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Changing the way
the world shops
Ocado Group Plc Annual Report and Accounts
For the 52 weeks ended 1 December 2019
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Introduction
Our Purpose and Mission
Changing the way
the world shops
We are transforming shopping, using our unique knowledge and inspired culture
to make it as easy and efficient as possible. Our innovative technologies and
shared expertise deliver a continuous advantage to our partners, so that they,
in turn, can deliver the best possible service to their customers.
Our Values
Our values guide ways of working across our diverse network of
business areas, building an engaged and mission-driven culture that,
in turn, is best placed to deliver value for all our stakeholders.
We are proud
We are proud
We are proud
of what we do
of what we do
of what we do
We are in it
We are in it
We are in it
together
together
together
We can be
We can be
We can be
even better
even better
even better
➔ Read more on page 63
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Back to contents 26615 11 February 2020 7:16 am Proof 3“ We have an unprecedented platform for growth.”notes-heading-level-onenotes-heading-level-twonotes-heading-level-threenotes-heading-level-fournotes-straplinenotes-text-body• notes-list-bullet• notes-list-bespoke −notes-list-dashd. notes-list-alpha5. notes-list-numbervi. notes-list-romanwwwHeadingHeadingHeadingTable plain textDefaultDefaultDefaultBackground123Border123Border123IN THIS REPORT224 Glossary227 Alternative Performance Measures229 Five Year Summary230 Shareholder Information230 Company Information04 Building on Our Heritage06 Building on Today08 Building for Tomorrow12 Group at a Glance13 Why Invest in Ocado?14 Progress in 201916 Q&A with Tim Steiner18 Chairman’s Statement20 The Marketplace24 Business Model27 Keeping Ocado at the Forefront28 Our Solutions Business30 Ocado Retail32 Strategy37 Key Performance Indicators40 Chief Financial Officer’s Review48 How We Manage Our Risks54 Corporate Responsibility58 Engaging With Our Stakeholders58 S172 Statement60 Our PeopleStrategic ReportOur Journey68 Chairman’s Governance Overview70 Corporate Governance Report – Board of Directors – Corporate Governance Statement 201988 Leadership and Effectiveness – Nomination Committee Report92 Accountability – Audit Committee Report98 Directors’ Remuneration Report138 Directors’ Report – Non-Financial Information StatementGovernanceGroup142 Independent Auditor’s Report151 Consolidated Income Statement152 Consolidated Statement of Comprehensive Income153 Consolidated Balance Sheet154 Consolidated Statement of Changes in Equity155 Consolidated Statement of Cash Flows156 Notes to the Consolidated Financial StatementsCompany210 Company Balance Sheet 211 Company Statement of Changes in Equity212 Company Statement of Cash Flows213 Notes to the Company Financial StatementsFinancial StatementsAdditional Information➔ Read more in this Report➔ Read more information online www.ocadogroup.comNAVIGATING THIS REPORTTim Steiner Chief Executive Officer01Stock Code: OCDO Annual Report and Accounts Ocado Group plc Ocado Annual Report 2019 Strategic.indd 111/02/2020 07:19:55Back to contents 26615 11 February 2020 7:16 am Proof 326615 6 February 2020 10:11 am Proof 326615 6 February 2020 10:11 am Proof 3Ocado Annual Report 2019 Strategic PAGE SHIFT.indd 2-306/02/2020 10:13:5426615 6 February 2020 10:11 am Proof 326615 6 February 2020 10:11 am Proof 3Ocado Annual Report 2019 Strategic PAGE SHIFT.indd 2-306/02/2020 10:13:54Our Journey2019 has seen a shift in the centre of gravity at Ocado Group.We have pivoted from being a pure play online grocer in the UK with a separate Solutions business to being a technology-led global software and robotics platform business providing a unique end-to-end solution for online grocery.“ We have never been in a better position to create value.”Tim Steiner Chief Executive Officer01 Building on Our HeritageOcado Retail powered by technology➔ Read more on page 0402 Building on TodayOcado Solutions powering retailers➔ Read more on page 0603Building for TomorrowTechnology-focused innovation house➔ Read more on page 08Ocado Annual Report 2019 Strategic.indd 211/02/2020 07:19:55Back to contents 26615 11 February 2020 7:16 am Proof 326615 6 February 2020 10:11 am Proof 326615 6 February 2020 10:11 am Proof 3Ocado Annual Report 2019 Strategic PAGE SHIFT.indd 2-306/02/2020 10:13:5426615 6 February 2020 10:11 am Proof 326615 6 February 2020 10:11 am Proof 3Ocado Annual Report 2019 Strategic PAGE SHIFT.indd 2-306/02/2020 10:13:54“ We have never been in a better position to create value.”Tim Steiner Chief Executive OfficerOcado Annual Report 2019 Strategic.indd 311/02/2020 07:19:56Back to contents 26615 11 February 2020 7:16 am Proof 326615 10 February 2020 11:48 pm Proof 326615 10 February 2020 11:48 pm Proof 3Ocado Annual Report 2019 Strategic ORIGINAL.indd 4-510/02/2020 23:51:5126615 10 February 2020 11:48 pm Proof 326615 10 February 2020 11:48 pm Proof 3Ocado Annual Report 2019 Strategic ORIGINAL.indd 4-510/02/2020 23:51:51Building on Our HeritageOcado Retail powered by technologyWe continue to invest in Ocado.com, currently the world’s largest dedicated online grocery retailer, with our joint venture partner M&S.Ocado.com is now one of nine global partners, all amongst the most innovative and forward-looking grocers in the world, whose online businesses are, or will be, enabled by the Ocado Smart Platform (OSP).010203OUR CUSTOMERSRetail customers58,000products in the range 99%order accuracy 04Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019www.ocadogroup.comOcado Annual Report 2019 Strategic.indd 411/02/2020 07:19:57Back to contents 26615 11 February 2020 7:16 am Proof 326615 10 February 2020 11:48 pm Proof 326615 10 February 2020 11:48 pm Proof 3Ocado Annual Report 2019 Strategic ORIGINAL.indd 4-510/02/2020 23:51:5126615 10 February 2020 11:48 pm Proof 326615 10 February 2020 11:48 pm Proof 3Ocado Annual Report 2019 Strategic ORIGINAL.indd 4-510/02/2020 23:51:5195%of deliveries made on time or early14%share of UK online grocery market05Annual Report and Accounts Ocado Group plc Ocado Annual Report 2019 Strategic.indd 511/02/2020 07:19:57Back to contents 26615 11 February 2020 7:16 am Proof 326615 10 February 2020 11:48 pm Proof 326615 10 February 2020 11:48 pm Proof 3Ocado Annual Report 2019 Strategic ORIGINAL.indd 6-710/02/2020 23:53:4126615 10 February 2020 11:48 pm Proof 326615 10 February 2020 11:48 pm Proof 3Ocado Annual Report 2019 Strategic ORIGINAL.indd 6-710/02/2020 23:53:41Building on TodayOcado Solutions powering leading retailers worldwideThe global network of market-leading retailers partnered with Ocado Solutions is growing, and we are growing with it.As we reach major milestones with our partners and bring more retailers to the Ocado Smart Platform, we are investing in our people and technology to ensure our partners are able to offer great online experiences to their customers, with the best possible economics.Our solutions are built to scale, both in terms of physical capacity as grocery online penetration grows worldwide and in terms of software capabilities as the market develops.010302+OUR PARTNERSMorrisons • Bon Preu • Groupe Casino • Sobeys • ICA Group • Kroger • Ocado Retail • Coles • Aeon9Ocado Solutions Partners50+Customer Fulfilment Centres (CFCs) committed(1)06Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019www.ocadogroup.comOcado Annual Report 2019 Strategic.indd 611/02/2020 07:19:59Back to contents 26615 11 February 2020 7:16 am Proof 326615 10 February 2020 11:48 pm Proof 326615 10 February 2020 11:48 pm Proof 3Ocado Annual Report 2019 Strategic ORIGINAL.indd 6-710/02/2020 23:53:4126615 10 February 2020 11:48 pm Proof 326615 10 February 2020 11:48 pm Proof 3Ocado Annual Report 2019 Strategic ORIGINAL.indd 6-710/02/2020 23:53:41Investmentin international CFCs in 2019 £71mInvestment in developing our OSP solutions in 2019 £124m(1) Sizes vary. The number reflects sales capacity equivalent to this many standard-sized CFCs07Annual Report and Accounts Ocado Group plc Ocado Annual Report 2019 Strategic.indd 711/02/2020 07:19:59Back to contents 26615 11 February 2020 7:16 am Proof 326615 10 February 2020 12:47 pm Proof 326615 10 February 2020 12:47 pm Proof 3Ocado Annual Report 2019 Strategic ORIGINAL.indd 8-910/02/2020 13:38:4026615 10 February 2020 12:47 pm Proof 326615 10 February 2020 12:47 pm Proof 3Ocado Annual Report 2019 Strategic ORIGINAL.indd 8-910/02/2020 13:38:40Building for TomorrowPioneering the future through disruptive innovationWe have a solid record of addressing many complex problems through cutting-edge innovation.Throughout our 19-year journey, we have built a rich technology estate and gained innovation assets – such as competencies, know-how and intellectual property – that are a source of competitive advantage.These innovation assets, specifically built for grocery, will enable current and future partners to future-proof their platform business. Our unique culture of serial disruption is a fundamental enabler of this future-proofing. Looking ahead, the network effect will be expanded, helping our partners to grow even faster.0102+03+92 patents granted in 2019 (vs 52 for 2018)B2B+Partners in multiple sectors4 strategic synergistic investments made in 2019 08Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019www.ocadogroup.comOcado Annual Report 2019 Strategic.indd 811/02/2020 07:20:01Back to contents 26615 11 February 2020 7:16 am Proof 326615 10 February 2020 12:47 pm Proof 326615 10 February 2020 12:47 pm Proof 3Ocado Annual Report 2019 Strategic ORIGINAL.indd 8-910/02/2020 13:38:4026615 10 February 2020 12:47 pm Proof 326615 10 February 2020 12:47 pm Proof 3Ocado Annual Report 2019 Strategic ORIGINAL.indd 8-910/02/2020 13:38:40Contributed to 4 EMEA-wide innovation research partnerships09Annual Report and Accounts Ocado Group plc Ocado Annual Report 2019 Strategic.indd 911/02/2020 07:20:01Back to contents 26615 11 February 2020 7:16 am Proof 3Ocado Annual Report 2019 Strategic.indd 1011/02/2020 07:20:03Back to contents 26615 11 February 2020 7:16 am Proof 3ReportCONTENTS Strategic12 Group at a Glance13 Why Invest in Ocado?14 Progress in 201916 Q&A with Tim Steiner18 Chairman’s Statement20 The Marketplace24 Business Model27 Keeping Ocado at the Forefront28 Our Solutions Business30 Ocado Retail32 Strategy37 Key Performance Indicators40 Chief Financial Officer’s Review48 How We Manage Our Risks54 Corporate Responsibility58 Engaging With Our Stakeholders58 S172 Statement60 Our PeopleOcado Annual Report 2019 Strategic.indd 1111/02/2020 07:20:04Back to contents 26615 11 February 2020 7:16 am Proof 3Group at a Glance OCADO TODAYTechnology Business Powering RetailersA technology-led, global, software and robotics platform business, with a strong retail heritage. International SolutionsReflecting UK contracts with the Ocado Retail joint venture and Morrisons, inclusive of both Solutions contracts and service agreements with Ocado Logistics for the provision of third party logistics and other servicesRetailUK SOLUTIONS AND LOGISTICSUK Solutions & Logistics ➔ Read more on page 28Reflecting deals with international partners for the provision of OSP, so that they may lead in online grocery in their respective marketsINTERNATIONAL SOLUTIONS➔ Read more on page 28A pure play online grocery retailer, serving customers in the UK, now a 50:50 joint venture with M&SRETAIL➔ Read more on page 30Changing the way the world shops A dedicated team carved out from the core, making strategic investments in other verticals where Ocado Group can leverage its technological know-how to drive additional value opportunities in the medium to long termINNOVATION AND VENTURESVentures➔ Read more on page 21Innovation12Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019www.ocadogroup.comSTRATEGIC REPORTOcado Annual Report 2019 Strategic.indd 1211/02/2020 07:20:04Back to contents Why Invest
in Ocado?
Online is the fastest
growing channel in most
markets. We built our
business specifically for
this change in shopping
behaviour – to benefit
from, and to lead, the
online revolution for
our partners.
In our home market of the UK, we are
seeing a fundamental shift in grocery
shopping behaviours, as customers
looking for improved service, convenience
and value shift to online.
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.
A dedicated team carved out from
the core, making strategic investments
in other verticals where Ocado
Group can leverage its technological
know-how to drive additional value
opportunities in the medium to long term
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REASONS TO INVEST
01e
Grocery online is the fastest
growing channel in most markets,
but market share is still much
lower than for general merchandise
categories
02e
As we have built the world’s leading
pure play online grocer, we have
developed unique, proprietary,
technology for the fulfilment of
online grocery
➔ Read more on page 23
➔ Read more on page 24 and 25
03e
We package and license our leading
technology to other retail partners
globally as OSP
04e
We retain a 50% share in the Ocado
Retail joint venture, the fastest growing
grocer in the UK market, an important
test bed, and a valued partner
➔ Read more on page 25
➔ Read more on page 30
05e
OSP offers a superior customer
experience and unparalleled
efficiencies, allowing our partners
to grow sales and win market share,
profitably and sustainably
06e
Our model is based on a virtuous
cycle of growth, investment and
innovation, with network effects
magnified as our customer base
scales
➔ Read more on page 25
➔ Read more on page 26 and 27
07e
We are innovating so that our
partners can lead in online grocery
missions beyond the full basket
shop
➔ Read more on page 34
08e
Our technological expertise is
applicable beyond grocery
➔ Read more on page 21
Stock Code: OCDO
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BRINGING THE BEST TOGETHER
Ocado Retail, a joint venture
with M&S
Progress in 2019
Strategic Highlights
• We formed a 50:50 joint venture with M&S to transform online
grocery retail in the UK. As a result of this deal, Ocado Retail is in an
even better place to grow strongly and Ocado Group has increased
resources to both grow the Solutions business and innovate for
partners, including the joint venture.
• We signed our sixth and seventh international agreements to
develop the OSP in Australia and Japan, with leading retailers
Coles and Aeon. OSP will now power the online grocery business
of nine of the world’s most innovative and forward-looking
retailers: Ocado Retail, Morrisons, Bon Preu, Groupe Casino,
Sobeys, ICA, Kroger, Coles and Aeon.
• We expanded our partnerships in Canada and the UK, with both
Sobeys and Ocado Retail, as the new joint venture, announcing
further CFC commitments.
• We continued to enhance the OSP, with the successful trial of
Ocado Zoom for immediacy and the announcement of the
first mini-sized CFC, both for Ocado Retail. As part of a bespoke
ecosystem, these new propositions will enable our partners to
serve new missions and geographies in their respective markets.
• We continued to invest for the medium and long term. We
implemented a robotic picking solution to start to assist on live
customer orders at our Erith CFC and made our first strategic
investments leveraging our technology expertise to support new
opportunities for customers and partners in other verticals.
➔ Read more on pages 34 to 36
Operational Highlights
• Despite the impact of the Andover CFC fire on capacity, we maintained
double digit order growth in Ocado Retail, demonstrating the
resilience of the business. With growth, the business continues to
achieve consistently high levels of customer service, remaining a
market leader in punctuality of deliveries and order accuracy. As a
result, Ocado Retail has grown sales significantly ahead of the UK
market and taken market share. Active customer numbers have grown
by 10.3% to 795,000 and orders per week now average over 325,000.
• We have facilitated the growth of the UK business by adding
further capacity to our network, using learnings from our third
CFC in Andover to ramp our fourth CFC, in Erith, faster than
originally envisioned. When at full capacity, Erith will be the largest
automated warehouse for grocery anywhere in the world.
• We continued to progress in delivering OSP to our partners. In
Catalonia, Bon Preu began making online deliveries in the first
half of 2019, with Morrisons continuing to roll out OSP store-pick
software in stores throughout the year. The delivery of international
CFCs is on track, starting from the first half of 2020 in France and
Canada, with further sites committed in each of the US, Canada,
Sweden, Australia and Japan.
➔ Read more on page 30 and pages 34 to 35
The 50:50 joint venture combines Ocado Retail’s leading UK
online grocery service with M&S’s food innovation expertise and
extensive customer base, to create an unparalleled proposition for
the UK consumer. Powered by Ocado Group’s OSP and logistics
services, the joint venture is set to continue to transform online
grocery in the UK.
“ A transformative moment in the
UK retail sector with the combination
of two iconic and much-loved retail
brands set to provide an unrivalled
online grocery offer.”
Tim Steiner
Chief Executive Officer
Ocado Retail
Contributes existing
UK online grocery retail
business, ocado.com
M&S
Provides all M&S’s fresh,
own-brand products once
the sourcing agreement
begins (September 2020)
Joint Venture (Formed in August 2019)
• Manages pricing, category mix, branded and own-label
sourcing and marketing
•
Invests in buildings for new CFCs and home delivery vans
• Service agreements with Ocado and M&S
Ocado Solutions
New solutions contract inline
with other global partners
Financial proceeds
• Expected £750m total
consideration for M&S’s
50% share
• Ocado will receive 50% of
the joint venture’s profits
14
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Ocado Group: a review of top line expectations for our four operating segments
Looking at recent performance and expectations for top line trends across operating segments
YESTERDAY
TODAY
TOMORROW
Revenue Group A (£m)
Revenues from 100%
owned Retail business
and Solutions revenues
from operational
Morrisons partnership
7
5
7
,
1
£
9
9
5
,
1
£
4
2
4
,
1
£
7
6
2
,
1
£
4
0
1
,
1
£
Revenues from fully consolidated
Ocado Retail joint venture and fees
for solutions and logistics services
in the UK. Under IFRS15 upfront fees
received from international partners
are deferred until go-live
15 16 17 18
19
£1,757m
Future inflection point, with growing proportion
of revenues recognised from International
Solutions partnerships as more CFCs go live
and ramp up in partner markets
Revenue Ocado Retail A (£m)
Revenues from 100%
owned Retail business
8
1
6
,
1
£
Revenues from fully consolidated
Ocado Retail joint venture in the UK,
in partnership with M&S
Full consolidation of Ocado Retail joint venture
revenues will continue for at least five years.
Thereafter, it is anticipated that control of the
joint venture will pass to M&S and, when it does
pass, it will consolidate the joint venture
7
6
4
,
1
£
7
1
3
,
1
£
2
7
1
,
1
£
6
1
1
,
1
£
15
16 17 18
19
Revenue Solutions Logistics – UK A (£m)
Fees received from UK
partners, the Ocado
Retail joint venture
and Morrisons, for the
execution of Solutions
and logistics contracts
3
8
5
£
1
4
5
£
Fees received from UK partners,
the Ocado Retail joint venture and
Morrisons, for the execution of
Solutions and logistics contracts
Fees received from UK partners, the Ocado
Retail joint venture and Morrisons, will grow
as these partners add capacity and scale their
operational networks as they grow their online
businesses
15
16 17 18
19
Revenue Solutions – International A (£m)
Fees invoiced from
international partners
that can be recognised as
revenues under IFRS 15
1
1
Fees invoiced from international
partners that can be recognised as
revenues under IFRS 15
Future inflection point, with revenue building
as CFCs go live and ramp in partner markets
globally
£81.4m
Fees invoiced to International
Solutions partners
15 16 17 18
19
A See Alternative Performance Measures on pages 227 and 228.
