/08/17–07/08/24
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
14/03/20–13/03/27
15/08/20–14/08/27
21/03/21–20/08/28
13/08/21–14/08/28
Ocado AR2018 Financials.indd 198
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:39 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 199
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
2 December 2018
3 December 2017
Year of Issue
2009
Number of
Share Options
49,600
49,600
Exercise
Price (£)
1.20
Number of
Share Options
133,200
133,200
Exercise
Price (£)
1.20
Exercise Period
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
2 December 2018
3 December 2017
Number of
Share
Options
5,003,423
498,143
(306,013)
(1,516,273)
3,679,280
1,228,248
Weighted
Average
Exercise
Price (£)
2.51
6.18
2.99
2.46
3.01
3.55
Number of
Share
Options
4,156,637
1,503,946
(242,828)
(414,332)
5,003,423
2,295,368
Weighted
Average
Exercise
Price (£)
2.38
2.59
2.95
1.28
2.51
2.10
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 £7.27 (2017: £2.83).
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
2 December
2018
£6.18
£6.18
0.40
3.00
1.0%
0.0%
3 December
2017
£2.59
£2.59
0.40
3.00
0.1%
0.0%
The expected volatility was determined by considering the historical performance of the Company’s shares. 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 pages 229 and 230
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 199
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:39 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 200
Notes to the Consolidated Financial Statements
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:
2 December 2018
3 December 2017
Weighted
Average
Remaining
Contractual
Life
(years)
3.6
3.2
3.3
0.5
4.3
0.9
1.6
2.6
2.2
8.3
7.6
7.3
8.7
4.6
5.7
5.7
6.3
6.6
6.6
5.3
5.2
9.3
9.7
Exercise Price
(£)
0.85
1.03
1.05
1.20
1.28
1.35
1.65
1.89
2.55
2.56
2.59
2.70
2.92
3.02
3.27
3.36
3.77
4.39
4.46
4.84
5.10
–
–
Number of
Share Options
90,747
192,174
538,013
167,416
246,073
104,438
163,049
52,839
163,777
1,323,654
90,129
689,454
120,623
116,506
10,617
27,901
397,818
47,175
39,202
381,239
40,579
–
–
5,003,423
Weighted
Average
Remaining
Contractual
Life
(years)
4.6
4.2
4.3
1.4
5.3
1.8
2.6
3.6
3.2
9.3
8.6
8.3
9.7
5.6
6.7
6.7
7.3
7.6
7.6
6.3
6.2
–
–
Exercise Price
(£)
0.85
1.03
1.05
1.20
1.28
1.35
1.65
1.89
2.55
2.56
2.59
2.70
2.92
3.02
3.27
3.36
3.77
4.39
4.46
4.84
5.10
5.68
10.45
Number of
Share Options
18,149
77,827
295,711
55,339
95,591
55,460
100,754
5,800
72,932
1,179,386
77,567
614,118
103,907
47,955
2,954
6,955
152,870
27,555
30,609
171,193
10,594
424,583
51,471
3,679,280
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 6,438,706 (2017: 32,803,390) ordinary shares which
represents 0.9% (2017: 5.2%) of the issued share capital of the Company. Of these ordinary shares, 4,516,292 (2017: 79,032) 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.
Ocado AR2018 Financials.indd 200
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:40 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 201
4.10 Share Options and Other Equity Instruments (continued)
Participants
In prior periods, Interests were acquired by the Participants under the first JSOS scheme (“JSOS1”) in 32,476,700 Shares at an issue price of £1.50 per share,
and the second group of Participants’ JSOS scheme (“JSOS2”) in 3,990,799 Shares at an issue price of £1.70 per share. In 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
–
–
Hurdle
Value
£1.70
£1.80
–
–
%
of Market Price
230%–265%
244%–280%
–
–
For JSOS1, Participants were required to purchase their Interest for 2.0% of the issue price. For JSOS2, the price was in a range of 7.1% to 10.8%, and
for JSOS3, the price was in a range of 1.47% to 1.70% of the share price at date of issue. When an Interest vests, the Employee Benefit Trust Trustee will
transfer Shares to the Participant of equal value to the Participant’s Interest or the Shares will be sold and the Employee Benefit Trust Trustee will account
to the Participant for the balance, i.e. the difference between the sale proceeds (less expenses) and the hurdle price.
Vesting Conditions
The vesting of the Interests granted to Participants is subject to a time vesting condition, as detailed above.
The fair value of the Interests awarded under the JSOS was determined using the Black–Scholes Option Pricing Model. As per IFRS 2 “Share-Based
Payment”, market-based vesting conditions and the share price target conditions in the JSOS have been taken into account in establishing the fair value of
the equity instruments granted. Other non-market or performance-related conditions were not taken into account in establishing the fair value of equity
instruments granted; instead, these non-market vesting conditions are taken into account by adjusting the number of equity instruments included in
the measurement of the transaction amount so that ultimately the amount recognised for services received as consideration for the equity instruments
granted is based on the number of equity instruments that will eventually vest.
In determining the fair value of the Interests granted, the Black–Scholes Option Pricing Model was used with the following inputs:
JSOS1
Weighted average share price
Weighted average exercise price
Expected volatility
Weighted expected life – years
Risk-free interest rate
Expected dividend yield
JSOS2
Weighted average share price
Weighted average exercise price
Expected volatility
Weighted expected life — years
Risk-free interest rate
Expected dividend yield
Tranche 1
£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.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 201
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:40 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 202
Notes to the Consolidated Financial Statements
4.10 Share Options and Other Equity Instruments (continued)
Details of the movement in the number of allocated Interests in Shares during each period are as follows:
Outstanding at the beginning of the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
2 December 2018
3 December 2017
Number of
Interests in
Shares
32,724,358
(30,801,944)
1,922,414
1,922,414
Weighted
Average
Exercise Price
(£)
1.99
1.97
2.25
2.25
Number of
Interests in
Shares
32,751,581
(27,223)
32,724,358
32,724,358
Weighted
Average
Exercise Price
(£)
1.99
2.79
1.99
1.99
(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
2 December 2018
3 December 2017
Number of
Share Options
Exercise Price
(£)
Number of
Share Options
—
—
—
435,300
435,300
Exercise
Price
(£)
Exercise Period
1.03
03/01/04 – 03/01/18
All non-employee share options were fully exercised in the period.