Stock Code: OCDO
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26615 11 February 2020 7:16 am Proof 3Q What are the main benefits of Ocado’s joint venture with M&S?A The joint venture with M&S puts each area of the business in a better position to grow. As a leading online grocer in the UK, Ocado Retail will now also benefit from M&S’s well-known expertise in food innovation and quality and their sizeable customer base that hasn’t been able to shop M&S online until now. The business will still be powered by OSP and the increased resources from the deal will enable our Solutions business to grow and innovate faster, for Ocado Retail and all our partners around the world.Q What is the overall impact of the fire at Andover?A The fire at Andover saw us lose around 10% of our capacity, impacting on Ocado Retail’s ability to grow in the near term. We had to write off Andover CFC entirely, with the associated impact on profits. Importantly, we expect business disruption and the asset write-off to be covered by insurance. We have also been able to recover to levels of growth approaching those achieved before the fire at a much faster rate than most people expected. We achieved this by driving incremental volumes through our mature CFCs and through a deal with Morrisons in which they have agreed to give up their right to capacity at Erith until February 2021. It was a terrible event, but one through which we have taken away important practical learnings regarding site build and collaboration with local services, as well as a renewed appreciation for the resilience of the model and the people working to find solutions in our business.Q How can you ensure you are capable of building over thirty CFCs in the next three to four years?A We don’t underestimate the challenges in scaling to execute for our partners over the next several years. It is a challenge of velocity; we have successfully built and scaled CFC operations in the UK, but now we need to do this many times over, globally. We’ve reorganised the entire business around mission-focused delivery to do just this, to ensure effective collaboration and minimise any bottlenecks. We’ve invested heavily in building out our technology talent in the areas we know, to ensure we have the capacity to deliver on our promises. And we’re building out new capabilities in client services so that we can serve our clients 24/7, in their own languages, both on and off the ground. We do benefit from longer lead times on these projects, and we’re continuously building our experience. Of course, every learning we get from one project we bring into the next.Q How are investments outside of grocery being considered?A Over the last two decades we have developed an extensive technological real-estate. Now we have the chance to leverage that expertise to support new opportunities to create value in the medium to long term. These investments can be in areas tangential to our core mission in grocery, where our know-how can help accelerate innovation and growth, to seed new opportunities for partners in the future. They can be opportunities outside of grocery where our technology can be a disruptive force in another vertical. We haven’t set aside a specific pool of capital dedicated to these investments. They will be on a case by case basis, and where we see a real opportunity for significant future returns.with Tim Steiner Chief Executive OfficerScaling the business to execute for our partners is a challenge of velocity“We have never had as many opportunities to grow as we do today. As we look to successfully scale our business and deliver outstanding execution to our partners, our challenge will be to select and prioritise the most attractive of these opportunities.”Tim SteinerChief Executive Officerwww.ocadogroup.comSTRATEGIC REPORT16Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019www.ocadogroup.comOcado Annual Report 2019 Strategic.indd 1611/02/2020 07:20:19Back to contents Ocado Annual Report 2019 Strategic.indd 17
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Back to contents 26615 11 February 2020 7:16 am Proof 3It has been a period of innovation for the Ocado Group and we are proud to report on another momentous year.In the following pages of this Strategic Report, we describe to you how the centre of gravity of Ocado is shifting.We have always been a Company that prides itself on being agile and responsive and this year we have demonstrated this through a number of innovative partnerships and transactions. We have pivoted from being a pure play online grocer in the UK with a separate Solutions business to being a global software and robotics platform business providing a unique end-to-end solution for online grocery. At the same time, we recognise the impact that we have on communities and the environment. While it has been a year of innovation and rapid progress, we are focused on our plans for the future and on keeping Ocado at the forefront of technology. “ We have always been a company that prides itself on being agile and responsive and this year we have demonstrated this through a number of innovative partnerships and transactions.”Lord RoseChairmanThe world is changing fast, driven by different shopping habits and ever more advanced technology for the consumer. Grocery is the largest of all retail segments and is continuing to move online. We are well positioned to take advantage of these long-term structural trends for the benefit of all our stakeholders. We want to continue to offer our customers better choice, better quality and better standards.The business is changing and the decision to sell 50% of the Ocado Retail business to M&S gives Ocado.com the tools it needs to grow faster, while also providing Ocado Group with the resources it needs to improve the platform and to focus on execution for our Solutions partners. I am delighted to welcome Melanie Smith, the new CEO of Ocado Retail; she talks on page 30 about the future of Ocado Retail and further unlocking the potential of this business.The year was not without its challenges and in February we reported on a devastating fire at CFC3 in Andover. Thankfully, this fire did not lead to any injuries but it did affect the livelihoods of many and we are grateful for the work of the first-responders as well as our colleagues who have worked tirelessly to mitigate the impact of the fire on customers and the local community. Despite the loss of one of our four CFCs, Ocado Retail sales increased significantly again in 2019, which is testimony to the resilience of the business and the people who work in it. Following this fire, Ocado has been seeking additional capacity within its existing network of CFCs to maintain the quality of the customer experience and to allow the business to continue to grow, while at the same time investigating the longer term steps to replace the lost capacity from CFC3.Chairman’s Statement18Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019www.ocadogroup.comSTRATEGIC REPORTOcado Annual Report 2019 Strategic.indd 1811/02/2020 07:20:30Back to contents 26615 11 February 2020 7:16 am Proof 3As a global business we are changing and evolving as the markets that we operate in change; however, we do so with a strong awareness of the risks and demands that are placed on us. For our Solutions business we are acutely aware of the significant costs of investments into our technology and engineering capabilities and equipment. There are also execution and innovation risks to our Solutions business which is why we have teams in place to guide the implementation plans for the new CFCs for our Solutions partners. For our Retail business there are challenges particularly in light of the current UK grocery market and the uncertainties surrounding Brexit. These principal and emerging risks are discussed in great detail on pages 48 to 52.The Board and I recognise that in order to provide the best service we must identify our stakeholders and ensure that we are in tune with their needs and continue to engage with them. We report further on this on pages 58 to 59. We believe that our long-term strategy is aligned with our Company culture and recognise companies have to collaborate to put the best teams together to achieve their aims. We continue to invest in recruiting and retaining talented people throughout the Group, with an increasing focus on technology and engineering to achieve our overall aims and to ensure that we continue to create long-term shareholder value for Ocado. I would like to thank all my colleagues for their hard work and dedication over the last twelve months. We continue to have corporate responsibility as a key focus with the environment, community and governance issues reported on throughout this Annual Report. We are always looking to make improvements to our operating model and our working practices to ensure that we, and our partners, can grow in the most sustainable way. This year we increased our usage of electricity from zero carbon sources and I am pleased to report that there has been a reduction in our carbon emissions in both absolute terms and on a per order basis. In terms of waste, we believe Ocado has the lowest food wastage in the industry.We look forward to the year ahead and to building on our heritage. We remain committed to our mission to “change the way the world shops” and our strategy of getting our partners to the leading position in their countries by being the most advanced technology-led grocery platform business.KEY ACTIVITY IN THE YEAR• November 2019: Ocado Group announced CFC6, its first mini CFC, in Bristol.• November 2019: Ocado Solutions – Agreement with Aeon to partner to develop Aeon’s online grocery business in Japan using the OSP.• August 2019: Ocado Retail joint venture agreement with M&S completed.• July 2019: Ocado Group announced its fifth CFC in Purfleet. • June 2019: Ocado Ventures – Vertical farming agreement to create a strategic three-way joint venture with 80 Acres Farms Inc and Priva Holding BV each a leading participant in the vertical farming industry.• June 2019: Ocado Ventures acquired a majority stake in Jones Food Company, Europe’s largest operating vertical farm.• May 2019: Ocado Solutions announced that Sobeys Inc are to build a second Customer Fulfilment Centre in Pointe-Claire, Montreal.• March 2019: Ocado Group announced an agreement with Coles Group Ltd (“Coles”) to partner with Ocado Solutions to develop Coles Online’s grocery business in Australia using OSP.• March 2019: Ocado Zoom goes live, Ocado’s first immediacy service offering delivery within 60 minutes of an order being placed.• February 2019: Ocado Group announced that it had entered into arrangements with M&S to establish a new 50:50 joint venture comprising Ocado Retail, supported by a new partnership for solutions services underpinned by the OSP and the provision of branding and sourcing from M&S.Lord RoseChairman 11 February 202019Stock Code: OCDO Annual Report and Accounts Ocado Group plc STRATEGIC REPORTOcado Annual Report 2019 Strategic.indd 1911/02/2020 07:20:33Back to contents T
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The Marketplace
The Ecosystem We Operate In
THE GLOBAL GROCERY MARKET
Trends Affecting the Grocery Industry
The global market we operate in represents around
50%
of all retail sales
The global food distribution market is worth
£5.6 trillion
Roughly
30%
of all supply chains costs are spent on
warehousing and last mile delivery
By 2024, the global grocery retail market will expand
by approximately
£2.5 trillion
due to growth in both population and spending power(1)
Through 2024, global online grocery sales will grow
at a CAGR of
15%
compared to 6% for the overall grocery market(2)
Societal Shifts
Ageing population, urbanisation, time poverty,
health and well-being
3.1%
annual growth rate of
the convenience market(3)
£48.2bn
projected market value of
the convenience channel
by 2024(3)
How Are Markets Responding?
As societal shifts drive new definitions of convenience for
consumers, retailers have to adapt to meet heightened
expectations of service. This requires a model with the flexibility to
serve customers exactly what they want, when they want it,
for a reasonable price, across an evolving spectrum of missions
from the big basket shop to immediacy.
Time Poverty
With more dual income households and increased awareness
about the importance of good nutrition, consumers are looking
for affordable ways to reduce time spent on grocery shopping
without compromising on quality or choice.
What This Means for Ocado Group Today
By delivering market leading levels of both punctuality and order
accuracy, with unparalleled range and freshness, OSP enables
partners to take the time and frustration out of grocery shopping
for their customers. This leading customer offer will drive improved
loyalty, enabling our partners to take increased share online in their
markets, in turn driving increased volumes through the OSP.
What This Means for Ocado Group Tomorrow
With the successful trial of Ocado Zoom in London, Ocado Group is
now bringing that award-winning service to immediacy shopping
missions, enabling retailers to serve their customers across the full
range of grocery missions in an evolving market.
➔ Read more on page 34
(1) Source: The Institute of Grocery Distribution (IGD) (£2.12 trillion at current
exchange rate).
(2) Source: https://www.ascentialedge.com
(3) Source: The Institute of Grocery Distribution (IGD) Research, 2019
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Trends Affecting the Grocery Industry
Applying Our Technology in Other Verticals
Transformative Technology
Artificial Intelligence, Robotics, Big Data, Digital Twins
and the Internet of Things
50+
items can be bought in
three minutes thanks to our
instant shop algorithm(4)
620,000
simulations were run last
year, covering over 2 million
hours of warehouse run
time(5)
How Are Markets Responding?
We live in a world of increasingly high consumer expectations.
Trends like immediacy and personalisation are having a major
impact on society. Today, consumers want to shop in tailored
online stores, and to have the widest, freshest range of produce
delivered to their door in short time frames. There is no room
for error.
Innovation
These market trends have been key drivers behind advancements
in Artificial Intelligence (AI), robotics and automation. There are
interesting opportunities to explore in areas like dark kitchens,
vertical farms and even autonomous vehicles.
LIKELY
Similar Technology
• General Merchandise
• Other Logistics Verticals
POSSIBLE
Modified Technology
• Parcel Sortation
• Freight and Baggage Handling
• Car Parking
• Vertical Farming
ASPIRATIONAL
Adapted Technology
• Port Operations
• Rail Yard Operations
• Configurable Buildings
What This Means for Ocado Group Today
What This Means for Ocado Group Tomorrow
Our capabilities in “Digital Twins” permit us to uncover new, highly
optimised paradigms for our platforms that might otherwise have
remained out of sight. Looking ahead, our investment in businesses
like robotics start-up Karakuri and virtual farm companies Infinite
Acres and Jones Foods opens the door to new innovations in highly
synergistic areas.
Artificial Intelligence
Our capabilities in AI enable our customers to make their orders
exceptionally quickly in personalised virtual stores, making the online
shopping experience more enjoyable than ever before. In the last
mile, our AI optimises van delivery routes in real-time so that the
routes we drive tomorrow will be even more efficient than the ones
we drive today.
Automation and Robotics
We have developed some of the most advanced robotics and
automation capabilities available. We believe our unique bots and
new suction cup technology will allow us to automate the picking
and packing of customer orders, to deliver a wide, fresh range of food
quickly, predictably, and with the lowest rate of food waste in the
industry. We are constantly optimising our offerings by using our data
to produce “Digital Twins” of our physical and digital assets, which
allow us to derisk their testing, evaluation and optimisation.
➔ Read more on page 36
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
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The Ecosystem We Operate In
Trends Affecting the Grocery Industry
Resource Resilience
Efficiency, future workforce and skill gaps
1,600
Ocado Technology
Employees, 2019
How Are Markets Responding?
Climate change, protecting the planet, health and wellbeing are all
defining issues of our time. Waste, transport and packaging, within the
marketplace we operate, are all areas where Ocado’s technology and
solutions can make a real difference to grocery and other industries
we may serve going forwards.
Our centre of gravity has shifted from our heritage as the world’s leading
pure play online grocery retailer, to being a global technology solutions
provider. Competitors within the grocery market are making moves
towards tackling these key issues, but our approach and focus on
technologies and solutions sets us apart and positions us to better deal
with these important challenges.
With technology at the heart of many industry responses the importance of
knowledge and attracting, inspiring and retaining the best talent is of high
importance. Our competitors are also looking to attract talent but Ocado’s
brand, focus on innovation and global network will enable us to invest to
develop skills and build workforces to support our hunger for ideas and
technologies. We are now a technology-led global software and robotics
platform business; a FTSE 50 company that’s constantly growing.
Operating Sustainability
Working with wider industry to drive change gives advantages of
scale. Collective action such as “Better Retail, Better World”, a BRC
initiative, works to make real, demonstrable achievements in some
of the biggest global challenges facing us.
Efficiency is at the heart of our business model, proven by our low food
waste figures and continued carbon intensity measure improvements.
What This Means for Ocado Group Today
Ocado today is at the heart of a club of retailers for whom we are
innovating to “change the way the world shops”.
Online is the fastest growing channel in most markets. We built our
business specifically for this change in shopping behaviour – to benefit
from, and to lead, the online revolution for our partners/clients.
We transform shopping to make it as easy and efficient as possible for
consumers and our partners/clients. By designing and creating new
technologies, for all our customers, we put efficiency at the heart of
our business while delivering the best solutions to combat climate
change and reduce the use/consumption of the world’s resources.
These beliefs and strategies are also helping us grow our own
workforce globally, increase our retail customers as well as our OSP
clients and as a result our workforce requirements are changing.
Technology driven solutions require the brightest minds and attracting
the talent of tomorrow is critical to our delivery of our missions.
The grocery and technology marketplace is responding and the battle
between companies to have the best people is on. Ocado’s ability to
attract and retain that talent is a priority. Some will struggle to fill the skill
gaps that exist; at Ocado we are setting ourselves up as a global business
and brand that will train and support learning, career development and
opportunities to work at the cutting edge of technology.
What This Means for Ocado Group Tomorrow
The Ocado of tomorrow is a “technology house”, drawing on the
Ocado brand and investing in developing our talent to continue
the drive for innovation, efficiency and customer service. We will
continue to disrupt the market with investments in our core business
technologies as well as other future areas of focus like vertical farming.
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26615 11 February 2020 7:16 am Proof 3THE ONLINE GROCERY MARKET WORLDWIDEThe online channel is the fastest growing channel in most developed grocery markets worldwide. 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.By 2024 European online grocery sales will grow by68%(1)By 2024 North American online grocery sales will grow by101%(1)By 2024 Asia Pacific online grocery sales will grow by108%(1)The Options for Grocery RetailersAside 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 using some 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 partly or fully automated facilities of different sizes. Ocado Solutions provides the only complete, fully automated, package with all the proven mechanical handling equipment and software needed, whatever the optimal size for the customer need.What This Means for Ocado Group TodayOcado Group is well placed to capitalise on the accelerating shift to online channels, using both its considerable experience in grocery retail and technological expertise to change the way the world shops in partnership with leading grocery retailers on a global scale.The addressable market for OSP presents a long runway for growth £3.5bn–£17.5bn fee opportunity£70bn£175bn£350bn10%25%50%£7.6tn global grocery£2.8tn key markets(2)£0.7tn 25% share% of £0.7tn market online(2) Source: Company information, Planet Retail. Note: M&S and joint venture sales 100% online. All countries with a GDP per capita of above $25k and a population over 5 million (excluding Saudi Arabia)What This Means for Ocado Group TomorrowAs an increasing proportion of grocery shopping missions at OSP partners migrates to the online channel, Ocado Group benefits from more resources to invest for further innovation. This both attracts new partners and means that the Group and its partners can continue to lead the market for consumers in grocery online. (1) Source: https://www.ascentialedge.com23Stock Code: OCDO Annual Report and Accounts Ocado Group plc STRATEGIC REPORTOcado Annual Report 2019 Strategic.indd 2311/02/2020 07:20:41Back to contents 26615 11 February 2020 7:16 am Proof 3Business ModelDepth of Our Online Experience01Ocado Retail Throughout our history, our entire attention has been on developing the best possible online grocery operation. This single-minded focus has enabled us to develop market leading logistics and physical infrastructure solutions, driven by proprietary technology and innovation. We have added and grown numerous capabilities within our business to develop and refine our end-to-end platform solution.OSP comprises technology and infrastructure solutions that have been developed with the benefit and experience of operating them as a retailer. Unlike third party providers of products, services and software, we are a retailer, and our systems, processes and hardware have evolved over many iterations in a live retail environment.Building on Our HeritageDepth of Our Online ExperienceOur AssetsOur 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.Our People➔ Our culture and values connect, guide and inspire our people. Read more about our values in the People section on page 63Intellectual Property➔ Read more on page 36Nineteen years of learning, research and development have enabled us to build the world’s most advanced end-to-end e-commerce, fulfilment and logistics platform for online grocery. Our cutting-edge IP, which spans our entire technology estate, has played a crucial role in making this solution the most advanced available. Our IP is a fundamental source of our competitive advantage and we take rigorous measures to protect it. Our patent attorneys and IP lawyers also work closely with technical teams on the ground to make sure we continue to find and protect the important inventions which add value to the company, now and in the future.TechnologyWe build in-house almost all of the technology that powers our world-class systems and solutions, which span the intersection of physical and digital worlds. Due to the sheer complexity involved in picking, packing and delivering a vast range of online groceries, we have developed some of the world’s most advanced capabilities in AI, robotics, data science, simulation, digital twins, vision systems and many others.24Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019www.ocadogroup.comSTRATEGIC REPORTOcado Annual Report 2019 Strategic.indd 2411/02/2020 07:20:44Back to contents 26615 11 February 2020 7:16 am Proof 3Continuously ImprovingChanging The Way our Partners’ Customers ShopCustomisable Service OfferingContinuously Improving Our Proposition02End-to-end, scalable solutionsThe number of market leading retailers partnered with Ocado Solutions continues to expand, with nine grocery retailers around the world now partnered with us. Building on the success of Ocado Retail, OSP is designed to enable the best possible economics for our partners, online businesses, with great online grocery experiences for their customers.Ocado Smart PlatformFuture-proofOSP can be configured to the unique needs of individual partners and is built to help them thrive in a rapidly developing market for grocery online.Our modular physical infrastructure allows our partners to scale fulfilment capacity as their online business grows, while our end-to-end software and technology systems are regularly updated to absorb new innovations in the development pipeline for Ocado Technology.The platform harnesses Ocado’s success in grocery e-commerce over two decades. It is driven by our capacity to innovate ahead of the market and our experience of building online retail market share in grocery.Continuously ImprovingChanging The Way our Partners’ Customers ShopBuilding on TodayOSP-powered last-mile routing technology optimises delivery efficiency, customer service excellence and punctuality. Once picked, customer orders can be delivered to customer kitchen tables, or made available at pickup points or handed to couriers for outsourced delivery. 3Optimised Last MileRetailer’s online customers visit retailer’s websiteOur automated fulfilment solution includes our state-of-the-art grocery automation system. Ocado’s fulfilment ecosystem includes CFCs across a range of sizes, with each utilising space more efficiently than traditional store-based fulfilment methods. They enable a superior customer value proposition by shortening customer order lead times and improving picking quality and accuracy. It provides better productivity even at lower volumes and allows for continuous development.Our proprietary store pick software also provides a flexible, asset-light way to start or expand e-commerce reach. It can be deployed in combination with automated fulfilment to cover a wider geography and allows for continuous development.Fulfilment Capabilities2OSP allows our partners to offer multiple shopping channels to their customers. They offer personalised shopping experiences, as well as seamless search and order placement. These are underpinned by advanced data science, including proprietary search and recommendation algorithms. They also provide suppliers with unique targeting opportunities.Webshop, mobile apps, voice ordering1Depth of Our Online ExperienceChanging the Way our Partners’ Customers ShopCustomisable Service OfferingIncreased InvestmentStock Code: OCDO 25Annual Report and Accounts Ocado Group plc Ocado Annual Report 2019 Strategic.indd 2511/02/2020 07:20:44Back to contents Back to contents
26615 11 February 2020 7:16 am Proof 3Continuously ImprovingChanging The Way our Partners’ Customers ShopCustomisable Service OfferingContinuously Improving Our Proposition02End-to-end, scalable solutionsThe number of market leading retailers partnered with Ocado Solutions continues to expand, with nine grocery retailers around the world now partnered with us. Building on the success of Ocado Retail, OSP is designed to enable the best possible economics for our partners, online businesses, with great online grocery experiences for their customers.Ocado Smart PlatformFuture-proofOSP can be configured to the unique needs of individual partners and is built to help them thrive in a rapidly developing market for grocery online.Our modular physical infrastructure allows our partners to scale fulfilment capacity as their online business grows, while our end-to-end software and technology systems are regularly updated to absorb new innovations in the development pipeline for Ocado Technology.The platform harnesses Ocado’s success in grocery e-commerce over two decades. It is driven by our capacity to innovate ahead of the market and our experience of building online retail market share in grocery.Continuously ImprovingChanging The Way our Partners’ Customers ShopBuilding on TodayOSP-powered last-mile routing technology optimises delivery efficiency, customer service excellence and punctuality. Once picked, customer orders can be delivered to customer kitchen tables, or made available at pickup points or handed to couriers for outsourced delivery. 3Optimised Last MileRetailer’s online customers visit retailer’s websiteOur automated fulfilment solution includes our state-of-the-art grocery automation system. Ocado’s fulfilment ecosystem includes CFCs across a range of sizes, with each utilising space more efficiently than traditional store-based fulfilment methods. They enable a superior customer value proposition by shortening customer order lead times and improving picking quality and accuracy. It provides better productivity even at lower volumes and allows for continuous development.Our proprietary store pick software also provides a flexible, asset-light way to start or expand e-commerce reach. It can be deployed in combination with automated fulfilment to cover a wider geography and allows for continuous development.Fulfilment Capabilities2OSP allows our partners to offer multiple shopping channels to their customers. They offer personalised shopping experiences, as well as seamless search and order placement. These are underpinned by advanced data science, including proprietary search and recommendation algorithms. They also provide suppliers with unique targeting opportunities.Webshop, mobile apps, voice ordering1Depth of Our Online ExperienceChanging the Way our Partners’ Customers ShopCustomisable Service OfferingIncreased InvestmentStock Code: OCDO 25Annual Report and Accounts Ocado Group plc Ocado Annual Report 2019 Strategic.indd 2511/02/2020 07:20:4426615 11 February 2020 7:16 am Proof 3Continuously Improving Our PropositionEnhancing Our Platform03Building on TomorrowContinuously Improving Our PropositionEnhancing Our PlatformOur OutputsPartnersIn the short to medium term: We offer our retail partners a faster, more flexible and more cost-efficient way of operating online grocery retail.In the long term: We continue to innovate across the platform, software and hardware. This means driving continued efficiency improvements in the core as well as working on step change innovations, in grocery or synergistic fields, to further enhance the competitive advantage that OSP brings to partners.Our PeopleIn the short to medium term: 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.In the long term: Our success is dependent on hiring employees globally. Our focus on growing and developing our people is a key message that we use to attract and retain the highest quality talent. We also remain committed to continuing to provide a competitive compensation package inclusive of salary, pensions and other benefits.Society and EnvironmentIn the short to medium term: OSP enables market-leading waste efficiency. In the UK, we continue to improve our carbon efficiency and maintain a near closed-loop recycling programme for the plastic bags used in deliveries.In the long term: By leveraging the OSP, our partners can reduce their waste in both their own supply chains and customers’ homes. On a global scale, investments like that in vertical farming have real potential to increase the quality of fresh food consumed while materially reducing the environmental impact of getting that product to consumers.ShareholdersIn the short term: We are investing heavily today to scale the Solutions business and develop the OSP platform, actively building future value.In the long term: The addressable market opportunity in online grocery is huge, facilitating a long runway for growth. The technological know-how that we have developed is also applicable outside of grocery and we will seek the most compelling opportunities to leverage our expertise to drive future value in other verticals.We Create Value for:Our Virtuous CycleThe nature of OSP’s worldwide partnership club enables learnings from each of our partners’ markets to be absorbed into the platform, with new capabilities becoming available to all.These insights, coupled with the expertise and output of Ocado Technology, mean that both our partners and their customers will benefit from a globally optimised experience, channelled through innovation experts with a dedicated focus on grocery e-commerce.The model below illustrates how we take our capital inputs and, through increased investment, are able to enhance our platform. An enhanced platform not only allows faster growth for our partners but is attractive for prospective partners.We are continuously enhancing our service offering to maintain and develop OSP. Innovation is business as usual with a lot of cutting-edge development being carried out within our core technology teams working on OSP. In addition, our platform research department works on developing advanced capability for future-proofing the OSP.Meanwhile, our 105 department seeks to invest in technologies that could be game-changing in the future.ENHANCED PLATFORM As we enhance OSP, it becomes more attractive to prospective partners.MORE PARTNERS With increased scale, we are able to continuously invest in our people, our technology and our platform, to ensure we maintain a leadership position in the market for the long term.INCREASED INVESTMENT Ocado’s innovations and the scalability of our solutions enable our partners to increase volumes and capture market share as online grocery penetration grows.FASTER PARTNER GROWTH Enhanced PlatformIncreased InvestmentMore PartnersFaster partner growth26Annual Report and Accounts Ocado Group plc Stock Code: OCDO STRATEGIC REPORTOcado Annual Report 2019 Strategic.indd 2611/02/2020 07:20:45Back to contents Back to contents
26615 11 February 2020 7:16 am Proof 3Keeping Ocado Group at the ForefrontOur focus on being a technology-led business, working with like-minded, forward thinking, pioneering business partners will keep Ocado Group at the forefront – developing tomorrow’s technologies while simultaneously creating new opportunities.Our proprietary technology, future innovations and the increasing scale of our partnerships supports our leading global position. Our competitive advantage is reinforced by the strength of the collective which today stands at nine partners and ourselves. This network positions us and our partners as “innovators” within the technology curve.Network Effects: As the number of partners on the platform grows, we have more resources and rationale to innovate faster, to the benefit of all current and prospective partnersInsight: Analysing data to continuously improve operationsIdea Generation: Our global partners have the same thirst for innovation, and can share ideas in a collaborative processOutcomes: Our end-to-end solution brings tailored and differentiated solutions to each market, enabling partners to serve a market-leading customer offer to drive future growthEfficient: As we drive more automation in the platform, stripping out labour time and cost, the competitive advantage that OSP offers partners will continue to increasewww.ocadogroup.com27Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019STRATEGIC REPORTOcado Annual Report 2019 Strategic.indd 2711/02/2020 07:20:46Back to contents T
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Partnering With Leading Retailers
How We Typically Structure These Deals*
We offer the world’s grocery retailers a unique, scalable, custom
end-to-end e-commerce and fulfilment solution. We are building
a platform that we expect to bring them market leading efficiency
with the best possible 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 OSP.
• 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.
• 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.
* Due to IFRS 15, we will only recognise these fees as revenue once the solution has
gone live.
Sobeys
Developing two CFCs for
the areas of Greater Toronto
and Montreal
Morrisons
Two existing CFCs (including Erith*)
and store pick fulfilment (for
regions not served by CFCs)
Key
Existing CFC
Planned CFC
Ocado Retail
Three CFCs and capacity
equivalent to a further
eight CFCs over the next
12 years, excluding the
Andover rebuild
Kroger
Working on six initial CFC
sites, with 20 planned for
the first three years
Bon Preu
Business launched using
OSP software in manual
warehouse
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
Coles
Working on two CFCs for
the areas of Sydney and
Melbourne
Aeon
Working on initial
CFCs in the Kanto
region, with plans
to expand
nationally in
later years
* In May 2019, Morrisons and Ocado agreed to a temporary suspension of the Morrisons.com capacity at Ocado’s Erith CFC. Morrisons.com will return to using its share of capacity in Erith in February 2021.
Timeline of Deals
May 2013
June 2017
Nov 2017
Jan 2018
May 2018
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Partnering With Leading Retailers
How We Typically Structure These Deals*
We offer the world’s grocery retailers a unique, scalable, custom
• Short-term: The signing-on fee is payable immediately when a
end-to-end e-commerce and fulfilment solution. We are building
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.
a platform that we expect to bring them market leading efficiency
with the best possible 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 OSP.
• 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.
* Due to IFRS 15, we will only recognise these fees as revenue once the solution has
gone live.
Sobeys
Developing two CFCs for
the areas of Greater Toronto
and Montreal
Morrisons
Key
Two existing CFCs (including Erith*)
Existing CFC
Planned CFC
and store pick fulfilment (for
regions not served by CFCs)
Ocado Retail
Three CFCs and capacity
equivalent to a further
eight CFCs over the next
12 years, excluding the
Andover rebuild
Kroger
Working on six initial CFC
sites, with 20 planned for
the first three years
Bon Preu
Business launched using
OSP software in manual
warehouse
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
Coles
Working on two CFCs for
the areas of Sydney and
Melbourne
Aeon
Working on initial
CFCs in the Kanto
region, with plans
to expand
nationally in
later years
* In May 2019, Morrisons and Ocado agreed to a temporary suspension of the Morrisons.com capacity at Ocado’s Erith CFC. Morrisons.com will return to using its share of capacity in Erith in February 2021.
Timeline of Deals
May 2013
June 2017
Nov 2017
Jan 2018
May 2018
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26615 11 February 2020 7:16 am Proof 3Delivering for PartnersOSP development is a challenge of velocity not complexityTodayTomorrowOrganise Mission-focused decision-making• Ongoing transformation• Aligning reporting structures to deliver effectively for all our partnersInvest• Continuing to invest in people, tools, and processes needed to roll out simultaneous projects across the globeExpand and EvolveBuilding velocity, not complexity • Increasing benefits as we scale• The platform evolves as it absorbs learning from our partnersThe right resources with the right toolsFour CFCsFY201830+ CFCsFY2023May 2018Feb 2019Mar 2019Nov 2019“Our success is grounded in growing and winning together with our partners; leveraging the unique capabilities of our solutions alongside the ambition, scale and market understanding of the world’s leading grocery retailers. We succeed when our partners succeed.”Luke JensenChief Executive Officer, Ocado Solutions* In May 2019, Morrisons and Ocado agreed to a temporary suspension of the Morrisons.com capacity at Ocado’s Erith CFC. Morrisons.com will return to using its share of capacity in Erith in February 2021.29Stock Code: OCDO Annual Report and Accounts Ocado Group plc STRATEGIC REPORTOcado Annual Report 2019 Strategic.indd 2911/02/2020 07:20:57Back to contents
26615 11 February 2020 7:16 am Proof 3Ocado Retail“We are ready for exciting changes ahead. We have completed the range review, preparing for when M&S food will be available online for the first time, together with the full, existing Ocado grocery range. We are planning fresh capacity and working to make our proposition even more compelling for customers. As a team, we could not be more excited.”Melanie SmithChief Executive Officer of Ocado RetailIntroducing Melanie Smith, CEO of Ocado Retail It’s been a busy, rewarding few months since I was appointed CEO of Ocado Retail, spent readying our business for the exciting changes ahead.Our mission for the next year is clear. Firstly, preparing for “M&S at Ocado”. From September 2020, customers will be able to buy M&S food and drink at Ocado.com – the first time the full M&S Food range will be available online to UK shoppers, and together with a full supermarket assortment of global, popular and artisan brands. The process is well underway, building on the strong preparatory work started by the team in March 2019, and there is work being done in every area of our business, from range reviews to product set-up to marketing plans.We need to maintain strong growth. Following the fire at Andover, we have returned to double-digit growth, and we are well placed for that to continue next year. Ocado.com is outperforming the rest of the grocery market; Ocado Zoom continues to delight customers while serving a new immediacy mission, and our pet store Fetch has a strong position in a competitive market.But we’ve only just begun. Our ambition is to become the biggest online grocer in the UK. Our customers already think we are the best in the market, with Net Promoter Scores significantly higher than our competitors. Our customer proposition is compelling; the most incredible choice of food, drink and home goods, at very fair prices, delivered with market-leading levels of ease and convenience.As a partner to Ocado Solutions, we benefit from both the economics and service levels enabled by OSP’s unrivalled end-to-end solution in grocery, as well as all future innovations to the platform. And through M&S, we will be introduced to a huge pool of potential new customers, access to industry-leading food innovation capabilities and exclusive access to the much-loved M&S range.This will help us to supercharge our highly successful, award-winning operation, built on years of retail know-how and customer insight, with all the experience, focus and tools to innovate more and faster than ever before.It’s an enviable position to be in, and I’m incredibly excited about the year ahead – we are primed and ready to transform the online grocery market in the UK.Melanie SmithChief Executive Officer of Ocado Retail30Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019www.ocadogroup.comSTRATEGIC REPORTOcado Annual Report 2019 Strategic.indd 3011/02/2020 07:21:16Back to contents 26615 11 February 2020 7:16 am Proof 3Ocado Annual Report 2019 Strategic.indd 3111/02/2020 07:21:20Back to contents 26615 11 February 2020 7:16 am Proof 3StrategyOur Mission and Purpose“This year we have seen a shift in the centre of gravity at Ocado Group. We are now truly a technology-led global software and robotics platform business providing a unique end-to-end solution for online grocery to partners on a global scale.”Tim SteinerChief Executive OfficerThe new Ocado Retail joint venture with M&S gives Ocado.com all the tools to grow faster, while furnishing Ocado Group with the resources and bandwidth to focus on executing for our partners and continuing to improve the platform.We are well on our way. The first two international CFCs are set to go live in the first half of 2020, with a continued ramp after that. With that in mind, our continued success in ramping up capacity at Erith this year has been crucial, learnings from which we can apply to all future openings.Innovation is core to what we do, and this year saw some real milestones, with the launch of our immediacy trial via Ocado Zoom, the go-live of robotic picking in Erith, and our first investments seeking to leverage our technological expertise in other verticals.Maximising EfficiencyImproving the Proposition Continually enhancing the value of our proposition for our Solutions partners, so that they can deliver an ever better service to their customersAlways striving to develop both our technology and operations, to consistently improve our economic and operating performanceStrategic PillarsUtilising KnowledgeUsing our IP for future innovation, driving further opportunities for value creation within and beyond groceryDriving Growth: By creating solutions with real competitive advantages in grocery, and increasingly beyond, we facilitate sustained growth for our partners and in turn for our shareholders.Changing the Way the World Shops32Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019www.ocadogroup.comSTRATEGIC REPORTOcado Annual Report 2019 Strategic.indd 3211/02/2020 07:21:29Back to contents Actions
S
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Enhance the platform
to enable current and
future partners’
online businesses
Continuously develop
more capital and
operationally efficient
infrastructure solutions
Continuously develop new propositions
so that partners can build tailored and
flexible ecosystems to serve an evolving
and comprehensive set of customer
missions in their given markets.
Operating efficiency:
Optimise every aspect of the fulfilment
and delivery life cycle, to improve our
economics and partner proposition.
Capital efficiency:
Continuously lower the cost of investment
required for online grocery activities, to
support growth for our platform partners.
➔ Read more on pages 34 to 36
Constantly improve
end-to-end technology
system solutions
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.
Strengthen
our brands
Reinforce the Ocado Group and
Solutions brands based on partnership
announcements and validity of the
model. Promote the strength and value
of our technology and engineering
brands to attract the highest quality
talent.
Stock Code: OCDO
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Strategy
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Improving the
Proposition
Progress:
New structures:
In 2019, Ocado Group expanded the number of retailers that will
power their e-commerce operations with OSP and reached major
milestones with our existing Solutions partners.
New partnerships:
Ocado Solutions established three new partnerships in 2019:
•
In March, we signed a partnership with Coles in Australia to help
develop their grocery e-commerce operations and jointly build
two CFCs, one in Sydney and one in Melbourne.
• Upon completion of Ocado Group’s Joint Venture with M&S,
Ocado Retail also became an Ocado Solutions partner. It has
committed to order capacity equivalent to a further eight CFCs
over the next 12 years.
•
In November, Ocado Solutions signed a partnership with Aeon to
develop a fulfilment network to serve the whole of the Japanese
market. Initial CFCs will serve the densely populated Kanto
region, with the first going live in 2023. By 2030, Aeon expect sales
capacity from the network of 600bn JPY, growing to 1tn JPY by
2035. Aeon is Ocado Solutions’ first partner in Asia.
New milestones:
2019 was also a year of exciting milestones with our current partners.
•
•
•
In February, Bon Preu launched their home delivery service and
expanded their online reach to new geographies in Catalonia
throughout the year.
In March, we announced we would be establishing a permanent
base for Ocado Solutions in North America. The office outside of
Washington DC is an important step in coordinating the delivery
of Ocado’s technology, as well as support and engineering
services, to sites across the USA and Canada.
In May, we announced an agreement with Sobeys to develop a
second CFC in Canada to serve customers across Ottawa and
major cities in the Province of Quebec.
Throughout 2019 we have remained focused on our internal
structures, ensuring they are aligned to support delivery of a
growing number of partnerships, and to bring a long pipeline of
new innovations to our partners’ e-commerce operations.
The Ocado Group transformation project aims to ensure that teams
across Ocado Group are organised to deliver effectively for future
and current international partners, while maintaining the velocity
of new innovations we are bringing to OSP.
FUTURE FOCUS:
As online grocery penetration continues to grow in markets
worldwide, we are in the best possible position to help our partners
continue to develop their online businesses, capture new market
share and provide ever better experiences for their customers.
We look forward to the first CFCs going live shortly for
international partners, with initial facilities for both Sobeys
and Groupe Casino due to go live in the first half of 2020.
In the medium term we expect to sign more Ocado Solutions
deals in a number of regions.
KPIS
CFCs committed
worldwide*
50+FY2018: 20+*
Ocado Solutions
Partners Worldwide
9FY2018: 6
• Our partnership with Kroger has also developed at pace
throughout 2019, with Kroger announcing CFCs across the USA.
They have now announced the locations of six facilities in Ohio,
Florida, Georgia, Texas, Wisconsin, and Maryland.
* Sizes vary. The number reflects sales
capacity equivalent to this many
standard-sized CFCs
RISKS
New solutions:
We also continued to develop our proposition to partners through
the year – including expanding our fulfilment solutions across a mix
of different sizes of facility. In doing this we continue to enhance the
unique and flexible ecosystem available to our partners.
The success throughout the year of our Ocado Zoom trial in London
and the announcement with Ocado Retail of our first mini-CFC near
Bristol underline the flexibility of our solutions to serve both a wide
range of customer missions and geographies.
• Risk of failing to deliver a sustainable operational infrastructure
able to execute effectively the requirements for multiple Ocado
Solutions contracts, simultaneously in many international locations
• Risk that current Solutions pricing levels may not provide both
acceptable returns for our shareholders, if efficiencies are not
achieved and attractive long-term cost of ownership for our
clients, whilst delivering a viable fully operational end-to-end
customer experience.
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S
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Maximising
Efficiency
Operational efficiency
We drive efficiencies throughout every process of our operations, from
customer-facing interfaces in the webshop, inventory management
systems and fulfilment, to the routing software that supports their
deliveries. We achieve this by adhering to three design principles:
automation, use of our own technology and centralisation.
Progress
• Reducing the long-term costs of ownership of our fulfilment
solution, the combination of capital and running costs, is critical
as we scale. A key part of this is developing new generations of bots.
• We are in the final validation phases of our third generation bot,
which will underpin our international roll-out with partners.
This bot has been setting new benchmarks of performance in
its operation, ease of manufacture and serviceability. Continued
investment in the software driving our bot fleet will see still
further improvements in operational performance.
• We measure efficiency within CFCs by average units processed
per labour hour (UPH). In our mature CFCs in operation in the
UK, this year UPH was 168. At maturity, we expect our fourth CFC
in Erith to operate at 200+ UPH, a level we also expect to achieve
for partner CFCs internationally.
• Delivery efficiency, as measured by average deliveries per van
per week (DPV) of 196, approaching our refreshed target of 200.
• We reduced our rate of food waste to just 0.4% of sales, from
a position that was already the lowest in the industry (0.8% at
FY18). This was the result of further technological improvements
to our end-to-end operational capabilities across demand
forecasting, inventory management and fulfilment.
FUTURE FOCUS
We are always looking for ways to apply our technology to
improve our operational efficiency, with both core business-
sponsored and more speculative research underway.
A good example of this is the robotic picking and packing of customer
orders. In grocery, this challenge is especially difficult, due to an
extensive product range of varying characteristics, and the need to
both pick products and pack them into bags. After over a year in our
“living lab”, the first of our robotic picking solutions moved into live
assistance on real customer orders in the second half of 2019. We
aspire to reach efficiency levels similar to a human, for a portion of
the range, by the end of 2020.
robotic picking. As we continue to develop new CFCs, at scale, we
are able to further improve the capital efficiency of our operations.
The modular nature of the mechanical handling equipment (MHE)
solution allows for reduced upfront capital commitment, and
enables real flexibility in customising the solution to the varying
capacity requirements of our partners.
Progress
• With the need to bring new capacity online, further exacerbated
by the fire at Andover, we are pleased with the speed with
which we have been able to ramp our fourth CFC in Erith, which
at maturity will be the largest automated facility for grocery
fulfilment in the world. At year end, the site was running at over
70,000 orders per week, around a third of its projected volume
at maturity. Just as we successfully applied our learnings from
Andover to significantly improve our ability to deploy and ramp
up Erith, every lesson we learn at Erith, every enhancement to
automation and software, is quickly transferable to every future
partner site.
FUTURE FOCUS
We continue to 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. By adding more partners
to the platform, we will also see the benefits of increased scale.
As we continue to progress our operational CFCs in the UK and
go live with our international CFCs, new learnings will naturally
be passed on to the benefit of all our Solutions partners.
KPIs
UPH
168FY2018: 164
RISKS
DPV
196FY2018: 194
Capital efficiency
• Delays in implementing new capacity.
The proprietary technology we use in our newer CFCs enables our
partners to achieve an attractive return on investment, even before
any further efficiency benefits from other innovations such as
• Risk of failing to deliver a sustainable operational infrastructure able
to execute effectively the requirement for multiple Ocado Solutions
contracts, simultaneously in many international locations.
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
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Strategy
Continued
Utilising
Knowledge
Intellectual Property
Ocado’s founding vision was to change the way the world shops
through disruptive technology innovation and automation.
Today, that vision is well on the way to being realised as Ocado’s
innovations are transforming the grocery sector on a global scale.
Over two decades, we have been developing some of the world’s
most advanced capabilities across AI, Machine Learning, data
science, robotics, the Internet of Things, cloud technologies,
simulation and modelling, and digital twins. Due to the
sheer complexity of the grocery industry, we have developed
technologies, solutions and platforms that successfully solve
many complex, previously untouched sector problems.
As one of the most difficult segments to deliver profitably, online
grocery has been a powerful vehicle for acquiring a host of other
innovation assets, such as competencies, intellectual property,
data, and know-how.
Our cutting-edge intellectual property coupled with the innovation
assets we have acquired along our journey will help enable our
partners to remain competitive, now and in the future. We hold
many patents which make our solution unique and irreplicable.
We are actively exploring opportunities to apply these innovation
assets to disrupt and transform many other sectors, some of which
are very far from online grocery.
Progress
•
In March, we launched a trial of our immediacy solution,
Ocado Zoom, to deliver orders from a product range of over
10,000 SKUs to customers in West London within 60 minutes of
ordering. This proposition was enabled by our unique model of
centralised fulfilment and wide-ranging distribution network.
Ocado Zoom will open up new opportunities for growth in the
UK.
• We have completed the replatforming of our Bot software,
enabling higher efficiency across our entire bot fleets and
integration with the digital twin of our highly automated
warehouse. Our third generation bot has nearly 100% new
components compared to the second generation bot and
is on track for production in early 2020.
•
In July 2019, our first robotic picking cell went into production
in Erith. The robotic arm picks individual items for real customer
orders. We are expecting the introduction of additional robotic
picking cells throughout 2020 and beyond.
• To support our rapid growth and the accelerated adoption of
OSP, we are actively growing our talent pool. We now have over
1,600 technology employees based in development centres in
the UK, Bulgaria, Poland and Spain. In July, we announced the
opening of our first London office, expanding our network of
development hubs and further improving our access to top tech
talent.
•
•
In May 2019, we made an investment in Karakuri, a start-up
focused on developing robotic solutions for food preparation
and dark kitchens.
In June 2019, we announced investments in two vertical farming
businesses. The first is Jones Food Company who are growers
operating Europe’s largest vertical farm based in Scunthorpe,
England. The second is Infinite Acres who are developing
technology for vertical farming. We see these companies as being
highly synergistic to our core business and indeed to one another.
Patents
Safeguarding our cutting-edge IP is instrumental for retaining our
competitive advantage. We have a dedicated in-house IP team
and our IP experts are embedded within given research areas.
Innovators and IP professionals collaborate closely to generate IP
from research and development work performed with not only a
focus on protecting innovation with respect to our core products,
but also in blue-sky research and potential uses of our technology
in other verticals.
As the innovating teams grow, the IP team grows enabling close
and agile working between the IP and technical functions. The
IP team benefits from both a macroscopic and microscopic view
of Ocado’s business enabling IP protection to closely align with
business strategy.
Progress
• We now hold 159 granted patents across 28 innovation families.
RISKS
• Technological innovation supersedes our own and offers
improved methods of food distribution to consumers.
• Failure to safeguard cutting-edge IP thus lowering barriers to
entry.
• Failure to ensure technology can freely operate without
infringing a third party’s IP.
36
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Key Performance Indicators
Revenue (Group) (£m)
Why we use this measure
EBITDA (Group) (£m)
Why we use this measure
7
5
7
,
1
£
Measures growth at Group
level reflecting revenue from
the Ocado Retail joint venture,
and our UK and International
Solutions businesses.
2019 performance
9.9% vs 2018
Strategic link
9
9
5
,
1
£
4
2
4
,
1
£
7
6
2
,
1
£
4
0
1
,
1
£
15 16 17 18
19
0
8
£
8
7
£
5
7
0£
6
£
3
4
£
15 16 17 18
19
Measures operating profitability
at a Group level reflecting the
Ocado Retail joint venture
and our UK and International
Solutions segments.
2019 performance
(27.2%) vs 2018
Strategic link
S
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I
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P
O
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Revenue (Retail) (£m)
Why we use this measure
EBITDA (Retail) (£m)
Why we use this measure
8
1
6
,
1
£
7
6
4
,
1
£
7
1
3
,
1
£
2
7
1
,
1
£
Measures revenue growth of
the Ocado Retail joint venture.
2019 performance
10.3% vs 2018
Strategic link
5
3
£
0
3
£
Measures operating profitability
of the Ocado Retail joint
venture.
2019 performance
16.1% vs 2018
Strategic link
15 16 17 18
19
15 16 17 18
19
Revenue (UK Solutions &
Logistics) (£m)
3
8
5
£
1
4
5
£
Why we use this measure
Measures revenue growth of
our UK Solutions & Logistics
business.
2019 performance
7.8% vs 2018
Strategic link
EBITDA (UK Solutions &
Logistics) (£m)
8
.
4
8
£
8
6
£
Why we use this measure
Measures operating profitability
of our UK Solutions & Logistics
business.
2019 performance
25.7% vs 2018
Strategic link
15 16 17 18
19
15 16 17 18
19
Note: 2019 Group EBITDA, UK Solutions & Logistics EBITDA and PBT reflect the impact of IFRS 16.