The weighted average remaining contractual lives for outstanding non-employee share options are as follows:
2 December 2018
3 December 2017
Weighted
Average
Remaining
Contractual
Life
(years)
–
Weighted
Average
Remaining
Contractual Life
(years)
0.1
Exercise
Price
(£)
1.03
Number of
Share Options
435,300
435,300
Exercise Price
(£)
–
Number of
Share Options
–
–
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 90% of the market value at launch date.
Ocado AR2018 Financials.indd 202
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:40 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 203
4.10 Share Options and Other Equity Instruments (continued)
At 2 December 2018 employees of the Company’s subsidiaries held 1,135 (2017: 1,817) contracts in respect of options over 5,396,601 (2017: 4,454,396)
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
2 December 2018
3 December 2017
Weighted
Average
Exercise Price
(£)
2.03
4.57
3.14
3.22
3.09
3.24
Number of
Share Options
4,454,396
2,071,434
(469,447)
(659,782)
5,396,601
1,211
Number of
Share Options
6,260,286
–
(1,648,874)
(157,016)
4,454,396
–
Weighted
Average
Exercise Price
(£)
2.51
–
2.69
3.01
2.03
–
(e) Long-Term Incentive Plan
The Group operates equity-settled long-term incentive plans (“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 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 the Group’s retail business earnings before tax for the financial year ended 3 December 2017, and financial year ending
2 December 2018 respectively. For the 2017 LTIP, there are four equally weighted performance conditions based on performance in the 2019 financial year,
which are operational efficiency related to the retail business, Ocado Smart Platform sales target, the Group’s retail business revenue and the Group’s
retail business earnings before tax. For the 2018 LTIP, there are four equally weighted performance conditions based on performance in the 2020 financial
year, which are Ocado Smart Platform efficiency target, the Ocado Solutions revenue target, the Group’s retail business revenue target and Group’s retail
business earnings before interest and tax.
The number of awards issued, adjusted to reflect the achievement of the performance conditions, will then vest during 2019 for the 2016 LTIP, 2020 for
the 2017 LTIP and 2021 for the 2018 LTIP, with the exception of awards issued to the Executive Directors which have a two year holding period and will
be released in 2023. 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 2 December 2018 and changes during the year is presented below:
Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Vested during the period
Outstanding at the end of the period
Number of
Share Awards
2 December
2018
4,308,708
927,102
(741,585)
(247,188)
4,247,037
Number
of Share
Awards
3 December
2017
3,151,610
1,829,906
–
(672,808)
4,308,708
There were no awards exercisable as at 2 December 2018 and as at 3 December 2017.
The Group recognised an expense of £2.8 million (2017: £1.5 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.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 203
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:40 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 204
Notes to the Consolidated Financial Statements
4.10 Share Options and Other Equity Instruments (continued)
(f) 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.
Performance will be assessed based on the three-month average share price of the Company and the FTSE 100 Share Index at the end of the performance
period in comparison to the three-month average share price of the Company and the FTSE 100 Share Index prior to the start of the performance period.
In determining the fair value of the awards granted, a unique Monte Carlo model was used with the following inputs:
Weighted average share price
Value of FTSE 100 Index
Expected correlation
Expected volatility of Company
Expected volatility of FTSE 100 Index
Weighted expected life – years
Risk-free rate
Expected dividend yield
Valuation model
£3.19
6,389.25
29%
40%
16%
5.0
1.96%
0%
Monte Carlo Pricing
Expected correlation was determined with reference to the 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 historical 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 2 December 2018 and changes during the year is presented below:
Outstanding at 27 November 2016
Granted during the year
Outstanding at 3 December 2017
Granted during the year
Outstanding at 2 December 2018
Number of
Share Awards
6,000,000
470,000
6,470,000
–
6,470,000
There were no awards exercisable as at 2 December 2018 (2017: none).
The Group recognised an expense of £4.3 million (2017: £1.6 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.
Ocado AR2018 Financials.indd 204
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:41 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 205
4.10 Share Options and Other Equity Instruments (continued)
(g) 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 and Free Shares will be forfeited if any corresponding Partnership Shares are removed from the Plan Trust within this three-year
period, or if the participant leaves Ocado.
A summary of the status of the SIP as at 2 December 2018 and changes during the year is presented below:
Outstanding at 27 November 2016
Awarded during the period
Forfeited during the period
Released during the period
Outstanding at 3 December 2017
Unrestricted at 3 December 2017
Outstanding at 3 December 2017
Awarded during the period
Forfeited during the period
Released during the period
Outstanding at 2 December 2018
Unrestricted at 2 December 2018
Partnership
Shares
318,294
197,130
–
(78,635)
436,789
436,789
Partnership
Shares
436,789
89,553
–
(123,089)
403,253
403,253
Matching
Shares
45,176
28,072
(10,108)
(1,042)
62,098
–
Matching
Shares
62,098
12,670
(14,778)
(2,679)
57,311
113
Free
Shares
1,293,730
752,800
(202,568)
(43,110)
1,800,852
1,032
Free
Shares
1,800,852
276,566
(306,522)
(133,438)
1,637,458
2,134
Number of
Share Awards
Total
1,657,200
978,002
(212,676)
(122,787)
2,299,739
437,821
Number of
Share Awards
Total
2,299,739
378,789
(321,300)
(259,206)
2,098,022
405,500
In the year, the Group recognised an expense of £1.2 million (2017: £1.0 million) related to these awards. The expectation of meeting the holding period
was taken into account when calculating this expense.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 205
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:41 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 206
Notes to the Consolidated Financial Statements
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 cash/(debt) A . Net cash/(debt) A 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 £556.6 million (2017: £247.6 million) and it had net cash of £50.2 million (2017: £228.0 million net debt A ).
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 re-forecasting, 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 current year the Group has £250 million (2017: £250 million) of finance through the issue of senior secured notes with a fixed coupon rate of 4% and
a maturity date of seven years. In the prior year, the £210 million RCF was reduced to £100 million and extended by a further three years to 2022. The funds
from the senior secured notes issue have been used to pay down existing debt, including the £87.5 million previously drawn on the RCF. The remaining
funds will be used for capital expenditure to increase capacity.
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 5.1.
Given the Group’s commitment to expand the business and the investment required to complete future CFCs, the declaration and payment of a dividend is
not part of the short-term capital management strategy of the Group.
At the Balance Sheet date, the Group’s undrawn facilities and cash and cash equivalents were as follows:
Total facilities available
Facilities drawn down†
Undrawn facilities at end of period‡
Cash and cash equivalents
Notes
4.2
3.10
2 December
2018
£m
509.4
(360.6)
148.8
410.8
559.6
3 December
2017
£m
511.5
(378.0)
133.5
150.0
283.5
† In the prior year, the unsecured £210 million revolving facility was reduced to £100 million and extended by three years to 2022.
‡ The undrawn facility at the end of the period, includes transaction costs. If transaction costs are excluded, then the undrawn facility is £143.1 million.
As at 2 December 2018 the unsecured £100 million revolving facility has not been utilised. Transaction costs of £5.7 million (2017: £6.7 million) relating to
the senior secured notes have been capitalised. The Group regularly reviews its financing arrangements.
A See Alternative Performance Measures on pages 229 and 230
Ocado AR2018 Financials.indd 206
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:41 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 207
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 2 December 2018 is disclosed below:
Proportion of
Share Capital
Held (direct/
indirect)
Country of
Incorporation
Share Class
Principal Activity
Holding company
Retail
Technology
Logistics and Distribution
Business Services
Non-trading company
Name
The following companies are registered at Buildings One & Two Trident Place, Mosquito Way, Hatfield, Hertfordshire, United Kingdom, AL10 9UL:
Ocado Holdings Limited
Ocado Retail Limited
Ocado Innovation Limited
Ocado Operating Limited
Ocado Central Services Limited
Ocado Innovation Holdings Limited
Ocado Solutions Limited
(formerly Ocado International Holdings Limited)
Ocado International Holdings Limited
Last Mile Technology Limited
MHE JVCo Limited
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:
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Non-trading company
Business Services
Non-trading company
Trading company
Ordinary shares
Ordinary shares
Ordinary shares
£1.00 “B” shares
Trading company
Retail
Retail
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
98%
Ocado Information Technology Limited
The following company is registered at ul. Rakowicka 7, 31-511, Krakow, Poland:
Ocado Polska Sp. z o.o.
Technology
The following company is registered at Av. Josep Tarradellas 38, Planta 8a, 08029, Barcelona, Spain:
Ocado Spain S.L.U.
Technology
The following company is registered at 1209 Orange Street, Wilmington, Delaware 19801, United States of America:
Intellectual property
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Republic of
Ireland
Poland
Spain
United States
of America
Oxford US LLC
Non-trading company
The following company is registered at 17 Henrik Ibsen Street, Lozenets District, Sofia 1407, Bulgaria:
Ocado Bulgaria EOOD
Technology
The following company is registered at Paneltex House, Somerden Road, Hull, HU9 5PE:
Paneltex Limited
The following company is registered at PO Box 997 Halifax, NS Canada, B3J 2X2:
Ocado Solutions Canada Inc.
The following company is registered at 12 Timber Creek Lane, Newark, Delaware 19711:
Business services
Manufacturing
Ocado Solutions USA Inc.
The following company is registered at TMF Pôle, 3-5 rue Saint-Georges, 75009 Paris:
Ocado Solutions France SAS
Business services
Business services
Ordinary shares
100%
Ordinary shares
100%
Bulgaria
Ordinary shares
25%
UK
Ordinary shares
100%
Canada
Ordinary shares
Ordinary shares
United States
of America
France
100%
100%
In accordance with the exemption under Section 479A of the Companies Act, the standalone financial statements for a subsidiary, Paws & Purrs Limited
(company number 07538307), will not be audited for the year ended 2 December 2018, 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.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 207
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:41 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 208
Notes to the Consolidated Financial Statements
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
2 December
2018
£m
0.1
69.6
69.7
3 December
2017
£m
2.7
42.3
45.0
Of the total capital expenditure committed at the period end, £0.1 million (2017: £37.2 million) relates to new CFCs, £35.3 million (2017: £2.2 million) to
existing CFCs, £7.9 million (2017: £0.3 million) to fleet costs and £nil (2017: £0.2 million) relates to technology 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 2 December 2018 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
2 December
2018
£m
37.1
108.9
262.3
408.3
3 December
2017
£m
25.0
84.9
263.7
373.6
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
2 December
2018
£m
4.2
6.1
10.3
3 December
2017
£m
3.1
2.4
5.5
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 82 to 129.
Other related party transactions with key management personnel made during the period related to the purchase of professional services amounted to
£5,250 (2017: £2,700). 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 (2017: £nil). There were no other material transactions or balances
between the Group and its key management personnel or members of their close family.
Ocado AR2018 Financials.indd 208
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:42 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 209
5.4 Related Party Transactions (continued)
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 3.4.
Purchase of goods
– Plant and machinery
– Consumables
Sale of goods
52 Weeks
Ended
2 December
2018
£m
53 Weeks
Ended
3 December
2017
£m
–
0.6
–
0.7
0.5
0.2
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 £8.2 million (2017: £6.3 million). At period end, the Group owed Paneltex £37,000 (2017: Paneltex Limited owed the Group
£15,000).