Stock Code: OCDO
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Key Performance Indicators
Continued
T
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Revenue (International
Solutions) (£m)
1
1
Why we use this measure
Measures revenue growth of
our International Solutions
business.
2019 performance
0.0% vs 2018
Strategic link
EBITDA (International
Solutions) (£m)
)
8
2
£
(
)
2
6
£
(
Why we use this measure
Measures operating profitability
of our International Solutions
business.
2019 performance
(118.6%) vs 2018
Strategic link
15 16 17 18
19
15 16 17 18
19
PBT (Group) (£m)
Why we use this measure
Net Assets (Group) (£m)
Why we use this measure
8
£
8
£
)
4
4
£
(
)
0
1
£
(
)
5
1
2
£
(
15 16 17 18
19
Measures profitability at Group
level reflecting the profit of
the Ocado Retail joint venture
and our UK and International
Solutions business.
2019 performance
(383.1%) vs 2018
Strategic link
Measures the surplus between
total assets and total liabilities
at Group level.
9
5
0
,
1
£
2019 performance
90.1% vs 2018
Strategic link
7
5
5
£
9
4
2
£
8
4
2
£
7
3
2
£
15 16 17 18
19
Mature CFC Efficiency (UPH)
Why we use this measure
Product Waste (%)
Why we use this measure
4
6
1
4
6
1
8
6
1
0
6
1
5
5
1
Measures CFC operational
efficiency
2019 performance
1.8% vs 2018
Strategic link
8
.
0
7
.
0
7
.
0
7
.
0
4
.
0
15 16 17 18
19
15 16 17 18
19
Measures efficiency of our
operations in terms of waste
minimisation: the lower the
better.
2019 performance
(0.4ppt) vs 2018
Strategic link
Note: 2019 Group EBITDA, UK Solutions & Logistics EBITDA and PBT reflect the impact of IFRS 16.
Note: Product waste 2018 and 2019 excludes Fabled.
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Average Order Size (£)
(Ocado.com)
1
1
81
0
1
7
0
1
7
0
1
7
0
1
Why we use this measure
Measures aggregate impact on
average shopping basket within
our Retail business.
2019 performance
(0.3%) vs 2018
Strategic link
Average Orders Per Week
(Ocado.com)
Why we use this measure
Measures order growth in our
Retail business.
0
0
0
,
5
2
3
0
0
0
,
4
9
2
0
0
0
,
4
6
2
2019 performance
10.7% vs 2018
Strategic link
0
0
0
,
0
3
2
0
0
0
,
5
9
1
15 16 17 18
19
15 16 17 18
19
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Average Deliveries per Van
per Week
4
9
1
6
9
1
2
8
1
6
7
1
6
6
1
Why we use this measure
Active Customer Base
Why we use this measure
Measures efficiency of our
service delivery operation.
2019 performance
1.0% vs 2018
Strategic link
Measures growth in our core
customers who shopped in the
last 12 weeks.
2019 performance
10.3% vs 2018
Strategic link
0
0
0
,
5
9
7
0
0
0
,
1
2
7
0
0
0
,
5
4
6
0
0
0
,
0
8
5
0
0
0
,
9
0
5
15 16 17 18
19
15 16 17 18
19
SKU Count (Hypermarket)
Why we use this measure
Measures growth in range
offered at Ocado.com, not
including stand-alone sites.
2019 performance
7.4% vs 2018
Strategic link
0
0
0
,
4
5
0
0
0
,
0
5
0
0
0
,
9
4
0
0
0
,
7
4
0
0
0
,
8
5
15 16 17 18
19
Number of Ocado Solutions
Partnerships Signed to Date
Why we use this measure
Measures partner growth within
our Solution business.
9
2019 performance
50% vs 2018
Strategic link
6
3
11
15 16 17 18
19
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
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Chief Financial Officer’s Review
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7
,
1
£
Revenue (£m)
9
9
5
,
1
£
5
4
4
,
1
£
7
6
2
,
1
£
4
0
1
,
1
£
15 16 17 18
19
EBITDA (£m)
3
.
0
8
£
5
.
7
7
£
7
.
6
7
5£
.
9
5
£
6
.
3
4
£
15 16 17 18
19
Capital Expenditure (£m)
7
.
0
6
2
£
8
.
3
1
2
£
9
.
6
5
1
£
3
.
0
6
1
£
5
.
6
2
1
£
15 16 17 18
19
A See Alternative Performance Measures on pages 227 and 228.
For the period to 1 December 2019, we
maintained significant sales growth
in a competitive environment whilst
transforming our business.
The Group has secured two new partnerships in Australia and
Japan, completed a transformational deal with M&S in the UK and
significantly increased financial headroom. The Retail business
continued to deliver double digit retail revenue growth, despite
losing the CFC Andover capacity as a result of a fire, and continued
to innovate with new propositions such as Ocado Zoom. Profitability
in the period was impacted by the significant international
investments in our platform to support future growth, the first full
year of operational costs of our new facility in Erith, share-based
management incentive charges, and additional depreciation. In
addition, there were £94.1 million of exceptional costs, principally due
to costs relating to the Andover CFC fire and resulting in loss before
tax was £214.5 million.
The commentary is on a pre-exceptional basis2 to aid understanding
of underlying performance of the business.
IFRS 16 “Leases”
The Group has early adopted IFRS 16, the new accounting standard
for leases and as a result the key alternative performance measure,
EBITDA, has improved. This new standard requires the majority of
leases to be recognised on the balance sheet as Right of Use Assets,
generating depreciation and interest charges, which fall below
EBITDA, in place of lease expenses which would have previously
been included in the calculation of EBITDA. The comparative period
FY2018 has not been restated. The cumulative impact on prior
periods is reflected by adjusting opening reserves at 3 December
2018. Detailed impact on the 2019 results is provided below, with
additional disclosures provided in note 1.3 to the financials.
“ Group revenue for the
period has grown by
9.9% in comparison
to 2018 revenue of
£1,598.8 million.”
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26615 11 February 2020 7:16 am Proof 3Group ResultsPre-ExceptionalFY 2019£mExceptional ItemsTotal FY 2019£mFY 2018£mPre-Exceptional VarianceRevenue(1)1,756.6-1,756.61,598.89.9%Gross profit597.3(5.5)591.8547.59.1%Other income83.923.8107.771.916.7%Distribution and administrative costs (pre IFRS 16)(664.0)(12.3)(676.3)(561.1)18.3%Reduction in costs relating to IFRS 1625.4-25.4-n/aShare of results from joint ventures and associates(4)0.7-0.71.2(41.7%)EBITDAA(2)43.36.049.359.5(27.2%)Depreciation, amortisation and impairment(3)(136.1)(99.0)(235.1)(91.4)(48.9%)Loss on disposal of subsidiary-(1.1)(1.1)- - Net Finance costs(27.6)-(27.6)(12.5)(120.8%)(Loss) before tax(120.4)(94.1)(214.5)(44.4)(171.2%)(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 our UK Solutions clients and International Solutions clients are also included in revenue with the exception of recharges to Ocado Retail which are eliminated on consolidation.(2) EBITDAA is stated before the impact of exceptional items* unless stated otherwise in the column-based presentation above.(3) FY2018 is not restated for IFRS 16. For more details of IFRS 16 refer to note 1.5 in the financial statements (also see the Accounting Seminar presentation at https://www.ocadogroup.com/investors/reports-and-presentations/year/all)(4) Share of results from joint ventures relates to joint ventures where the Group does not exercise control such as MHE JVCo and Jones Food Company. The Ocado Retail joint venture, over which the Group exercises control, is not included as the results are fully consolidated.Group revenue for the period has grown by 9.9% in comparison to 2018 revenue of £1,598.8 million. This was driven by an increase in the average number of orders per week, despite the capacity limitations following the fire at CFC Andover. Gross profit grew steadily despite the competitive nature of the market. Other Income increased by 16.7% to £83.9 million, driven by increased media income from suppliers through Ocado.com and an additional research and development tax credit of £4.6 million.EBITDA before the impact of exceptional items and IFRS 16 for the period was £17.9 million (FY 2018: £59.5 million). The decline was driven by the increased investment in developing the head office teams required to support our international growth; costs for a full year of operation for Erith CFC; lower fee income from Morrisons due to a revised agreement which temporarily releases Erith capacity; and higher share incentive costs in the period.Depreciation, amortisation and impairment increased by 48.9% to £136.1 million, of which £19.8 million relates to the impact of IFRS 16, with the balance driven primarily by a full year of depreciation for Erith CFC.Net finance costs increased from £12.5 million to £27.6 million, which includes £14.9 million for the impact of IFRS 16. The remaining balance primarily consists of finance costs relating to the Senior Secured Notes. As a result of the above and exceptional items of £94.1 million, the statutory loss before tax for the period was £(214.5) million (2018: loss of £44.4 million).A See Alternative Performance Measures on pages 227 and 228.Stock Code: OCDO STRATEGIC REPORTOcado Annual Report 2019 Strategic.indd 4111/02/2020 07:21:52Back to contents T
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Continued
A review of 2019
Changes to Segment Reporting
This has been a period of rapid change for Ocado and several events
have had a material impact on the results for the period. To aid
understanding of the numbers, a summary of these is given below.
Andover CFC
In February 2019, a fire destroyed the Andover CFC, including the
building, machinery and all inventory held on site. The Group has
comprehensive insurance and claims have been formally accepted
by the insurers. Due to the capacity constraints following the Andover
CFC fire, the Group agreed with Morrisons to temporarily suspend
their access to capacity in Erith CFC during the period in exchange for
lower store pick fees and no cost recharges for this CFC.
In addition there is a net cost in exceptionals of £88.0 million relating
to the Andover CFC comprising £111.8 million of costs including the
write off of assets lost in the fire, offset by £23.8 million of insurance
proceeds recognised to date.
Ocado International Solutions
During the year, the Group signed two new partnerships in Asia
Pacific. Our first agreement is with Coles Group Ltd (“Coles”) in
Australia to develop initially two CFCs, expected to open by 2023,
alongside the transition of its existing store-pick based operations
to the Ocado Smart Platform. The second agreement, announced in
November, is with Aeon in Japan to develop up to three CFCs initially.
In May, Sobeys Inc. (“Sobeys”), an existing partner in Canada, agreed
to build a second CFC in Point-Claire, Montreal.
These additional agreements contributed to the increase in head
office costs but there was no associated revenue recorded in 2019, in
accordance with IFRS 15.
Formation of the Ocado Retail Joint Venture with Marks and
Spencer (“M&S”)
In February 2019, the Group announced the creation of a new 50:50
joint venture with M&S. The joint venture comprises Ocado’s UK retail
business, Ocado.com, supported by a new partnership for Solutions
services underpinned by the Ocado Smart Platform and the provision
of branding and sourcing from M&S. Currently Ocado.com carries
almost 55,000 different products, of which approx. 3,500 are Waitrose
own label products. We will switch over to M&S by September 2020,
after which time Ocado.com will continue to range Ocado own label
and this extensive range of branded products, and M&S products
will be available on Ocado.com replacing Ocado’s current sourcing
agreement with Waitrose Limited. M&S paid Ocado £562.5 million in
upfront cash and agreed a deferred cash payment of £187.5 million up
to five years after completion, dependent on the satisfaction of certain
financial and operational conditions.
On 20 May 2019 the transaction was approved by Ocado’s
shareholders at an extraordinary general meeting and the transaction
completed in Q3 2019. Ocado continues to consolidate the results
of Ocado Retail, the share of the results attributable to M&S is shown
as a non-controlling interest and the costs relating to the disposal of
shares are primarily accounted for in equity. Any other costs relating
to the transaction are accounted for in exceptional items.
A See Alternative Performance Measures on pages 227 and 228.
The Group has determined that there are now three reportable
segments following the sale of 50% of Ocado Retail to M&S during
the year. These are Ocado Retail which provides online grocery
and general merchandise offerings to customers within the United
Kingdom, UK Solutions & Logistics which provides the end-to-end
online retail solution, the operation of CFCs and logistics services for
UK based partners Ocado Retail and Morrisons, and International
Solutions which provides the end-to-end online retail solution to our
partners outside the United Kingdom.
IFRS 16 Impact in 2019
In the period, the Group early adopted the IFRS 16 accounting
standard. The Group chose not to restate the comparative period
FY2018 in accordance with the guidelines of the standard. The impact
of IFRS16 on the segmental results is a reduction in costs of £14.8
million for the Ocado Retail segment and £10.6 million for the UK
Solutions and Logistics segment. The full impact on the profit and
loss statement including the impact on depreciation and finance
costs is below:
IFRS 16 impact
Distribution and Administrative costs
Depreciation, amortisation and impairment
Net Finance Costs
Profit before tax
FY 19
£m
25.4
(19.8)
(14.9)
(9.3)
Growth of new venture investments
In the period, the Group announced two complementary investments,
a joint venture, Infinite Acres Holdings BV, with 80 Acres Farm Inc.
and Priva Holdings BV, along with the purchase of a 64% stake
in Jones Food Company. We believe that these investments at a
cost of less than £17 million will add to the significant portfolio of
technologies and know-how that we are building to revolutionise
the way customers access fresh food. The Group also made smaller
investments in a robotics start-up company and a 3D printing
company, both of which are minority stake investments.
There is no material impact to the results for these developments in
the 2019 Financial year.
Sale of Fabled to Next
In early summer, the Group agreed to sell Fabled to Next which
occurred during the year. The disposal completed in early July with a
net loss of £1.1 million accounted for in exceptional items.
Trading review by segment
Segment revenue and Segment EBITDA A are shown below, in
line with the Group’s new segments. During the period the Group
determined that there are three reportable segments, which reflect
the structure of the Group post the sale of 50% of Ocado Retail to
M&S. For comparability purposes, the numbers by segment for FY2018
have been re-presented on a basis consistent with the Group’s new
segments. More details of segment reporting are included in note 2.1
of the financial statements.
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Retail Performance
Revenue
Gross profit
Other income
Distribution costs A (1)
Marketing (non-voucher)
Other administrative costs A (1)
IFRS 16 Impact
EBITDA A (2)
FY 20193
£m
FY 20183
£m Variance
1,617.5
1,466.6
466.4
65.6
423.6
59.8
(433.8)
(388.4)
(21.2)
(56.8)
14.8
35.0
(13.9)
(51.0)
–
30.1
10.3%
10.1%
9.7%
11.7%
52.5%
11.4%
–
16.3%
(1) Distribution and administrative costs exclude depreciation, amortisation and
impairment for the period.
(2) EBITDA A does not include the impact of exceptional items A .
(3) Retail segment has been represented for FY2018. For further details refer to note 2.2 of
the financial statements.
Retail revenue A growth of 10.3% was primarily due to a 10.7% year-on-
year increase in orders per week to 325,000 (2018: 294,000) driven by an
increase in the number of new customers. The average basket at Ocado.
com of £103.18 decreased slightly by 0.6% compared to 2018.
Gross profit
Gross profit was up 10.1% to £466.4 million, driven by higher order
volumes and improved cost prices.
Other income
Other income increased by 9.7% to £65.6 million (2018: £59.8 million)
with supplier income increasing year-on-year by 11.9% to £63.9
million (2018: £57.1 million) equivalent to 3.9% of retail revenue A
(2018: 3.9%).
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Trunking and delivery costs increased by £16.4 million to £197.7
million, an increase of 9.0% year-on-year (2018: £181.3 million).
This is due to increases in wage-related and vehicle costs as a result
of greater order volumes and inflationary cost pressures, offset
by efficiencies as deliveries per van per week have risen by 1% to
196 (2018: 194) as customer density improved and with further
enhancements to our routing system.
Other operating costs include the costs associated with provision
of the OSP and Logistics services to Ocado Retail by UK Solutions &
Logistics of £81.8 million (2018: £73.2 million).
Marketing costs excluding voucher spend increased from £13.9 million
to £21.2 million, 1.3% as a percentage of retail revenue (2018: 0.9%) up
on the prior period due to increases in online acquisition, particularly
following the disruption from the fire in Andover, and trialling of an
offline media campaign.
Other administrative costs increased by £5.8 million, 11.4%, to £56.8
million to support underlying business growth and the establishment
of Ocado Retail as a stand alone business unit.
The implementation of IFRS 16 by the Group impacts the Ocado Retail
segment because most of the owned and leased assets of the Group
are used by this business segment.
EBITDA A
EBITDA A excluding exceptional items for the retail business was
£35.0 million (2018: £30.1 million). We expect EBITDA growth ahead of
revenue growth in 2020.
UK Solutions & Logistics Performance
Distribution and administrative costs
CFC
Trunking and Delivery
Other operating costs
Total Distribution costs
FY 2019
£m
143.4
197.7
92.7
433.8
FY 2018
Fee revenue
Cost recharges(1)
£m Variance
Revenue
123.4
181.3
83.7
388.4
16.2%
9.0%
10.8%
11.7%
Other Income
Distribution costs
Administrative costs
Share of JV
IFRS 16 Impact
EBITDA A
Distribution costs predominantly consist of fulfilment and delivery
operation costs which are provided to Ocado Retail by the Ocado UK
Logistics operation.
CFC costs increased from £123.4 million to £143.4 million, an increase
of 16.2% year-on-year. The rate of growth was primarily due to the
increased number of customer orders combined with the costs of the
full year of operation of the Erith CFC. An agreement was reached
with Morrisons for them to withdraw temporarily from the Erith CFC
and so to release additional capacity at Erith CFC to Ocado.com, but
this meant that Ocado was responsible for all the fixed costs at this
site whilst it is in early stages of growth.
Mature CFC (defined as CFC1 and CFC2) UPH improved by 1.8% to 168
UPH, driven mainly by improvements at Dordon CFC.
A See Alternative Performance Measures on pages 227 and 228.
FY 2019
£m
109.9
473.3
583.2
3.0
FY 2018
£m Variance
104.3
436.8
541.1
5.4%
8.4%
7.8%
2.6
15.4%
(468.4)
(431.0)
8.7%
3.8%
–
n/a
(45.2)
–
–
(43.5)
(0.1)
10.6
84.8
67.5
25.6%
(1) Cost recharges include cost recharges to Ocado Retail of £453.7 million which
eliminate out on consolidation
Revenue
Revenue from the UK Solutions & Logistics business was £583.2
million, up from £541.1 million in 2018. This comprises a recharge of
relevant operational variable and fixed costs to UK partners Ocado
Retail and Morrisons, as well as fees to access Ocado’s technology
platforms, capital recharges, management fees and research and
development.
Stock Code: OCDO
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Other income
Other Segment
Other Income increased to £3.0 million (2018: £2.6 million) primarily
related to rental received from Morrisons in respect of Dordon CFC
rent recharges.
Distribution and administrative costs
Distribution and administrative costs consist of fulfilment and delivery
operations costs for Ocado Retail and Morrisons, charged from UK
Solutions, as well as head office costs. Distribution costs were £468.4
million and increased 8.7% due to increased volumes, additional fixed
costs for a full year of operation of Erith and wage increases, offset by
cost efficiencies in both CFC trunking and delivery operations.
Administrative costs were £43.5 million and decreased slightly year-
on-year following the organisation changes with the establishment
of Ocado Retail as a stand alone business unit and increased focus of
central resources on our International Solutions business.
The implementation of IFRS 16 by the Group impacts the UK Solutions
and Logistics segment because some of the owned and leased assets
of the Group are used by this business segment.
EBITDA A
EBITDA A from our UK Solutions & Logistics activities was £84.8
million, an increase of £17.3 million. Excluding the impact of IFRS16
on 2019, EBITDA grew by £6.7 million or 9.9%.
International Solutions Performance
FY 2019
£m
81.4
0.5
FY 2018
£m Variance
58.8
0.5
38.4%
–
(62.5)
(62.1)
(28.9)
(28.4)
116.3%
118.3%
Fees invoiced
Revenue
Distribution and administrative
costs A
EBITDA A
Fees and Revenue
Fees invoiced amounted to £81.4 million (2018: £58.8 million).
Fees relating to OSP are not recognised as revenue until a working
solution is delivered to the partner. In 2019 revenue recognised from
the International Solutions business was in line with the prior year.
Revenue is expected to continue to increase from 2020 when our first
international CFCs commence operations and further commitments
are received for new CFCs from our clients.
Administration costs primarily consist of the non-capitalised costs of
employees who are developing OSP and other costs supporting our
international partnership agreements. These costs grew year-on-year
as a result of the increase in headcount to support building further
capabilities to sign future clients, increased people, travel and cloud
costs to support existing international clients in launching the CFCs
and further improvements in our platform.
EBITDA A
EBITDA A from our International Solutions activities was a loss of
£(62.1) million (2018: £(28.4) million).
A See Alternative Performance Measures on pages 227 and 228.
EBITDA loss was £(14.4) million in the current period (2018 loss:
£(9.7) million). The other segment represents revenue and costs
which do not relate to the other three segments. This includes board
costs, the results of the Fabled business that was divested during
FY19 and the consolidated results of Jones Food Company. The
increase in costs is primarily due to an increase in share-based senior
management incentive charges (further information can be found in
the Remuneration report on page 99), offset by reductions in losses
for Fabled which was sold in July and £4.1 million of research and
development tax credits.
Exceptional Items
FY 2019
£m
FY 2018
£m
Andover CFC
Write off of property, plant and
equipment
Write off of intangible assets
Loss of inventory
Insurance reimbursement
Other exceptional costs
Total Andover Exceptional
Disposal of Fabled
Set up costs for the joint venture with
Marks & Spencer
Litigation costs
Other exceptional items
Total exceptional items
Andover CFC
(96.9)
(2.1)
(5.5)
23.8
(7.3)
(88.0)
(1.1)
(3.4)
(1.3)
(0.3)
(94.1)
–
–
–
–
–
–
–
–
(0.1)
(0.1)
In February 2019, a fire destroyed the Andover CFC, including the
building, machinery and all inventory held on site. The Group has
comprehensive insurance cover and claims have been formally
accepted by the insurers. Property, plant and equipment with a net
book value of £96.9 million was destroyed or damaged to the extent
that no amount is expected to be recoverable. Inventory held at a cost
of £5.5 million was destroyed by the fire.
Insurance reimbursement of £23.8 million has been recognised for
initial capital expenditure on rebuild, for business interruption costs
incurred to date and the value of destroyed inventory at retail price.
An insurance reimbursement asset has been recognised on the
balance sheet for the restoration of the original asset on site as well as
a corresponding provision representing the obligation to reinstate the
building.
There have been a number of other exceptional costs as a result
of the fire which include, but are not limited to, temporary costs of
transporting employees to other warehouses to work, professional
fees relating to the insurance claims process, reimbursement of
employee’s personal assets that were destroyed and a restructuring
provision that has been recognised as a result of the formal
redundancy consultation that commenced in May 2019.
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Net finance costs
Net finance costs of £27.6 million include an adjustment for IFRS16
of £14.9 million; excluding this, net finance costs increased from
£12.5 million to £12.7 million. This primarily consists of finance costs
relating to the Senior Secured Notes.