Joint Venture
The following transactions were carried out with MHE JVCo, a joint venture company, incorporated in the UK, in which the Group holds an interest:
Capital contributions made to MHE JVCo
Dividend received from MHE JVCo
(Settlement)/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
Capital element of finance lease instalments due to MHE JVCo
Interest element of finance lease instalments accrued or paid to MHE JVCo
2 December
2018
£m
–
–
(0.6)
–
2.8
12.9
4.4
3 December
2017
£m
–
7.6
7.5
1.3
16.0
–
5.2
During the year the Group incurred lease instalments (including interest) of £20.1 million (2017: £21.2 million) to MHE JVCo.
Of the £20.1 million, £9.5 million (2017: £10.1 million) was recovered directly from Morrisons in the form of Other Income and a further £nil (2017: £7.6
million) was received from MHE JVCo by way of a dividend. Of the remaining £10.6 million, £2.8 million represents the capital element of the finance lease
instalments paid to MHE JVCo, £5.6 million represents the capital element of the finance lease instalments due to MHE JVCo and £2.2 million of the interest
incurred on finance lease owing to MHE JVCo.
Included within trade and other receivables is a balance of £3.9 million (2017: £1.7 million) owed by MHE JVCo. £0.6 million (2017: £0.7 million) of this
relates to a finance lease accrual which is included within other receivables. £3.3 million (2017: £1.0 million) relates to capital recharges.
Included within trade and other payables is a balance of £25.1 million (2017: £1.9 million) owed to MHE JVCo.
Included within obligations under finance leases is a balance of £74.5 million (2017: £94.1 million) owed to MHE JVCo.
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 2 December 2018.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 209
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:42 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials Ocado AR2018 Financials.indd 210
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:42 AM
26237
5 February 2019 2:06 am
Proof 1
5.
OUR
COMPANY
FINANCIALS
212 Company Balance Sheet
213 Company Statement of Changes in Equity
214 Company Statement of Cash Flows
215 Notes to the Company Financial Statements
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 211
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:42 AM
212
Company Balance Sheet
as at 2 December 2018
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
Borrowings
Provisions
Net Assets
Equity
Share capital
Share premium
Retained earnings
Total Equity
2 December
2018
£m
3 December
2017
£m
Notes
3.1
3.3
3.4
3.5
3.6
4.1
3.6
4.2
4.2
525.7
525.7
536.7
302.2
838.9
1,364.6
(17.3)
(7.6)
(24.9)
814.0
(244.3)
(2.3)
(246.6)
1,093.1
14.0
589.9
489.2
1,093.1
512.5
512.5
386.7
117.5
504.2
1,016.7
(5.5)
(0.8)
(6.3)
497.9
(243.3)
(2.6)
(245.9)
764.5
12.6
261.6
490.3
764.5
The Company’s loss for the period was £7.2 million (2017: £3.7 million).
The notes on pages 215 to 223 form part of these financial statements.
The Company financial statements on pages 212 to 223 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
5 February 2019
Ocado Group plc
Company Registration Number 07098618 (England and Wales)
Ocado AR2018 Financials.indd 212
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:42 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials Company Statement of Changes in Equity
for the 52 weeks ended 2 December 2018
Balance at 27 November 2016
Loss for the period
Total Comprehensive Income for the Period
Ended 27 November 2016
Transactions with owners:
– Issue of ordinary shares
– Allotted in respect of share option schemes
– Share-based payments charge
Total Transactions with Owners
Balance at 3 December 2017
Loss for the period
Total Comprehensive Income for the Period
Ended 2 December 2018
Transactions with owners:
– Issue of ordinary shares
– Allotted in respect of share option schemes
– Share-based payments charge
Total Transactions with Owners
Balance at 2 December 2018
The notes on pages 215 to 223 form part of these financial statements.
Notes
4.2
4.2
4.3
4.2
4.2
4.3
Share
Capital
£m
12.6
–
Share
Premium
£m
260.1
–
Retained
Earnings
£m
488.7
(3.7)
–
–
–
–
–
12.6
–
–
1.3
0.1
–
1.4
14.0
–
0.9
0.6
–
1.5
261.6
–
–
322.1
6.2
–
328.3
589.9
(3.7)
–
–
5.3
5.3
490.3
(7.2)
(7.2)
–
–
6.1
6.1
489.2
213
Total
Equity
£m
761.4
(3.7)
(3.7)
0.9
0.6
5.3
6.8
764.5
(7.2)
(7.2)
323.4
6.3
6.1
335.8
1,093.1
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 213
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:42 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 214
Company Statement of Cash Flows
for the 52 weeks ended 2 December 2018
Cash Flow From Operating Activities
(Loss) before income tax
Adjustments for:
– Net finance costs
– Share based payments
Changes in working capital:
– Movement in provisions
– Movement in other receivables
– Movement in trade and other payables
Cash Generated from Operating Activities
Interest paid
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
Proceeds from borrowings
Payment of financing Fees
Net Cash From Financing Activities
Net Increase in Cash and Cash Equivalents
Cash and cash equivalents at beginning of period
Cash and Cash Equivalents at End of Period
The notes on pages 215 to 223 form part of these financial statements.
52 Weeks
Ended
2 December
2018
£m
53 Weeks
Ended
3 December
2017
£m
Notes
(7.2)
6.1
6.1
6.6
(151.0)
–
(139.4)
(7.2)
(146.6)
1.8
1.8
329.6
–
(0.1)
329.5
184.7
117.5
302.2
(3.7)
3.5
5.4
0.8
(149.7)
5.3
(138.4)
(3.3)
(141.7)
0.2
0.2
1.5
250.0
(7.1)
244.4
102.9
14.6
117.5
3.4
Ocado AR2018 Financials.indd 214
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:42 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials Notes to the Company Financial Statements
215
Section 1 — Basis of Preparation
General Information
Ocado Group plc is incorporated in the United Kingdom. The Company is the parent and the ultimate parent of the Group. The address of its registered
office is Buildings 1 & 2 Trident Place, Mosquito Way, Hatfield, Hertfordshire, AL10 9UL. The financial period represents the 52 weeks ended 2 December
2018 (prior period 53 weeks ended 3 December 2017).
Basis of Preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting
Standards Interpretation Committee (IFRIC) interpretations as endorsed by the European Union (“IFRS-EU”), and those parts of the Companies Act
applicable to companies reporting under IFRS.
The financial statements are presented in sterling, rounded to the nearest hundred thousand unless otherwise stated. They have been prepared under the
historical cost convention, except for financial instruments that have been measured at fair value.
The Directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements of the Company.
Exemptions
The Directors have taken advantage of the exemption available under Section 408 of the Companies Act and not presented an income statement or a
statement of comprehensive income for the Company alone.
New standards, amendments and interpretations issued that are not yet effective but have been early adopted and are not material
to the Company:
IFRS 15 “Revenue from Contracts with Customers” provides guidance 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 the
control of goods or services is transferred. This applies to all contracts with customers except those in the scope of other standards. The new standard
replaces IAS 18 “Revenue” and is effective for annual periods beginning on or after 1 January 2018 unless early adopted. The Company has early adopted
IFRS 15 in the current period and has concluded that that it does not have a significant impact on the Company’s financial statements.
New standards, amendments and interpretations issued that are effective but not material to the Company:
The Company has considered the following new standards, interpretations and amendments to published standards that are effective for the Company
for the financial year beginning 4 December 2017 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:
Various
IAS 10
IAS 12
Amendments to various IFRSs and IASs including those arising from the IASB’s annual improvements project
Statement of cash flows (amendments)
Income taxes (amendments)
1 January 2017
1 January 2017
1 January 2017
New standards, amendments and interpretations not yet 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 4 December 2017 and have not been adopted early:
IFRS 2
IFRS 9
IFRS 16
IAS 28
IFRIC 22
IFRIC 23
Various
Share-based payments (amendments)
Financial instruments
Leases
Investments in associates and joint ventures (amendments)
Foreign Currency Transactions and Advance Consideration
Uncertainty over Income Tax Treatments
Amendments to various IFRSs and IASs including those arising from the IASB’s annual improvements project
1 January 2018
1 January 2018
1 January 2019
Deferred
1 January 2018
1 January 2019
Various
The following new standards are not yet effective and the impact on the Company is currently under review:
− IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 ‘Financial Instruments: Recognition and Measurement’. IFRS 9 includes revised
guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on
financial assets and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial
instruments from IAS 39. The Company is assessing the potential impact on its financial statements resulting from the application of IFRS 9. Our initial
review of IFRS 9 has indicated that the impact of this new standard on the Company’s results is unlikely to be material.
− 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. IFRS 16 is
not expected to have an impact on the amounts recognised in the Company’s financial statements as the Company currently has no leases.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 215
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:43 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 216
Notes to the Company Financial Statements
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.
Section 2 — Results for the Year
2.1 Loss 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 Results
During the period, the Company obtained audit services from its auditor, Deloitte LLP, to the amount of £75,000 (2017: £70,000).
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 4.3.
Ocado AR2018 Financials.indd 216
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:43 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 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
217
2 December
2018
£m
476.5
3 December
2017
£m
476.5
1.1
48.1
525.7
1.1
34.9
512.5
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”.
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” on 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. The amounts due from
subsidiary undertakings are repayable on demand.
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
Other receivables
3.4 Cash and Cash Equivalents
Cash at bank and in hand
2 December
2018
£m
535.7
1.0
536.7
3 December
2017
£m
386.5
0.2
386.7
2 December
2018
£m
302.2
3 December
2017
£m
117.5
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 217
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:43 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 218
Notes to the Company Financial Statements
3.5 Trade and Other Payables
Deferred income and accruals
Amounts due to subsidiary undertakings
2 December
2018
£m
4.6
12.7
17.3
3 December
2017
£m
4.9
0.6
5.5
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 employers’ NIC upon allotment of the share awards.
Unapproved schemes are the Long-Term Incentive Plan (“LTIP”), 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 27 November 2016
Charged to the Income Statement
– additional provision
– unused amounts reversed
Used during the period
As at 3 December 2017
Charged to the Income Statement
– additional provision
– unused amounts reversed
Used during the period
As at 2 December 2018
Analysis of total provisions as at 3 December 2017
Current
Non-current
Analysis of total provisions as at 2 December 2018
Current
Non-current
Employee
Incentive
Schemes
£m
2.5
1.7
(0.1)
(0.7)
3.4
7.2
(0.2)
(0.5)
9.9
Employee
Incentive
Schemes
£m
0.8
2.6
3.4
Employee
Incentive
Schemes
£m
7.6
2.3
9.9
Ocado AR2018 Financials.indd 218
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:43 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials
219
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 employers’ 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 (f) 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 2019 and 2021.
Section 4 — Capital Structure and Financing Costs
4.1 Borrowings
Borrowings
Total borrowings
The loan outstanding at period end can be analysed as follows:
Principal amount
£m
250.0
Inception
June 2017
Security
Held
Collateral
Current
Interest Rate
Instalment
Frequency
4% Semi-annually
4.2 Share Capital and Premium
Accounting Policies
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
2 December
2018
£m
244.3
244.3
3 December
2017
£m
243.3
243.3
Carrying
Amount as at
2 December
2018
£m
244.3
Carrying
Amount as at
3 December
2017
£m
243.3
Final
Payment
Due
June 2024
Share Capital and Premium
Included in the total number of ordinary shares outstanding below are 6,438,706 (2017: 32,803,390) 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 2.10 to the
consolidated financial statements, as basic loss per share is calculated using the weighted average number of ordinary shares in issue during the period,
excluding treasury shares.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 219
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:43 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 220
Notes to the Company Financial Statements
4.2 Share Capital and Premium (continued)
At 2 December 2018, the number of ordinary shares available for issue under the Block Listing Facilities was 10,014,711 (2017: 12,083,504). 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 27 November 2016
Issues of ordinary shares
Allotted in respect of share option schemes
At 3 December 2017
Issues of ordinary shares
Allotted in respect of share option schemes
At 2 December 2018
Ordinary
Shares
Number
(million)
629.2
1.1
0.4
630.7
65.0
2.6
698.3
Ordinary
Shares
£m
12.6
–
–
12.6
1.3
0.1
14.0
Share
Premium
£m
260.1
0.9
0.6
261.6
322.1
6.2
589.9
4.3 Share-based Payments
For more information on the Group’s share schemes, see note 4.10 to the consolidated financial statements.