£0.1 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 (2018: £2.8 million).
Share of result from joint ventures and associates
The Group has accounted for the share of results from two joint
ventures; MHE JVCo Limited (“MHE JVCo”), a joint venture with
Morrisons, and Infinite Acres Holdings BV, a vertical farming company
jointly owned with 80 Acres Farm Inc. and Priva Holdings BV. 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 £1.0 million (2018: £1.2 million). Infinite Acres Holdings
BV was acquired during FY2019, and contributed a loss of £0.3 million
to the Group’s results in the period.
Loss before tax
Loss before tax for the period was £(214.5) million (2018: loss of £(44.4)
million).
Taxation
Due to the availability of capital allowances and Group loss relief, the
Group has not recognised a corporation tax charge for the period.
No tax was incurred in the period in relation to the sale of the shares
of Ocado Retail as the gain on the sale of shares is covered by the
substantial shareholdings exemption. A deferred tax credit of £2.7m
was recognised in the period. Ocado had £284.7 million (2018: £256.4
million) of unutilised carried forward tax losses at the end of the
period.
Dividend
During the period, the Group did not declare a dividend.
Loss per share
Loss and diluted loss per share were (29.23)p (2018: (6.85)p).
The Group expects to receive further insurance reimbursements in
respect of reconstruction costs and business interruption losses.
Claim negotiations are ongoing and the Group has not recognised any
amount in respect of this as the recoverability and final amount are
not yet virtually certain. Exceptional income will be recognised in the
future as the costs of rebuilding the CFC and business interruption
are incurred.
Disposal of Fabled
Loss on disposal of Fabled and Legal costs were incurred in relation to
the sale of Fabled.
Joint venture with M&S
Whilst certain costs relating to the transaction are permitted to be
accounted for directly within equity, there are others that do not meet
the requirements and as a result have been reported as exceptional
costs.
Litigation costs
The Group has made a claim for damages and for injunctive relief
against Jonathan Faiman, Jonathan Hillary and Project Today
Holdings Limited, a software and online fulfilment company, because
of the misappropriation and unlawful misuse of Group confidential
information and Intellectual Property. The Defendants’ business
trades under the names “Today Development Partners” (TDP) or
“Today”. We strongly believe in the merits of our case. Ocado’s
intellectual property is its greatest asset and represents a significant
portion of the Group’s value; we have spent the last 20 years
developing our intellectual property, technology and know-how.
The Group relishes fair competition, but will vigorously protect its
intellectual property and challenge any individual or organisation that
uses unlawfully obtained information, either directly or indirectly. The
Group is resolute that it will protect all of its stakeholders’ interests.
Legal and other costs have been incurred to recover the
misappropriated items and seek compensation. We will seek recovery
of our costs from the Defendants in the usual way.
Group Performance
EBITDA A
Depreciation, amortisation and
impairment
Net Finance costs
Exceptional items
(Loss) before tax
(Loss) after tax
FY 2019
£m
FY 2018
£m Variance
43.3
59.5
(27.2)%
(136.1)
(27.6)
(94.1)
(214.5)
(211.8)
(91.3)
(12.5)
(0.1)
(44.4)
(44.9)
(49.1)%
(120.8)%
–
(383.1)%
(371.7)%
Depreciation, amortisation and impairment
Total depreciation and amortisation costs were £136.1 million (2018:
£91.3 million), an increase of 49.1% year-on-year. The increase in
year-on-year costs reflects IFRS16 increasing the depreciation charge
by £19.8 million as well as the first full year of operation of the Erith
CFC and software that was brought into use following the launch of
International Store Pick applications in mid 2018.
A See Alternative Performance Measures on pages 227 and 228.
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Chief Financial Officer’s Review
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Capital expenditure for the period:
Mature CFCs
New CFCs
International CFCs
Delivery assets
Technology
Fulfilment Development
Other
Total capital expenditure(1), (2)
(excluding share of MHE JVCo)
Total capital expenditure(3)
(including share of MHE JVCo)
FY 2019
£m
FY 2018
£m
5.4
42.1
70.9
17.0
71.4
33.3
20.0
259.9
260.7
6.2
80.3
10.9
21.7
54.8
21.2
18.1
213.2
213.8
(1) Capital expenditure includes tangible and intangible assets.
(2) Capital expenditure excludes assets leased from MHE JVCo under lease liability
arrangements.
(3) Capital expenditure includes Ocado share of the MHE JVCo capex in 2019 of £0.8
million and in 2018 of £0.6 million.
Capital expenditure in mature CFCs in the period mainly related to the
Hatfield CFC for a number of small projects to improve the capacity
and resilience of this site.
We invested over £40 million in the period for our new UK CFCs. This
included £38 million relating to the development work for Erith as it is
currently scaling up operations with an expected eventual capacity of
over 200,000 OPW.
Total expenditure on new vehicles in the period was £17.0 million
(2018: £21.7 million). This expenditure enabled business growth and
replacement of vehicles that have reached or exceeded their five year
useful life.
Ocado continued to develop its own proprietary software and
incurred £71.4 million (2018: £54.8 million) of internal development
costs in the period on technology, including £13.9 million (2018: £10.6
million) spent on computer hardware and software. We expanded
our Technology total headcount to over 1,700 staff at the end of the
period (2018: over 1,300 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
systems, enhancements to our customer proposition, and support for
the Erith CFC and existing partners future CFCs.
Fulfilment development expenditure of £33.3 million was spent
in enhancing our next generation fulfilment solutions for CFC and
delivery operations of all our Solutions partners.
Other capital expenditure of £20.0 million was incurred in the period,
mainly in respect of head office growth, investment in our back office
systems and the Group’s transformation programme.
At 1 December 2019, capital commitments contracted, but not
provided for by the Group, amounted to £93.6 million (2018: £69.7
million). We expect capital expenditure in 2020 to be approximately
£600 million which mainly comprises the roll out of the OSP solution
which will be installed into the new CFCs of our clients both in the
UK and internationally, continuing investment in our infrastructure
and technology solutions, the implementation of our solution to our
international partners, and additional investment in new vehicles to
support growth.
Cash flow
Net movement in cash and cash equivalents was £339.8 million, an
increase of £79.0 million in 2018 as detailed below:
FY 2019
£million
FY 2018
£million
EBITDA A (1)
Movement in contract liabilities
Other Working capital movement
Other non-cash items
Finance costs paid
Insurance proceeds received
Cash settlement of share incentive
plan
Operating cash flow
Capital investment
Proceeds from disposal of 50% share
in ORL
Dividend from joint venture
(Decrease)/Increase in net debt A /
finance obligations
Proceeds from share issues
Other investing and financing
activities
Movement in cash and cash
equivalents
43.3
79.5
(29.0)
(5.1)
(30.6)
73.8
(80.2)
51.7
(259.6)
558.3
15.6
(65.7)
59.5
(20.0)
59.5
65.5
5.3
12.6
(14.5)
–
–
128.4
(170.1)
–
(32.8)
333.1
2.2
339.8
260.8
(1) EBITDA A is stated before the impact of exceptional items A
Operating cash flow reduced by £76.7 million to £51.7 million during
the year.
Cash received during the year in relation to International Solutions
partners, excluding VAT, amounted to £79.5 million (2018: £65.5
million).
Other working capital was reduced by £29.0 million. This included an
increase of £29.4 million in trade receivables due to timing delays for
a tax receipt and in issuing supplier invoices for promotional income
and an increase of £8.0 million in trade payables in line with business
growth. The reported movement in inventory is an increase of £7.6
million as the reductions from the loss of inventory at Andover CFC
and inventory connected to the disposal of Fabled are accounted for
elsewhere in the cashflow.
A See Alternative Performance Measures on pages 227 and 228.
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Increasing financing flexibility
In the period, we received £562.5 million from the sale of 50% of the
Ocado Retail business to M&S, with a further amount of contingent
consideration due to the business in the coming years. This provides
the flexibility to take full advantage of the opportunities to grow
Ocado Solutions and accelerate development in our platform for
both UK and international partners. The £100 million Revolving Credit
Facility (“RCF”) which was renegotiated in 2017 was not drawn during
the year.
Post year end, the Group issued senior unsecured convertible
bonds of £600 million with a coupon of 0.875% due in 2025. This
allows the Group to diversify its funding sources and capitalise on
issuance conditions, securing financial flexibility to support growth
opportunities.
Key performance indicators
The following table sets out a summary of selected unaudited
operating information for FY 2019 and FY 2018:
Active customers(1) (000’s)
Mature CFC efficiency (units per
hour)(2)
Average deliveries per van per
week (DPV/week)
FY 2019
FY 2018
Variance
795
168
196
721
10.3%
164
194
1.8%
1.0%
Source: the information in the table above is derived from information extracted from
internal financial and operating reporting systems and is unaudited. Fabled is excluded
from both years.
(1) Customers are classified as active if they have shopped on ocado.com within the
previous 12 weeks
(2) Measured as units dispatched from the CFC per variable hour worked by Hatfield CFC
and Dordon CFC operational personnel. We consider the mature CFCs to be Hatfield
and Dordon
Insurance proceeds of £73.8 million were received in the period in
connection with the claim for the fire at Andover CFC. During the
period a long term share incentive scheme was settled in cash at a
cost of £80.2 million.
In 2019 there was cash expenditure of £259.6 million on new assets
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.
Other investing activities of £20.0 million included the purchase of
equity investments in several companies in the vertical farming and
technology sectors.
Net financing cash flows in the period was an inflow of £552.1 million.
This included £558.3 million from the proceeds from the disposal of
the 50% share of Ocado Retail, £59.5 million of proceeds from the
issue of shares, the redemption of £25.0 million of the outstanding
Senior Secured Notes and £38.7 million of repayment of other lease
liabilities including the lease element of rentals under IFRS16.
Balance sheet
The Group had cash and cash equivalents of £750.6 million at the
end of the financial year versus £410.8 million as at 2 December 2018.
Gross debt at the period end was £608.2 million (2018: £360.6 million),
and includes an adjustment of £279.0 million in respect of IFRS16. Net
cash is £142.4 million (2018: £50.2 million).
Trade and Other Receivables includes £61.9 million (2018: £49.1
million) of amounts due from suppliers in respect of commercial and
media income. Of this amount £43.1 million (2018: £29.9 million) is
within trade receivables, and £18.8 million (2018: £19.2 million) within
accrued income.
Trade and Other Payables includes a deferred income provision of
£71.3 million in respect of the insurance monies which have not yet
been recognised as exceptional income. Within Contract liabilities,
£191.8 million (2018: £115.2 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, £1.1 million (2018: £3.8 million) is due from our Solutions
customers.
An insurance reimbursement asset and an equal provision of £49.2
million has been recognised on the balance sheet for the obligation to
restore the original asset at the Andover CFC site under the leasehold
agreement.
Included within property, plant and equipment is capital work-in-
progress for land and buildings of £0.1 million (2018: £0.1 million) and
capital work-in-progress for fixtures, fittings, plant and machinery
of £115.1 million (2018: £45.8 million), the increase relating to the
numerous UK and international CFCs, with Casino and Sobeys being
the majority.
A See Alternative Performance Measures on pages 227 and 228.
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
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How We Manage Our Risks
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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 people and assets, including
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 process 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 the security of Ocado’s IT systems;
• a Personal Data Steering Committee and Data Protection team that
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 an 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.
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, including assessing the impact of the Ocado Retail joint venture.
Set out overleaf are details of the principal risks and uncertainties for
the Group and the key mitigating activities used to address them. The
changes to the Group’s principal risks reflect the shift in the strategic
focus of the business towards the Ocado Solutions platform. 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 50).
For further information on the financial risks, see pages 192 to 193 of the
notes to the financial statements.
support data privacy governance;
Brexit impact on the Group
The Group is continuing to closely monitor the legal and political
developments in the process of 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 and has
been progressing the readiness alongside the ongoing Brexit
developments, extensions and now the transition. The absence of an
agreed and binding post-Brexit trade arrangement with the EU means
that Brexit remains a principal risk for the Group.
• 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 exposure, so as to ensure liquidity and minimise
financial risk;
•
food and product technical departments, responsible for
designing and monitoring compliance with Ocado’s processes for
the 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.
The Audit Committee reviewed the effectiveness of the Group’s risk
management and internal control during the period.
➔ Further details of the review are set out in the Audit Committee report
on page 92 to 97OCADO RISK MANAGEMENT PROCESS
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26615 11 February 2020 7:16 am Proof 3The 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, although the UK Settled Status Scheme has substantially mitigated that risk. Applicable employees have been encouraged to take advantage of that scheme.• Our technology division has several software development centres in the EU that 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. Product ranges/variety may contract as a result. Although the Group has created buffers of certain critical ambient and frozen products in the past, 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, divergence in standards or other trade barriers may reduce our competitiveness. A technology contingency, comprising OSP hardware, such as bots, will be moved to the EU in anticipation of any supply chain disruption if necessary.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 previously 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. While the EU funding is important, access to EU-based academic skills, knowledge and collaboration with other corporates is more important. Existing funding is expected to continue and the UK is expected to propose an alternative framework for when EU funding is withdrawn. Our EU-located development centres will provide some opportunities in respect to the EU-based academic institutions.• Ocado Solutions technology and engineering teams are designing equipment for our UK and international partners. Currently certification by a UK authority is suitable for both the EU and the UK. Additional EU certification will be required 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.Emerging RisksSupply Chain With the signing of multiple Ocado Solutions deals around the world there are increased pressures placed on Ocado’s global supply chain from the increase in volume of materials and technical equipment being procured, compliance with local standards in each country, the logistical challenges of the global reach, to import tariffs and recruitment and training of local experts. The increasing risks associated with supply chain disruption have been recognised as an emerging principal risk. Ocado Risk Management ProcessOur 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, identifying and 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.1234 ImplementMitigationReviewRisksEvaluateRisks3421SetStrategy49Stock Code: OCDO Annual Report and Accounts Ocado Group plc STRATEGIC REPORTOcado Annual Report 2019 Strategic.indd 4911/02/2020 07:21:53Back to contents How We Manage Our Risks
Continued
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Strategic
Objectives
Risks
Risk of decline in high service levels
in the Retail business especially
during the transitional period of
change associated with the creation
of the Ocado Retail joint venture
Improving the
Proposition
Failure to maintain a retail
proposition which appeals to a
broad customer base and sustains
growth rates while managing
changes resulting from our new
arrangements with M&S
Risk that current Solutions
pricing levels may not provide
both acceptable returns for our
shareholders and attractive long-
term cost of ownership for our
clients, while delivering a viable fully
operational end-to-end customer
experience
Change
During the
Year
Mitigation Action/Control
• Weekly monitoring of the key indicators and the underlying
driver targets.
• Continuing initiatives to improve resiliency and
operational performance of the Hatfield and
Dordon CFCs.
• Along with the scaling of operations at Erith, these
arrangements help reduce the impact of operational
problems in CFCs on customer service levels.
• Continuation of Low Price Promise basket matching price
comparison and competitive pricing.
• Development of appropriate M&S own-label range.
• Growth of branded ranges and expansion of
supplier base.
• Continuation of investment and optimisation of the
marketing channels to acquire new customers.
• Continued improvement of webshop and apps.
• Planned roll-out of further immediacy sites.
• Full review of projected financial impact undertaken before
signing any new partnerships.
• Periodic review of delivery costs and close relationship
with our partners provides oversight of project costs.
• 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.
• 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 future development.
Key:
Risk has increased
Risk has decreased
No change
N New emerging risk
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Strategic
Objectives
Risks
Maximising
Efficiency
Risk of the transformation
programme failing to deliver
a sustainable operational
infrastructure able to execute
effectively the requirements
for multiple Ocado Solutions
contracts, simultaneously in
many international locations,
while providing for sufficient
management, technology and
engineering capabilities(1)
Risk of delays in the generation of
additional capacity in the UK
Technological innovation
supersedes our own and offers
improved methods of food
distribution to consumers
Utilising
Knowledge
Risk of infringing a third party’s IP or
failing to protect Ocado’s own IP(2)
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Change
During the
Year
The risk has
increased
during the
period with
the successful
signing
of further
international
deals
The risk has
decreased
during the
period with the
announcement
of further CFCs
Mitigation Action/Control
• Creation of a Group Transformation team who are
supporting the business in the design and implementation
of the new operating model which includes people,
process and systems.
Increased hiring of key skills in the UK and internationally,
including greater emphasis on graduate recruitment and
training programmes.
•
• Standardisation of platform delivery to improve
repeatability.
• Dedicated resources continue to work on modularising
technology to enable faster replication and reduced build
times.
• New capacity increasing as Erith (CFC4) ramps up with
plans to build CFC5 (Purfleet) and CFC6 (Bristol). CFC3
(Andover) is being rebuilt.
• Regular steering meetings and management oversight for
new CFC projects.
• Establishing our identity as a technology business,
international platform provider and innovation factory.
• 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.
• 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.
• 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.
Stock Code: OCDO
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How We Manage Our Risks
Continued
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Strategic
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Risks
Mitigation Action/Control
Change
During the
Year
Operational
Risk of supply chain disruption, in
particular for single source equipment,
that adversely affects product
availability, delivery, reliability and
cost, resulting in delays to contractual
commitments and loss of revenue(3)
Risk of a food safety, product safety
or health & safety incident(4)
• Setting up of a “Central Manufacturing Fund” governed
N
by Supply Chain with a view to ensuring reliable supply of
components.
• Agile approach to manufactured products including the
ability to divert any product to sites with the most pressing
requirements.
• Experienced legal, food and product technology
professionals and health and safety experts monitor
compliance against policies and procedures.
• Supplier approval and certification process.
• Food and product safety policies and quality management
with operational procedures.
• Risk assessments and safe systems of work prepared by
qualified staff to raise awareness and knowledge.
• Active monitoring of international regulatory changes
supported by territory expertise and recognised safety
management system standards.
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.
• Due diligence carried out at appropriate stages
Risk of negative implications due to
changes in the global economic and
geopolitical environment, including
Brexit and the associated tariffs or
difficulty in hiring employees, that
may impact our business model(5)
Failure to prevent or respond to a
major cyber attack or data breach
that could result in business
disruption, reputational damage,
significant fines or the loss of
customer, employee or confidential
business information
Risk of business interruption
in the Ocado Solutions process.
• Engagement with regulators and monitoring by
management and specialist teams of the global and
economic environment and regulatory changes to assess
the potential impacts on hiring employees, trading,
operations or the business model.
•
IT systems are structured to operate reliably and securely.
The security of our IT systems is regularly tested by third
parties.
• An information security and PCI security governance
programme overseen by the Information Security Committee.
• A dedicated Information Security team to monitor for
security issues and respond to security incidents.
• No customer payment card data is held in Ocado’s
databases.
• Data Protection Officer oversees the Group’s privacy
compliance programme.
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.
• Ongoing testing and research and development to make
equipment and MHE more reliable and robust.
• 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.
(1) The risk covering the execution of multiple international contracts and the requirement for resources has been amended to reflect the importance of the transformation programme.
(2) The risks described in the 2018 annual report as “Risk of infringing a third party’s IP” and “Risk of failing to protect Ocado’s own IP” have been combined.
(3) A new risk covering supply chain disruption has been added to reflect the increased significance of the Ocado Solutions programme.
(4) The risk described in the 2018 annual report as “Risk of a food safety or product safety incident” has been expanded to include health & safety incidents.
(5) The risk described in the 2018 annual report as “Risk of negative implications caused by final Brexit terms such as increase in import costs or difficulty in hiring employees” has been
expanded to reflect the global economic and geopolitical environment resulting from Ocado’s increased international reach.
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Assessment of the Group’s Prospects
The Directors have assessed the Group’s prospects, both as a going
concern and its viability longer term. This assessment informs the
following distinct statements:
(1) The Directors considered it appropriate to adopt the going concern
basis of accounting in the preparation of the Company’s and
Group’s financial statements.
(2) The Directors have a reasonable expectation that the Company
and the Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment.
Both assessments are closely linked to the Directors’ robust
assessment of the principal risks facing the Group (including those
that would threaten its business model, future performance, solvency
or liquidity), which is outlined on pages 50 to 52.
Going Concern Statement
Accounting standards require that directors satisfy themselves that it is
reasonable for them to conclude whether it is appropriate to prepare
financial statements on a going concern basis. There has been no material
uncertainty identified which would cast significant doubt upon the Group’s
ability to continue using the going concern basis of accounting for the 12
months following the approval of this Annual Report.
In assessing going concern, the Directors take into account the Group’s
cash flows, solvency and liquidity positions and borrowing facilities. The
Group had cash and cash equivalents of £750.6 million, external gross
debt (excluding finance leases payable to MHE JVCo) of £540.1 million
and net current assets of £549.9 million. The Group has a mix of short and
medium term finance arrangements. 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 the section on pages 142 to 221. 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 the section on pages 12-47) and
the Group’s principal risks and the likely effectiveness of any mitigating
actions and controls available to the Directors (see pages 48-52).
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 prospects. Although the Group’s
strategic plan forecasts up to five years ahead, the Directors also took
into account the impact on forecast outcomes of the rapid growth of
the business and its changing strategic opportunities (among other
factors) as evidenced by developments in each of the last three years.
The directors also took account of the typical three years between
a client contracting for a new CFC and its opening with the result
that financial commitments were made on this timeframe. This
assessment is unchanged by the sale of a 50% share in the Retail
business which remains a subsidiary but operates as a stand alone
business unit and the Group’s continued expansion into overseas
markets during 2019 as the underlying nature of the business is
similar in terms of the planning timeframes.
The Directors then considered whether the Group will be able to
continue in operation and meet its liabilities as they fall due over the
three year period from approval of this Annual Report.
The Directors rely on a number of existing processes to consider their
viability assessment. The annual budget, which provides a greater
level of certainty of outcome than the longer-term plans, is used to
set budget 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 provides a
sensible planning tool against which strategic decisions can be made.
This plan contemplates the input of a number of different strategic
initiatives, including possible Ocado Solutions transactions, possible
trials of new technology and potential increases in CFC capacity. The
plans make assumptions about the business including projected
capital expenditure, financing requirements, available finance and
compliance with any financial covenants. In the third year of the
viability assessment the Directors anticipate that additional funding
will be required to continue to drive the expected expansion of the
Ocado Solutions business and the Directors are confident that, given
the future projections in term of performance and financial position,
this funding will be secured.
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,
as follows:
(i) material decline in the expected profitability of Ocado Retail;
(ii) delays in the opening of international CFCs; and
(iii) significantly higher than expected engineering and technology
operating costs for future CFCs.
A decline in the expected profitability of the UK Retail business may
be the result of lower sales growth or reduced margins and can result
from a range of principal risks in the Retail business including failure
by the Group to maintain a competitive pricing position, a decline in
customer service levels and a delay in implementing new capacity
(see pages 50-52). A change to the expected operating costs of
international CFCs is a potential scenario arising from other principal
risks such as not having sufficient technology and engineering
resources to continue making improvements or not delivering the
expected reductions to long term cost of ownership of the OSP
solution. The Directors’ assessment also took into account the other
principal risks that could have an impact on the future performance
of the Group and those that would threaten its business model,
solvency or liquidity and also the likely effectiveness of any proposed
mitigating actions (see pages 48 to 52).
The three stress tests were evaluated to show various outcomes
including the impact on the Group’s net debt and cash flow over
the three years and an assessment on the impact on the financial
covenants in the revolving credit facility, all of which are relevant to
assessing the solvency and liquidity of the Group.
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 pages 92 to 97). The external
auditors have reviewed these statements and having nothing to
report (see the Independent Auditors’ report on pages 142 to 150).
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26615 11 February 2020 7:16 am Proof 3Corporate ResponsibilityIn 2019 we continued making excellent progress towards all four pillars of our Corporate Responsibility strategy: The Ocado Way.The Environment was our major focus in 2019 – plastics usage, reducing food waste and food poverty, and improving on carbon. Our commitment and actions to the Sustainable Development Goals have also seen us make progress towards publicly committed global actions with some very real achievements which we’re proud of.Highlights for each of our corporate responsibility strategy pillars are featured below.WE ARE MEMBERS OF:Better Retail, Better WorldWe are founding signatories to the British Retail Consortium’s “Better Retail, Better World”, a collective action from the retail industry to meet some of the biggest global challenges. These include modern slavery and decent work, sustainable economic growth, climate change, responsible consumption and production and inequalities. Courtauld 2025We are signatories to Courtauld 2025, a commitment to identify priorities, develop solutions and implement changes to cut the carbon, water and waste associated with food and drink by at least one-fifth in ten years. Working alongside other members of the food system to make food and drink production and consumption more sustainable.UK Plastics PactWe are a founding signatory of the UK Plastics Pact, an industry-leading initiative backed by WRAP and the UK Government to tackle plastic as pollution, and create an environment where plastic never becomes waste. Its three main aims are to make all product packaging reusable, recyclable or compostable; eliminating problematic or unnecessary single-use plastic; and having a 30% average recycled content across all plastic packaging by 2025.Stronger TogetherIn 2019 we became a project sponsor of Stronger Together, a multi-stakeholder business-led initiative aiming to reduce modern slavery and other hidden third party exploitation of workers. They provide guidance, training, resources and a network for employers, labour providers, workers and their representatives to work together, to tackle a common goal.The Ocado Way: 2020 StrategyEducationEntrepreneurshipEnvironmentEating Well54Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019www.ocadogroup.comSTRATEGIC REPORTOcado Annual Report 2019 Strategic.indd 5411/02/2020 07:21:55Back to contents Education
During 2019 we continued promoting education projects, including
digital literacy and road safety.
Entrepreneurship
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We are on a mission to empower teaching of computing in schools,
preparing the next generation for a tech-first world and making
Science, Technology, Engineering, Mathematics (STEM) subjects more
appealing to a wider audience. We understand the challenges facing
today’s teachers, many of whom lack the resources needed to teach
computer science.
Code for Life
We are preparing the next generation for the jobs of the future. Code
for Life, our non-profit initiative that delivers free, open source games
and teaching resources; helping all students to learn or improve
their computing skills. We’ve continued to expand Rapid Router, our
resource for teaching Key Stage 1 and 2 children how to code. At
the end of November 2019, there were over 237,000 registered users
globally and more than 5,300 schools have incorporated Rapid Router
into their computing curriculum.
This year we developed Kurono, a time travelling adventure game
for ages 13 and up. It will support secondary school Key Stage 3 and
4 pupils interested in learning Python, a popular coding language in
today’s digital workplace.
Road Safety
Delivering road safety projects to primary and secondary school
children remained a priority during 2019. We repeated the “Road
Safety Challenge”, a successful programme we run in partnership
with Warwickshire County Council. This commitment gave 80
schools the chance to win £500, to spend on road safety equipment
or initiatives. The project reached 14,900 primary and secondary
children in the county.
In autumn 2019, we published a third special edition of The Young
Driver’s Guide in partnership with First Car Limited. This magazine
continues to help educate new drivers about road hazards and how
to reduce risk. Over 31,000 copies were delivered to 158 schools and
campuses in the counties of Warwickshire and Hertfordshire.
Entrepreneurial thinking continues to be at the heart of Ocado, and
2019 saw our successful “Supply Ocado” portal continue to grow with
new businesses.
Supporting SMEs
In FY 2019, 1,015 submissions were made through the Supply Ocado
portal, a 36% increase from FY 2018.
Our buying team also hosted four “Meet the Buyer Days” at our Head
Office. During these days, SME suppliers are invited to pitch their
products to our buyers who in turn provide advice and guidance on
all elements of their proposition as well as talking them through the
process of listing their products on Ocado.com. A collective total of
227 suppliers attended one of our “Meet the Buyer Days” in FY 2019.
Environment
Carrier Bags
During the period, we collected over 156 million bags for recycling
through incentivising customers to return them through our Bag Buy
Back scheme. The Ocado Foundation continued to be custodians
of the remaining 5p bag funds; supporting waste, recycling and
education projects across the UK.
We donated a further £20,000 to CleanupUK, a charity helping
people to combat litter in their community. We continued to support
our Food Partners by funding an additional five refrigerated vans,
making that 13 “Cool Vans” donated to date. These vans are bringing
community outreach programmes to life, transporting fresh surplus
food to struggling communities and bringing people together. One
of our food bank partners has built a network supporting over 200
charities, schools and community groups using the vehicles we
have provided.
Waste
We believe Ocado has the lowest food wastage in the industry. In 2019
just 0.038% of food items in our CFCs were wasted. We’re committed
to ensuring no food goes to landfill; inedible food is sent to anaerobic
digestion, and edible food is redistributed. In the reporting year 1,148
tonnes of food surplus was redistributed through our partnership with
Company Shop, and their social enterprise, Community Shop.
Through our “Donate Food with Ocado” scheme we donated a
further 76 tonnes of fresh and ambient food surplus to food banks
and charities. Since the scheme launched in December 2014, we’ve
donated over 256 tonnes of food, demonstrating our commitment to
strengthening food partnerships in the past 12 months.
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26615 11 February 2020 7:16 am Proof 3Corporate ResponsibilityContinuedGreenhouse Gas EmissionsOur relationship with Ecometrica continued for the fourth year, providing a centralised data management system. We track carbon emissions from our CFCs, spokes and vehicles.This year we have invested in Compressed Natural Gas (“CNG”) trucks, increased our usage of electricity from zero carbon sources and have begun trials for electric vans in high density areas. Compared to 2017/18 there has been a 3.03% reduction in our location based scope 1 and 2 total carbon emissions. Our location based intensity based measure of tCO2e per 100,000 orders has also decreased from our 2012/13 base line by 37.59%. We expect the trend of our intensity based measure reduction to continue, however we do expect our absolute emissions to increase in future years as our operations continue to grow. The majority of our emissions continue to derive from our fleet, accounting for 70%, followed by our electricity at 21%.For the third 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 ISO 14064:3. GHG EmissionsGHG Emissions (tonnes CO2e) 2018/192017/182012/13Scope 1 – Direct 86,50287,61439,530Scope 2 – Indirect Location-based22,81125,11521,613 Market-based8148,872*n/aTotal Emissions (Location-based) 109,313112,72961,143Intensity Measure (Tonnes of CO2e/100,000 orders) Location-based 514550.1823.4 Market-based 411470.8n/a* Since the publication of our 2017/18 results, some market-based figures have been updated thanks to improved accounting, which has resulted in a marginal change in figures. The previous figure was 8,856 tCO2e.Please see the Ocado Carbon Trust Certification Ltd Assurance Statement 2019 on the Corporate Website, www.ocadogroup.com, and for methodology see page 136.We have participated in CDP’s Climate Change Disclosure submission for the third consecutive year. We are delighted to have maintained our score of a B for the second year running.2019BBC20182017Eating Well We’ve continued to focus on reducing food poverty in the UK and encouraging healthy eating, growing our partnerships with food banks, charities, schools and community groups.For the second year we encouraged children to think creatively and get excited about vegetables, again sponsoring the Young Pea Chef of the Year. This nationwide competition challenged school children at both primary and secondary level to invent a recipe using peas. Over 200 children entered the competition and over 2,500 people voted to choose the winning three entries.Responsible SourcingWe are committed to acting ethically and with integrity in all our business relationships and to implementing effective systems and controls to ensure human rights abuses are not taking place anywhere in our own business or in any of our supply chains. We are also committed to ensuring there is transparency in our own business and in our approach to tackling modern slavery, consistent with our disclosure under the Modern Slavery Act 2015.➔ Our full modern slavery statement can be found on www.ocadogroup.com.We are members of Sedex and use the platform to monitor our own-brand suppliers on their performance around labour rights and health & safety. In 2019, 73 social audits were conducted at first tier supplier sites, making 94% (2018: 90%) compliant with our ethical trading requirements at year end. The remaining sites had booked or were working towards an ethical audit between late 2019 and early 2020.We supported Stronger Together to develop a pragmatic toolkit for the Spanish horticultural industry, a key sourcing region for our products. This toolkit will support Spanish businesses to deter, detect and deal with forced labour and other third-party hidden labour exploitation. It has been tailored to the Spanish labour laws, risk context and business models. It is free to download from stronger2gether.org.In 2019 we joined Food Network for Ethical Trade (FNET), a supplier-led initiative aiming to use the collective leverage of suppliers and retailers to bring about positive change in working conditions in global food supply chains by providing guidance, resources, training and opportunities for collaboration.56Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019www.ocadogroup.comSTRATEGIC REPORTOcado Annual Report 2019 Strategic.indd 5611/02/2020 07:21:57Back to contents 26615 11 February 2020 7:16 am Proof 3Alongside a number of UK retailers, we took part in FNET’s Retailer Ethical Auditing Practices survey, designed to increase understanding of where suppliers would like retailers to prioritise their efforts in relieving audit duplication and reducing conflicting requirements. Surveying over 200 retail suppliers, including 52 of Ocado Retail, findings were reported anonymously to highlight the key difference areas that create challenges for suppliers and to discover opportunities for improvement.The Ocado Foundation The Ocado Foundation is the home of our charitable and fundraising activity, both internally and externally. We support employees across the UK to make a difference to a local charity that matters to them. 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:• Over £55,000 for charities and community organisations• 3,200 volunteer hours• Over 500 donations made to charities and schoolsGoing the Extra MileIn 2019 the Ocado Foundation supported the tenth anniversary of “Poppy Cabs”. Started by registered taxi drivers, the initiative offers free travel for veterans attending the Remembrance Sunday Service in London.Since its inception in 2009, it has become an integral part of the annual service and saw London cabbies make over 1000 free taxi journeys during November. It has increased accessibility for veterans attending the event, especially for those using wheelchairs.CASE STUDYMarine Conservation SocietyThe Great British Beach Clean has been leading the way in tackling ocean pollution for 25 years, helping make some of the most significant impacts on beach litter ever.In 2019, the Ocado Foundation partnered with the Marine Conservation Society (MCS) to support its 2019 beach clean campaign, removing litter that would otherwise end up in our oceans, endangering marine wildlife.The MCS’s Great British Beach Clean not only aims to help clear beaches across the UK of litter, but also asks volunteers to collect valuable data which has helped to drive change and reduce marine pollution on a national and international level. Fifty-five volunteers from the Ocado Foundation joined MCS to clear and survey the litter on Southend-on-Sea beach.“It was so great to partner with The Ocado Foundation for this year’s Great British Beach Clean. Thousands of pieces of litter were collected, preventing them from ending up in the ocean and endangering marine wildlife.”Anne ThwaitesMCS Corporate Partnerships Manager57Stock Code: OCDO Annual Report and Accounts Ocado Group plc STRATEGIC REPORTOcado Annual Report 2019 Strategic.indd 5711/02/2020 07:21:59Back to contents Engaging With Our Stakeholders
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S172 COMPANIES ACT 2006
A director of a company must act in the way they consider, in good
faith, would most likely promote the success of the company for the
benefit of its members as a whole, taking into account the factors as
listed in section 172 of the Companies Act 2006.
stakeholder groups, their material issues and how the Company
and the Board engage with them. Each stakeholder group requires
a tailored engagement approach to foster effective and mutually
beneficial relationships.
Engagement with our shareholders and wider stakeholder groups
plays a vital role throughout the business.
Having conducted an externally facilitated stakeholder analysis
session during the period, we set out in the following table our key
By understanding our stakeholders, we can factor into boardroom
discussions the potential impact of our decisions on each
stakeholder group and consider their needs and concerns.
Stakeholder
Their interests
How we engage
How the Board engages
OUR PEOPLE
• Training, development and prospects
• Health and safety and working conditions
• Diversity and inclusion
• Human rights and modern slavery
• Fair pay, benefits and share plans
Innovation, research and development
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• Technology
• Ocado’s reputation
• Supply chain
• Governance
• Logistics
• Service
• Performance
• Capability
• Success of the business
• Fair trading
• Payment terms
• Collaboration
• Anti-bribery and corruption
• Anti-slavery
• Ethical behaviour
• Long-term partnerships
• Terms and conditions
SOLUTIONS
PARTNERS
SUPPLIERS:
OCADO
SOLUTIONS
CUSTOMERS:
RETAIL
• Ocado Council
•
Intranet; all-staff emails and
newsletter-style updates
• Workforce posters and
communications
• Whistleblowing services
• Employee questionnaire
• Reward team
• Well-being forums
• DNED and Executive
Directors attend Ocado
Council and engage in
Q&A sessions
• Board receives periodic
reports on a range of
people matters
•
Initial meetings and negotiations
• Senior management engagement
with client senior management
• Programme management steering
sessions
• Executive Director
attends regular senior
client meetings
Initial meetings and negotiations
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• KPIs and feedback
• Corporate responsibility and ethics
reporting
• Collaborative working groups
• Direct engagement with senior
management
• Board approval on
significant orders
• Executive Director
engagement with
senior executives of
suppliers
• Range and product availability
• Price and pricing consistency
• Timeliness
• Ease of website
• Service
• Product provenance and animal welfare
• Sustainability and environmental impact
• Safety
• Supply chain, specifically workers’ rights
• Supplier engagement and management,
preventing modern slavery
• Customer surveys
• Customer complaints
• Contact centre
• Press engagement
• Company reports
•
Industry events
• Corporate Website
• Direct marketing and
communications
• Annual Report
• Corporate
Responsibility Reports
• AGM
• Board updates on
trading and customer
initiatives
• Corporate Website
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Stakeholder
Their interests
How we engage
• Direct engagement
• Supplier website
• Meet the buyer days
• Supplier conferences
• Social audits
• Supplier surveys
• Collaborative working groups
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How the Board engages
• Board breakfast
meetings
• Regular reporting on
retail performance,
GSCOP and modern
slavery
SUPPLIERS:
RETAIL
• Success of the business
• Fair trading
• Terms and conditions
• Brand building and performance
• Anti-bribery and corruption
• Ethics
• Human rights and modern slavery
• Long-term partnerships
• Payment terms
• Responsible sourcing requirements
• Audits
• GSCOP compliance
INVESTORS
• Comprehensive view of financial and
sustainable performance of the business
• Share price
• Environment, Social and Governance (ESG)
factors
REGULATORY
BODIES
• Compliance with regulations
• GSCOP
• Worker Pay and conditions
• Waste and environment
• Automation, engineering and technical
CHARITIES,
NGOs AND
THE LOCAL
COMMUNITY
COMMUNITY
compliance
• Gender Pay
• Brand reputation
• Consumer protection
• Legal trading
• Health and safety
• Food and product safety
• Treatment of suppliers
• Sustainability
• Food security
• Road safety
• Environment
• Human Rights
• Animal welfare
• Energy usage
• Recycling
• Waste management
• Packaging material
• Emissions from company vehicles
• Community
• Regular meetings, calls and site
visits with investor relations and
management
• Annual Report
• Corporate Website
• Shareholder circulars
• Notice of AGM/GM
• Stock Exchange announcements
• Press releases
• Corporate Website
• Stock Exchange announcements
• Annual Report
• Direct engagements with regulators
• British Retail Consortium meetings
• Response to required reports
• Results meetings
• Communication
with the Senior
Independent Director
• Regular reports on
investor and analyst
feedback
• GSCOP report to Board
• Regular reports from
business on range of
regulatory issues and
engagement
• Direct engagement locally with MPs,
councils and community groups and
nationally with MPs, ministers and
trade associations
• British Retail Consortium joint
statements
• Corporate Responsibility Report
• Corporate Website
• Philanthropy and employee-matched
funding for charity policy
• Oversight of corporate
responsibility plans
and reporting
Involvement in
corporate affairs
strategy and activities
•
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Our People
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Building a Workforce for the Future
Ocado Group’s current and future success is dependent on our
employees – people who innovate, find solutions and deliver world-class
service. We are committed to attracting, developing and retaining the
highest quality talent throughout Ocado Group, whilst the continuous
growth of the business means expanding our workforce in the UK and
globally.
This shift in focus to delivering to our international business customers
has enabled the alignment of other key delivery areas within our
organisation. This transformation of ourselves began with creating the
Ocado Retail joint venture and continues with a reorganisation of our
internal operating model.
Our logistics services now exist to provide warehousing, logistics and
distribution services to UK retail businesses – both our Ocado Retail
joint venture and our Solutions partner Morrisons. Whilst our Solutions
business, both UK and international, focus on the creation of Ocado’s
solutions technology and the implementation of clients’ CFCs and
fulfilment solutions around the world.
Ensuring we have the right people with the right skills means our
focus on growing and developing our people is a key message that
Ocado uses to attract and retain individuals.
Reward and Retention
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 encourages shareholding for its by offering
Free Shares at 1% of salary to all employees, annually.
We also offer both an employee Share Incentive Plan (“SIP”) and a
Sharesave scheme to all employees. At the end of this financial year,
15% of our employees had participated in our 2016 scheme, with an
average profit of £31,940 per employee.
Our UK financial awareness initiative provided by Neyber, has seen
significant employee take-up with a total value of £1,469,500 paid
out in loans. Other money management tools such as Bike Solutions
schemes, car leasing and other healthcare services like our digital
GP are also popular; all of which are part of our wider strategy that
focuses on mental, physical and financial well-being.
Learning and Development
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 2019 we inducted in 50 university graduates under
our nine separate training schemes, covering General Management,
People, 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.
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This year our Learning and Development offering has increased not
only to focus on providing work-related learning but supporting
personal well-being too. We’ve also invested in further personal
development through our individual coaching offering and team
development as well as through Insights psychometric analysis
(“Insights”) to create a better and more productive understanding of
professional relationships.
The blended learning approach also supports the roll-out of mandatory
training such as privacy 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 in line 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, or the giving or receiving of bribes for any
purpose. Ocado’s Anti-Bribery and Money Laundering Policy sets
out definitions of bribery and corruption, and our internal training
provides examples of this as well as how to report any cases of
suspected wrongdoing.
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1 Online Learning Resources
MiLearning has over 600 resources that
are available 24/7, including bite-sized
learning videos, e-books and tools that
employees can use.
2 Group Workshops
We offer open workshops that run
regularly. New topic areas are added
periodically as learning needs arise.
Our offering ranges from presentation
skills, coaching, negotiation and people
management to working effectively
as a team.
3 Team Development
We work with specific teams to support
team development, strategic visioning
and address any team challenges. We’ve
invested in Insights in the last year as
a tool to help us better support this
development activity.
4 Apprenticeships
Provide greater opportunity to embed
and apply individuals’ learning in the
workplace by using examples and
projects to explore topics. Require time
off the job to learn and a personal coach.
They range from technical skills such
as engineering to wider areas such as
leadership and MBAs.
5 Individual Coaching
We have in-house and external coaches
who support individuals to work
through challenges and work situations.
Coaching usually begins with a meeting
including the manager and then moves
to 1-2-1 meetings between the coach
and employee that are goal focused and
reflective.
6 Mandatory Training
We provide mandatory training, mostly
through e-learning. This includes data
privacy, competition law, anti-bribery,
right to work, etc. All new starters go
through appropriate mandatory training,
and regular refresher training is provided
to existing employees.
Whistleblowing
Human Rights and Modern Slavery
This year we launched an independent and confidential whistleblowing
service that allows our employees, suppliers and other third parties
to raise concerns about possible wrongdoing that would be of public
interest. This initiative is referred to internally as Speak Up.
Prior to the launch, external training was provided to all Speak Up
investigating managers and all senior People managers. A campaign
of awareness, including posters and videos, was implemented for the
entire global workforce who are encouraged to make their disclosures
either in person to a line manager or using the external independent
system hosted by Expolink via either telephone, app or web.
Anonymous reports are permitted in relevant countries.
Ocado Group recognises its responsibility to respect human rights
throughout its operations. We are committed to ensuring that people are
treated with dignity and respect by upholding internationally recognised
human rights principles encompassed in the Universal Declaration of
Human Rights and the International Labour Organisation’s Declaration on
Fundamental Principles and Rights at Work.
As a business we seek to avoid infringing the human rights of others
and work to address any adverse human rights impacts we identify.
Ocado Group takes seriously any allegations of human rights abuse in
all its forms and will not tolerate human rights abuse anywhere in our
operations.
On a quarterly basis the Board, Risk and Audit Committees are
updated on all whistleblowing reports and subsequent actions. The
introduction of these procedures has provided beneficial insight,
supporting the integrity of the operational control environment.
We are committed to building knowledge and awareness and have
developed a range of training and awareness initiatives for our
employees, suppliers, business partners and service providers. For
further information please refer to our most recent Modern Slavery
Act Statement.
➔ Please see our Modern Slavery Act Statement on the Corporate
Website, www.ocadogroup.com
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Our People
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Diversity and Inclusion (D&I)
Ethnic Minorities
We are committed to ensuring that the Ocado workforce has the
diversity of talent and expertise that it needs to enable the business to
continue growing and innovating. The metrics required to be reported
under the gender pay gap legislation can be found on the Corporate
Website, www.ocadogroup.com and the Government’s online portal
and within this report on page 117. 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. We believe that this increases
our pool of talent and benefits the organisation.
➔ For more information about diversity on our Board, see page 77
Our focus will be to support the Black, Asian and minority
ethnic communities at Ocado, raising a greater awareness and
understanding. There will be a focus in recruitment and selection
globally as to how we recruit, who we recruit and who is recruiting.
Disability Confident
Taking guidance from the UK Government’s Disability Confident
Scheme, we’re looking at how disability friendly we are and how
confident our disabled colleagues are. This part of the D&I focus will
look at growing the support network by answering three questions.
How can we encourage disabled people to join Ocado and how can
we support them both mentally and physically when they are in the
business? How do we, as a global leader in technology, forge our way
to the forefront of being an employer of choice for disabled persons?