4.4 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
Senior secured notes
Total financial liabilities
2 December 2018
3 December 2017
Carrying
Value
£’000
525.7
302.2
536.7
1,364.6
(17.3)
(244.3)
(261.6)
Fair
Value
£’000
525.7
302.2
536.7
1,364.6
(17.3)
(238.6)
(255.9)
Carrying
Value
£’000
512.5
117.5
386.7
1,016.7
(5.5)
(243.3)
(248.8)
Fair
Value
£’000
512.5
117.5
386.7
1,016.7
(5.5)
(240.9)
(246.4)
Notes
3.1
3.4
3.3
3.5
4.1
Ocado AR2018 Financials.indd 220
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:43 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 221
4.5 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 4.7, 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 provide 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
2 December 2018
Gross
£’000
536.7
Impairment
£’000
–
3 December 2017
Gross
£’000
386.7
Impairment
£’000
–
Notes
3.3
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.
4.6 Liquidity Risk
In the current year, the unsecured £100 million revolving facility expiring in 2022 has not 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
3 December 2017
Financial Liabilities
Trade payables and other payables
2 December 2018
Notes
3.5
Notes
3.5
Carrying
Value
£m
Contractual
Cash Flows
£m
(5.5)
(5.5)
(5.5)
(5.5)
Carrying
Value
£m
Contractual
Cash Flows
£m
1 Year or
Less
£m
(5.5)
(5.5)
1 Year or
Less
£m
1–2 Years
£m
2–5 Years
£m
–
–
–
–
1–2 Years
£m
2–5 Years
£m
More Than
5 Years
£m
–
–
More Than
5 Years
£m
(17.3)
(17.3)
(17.3)
(17.3)
(17.3)
(17.3)
–
–
–
–
–
–
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 221
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:44 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 222
Notes to the Company Financial Statements
4.7 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 with a variable rate 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
Financial liabilities
2 December
2018
£m
3 December
2017
£m
302.2
(244.3)
117.5
(243.3)
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
Gain
4.8 Financial Instruments by Category
The Company has categorised its financial instruments as follows:
As at 3 December 2017
Financial Assets
Investments
Cash and cash equivalents
Other receivables
Total
Financial Liabilities
Trade and other payables
Total
2 December
2018
£m
3 December
2017
£m
–
1.8
–
0.4
Other
Financial
Liabilities at
Amortised
Cost
£m
–
–
–
–
(5.5)
(5.5)
Total
£m
512.5
117.5
386.7
1,016.7
(5.5)
(5.5)
Notes
3.1
3.4
3.3
3.5
Available-
For-Sale
£m
Loans and
Receivables
£m
512.5
–
–
512.5
–
–
–
117.5
386.7
504.2
–
–
Ocado AR2018 Financials.indd 222
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:44 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials 223
4.8 Financial Instruments by Category (continued)
As at 2 December 2018
Financial Assets
Investments
Cash and cash equivalents
Other receivables
Total
Financial Liabilities
Trade and other payables
Total
Available-
For-Sale
£m
Loans and
Receivables
£m
Other
Financial
Liabilities at
Amortised
Cost
£m
525.7
–
–
525.7
–
–
–
302.2
536.7
838.9
–
–
–
–
–
–
(17.3)
(17.3)
Notes
3.1
3.4
3.3
3.5
Total
£m
525.7
302.2
536.7
1,364.6
(17.3)
(17.3)
4.9 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.
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 98.
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. No interest was earned on these loans at market-related interest rates during the period (2017: £nil).
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
2 December
2018
£m
13.1
149.2
12.1
2 December
2018
£m
53 Weeks
Ended
3 December
2017
£m
6.9
142.1
(0.1)
3 December
2017
£m
535.7
(12.7)
386.5
(0.6)
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 223
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:44 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials Ocado AR2018 Financials.indd 224
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:44 AM
26237
5 February 2019 2:06 am
Proof 1
6.
ADDITIONAL
INFORMATION
226 Glossary
229 Alternative Performance Measures
231 Five Year Summary
232 Financial Calendar
232 Company Information
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 225
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:44 AM
226
Glossary
2014 ESOS – means the Ocado 2014 Executive
Share Option Scheme.
2018 Code – means the UK Corporate Governance
Code published by the FRC in July 2018.
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 1 May 2019 at 10
am at The London Stock Exchange Building, 10
Paternoster Square, London, EC4M 7LT.
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.
Bon Preu - means Bon Preu SA, a company
incorporated in Spain whose registered office is at
Carrer C, 17, 08040 Barcelona.
Brexit – means the UK’s decision to leave the
European Union following the referendum on
23 June 2016.
Casino - means Casino Guichard Perrachon SA, a
company incorporated in France whose registered
office is at 24 Rue de la Montat, Saint-Etienne.
Cash LTIP – means the Company’s cash-based
Long-Term Incentive Plan for senior employees.
Chairman’s Share Matching Award - means a one-
off award of shares to Lord Rose, made in May 2013.
Code – means the UK Corporate Governance Code
published by the FRC in April 2016.
Companies Act – means the Companies Act 2006.
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.
Company – means Ocado Group plc, a company
incorporated in England and Wales with registered
number 07098618 whose registered office is at
Buildings 1 & 2 Trident Place, Hatfield Business Park,
Mosquito Way, Hatfield, Hertfordshire, AL10 9UL.
Dobbies – means Dobbies Garden Centres
Limited, a company incorporated in Scotland
with registered number SC010975 whose
registered office is at Melville Nurseries,
Lasswade, Midlothian EH18 1AZ.
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 A .
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, Luke
Jensen, Neill Abrams, Duncan Tatton-Brown, Mark
Richardson.
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.
Deloitte – means Deloitte LLP, the Group’s
statutory auditor or the Group’s advisers in respect
of non-audit services.
Directors – means the Directors of the Company
whose names and biographies are set out on page
61 or the Directors of the Company’s subsidiaries
from time to time as the context may require.
Directors’ Remuneration Policy – means the
Directors’ remuneration policy that the Company
which was approved by shareholders at the 2017
annual general meeting and which is set out on
pages 107 to 129.
2019 Directors’ Remuneration Policy or 2019
Policy – means the Directors’ remuneration
policy that will be put forward for approval by
shareholders at the 2019 AGM and which is set out
on pages 107 to 129.
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).
Ocado AR2018 Financials.indd 226
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:44 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comAdditional Information 227
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.
GDPR – means General Data Protection
Regulation.
GHG – means greenhouse gas(es).
GIP – means the Growth Incentive Plan.
GMDC – means the General Merchandise
Distribution Centres in Welwyn Garden City and
Erith, dedicated highly automated warehouses
used for the operation of the business.
GPP – means the Ocado Group Pension Plan.
Gross Sales A – means sales (net of returns),
including charges for delivery, before deducting
relevant vouchers, offers and value added tax.
Relevant vouchers and offers include money-off
coupons, conditional spend vouchers and multibuy
offers, such as buy three for the price of two.
This includes sales from ocado.com, fetch.co.uk,
sizzle.co.uk and fabled.com.
Group – means Ocado Group plc, its subsidiaries,
significant undertakings and affiliated companies
under its control or common control.
HMRC – means Her Majesty’s Revenue & Customs.
IAS – means International Accounting Standard(s).
ICA – means ICA Group, a company incorporated
in Sweden whose registered office is at
Svetsarvägen 16, Solna.
IFRIC – means International Financial Reporting
Standards Interpretations Committee.
IFRS – means International Financial Reporting
Standard(s).
IGD – means the Institute of Grocery Distribution.
IP – means Intellectual Property.
ISA (UK & Ireland) – means International
Standard on Auditing in the UK and Ireland.
John Lewis – means John Lewis plc, the parent
company of Waitrose, incorporated in the UK 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.
Kroger – means The Kroger Co. a company
incorporated in the USA, whose registered office is
at 1014 Vine Street, Cincinnati, Ohio.
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 the UK with registered number
8576462, whose registered office is at Buildings 1 & 2
Trident Place, Hatfield Business Park, Mosquito Way,
Hatfield AL10 9UL. MHE JVCo is jointly owned by a
Group subsidiary and Morrisons.
Morrisons – means Wm Morrison Supermarkets
PLC, a company incorporated in the UK with
registered number 353949, whose registered office
is at Hilmore House, Gain Lane, Bradford, West
Yorkshire BD3 7DL.
Morrisons.com – means Morrisons’ online retail
business.
Net Finance Costs – means finance income
less finance costs. Finance income is 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 page 61.
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.
Ocado Solutions – means the Group’s Solutions
business.
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.
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 and other solutions clients 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.
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 227
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:45 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Additional Information USDAW – means the Union of Shop, Distributive
and Allied Workers.
VCP - means the Company’s Value Creation Plan for
Executive Directors.
Waitrose – means Waitrose Limited, a company
incorporated in the UK 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 websites www.
ocado.com, www.fabled.com, www.fetch.co.uk and
www.sizzle.co.uk.
228
Glossary
Senior Secured Notes or Notes –
means the Company’s offering of £250 million
Senior Secured Notes due 2024 at a coupon of 4%
and an issue price of 100%. For more details, see
page 134.
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.
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.
Sobeys - means Sobeys Inc, a wholly-owned
subsidiary of Empire Company Limited incorporated
in Canada whose registered office is at 115 King
Street, Stellarton, Nova Scotia.
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.
Ocado AR2018 Financials.indd 228
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:45 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials Alternative Performance Measures
229
The Group assesses its performance 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 used are:
• 52 Week Comparative for the 2017 Financial Year;
• Gross Sales;
• Segment Revenue;
• Exceptional Items;
• Segment Administrative Costs and Distribution Costs;
• EBITDA;
• Segment EBITDA;
• External Gross Debt; and
• Net Cash/(Debt)
A reconciliation from these non-GAAP measures to the nearest measure
prepared in accordance with IFRS is presented below. The alternative
performance measures used may not be directly comparable with similarly
titled measures used by other companies.
52 Week Comparative for the 2017 Financial Year
As a predominately retail business, the business has a 53 week financial
year every 5–6 years. The business have removed the last trading week of
the 2017 financial year to aid comparability for the users. These comparable
numbers are highlighted throughout the report.
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 to the consolidated financial statements.
Segment Revenue/Revenue (Retail)/Revenue
(Solutions)
Segment revenue is a measure of reported revenue for the Group’s Retail
and Solutions segments. A reconciliation of revenue for the segments
to revenue for the Group can be found in note 2.2 to the consolidated
financial statements.
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 2.8 to the consolidated financial
statements.
Segment Administrative Costs and Distribution
Costs
Segment distribution and administrative costs are measures which seek
to reflect the performance of the Group’s segments in relation to the
long-term sustainable growth of the Group. These measures exclude the
impact of certain costs that are not allocated to a segment; depreciation,
amortisation, impairment and other central costs.
A reconciliation from reported distribution and administrative costs, the
most directly comparable IFRS measures, to the segment distribution and
administrative costs, is set out below.
Retail distribution and administrative
costs
Solutions distribution and administrative
costs
Unsegmented distribution and
administrative costs
2018
£m
401.9
140.7
109.8
652.4
2017
£m
356.1
115.1
80.7
551.9
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 229
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:45 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 230
Alternative Performance Measures
Reported distribution costs
Reported administrative expenses
2018
£m
485.4
167.0
652.4
2017
£m
434.2
117.7
551.9
EBITDA
In addition to measuring its financial performance based on operating
profit, the Group also measures 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.