This year we gave greater practical effectiveness to the equal
opportunities policy by the appointment of our first D&I Manager,
tasked with leading our global strategy that “celebrates difference”.
We will continue our journey to develop a culture, in partnership with
colleagues and our Ocado Group leaders, that upholds the benefits
of diversity and inclusion as enablers for achieving the organisational
aims and objectives upheld by our Values. Our focus for the coming
year to support our culture of inclusion will be on these main themes:
Mental Health
We want to establish a support network that nurtures the needs
of our employees in helping them take care of their mental health.
The network will work both locally and globally, collectively raising
awareness and working on supporting structures and initiatives. We’ll
continue to work with our educational partner Aviva to identify and
deliver mental health first aiders (MHFA) courses equipping people with
the tools to support others and to help keep themselves mentally fit.
LGBT+
As new but active members of Stonewall, an LGBT+ rights charity,
we have already made headway with the LGBT+ initiative in CFCs
Dordon and Erith. This will focus on how we can grow this globally
and inclusively.
Gender
The path to achieving gender equality is very much a focus of Ocado
and is well underway with our involvement in the 30% Club campaign
group supporting gender diversity and our “Women in Tech” network.
By creating networks for each initiative that are sponsored by our
senior leaders and chaired by people with passion, we aim to
represent every role and level in our business. Their involvement
creates an engaged workforce, providing development and
experience and improved employee retention at Ocado.
Total Number of
Employees
2
5
1
,
5
1
3
6
1
,
4
1
9
9
7
,
2
1
2
0
9
,
1
1
1
8
1
,
0
1
15
16
17 18
19
Senior Managers
20
All Employees by Gender
2,671
Directors
3
27
56
2,648
11,515
44
2019
12,481
2018
Female
Male
Female
Male
3
9
9
62
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26615 11 February 2020 7:16 am Proof 3Our Values Our Group People Values and the associated behaviours are at the heart of our Group purpose: “To change the way the world shops”. We are in ittogetherWe are proudof what we doWe can beeven betterWe are in ittogetherWe are proudof what we doWe can beeven betterWe are in ittogetherWe are proudof what we doWe can beeven betterWe are in ittogetherWe are proudof what we doWe can beeven betterWe...▶ go the extra mile for our customers▶ do the right thing▶ celebrate our successesWe...▶ fight for the common purpose▶ show trust and respect▶ care for each otherWe...▶ never stop improving▶ thrive on change▶ learn from our mistakesWe are in ittogetherWe are proudof what we doWe can beeven betterWe...▶ go the extra mile for our customers▶ do the right thing▶ celebrate our successesWe...▶ fight for the common purpose▶ show trust and respect▶ care for each otherWe...▶ never stop improving▶ thrive on change▶ learn from our mistakesWe are in ittogetherWe are proudof what we doWe can beeven betterWe...▶ go the extra mile for our customers▶ do the right thing▶ celebrate our successesWe...▶ fight for the common purpose▶ show trust and respect▶ care for each otherWe...▶ never stop improving▶ thrive on change▶ learn from our mistakesAs a start-up 20 years ago Ocado had a highly developed sense of mission. It formed a core part of the culture of the organisation. And it still does. While we develop new missions for the different elements of our global business we have worked hard to maintain the culture that underpins our ways of working to ensure we stay aligned and true to our heritage. These culture principles are fundamental elements of our values, behaviours and career opportunities that are to be used to attract talent into the business. They are all a part of what makes us Ocado.• Our values say it all – Togetherness, pride and being better. • You can shape the future with us – People in Ocado have a sense of mission. Our disruptive technology (where we are proud to disrupt the status quo) is leading the way for grocery retail and more; you can solve problems and gain experience here like nowhere else. • You can grow with us – Shaping the future doesn’t just apply to our clients’ businesses. With our track record of developing leaders and experts from within, challenging ourselves to disrupt our own business, we can continue to offer unique opportunities to develop your career with us. • You will make an impact from the start – We trust and empower our colleagues. Everyone is encouraged to solve challenges with creative solutions. This is what drives our unique innovation and ambition. Although we are a large company on a global scale(1) we are not formal and approach things nimbly and pragmatically. • Difference is driving our business – Our success is due to the diversity of our people and our ways of thinking. Everybody is welcome to bring their ideas to improve how we do things. (1) Source: Ocado Culture Principles.63Stock Code: OCDO Annual Report and Accounts Ocado Group plc STRATEGIC REPORTOcado Annual Report 2019 Strategic.indd 6311/02/2020 07:22:11Back to contents Our People
Continued
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The Ocado Way Leadership Behaviours
The Citizenship Code
Crucial to how we embed the Group People Values is our new
leadership behaviour programme, which is designed to encourage
those key behaviours that we expect all of our employees, but
particularly our leaders, to demonstrate.
The Ocado Citizenship Code ensures everyone at Ocado understands
how we conduct our business, and bring to life the culture which
remains so important to us, never more so as we grow and transform
our business.
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 place.
Workforce Engagement
During the year, Andrew Harrison was appointed as Designated Non-
Executive Director for engagement with the Company’s workforce.
Working with the Ocado Council, Andrew’s role is one that complements
and enables our commitment to giving our employees a voice.
This is already well serviced by the Ocado Council, which was created
in the early years of Ocado to provide an effective mechanism for
the Board to communicate directly with employees on Company
achievements and concerns, and celebrating our successes in line
with our Group People Values.
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.
Designed by our Management Committee colleagues, these develop
and support our leaders so that they are the best they can be.
As a leader in Ocado you not only need to live our
values and people manager behaviours, but be
able to lead large teams and functions to deliver
for our business. To do this well in Ocado you
need to demonstrate the following behaviours:
Impact and influence
• A visionary communicator who obsesses about the customer,
takes ownership and achieves results. Builds effective
partnerships and fosters a high performance culture with
positivity and respect. Motivates others to perform, manages
conflict and nurtures talent.
Drive and intellect
• A decision maker with a sense of urgency. Understands the
business, the customer and solves the big problems creatively.
Will always put the needs of the business first. Has passion,
vision and conviction. Shows agility and resilience in a fast-
paced changing environment.
Judgement and integrity
• A considered and commercial risk taker who shows humility
and inspires trust. A critical thinker who consistently does the
right thing, challenges others and is open to being challenged.
Demonstrates strategic judgement and is not afraid to make a
tough call.
These leadership behaviours are at the core of our culture. They
are used at senior levels of the business to review performance
and potential for future roles.
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26615 11 February 2020 7:16 am Proof 3CASE STUDY – DESIGNATED NON-EXECUTIVE DIRECTORAndrew Harrison was appointed during the year as Designated Non-Executive Director for workforce engagement (“DNED”).“ We work in a big and complex organisation with many groups around the business and my role is to effectively be the person who listens to all of those groups and to take that information back to the Board.”Andrew HarrisonNon-Executive Director Designated to Workforce EngagementThe process • Andrew attends the Group Council meetings approximately three times per year. At one of these meetings Andrew specifically focuses on communicating the executive remuneration policy to the workforce• The Council Support Team collate questions from the workforce and present these to the DNED in writing ahead of the council meetings• A reasonable portion of the meeting is dedicated to the DNED answering the relevant questions• A summary of the questions posed to the DNED is reported to the Board• The DNED ensures any follow-up action takes placeFocus during the period• Moving from being a retail first business to a technology business• Operating in ten countries across three continents• Internal challenges to face like the disruption caused by the Andover fire• Change within an organisation brings uncertainty and uncertainty brings challenges and opportunitiesLooking forward• Changes to our business at home and internationally• Big macroeconomic changes – Brexit and increasing geographical expansion of Ocado Ocado CouncilMeetingsDNEDDNED3421BoardHOW THE DNED ENGAGES WITH THE BOARDStrategic Report ApprovalThe Company’s Strategic Report is set out on pages 12 to 65.The Strategic Report is approved by the Board and signed on its behalf by Neill AbramsGroup General Counsel and Company Secretary 11 February 202065Stock Code: OCDO Annual Report and Accounts Ocado Group plc STRATEGIC REPORTOcado Annual Report 2019 Strategic.indd 6511/02/2020 07:22:21Back to contents 26615 11 February 2020 5:55 am Proof 3Ocado Annual Report 2019 Governance.indd 6611/02/2020 06:30:53Back to contents 26615 11 February 2020 5:55 am Proof 3CONTENTS Governance68Chairman’s Governance Overview70Corporate Governance Report– Board of Directors – Corporate Governance Statement 201988Nomination Committee Report92Audit Committee Report98Directors’ Remuneration Report– Letter from the Chairman of theRemuneration Committee– Description of the Remuneration Committee– Remuneration at a Glance– Annual Report on Remuneration 2019132Directors’ Report – Non-Financial Information StatementOcado Annual Report 2019 Governance.indd 6711/02/2020 06:30:53Back to contents 26615 11 February 2020 5:55 am Proof 3Chairman’s Governance Overview“In this report we illustrate how our Company’s purpose, values and strategy are aligned with our culture and how we consider our stakeholders in all key decisions.”Lord RoseChairmanDear ShareholderI am pleased to outline the Company’s approach to corporate governance and to introduce the Corporate Governance Statement 2019.The Board has always recognised the value and importance of good corporate governance and the role it plays in supporting the long-term success and sustainability of the business. We welcome the revised UK Corporate Governance Code 2018 (the “2018 Code”) and we are making good progress towards full implementation of the 2018 Code for 2020. In this report we illustrate how our Company’s purpose, values and strategy are aligned with our culture and how we consider our stakeholders in all key decisions. All our stakeholders are at the heart of what we do and this year, in response to the 2018 Code, we introduce a section on stakeholder engagement on pages 58 to 59.Remuneration and Engagement with StakeholdersOur Senior Independent Director (“SID”), Andrew Harrison, is available to all our shareholders and has engaged extensively with many of our major shareholders specifically on the subject of the Remuneration Policy which was approved at the 2019 annual general meeting. It is important that we explain how our Executive Director remuneration arrangements 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 and other stakeholders on changes to the executive remuneration arrangements.We recognise that whilst all resolutions were passed at the 2019 annual general meeting held on 1 May 2019, including those relating to the Directors’ Remuneration Policy, there was also significant opposition to four resolutions which received more than 20% of votes against them. Prior to the 2019 annual general meeting we communicated extensively with shareholders on these resolutions which gave us a clear understanding of why the majority supported them but also why there were objections raised against the resolutions.In his capacity as Designated Non-Executive Director for engagement with the Company’s workforce (“DNED”), Andrew Harrison will be engaging with elected employee representatives via the Ocado Council meetings to explain how executive remuneration aligns with the wider company pay policy.➔ For further information on this role and how it works in practice see page 65GOVERNANCE HIGHLIGHTS• John Martin joined the Board in June 2019 as an independent Non-Executive Director and member of the Audit and Nomination Committees• Claudia Arney joined the Board in September 2019 as an independent Non-Executive Director and member of the Remuneration and Nomination Committees• Appointment of Andrew Harrison as Senior Independent Director and Designated Non-Executive Director for workforce engagement• An externally facilitated board evaluation conducted by Manchester Square Partners• A continuing review of the 2018 Code, with steps taken towards full compliance for 2020• A robust assessment of the Group’s emerging and principal risks68Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019www.ocadogroup.comGOVERNANCEOcado Annual Report 2019 Governance.indd 6811/02/2020 06:31:02Back to contents 26615 11 February 2020 5:55 am Proof 3Accountability and RiskThe Board formally reviews the Group’s risk appetite each year and periodically discusses principal and emerging 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 key to the business and forms part of board meeting discussions. During the period, the Board approved a refreshed whistleblowing policy and process for the Group which includes an independent externally facilitated reporting system called Expolink. There are 13 principal risks discussed in detail in this report including risks that are emerging as the strategic priorities for the business shift towards its International Solutions business.➔ For more information about how the Company manages risk, please see pages 48 to 52Leadership and Board Effectiveness The Board needs to ensure that we have the right people and leadership in our Group to achieve the strategy and plans of the Group. Over the last few months, the Board has participated in an externally facilitated evaluation of itself and its Committees to ensure that it can focus on driving transformational change at pace.➔ For more information see page 78Diversity and Succession PlanningAs well as reviewing management succession plans, the Board has reviewed the combination of skills and experience on the Board, and has evaluated its composition looking at both the existing and desired skill sets of the Board. We strive to establish a culture that promotes integrity and values diversity at board-level. This important piece of work continues to form the basis of board diversity and succession discussions in 2020 as we consider the make-up of the Board that will best support the Company as it moves into the next stage of development. During the year, the Board has been asked to identify its own cognitive diversity characteristics taking into account less tangible factors such as life experience and personal attitudes. We aim to cultivate a broad spectrum of attributes and characteristics in the boardroom.Future OutlookThis is the last year we are reporting under the UK Corporate Governance Code 2016 (the “Code”). Throughout this report we will be illustrating where we either comply with or are implementing processes in order to adopt the 2018 Code. We are very much aware that governance is a key part of the strength of our business and by continually reviewing and monitoring our existing practices we ensure that our governance evolves alongside the changing business.Lord RoseChairman 11 February 202069Stock Code: OCDO Annual Report and Accounts Ocado Group plc GOVERNANCEOcado Annual Report 2019 Governance.indd 6911/02/2020 06:31:04Back to contents Corporate Governance Report
BOARD OF DIRECTORS
E
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STANDING
Andrew Harrison
Senior Independent
Director and
Designated Non-
Executive Director
Duncan
Tatton-Brown
Chief Financial Officer
Mark Richardson
Chief Operations
Officer
SEATED
Luke Jensen
Chief Executive Officer,
Ocado Solutions
John Martin
Non-Executive Director
Jörn Rausing
Non-Executive Director
The Board Table
Julie Southern
Non-Executive Director
Neill Abrams
Group General
Counsel and Company
Secretary
Claudia Arney
Non-Executive Director
Tim Steiner, OBE
Chief Executive Officer
Emma Lloyd
Non-Executive Director
Lord Rose
Chairman
Chairman
Executive Director
Senior Independent Director
Non-Executive Director
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Back to contents LEADERSHIP
Board and Committee Meetings and Attendance
Lord Rose (Chairman)
Andrew Harrison (SID, DNED)
Emma Lloyd (NED)
Jörn Rausing (NED)
Julie Southern (NED)
Claudia Arney (NED) – appointed within year
John Martin (NED) – appointed within year
Doug McCallum (NED) – resigned within year
Ruth Anderson (NED) – resigned within year
Tim Steiner (CEO)
Duncan Tatton-Brown (CFO)
Mark Richardson (COO)
Luke Jensen (CEO, Ocado Solutions)
Neill Abrams (Group General Counsel and Company Secretary)
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
16 16
15 16
16 16
14 16
16 16
3
5
3
5
10 11
14 14
16 16
16 16
16 16
14 16
16 16
N/A
7
4
7
5
N/A
7
7
N/A
2
2
N/A
6
6
N/A
N/A
N/A
N/A
N/A
2
2
2
1
2
1
1
2
2
2
2
2
2
N/A
1
1
2
N/A
N/A
N/A
N/A
N/A
N/A
6
6
1
1
5
6
N/A
N/A
1
1
N/A
5
6
N/A
N/A
N/A
N/A
N/A
G
O
V
E
R
N
A
N
C
E
Meetings attended
Possible meetings the Director could have attended
During the period, the Non-Executive Directors held a number of meetings without the Executive Directors present.
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
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Continued
BOARD BIOGRAPHIES
Lord Rose
Tim Steiner, OBE
Luke Jensen
Chairman
Executive/Non-Executive: Non-Executive
Committee Membership: Nomination
(Chairman)
Independent: No
Biography: 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 M&S plc. He was Chairman
of M&S 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.
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.
E
C
N
A
N
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E
V
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Chief Executive Officer
Executive/Non-Executive: Executive
Committee Membership: N/A
Independent: No
Biography: Tim is the founding Chief Executive
Officer of Ocado, which he started in 2000 and has
led uninterruptedly since that time. In 2016 he was
appointed OBE in the Queen’s Honours List, and
in 2018 he was voted Sunday Times’ Businessman
of the Year. 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.
Chief Executive Officer,
Ocado Solutions
Executive/Non-Executive: Executive
Committee Membership: N/A
Independent: No
Biography: 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 an
MBA from INSEAD.
External Appointments: Non-Executive Director
of Hana Group SAS, registered in France; Non-
Executive Director of ASOS plc.
Duncan Tatton-Brown
Neill Abrams
Mark Richardson
Chief Financial Officer
Executive/Non-Executive: Executive
Committee Membership: N/A
Independent: No
Biography: Duncan was previously
Group Finance Director of Kingfisher plc, one of the
world’s largest home improvement retailers. He has
also been Chief Financial Officer of Fitness First plc,
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.
External Appointments: Non-Executive Director of
Trainline plc; Non-Executive Director of Karakuri Ltd*.
*Ocado owns 20.8% of Karakuri Ltd.
Group General Counsel and
Company Secretary
Executive/Non-Executive: Executive
Committee Membership: N/A
Independent: No
Biography: Neill was on the founding team of
Ocado, joining the Board in September 2000. He has
responsibility for the Group Operations departments
– Legal, Governance, Intellectual Property,
Insurance, Real Estate, 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.
External Appointments: Non-Executive Director
of Mr Price Group Limited, listed in South Africa.
Chief Operations Officer
Executive/Non-Executive: Executive
Committee Membership: N/A
Independent: No
Biography: 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 for the installation
and maintenance of international OSP facilities.
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.
External Appointments: Non-Executive Director
of Paneltex Ltd*.
*Ocado owns 25% of Paneltex Ltd.
Chairman
Executive Director
Senior Independent Director
Non-Executive Director
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Back to contents Andrew Harrison
Jörn Rausing
Emma Lloyd
Non-Executive Director
Executive/Non-Executive: Non-Executive
Non-Executive Director
Executive/Non-Executive: Non-Executive
Committee Membership: Nomination
Committee Membership: Nomination, Audit
Independent: Yes
Independent: Yes
Biography: Jörn is the Head of M&A for Tetra
Laval Group and has over 30 years’ experience in
corporate development and international mergers
and acquisitions. Jörn holds a degree in Business
Administration from Lund University, Sweden.
External Appointments: Group Board Member of
Tetra Laval; Board Member of Alfa Laval AB; Board
Member of DeLaval Holding AB.
Biography: As Sky’s Chief Business Development
Officer, Emma identifies and builds revenue growth
opportunities. This includes responsibility for 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 30
technology start-ups. Emma graduated with a BA
Joint Hons in Management Studies and Geography
from the University of Leeds in 1992.
External Appointments: Chief Business
Development Officer Sky Group.
G
O
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R
N
A
N
C
E
Senior Independent Director and
Designated Non-Executive Director
Executive/Non-Executive: Non-Executive
Committee Membership: Remuneration
(Chairman), Audit, Nomination
Independent: Yes
Biography: Andrew is a partner at Freston
Ventures Management Ltd, which invests in
consumer brands that challenge the status quo.
He chairs two of the businesses, House Simple and
Whocanfixmycar.com, and advises others such
as Five Guys, Secret Cinema and 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.
External Appointments: Trustee of The Mix;
Chairman of House Simple Ltd; Partner of Freston
Ventures Management Ltd; Director of Chik’n Ltd;
Director of Whocanfixmycar.com Ltd.
John Martin
Julie Southern
Claudia Arney
Non-Executive Director
Executive/Non-Executive: Non-Executive
Non-Executive Director
Executive/Non-Executive: Non-Executive
Non-Executive Director
Executive/Non-Executive: Non-Executive
Committee Membership: Nomination, Audit
Independent: Yes
Biography: John has extensive operational and
financial management experience of running large
international businesses, as well as significant
experience in strategic development and driving
improvements in operational performance.
Until he stepped down from the role in November
2019, John was Group Chief Executive for
Ferguson plc, the world’s leading specialist
distributor of plumbing and heating products.
John was also a partner at Alchemy Partners,
the private equity group, and prior to that he
was Chief Financial Officer at Travelex Group, the
international payments business, and Hays Plc.
John graduated from Imperial College, London in
1987 and qualified as a Chartered Accountant with
Arthur Andersen, where he worked for nine years
in Audit, Operational Consulting and Corporate
Finance. He was also Group Controller of The
Stationery Office Group after its privatisation
in 1996.
Committee Membership: Audit (Chairman),
Nomination, Remuneration
Committee Membership: Nomination,
Remuneration
Independent: Yes
Independent: Yes
Biography: 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.
External Appointments: 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 N.V.;
Non-Executive Director and Chairman of the Audit
Committee of easyJet plc.
Biography: Claudia brings extensive experience,
both executive and non-executive, with a particular
focus on business transformation and technology.
She completed an MBA at INSEAD and has held
senior roles at EMAP, Pearson, the Financial Times
and Goldman Sachs.
External Appointments: Non-Executive Director
and Chairman of the Governance Committee of
Aviva plc; Non-Executive Director and Chairman
of the Remuneration Committee of Kingfisher
plc; Non-Executive Director and Chairman of the
Remuneration Committee of Derwent London plc;
Non-Executive Director and Interim Chairman of
the FA Premier League Ltd.
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
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Continued
Leadership 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
Audit
Committee
Remuneration
Committee
Nomination
Committee
E
C
N
A
N
R
E
V
O
G
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
Determines the remuneration,
bonuses, long-term incentive
arrangement, contract
terms and other benefits
in respect of the Executive
Directors, the Chairman, the
Company Secretary and senior
management
Undertakes an annual review
of succession planning and
ensures that the membership
and composition of the Board,
including the combination of
skills, remain appropriate
Chief Executive
Officer
Executive
Directors
Management
Committee
•
•
Leads the Executive
Directors
• Day-to-day management of
the Group’s operations
•
Implements and oversees
operational management
Represents management on
the Board
• Operations and results of
the Group
•
Execute the strategy once
agreed by the Board
Risk Committee
Oversees the Group’s risk register,
risk control processes and disaster
recovery plans
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
Chairman
•
•
•
Leads the Board
Promotes high standards of governance
and ensures effectiveness
Sets the Board’s agenda
Senior Independent Director
•
•
Sounding board for the Chairman and
acts as an intermediary for other Directors
Available to the shareholders
Non-Executive Directors
•
Constructively challenge the Executive
Directors
• Monitor the delivery of the Group’s
strategy within the risk and control
framework set by the Board
Designated Non-Executive
Director
• Understand the views of the workforce
and identify any areas of concern
•
•
Communicate the views of the workforce
to the Board
Ensure the Board considers the workforce
in all its proposals
Group General Counsel and
Company Secretary
•
•
•
Ensures Board procedures are followed
Implements and oversees governance
framework
Ensures that information flows between
management, the Board and its
Committees
Indicates delegation
Indicates Board support
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 11 members of management.