The Group considers EBITDA to be a useful measure of its operating
performance because it approximates the underlying operating cash
flow by eliminating depreciation and amortisation. EBITDA is not a direct
measure of liquidity, which is shown by the cash flow statement, and needs
to be considered in the context of the Group’s financial commitments.
A reconciliation from operating profit to EBITDA can be found on the face of
the Consolidated Income Statement on page 149.
Segment EBITDA/EBITDA (Retail)/EBITDA
(Solutions)
The financial performance of the Group’s segments is measured based on
EBITDA, as reported internally.
A reconciliation of EBITDA for the segments to EBITDA for the Group can be
found in note 2.2 to the consolidated financial statements.
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 external gross debt to gross debt can be found below.
External gross debt
Finance leases relating to joint ventures
Gross debt
2018
£m
286.1
74.5
360.6
2017
£m
283.9
94.1
378.0
Net Cash/(Debt)
Net cash/(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 cash/(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 cash/(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 cash/(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 cash/(debt) can be found in note 4.4 in the consolidated financial
statements.
Ocado AR2018 Financials.indd 230
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:45 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials Five Year Summary
231
Trading Weeks
Gross Sales A
Revenue
Gross Profit
EBITDA A
Adjusted operating (loss)/profit
52 Weeks to
2 December
2018
£m
52
1,748.3
1,598.8
547.5
59.5
(33.0)
53 Weeks to
3 December
2017
(restated)*
£m
53
1,590.3
1,454.5
495.0
76.7
4.1
52 Weeks to
27 November
2016
(restated)*
£m
52
1,381.9
1,267.0
431.3
80.3
17.9
52 Weeks to
29 November
2015
(restated)*
£m
52
1,199.6
1,103.6
371.1
77.5
15.1
52 Weeks to
30 November
2014
(restated)*
£m
52
1,021.7
944.8
308.8
67.5
10.1
*Restatements were due to the adoption of IFRS 15 during the year. Refer to note 1.5 for further details.
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 (%)
52 Weeks to
2 December
2018
296,000
106.85
163
194
0.8
53 Weeks to
3 December
2017
264,000
107.28
164
182
0.7
52 Weeks to
27 November
2016
230,000
108.10
160
176
0.7
52 Weeks to
29 November
2015
195,000
111.15
155
166
0.7
52 Weeks to
30 November
2014
167,000
112.66
145
163
0.8
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 are defined as CFC1 and CFC2.
A See Alternative Performance Measures on pages 229 and 230
26237
5 February 2019 2:06 am
Proof 1
Ocado AR2018 Financials.indd 231
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:46 AM
Stock Code: OCDO Annual Report and Accounts Ocado Group plc Our Financials 232
Financial Calendar
19 March 2019
1 May 2019
9 July 2019
17 September 2019
12 December 2019
4 February 2020
Q1 Trading Statement
Annual General Meeting
Half Year Results Announcement
Q3 Trading Statement
Q4 Trading Statement
Final Results Announcement
Shareholding information
Please contact our Registrar, Link Market Services, directly for all enquiries
about your shareholding. Visit their website, www.ocadoshares.com,
for online information about your shareholding (you will need your
shareholder reference number which you can be found on your share
certificate), or telephone the Registrar direct on +44 (0)345 608 1476 (calls
are charged at the standard geographic rate and will vary by provider. Calls
outside the United Kingdom will be charged at the applicable international
rate. Lines are open 9am to 5.30pm, Monday to Friday excluding public
holidays in England and Wales).
Fraud
Shareholders should be aware that they may be targeted by certain
organisations offering unsolicited investment advice or the opportunity
to buy or sell worthless or non-existent shares. Should you receive any
unsolicited calls or documents to this effect, you are advised not to give out
any personal details or to hand over any money without ensuring that the
organisation is authorised by the UK Financial Conduct Authority (FCA) and
doing further research.
If you are unsure or think you may have been targeted you should report
the organisation to the FCA. For further information, please visit the FCA’s
website at www.fca.org.uk, email consumer.queries@fca.org.uk or call the
FCA consumer helpline on 0800 111 6768 if calling from the UK or +44 20
7066 1000 if calling from outside the UK.
Company Information
Registered office:
Buildings One & Two
Trident Place
Mosquito Way
Hatfield
Hertfordshire
AL10 9UL
Company number:
07098618
Independent auditor:
Registrars:
Deloitte LLP
1 New Street Square
London
EC4A 3HQ
Link Market Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4ZF
All Intellectual Property Rights in the content and materials in this Annual Report vests in and are owned absolutely by Ocado unless otherwise indicated,
including in respect of or in connection with but not limited to all trade marks and the Report’s design, text, graphics, its selection and arrangement.
“Ocado Changing the way the world shops” is a trademark of Ocado Group plc
Copyright © Ocado 2019
Ocado AR2018 Financials.indd 232
26237
5 February 2019 2:06 am
Proof 1
05-Feb-19 2:08:46 AM
26237
5 February 2019 2:06 am
Proof 1
Ocado Group plc Annual Report and Accounts for the 52 weeks ended 2 December 2018www.ocadogroup.comOur Financials
Ocado AR2018 Strategic Report.indd 6
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:08:12 AM
O
c
a
d
o
G
r
o
u
p
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
f
o
r
t
h
e
5
2
w
e
e
k
s
e
n
d
e
d
2
D
e
c
e
m
b
e
r
2
0
1
8
Ocado Group plc
Buildings One & Two, Trident Place, Mosquito Way, Hatfield,
Hertfordshire, AL10 9UL, United Kingdom
Tel: +44(0) 1707 227800 www.ocadogroup.com Fax: +44(0) 1707 227999
Ocado AR2018 Strategic Report.indd 1
26237
5 February 2019 1:58 am
Proof 6
05-Feb-19 2:07:18 AM
26237
5 February 2019 1:58 am
Proof 6