The reports by each Board Committee are given in this Annual Report. The role descriptions for CEO, Chairman, SID and DNED are set out in
writing and provide a system of checks and balances to ensure no individual has unfettered decision-making power.
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Back to contents 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, and to ensure the
long-term success of the Group for customers, investors and wider
stakeholders and in creating shareholder value.
The Board uses these Board meetings as a mechanism for discharging
its duties under section 172 of the Companies Act 2006.
➔ For more information see pages 58 to 59
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 giving particular consideration
to the Group’s stakeholders and to ensuring that the culture of the
Company is aligned with its purpose, values and strategy.
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.
The Board’s discussions throughout the year were focused
on our strategic objectives:
Utilising Knowledge
Maximising Efficiency
Improving the
Proposition
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
G
O
V
E
R
N
A
N
C
E
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.
Review of reports on specific
risk areas including Ocado
Smart Platform (“OSP”)
control environment.
Receiving reports on patent
protection of the Group’s
technology.
Reviewing and approving
the Group’s regulatory
announcements and reports.
Receiving regular reports on
the key projects including new
technologies.
Reviewing reports on health
and safety, litigation, investor
relations, and legal and
company secretarial matters.
Receiving regular reports on
implementation of CFC projects for
Solutions clients and the Group’s
transformation program.
Receiving reports on people
issues including gender pay
gap analysis. Discussing
corporate responsibility goals
and progress.
Approving the Group’s various
non-financial reports.
Receiving various reports on
governance and regulatory
changes, including the
Group’s responsibilities under
GSCOP.
Receiving reports on the
Group’s environmental
initiatives and responsibilities.
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
the 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.
The Board reviews the
Company’s Viability
Statement and Going
Concern Statement.
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
stakeholder issues through
the year, including investor,
customer and employee
issues. The Board is updated
regularly on governance
matters.
The Board discusses the
status and progress of the
implementation of key projects
including Solutions contracts.
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.
The Board receives updates
throughout the year on
recruitment and retention, in
the UK and internationally,
including the impact on the
Group’s operational strategy.
The Board discusses the
Group’s responsibility to
consider its impact on the
environment.
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
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d
o
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r
e
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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
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e
c
n
a
n
r
e
v
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G
/
c
i
g
e
t
a
r
t
S
s
’
d
r
a
o
B
e
h
T
Overseeing the creation
of the Ocado Retail joint
venture and other strategic
transactions.
Receiving reports from
senior management
(including Ocado Retail)
on trading, business
performance and
financing.
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.
As a significant part of
the growth strategy,
reviewing the strategy of
overseas expansion and
the capabilities required to
make this successful.
Back to contents
Corporate Governance Report
Continued
Length of Tenure of Chairman
and Non-Executive Directors
3
2
1
1
0-3
years
3-6
years
6-10
years
10+
years
Board Independence
E
C
N
A
N
R
E
V
O
G
6
5
Executive Director
1
Chairman
Non-Executive Director
Board Gender Diversity
Composition of the Board
Review of Board and Board Committee Composition
A number of changes were made to the composition of the Board during the period. In making
these changes, the Board took into account various considerations including length of Director
tenure, Board diversity, independence and the combination of skills and experience of the
Directors. Some of these considerations are outlined below.
Board Tenure and Reappointment
The Board takes into account the length of tenure of existing Directors when considering
reappointment and succession planning. Our articles of association (“Articles”) provide that
our Directors must retire at every annual general meeting following their last election or
reappointment by our shareholders.
This is consistent with the recommendation contained within the Code that all directors
should be subject to annual election by shareholders. Jörn Rausing has served as a Non-
Executive Director for over 16 years, seven of which were before the Company’s Admission.
Accordingly, the recommendation of his reappointment to the Board was subject to particular
scrutiny (including the importance of maintaining Board continuity).
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 (who was independent on appointment), 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 chart on page 70
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 Nomination Committee, Audit Committee and Remuneration
Committee comply in all respects with the independence provisions of the Code.
The Board has scrutinised the factors relevant to its determination of the independence of
Non-Executive Director Jörn Rausing.
9
Female
(25% of Board,
43% of NEDS)
Male
Jörn Rausing
Jörn Rausing has been a Director for 16 years, nine of which the Company was 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.
5
3
4
3
Total
Board
Executive
Non-
Executive
Senior Management Gender Diversity
20
The Board considers his continuing directorship to benefit the Group and support the
principles of the Code. Jörn’s significant experience as a co-owner and manager of 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.
➔ Read more about the Board’s attendance on page 71
44
Female
Male
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Back to contents Board Diversity
The Board and Nomination Committee are mindful of the corporate governance developments in the areas of diversity. During the period we
asked the Board to identify their own diversity characteristics. The charts on page 76 illustrate the gender diversity of the Board and senior
management. The Board has reviewed its policy and objectives on diversity and more detail on this review can be found on pages 69 and 90.
Combination of skills and experience as identified by the Board
Number of Directors
0
12
Number of Directors
0
12
Chairmanship
Risk management
Financial reporting
Workforce engagement
International board experience
7
Investor relations
9
10
11
11
Retail industry
Marketing
Governance
Grocery industry
Prior FTSE experience
6
Business development
Financial acumen
Technology
Operational
12
11
The Board participated in a process to identify their own cognitive diversity characteristics
taking into account less tangible factors such as life experience and personal attitudes(1).
1
2
9
8
4
7
4
Diversity
Characteristics
2
1
0
1
1
2
1 2
(1) Categories taken from the Office for National Statistics.
10
11
10
10
7
8
8
G
O
V
E
R
N
A
N
C
E
Age
41-55
56-70
70+
What is your ethnic group?
White
Mixed/multiple ethnic groups
Sexual orientation
Heterosexual/straight
Do you consider yourself to have a
disability defined by the Equality Act 2010?
No
What is your highest level of educational
attainment?
Level 7 – Master’s degree
Level 6 – Bachelor’s degree
Level 5 – Higher national diploma
Were you educated outside of the UK?
Yes
No
Stock Code: OCDO
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Board Evaluation FrameworkThe evaluation was undertaken with reference to the UK Corporate Governance Code 2018, within a framework focusing on a wide range of areas from strategy to governance. The Board recognises that a continuous and constructive review of its performance is an important factor in achieving its objectives and realising its full potential. It will continue to conduct annual reviews with external input at least once every three years.Review of Board EffectivenessAn annual review is conducted to reflect on the performance and effectiveness of the Board, and to consider how individual Directors and the Board as a whole need to continue to evolve to provide the leadership required for the future success of the organisation.Our Three-Year Board Evaluation Cycle Board Leadership and Company Purpose Division of Responsibilities Composition, Succession and EvaluationAppointment of Consultants• A request for proposal was circulated to a cross-section of board evaluation advisers• The proposals were reviewed and short-listed to three advisers who were asked to meet and discuss their proposals with the Chairman and the Senior Independent Director• Following consideration, MSP (who have no other connection with the Company, and are considered by the Board to be independent) were selected as the independent consultantEvaluation ProcessStep 1: Background Familiarisation by MSP• Briefing meeting held with the Chairman to understand context and priorities for the evaluation• Board and Committee papers reviewed for the past 12 months, together with the reports of previous evaluationsStep 2: Formal Interviews• One-to-one meetings held with each Board member and key executivesStep 3: Board Observation• Observation of a full Board meeting to further understand Board dynamicsEvaluation Outcome:Key findings and themes were discussed and evaluated with the Chairman and the Senior Independent Director and a Board evaluation report prepared and produced to the Board for discussion2018Internal evaluation supported by Independent Audit2019Externally facilitated evaluation conducted by Manchester Square Partners (“MSP”) 2020Internal evaluation ExecutionRoleDynamicsStructureEngagementStrategyLeadershipSuccessionRisksChallengesGovernanceCompositionand DiversityEXTERNAL EVALUATION PROCESSCorporate Governance ReportContinued78Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019www.ocadogroup.comGOVERNANCEBack to contents 26615 11 February 2020 5:55 am Proof 3External Board Evaluation Results 2019The evaluation report indicated that the Board is constructive, collegiate and supportive, and that there is effective leadership from the Chairman, ensuring appropriate corporate governance without losing entrepreneurial spirit. All Board Committees are operating well and the Non-Executive Directors are engaged and committed to adding value to the Board. The Board dynamics and clear aligned vision are a key area of strength. The review also highlighted a number of focus areas for the Board and its Committees to consider during 2020, including:KEY AREA 1 Board pack and presentationsAction: Review of Board meeting reporting and development of metrics that more readily highlight key points for discussion and enable an appropriate level of preparation, questions, debate and challenge. KEY AREA 2 Length of meetingsAction: Given the pace of activity and change, allotted time for Board meetings should be extended to ensure enough opportunity for full discussion on all agenda topics. KEY AREA 3 Visibility of relationship with stakeholdersAction: Given the evolving range and nature of key stakeholder groups, further visibility and review of key stakeholders to take place at Board level.KEY AREA 4 Board compositionAction: Consider a Non-Executive Director that will further support the Group’s shift towards the Solutions business.Internal Board Evaluation Results 2018The main focus areas and recommended actions identified and progress made, included:KEY AREA 1 Leadership required to support senior management with technological development internationallyAction: Consider the appointment of Non-Executive Directors with software and international experience to complement existing experience.Outcome: John Martin and Claudia Arney joined the Board as Non-Executive Directors on 1 June 2019 and 1 September 2019 respectively. John’s wealth of international experience and Claudia’s extensive experience of business transformation and the technology sector complement the Board and further support technological development internationally.KEY AREA 2 Succession planning for senior management to ensure it has the right skills and experience to drive forward the international expansion of the businessAction: Increase the focus of building up the senior management team.Outcome: The senior management team has been further strengthened with the addition of a new Chief Operating Officer of Technology, Chief People Officer and a Solutions Commercial Director. The Executive Directors also completed a review which included a review of individual performance, identified development opportunities, role changes and future leaders to drive forward the international expansion of the business.KEY AREA 3 More informal time together outside of the boardroomAction: Add into the Board calendar pre-meeting and post-meeting events away from the boardroom.Outcome: The Board met off site for two days for strategy planning in June 2019. A post Board meeting dinner was also held in November 2019, as well as a few other ad hoc informal occasions during the year.KEY AREA 4 Shifting the Board agenda focus areasAction: Spend more time reviewing progress and the delivery of Ocado Solutions objectives and commitments.Outcome: Solutions progress, objectives and deliverables are reviewed and discussed more extensively at all Board meetings. Board Leadership and Company Purpose Division of Responsibilities Composition, Succession and Evaluation79Stock Code: OCDO Annual Report and Accounts Ocado Group plc GOVERNANCEOcado Annual Report 2019 Governance.indd 7911/02/2020 06:31:12Back to contents Corporate Governance Report
Continued
The Companies Act 2006 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 their company’s articles of association permit, which the
Articles do.
Whenever a Director takes on additional external responsibilities, the
Director will discuss the potential position with the Chairman and confirm
that as far as they are aware, there are no conflicts of interest.
Each Director is required to disclose conflicts and potential conflicts to
the Chairman and the Company Secretary as and when they arise. As part
of his or her induction process, a newly appointed Director completes a
questionnaire that 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. During the year some Directors declared
potential conflicts of interest in relation to matters being discussed by
the Board and as such did not participate in discussions 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.
Ocado Retail Limited and Conflicts of Interest
Tim Steiner and Duncan Tatton-Brown are Ocado appointed directors
on the Ocado Retail Limited (“Ocado Retail”) board. Notwithstanding
their Companies Act 2006 duties and obligations under the Articles,
both directors are subject to the provisions of the Ocado Retail
articles of association and to the provisions within the Ocado Retail
shareholders agreement on conflicts of interest and related party
matters.
Board Activities Relating to Culture
We recognise that our success is partly attributed to our culture and
the Board recognises the importance of stepping out from behind
the board table and meeting with the workforce. The Board as a
whole has collective responsibility for its decisions and how they are
reached, as such all Directors are engaged with the workforce. We
were very pleased to appoint Andrew Harrison as the Designated
Non-Executive Director for workforce engagement during the year,
and look forward to reporting more on culture and on the impact
of this new role in next year’s annual report. We will continue our
journey to develop a culture, in partnership with colleagues and
our Ocado Group leaders (including our new Head of Diversity and
Inclusion), that upholds the benefits of diversity and inclusion as
enablers for achieving the organisational aims and objectives upheld
by our Values.
E
C
N
A
N
R
E
V
O
G
Director Election
Each Director is required under the Articles to retire at every annual
general meeting (each Director may offer himself or herself for
reappointment by the members at such meeting). At the 2019 annual
general meeting, all of the current Directors (except John Martin
and Claudia Arney, who had not yet been appointed) stood for
reappointment, and were duly elected with majorities ranging from
82.70% to 99.60% of the votes cast.
All Directors will retire and seek re-election at the Annual General
Meeting of the Company, which will be held at 10am on 6 May 2020
at Numis Securities Limited, The London Stock Exchange Building, 10
Paternoster Square, London, EC4M 7LT (“AGM”). The explanatory notes
set out in the Notice of Meeting state the reasons why the Board,
and specifically the Chairman, believes a Director proposed for re-
election at the AGM should be reappointed. The Board has based its
recommendations for re-election, in part, on its review of the results
from the Board evaluation process outlined on pages 78 and 79, 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 133
External Board Appointments and Conflicts of Interest
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 their obligations. Each Director’s biographical
details and significant time commitments outside of the Company are
set out in the Board Biographies section on pages 72 and 73.
Change in Directors’ Commitments
Director
Change in Commitment
Andrew Harrison Appointed as Director of
Whocanfixmycar.com Ltd
Claudia Arney
Duncan Tatton-
Brown
John Martin
Julie Southern
Resigned as Director of
Halfords Group plc
Appointed as Director of
Trainline plc
Appointed as Director of
Karakuri Ltd*
Resigned as Director of
Ferguson Group Holdings
Resigned as Director of
Cineworld Group plc
Resigned as Director of DFS
Furniture plc
Effective Date of
Change
26 March 2019
1 March 2019
10 June 2019
18 April 2019
19 November 2019
15 May 2019
29 March 2019
Luke Jensen
Appointed as Director of ASOS
plc
1 November 2019
* Ocado owns 20.8% of Karakuri Ltd.
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Back to contents 26615 11 February 2020 5:55 am Proof 3Board Induction and Professional DevelopmentOn 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 John Martin and Claudia Arney, who joined the Board in June 2019 and September 2019, respectively.The Board and Board Committees receive training, including in specialist areas. Training is typically arranged by the Company Secretary in consultation with the Chairman or relevant Board 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. 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. The Directors have access to the advice and services of the Company Secretary when required.Engagement with Major ShareholdersThe 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 Senior Independent Director and the Executive Directors. Lord Rose and members of the Board have met with various investors throughout the year to discuss matters such as strategy, corporate governance and executive remuneration.The graphic below clearly demonstrates the importance that the Company places on engagement with investors. Here we see global engagement with its large investors, institutional shareholders and prospective shareholders using different methods including non-deal roadshows, site visits and conferences as well as Company results presentations in line with the reporting cycle to which analysts are also invited. Non-deal roadshows Site visits Results Conference attendance81Stock Code: OCDO Annual Report and Accounts Ocado Group plc GOVERNANCEOcado Annual Report 2019 Governance.indd 8111/02/2020 06:31:14Back to contents Corporate Governance Report
Continued
E
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A
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R
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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.
We held a number of investor days at our new CFCs in 2019 to enable
our investors to view the progress at the new sites.
The Senior Independent Director, Andrew Harrison, has discussed
the Remuneration Policy and related issues with most of our largest
shareholders during the period.
Engagement with Stakeholders
The Board oversaw a review of its stakeholders during the year,
recognising the shift in stakeholders and their interests post
the Ocado Retail joint venture. During the year we conducted a
stakeholder engagement analysis workshop to help record the
interests of all the Group’s stakeholders. For more details
on this see pages 58 and 59.
How the Directors Formally Report to Shareholders and
take Responsibility for this Annual Report
Communication and shareholder engagement are important to
the Board. Therefore the Company follows a regular reporting
and announcement agenda including the formal regulatory news
service announcements in accordance with the Company’s reporting
obligations. The Company reports trading performance, including
information on the growth of the Retail revenue and average order
numbers and size, on a quarterly basis; recognising that it is important
to regularly update the market due to the emphasis shareholders
place on receiving regular communications about sales and the
current competitive pressures in the market.
Other announcements include the half year report, the preliminary
announcement of annual results, the Annual Report and investor
presentation slides and videos. We also presented to shareholders
on changes in our segmental reporting, key accounting policies and
KPIs. These documents are available on the Company’s corporate
website, www.ocadogroup.com (“Corporate Website”). Shareholders
can choose to receive the Annual Report in paper or electronic form.
A completely new version of the Corporate Website was released after
the period end, designed to provide more effective communication
with shareholders and other stakeholders.
The Directors take responsibility for preparing this Annual Report and
make a statement to shareholders to this effect. The Statement of
Directors’ Responsibilities on page 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 2006, 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;
• 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 statements 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 page 148.
The Group receives reporting and information from the Ocado Retail
joint venture. The Ocado Retail board reviews and approves financial
information and reporting regarding Ocado Retail, which is then
consolidated into the Group.
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 Strategic Report on pages 12 to 65
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The Company’s Annual General Meeting 2020
Shareholders will have the opportunity to meet and question all of
the Directors at the AGM.
A detailed explanation of each item of business to be considered at
the AGM is included with the Notice of Meeting. 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 is sent with the Notice of Meeting (if sent by post) or can
be downloaded from the Corporate Website, www.ocadogroup.com.
Shareholder Voting 2019 Annual General Meeting
At the 2019 annual general meeting, all resolutions were passed with
votes in support ranging from 74.62% to 100%.
At the 2019 annual general meeting, Resolution 2 (the Directors’
Remuneration Policy), Resolution 3 (the Directors’ Remuneration
Report), Resolution 19 (the Ocado Value Creation Plan) and Resolution
23 (the amendment to the Chairman’s Share Matching Award) received
more than 20% of votes against them. The Board recognised that some
shareholders voted against our remuneration proposals.
In preparing the 2019 remuneration proposals, the Company carried
out an extensive shareholder consultation exercise with its largest
shareholders and the shareholder representative bodies. The
Remuneration Committee was pleased with the support most of
our largest shareholders gave to our original proposals, in particular
the understanding of our rationale for the main changes proposed.
Shareholder feedback received was carefully considered, in particular
the feedback on the proposed Value Creation Plan. As a result of
this consultation exercise, changes were made to the operation
of the remuneration proposals in line with suggestions made by
shareholders.
The Board believes that as a result of the consultation exercise it
understands the reasons why some shareholders were not supportive
of the remuneration proposals. The Board believes that the changes
to the Remuneration Policy address the challenge of formulating
incentive plans that drive exceptional and sustainable growth
and reward short-term operational and strategic decisions, while
motivating and retaining the Company’s executive team, over the next
stage of the Company’s development.
In keeping with the Investment Association guidance, the Chairman
of the Remuneration Committee wrote to our largest shareholders
in November 2019 in response to this voting outcome. The update
statement was also sent to the Investment Association and can be
found on the Corporate Website, www.ocadogroup.com.
➔ For further information on the shareholder consultation, see page 100
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Shareholder* Consultation on Remuneration Policy
The chart below tables some of the interaction with shareholders on the Remuneration Policy.
Oct 2018
Initial
consultation
letter sent to
shareholders*
Oct 2018–Jan 2019
Meetings with largest
shareholders*
Jan 2019
Results of
shareholder*
meetings reported
to Remuneration
Committee
Feb 2019
Written
confirmation of
support
Mar 2019
Closing letter sent
to shareholders*
outlining the
response to feedback
and final proposals in
respect of the Policy
Nov 2019
Statement on
Corporate Website
of action taken
post AGM
Oct 2018
First round of
meetings scheduled
with largest
shareholders*
and institutional
investor bodies
Nov–Dec 2018
Key concerns
considered by
Remuneration
Committee
and additional
information provided
Jan–Feb 2019
Follow-up rounds of
meetings arranged
where required to
discuss feedback
Feb–May 2019
Notice of AGM sent
to shareholders,
collation of AGM
results post
meeting
May–Oct 2019
Review of AGM voting
records, further
consultation to
understand results
where necessary
*Top 20 largest shareholders plus ISS, IA and Glass Lewis
Administration
Consultation
Action
Feedback
Stock Code: OCDO
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Continued
Creating the Ocado Retail Joint Venture
Core Policies
Associated Processes and Procedures
As explained in detail in the Strategic Report, during the year a new 50:50
joint venture was created with Marks and Spencer Holdings Ltd (“M&S”)
(the “Ocado Retail joint venture”). It comprises Ocado’s UK grocery retail
business, supported by a new partnership for solutions and other services
and the provision of branding and product sourcing from M&S.
Anti-Bribery and Money-
Laundering Policy
• Compliance procedure
• Gifts and hospitality register
Whistleblowing Policy
• Whistleblowing procedures guidance
• Expolink platform
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Board and Audit Committee Involvement with the
Joint Venture
The decision and process that led to the Ocado Retail joint
venture was a complicated one and the Board were active and
engaged throughout demonstrating effective governance with its
deal procedures. In considering the joint venture the Board paid
particular attention to the Group’s long-term strategic objectives, the
expected benefits and risks of the joint venture. The Board, the Audit
Committee and the deal team had specific roles, responsibilities
and effective channels of communication, which ensured that a
governance process was followed. This allowed for negotiations to
progress efficiently and confidentially until such time as both parties
were ready to announce the agreement.
➔ For further information in the Audit Committee’s role in reviewing
the Ocado Retail joint venture, see the Audit Committee Report on
pages 92 to 97
Ocado Retail Limited Governance Framework
In preparing for the Ocado Retail joint venture, a group consisting
of the company secretary and legal teams from Ocado Retail
and from the Company, worked together to ensure that the
governance framework of Ocado Retail would be fit for purpose
both at completion and in preparation for the financial year ahead.
The governance framework for Ocado Retail was driven by core
constitutional documents for the joint venture, notably the Ocado
Retail shareholders agreement. It takes into account the Ocado Group
governance framework and the relevant regulatory requirements. The
framework includes the board and committee structure and considers
the necessary support functions including finance, legal, risk and
Internal Audit, needed for the joint venture.
Overarching Framework
Ocado Holdings Limited
(50%)
Marks and Spencer
Holdings Limited (50%)
Share Dealing Code and
Share Dealing Policy
• Procedures for share dealing
•
Insidertrack platform
Human Rights Policy,
Responsible Sourcing and
GSCOP
• Modern slavery and GSCOP
compliance
Board and Committee composition
The Ocado Retail board is composed of six directors: Tim Steiner
and Duncan Tatton-Brown, Ocado Group appointees; Steve Rowe
and Stuart Machin, M&S appointees; and Ocado Retail’s CEO and
CFO, Melanie Smith and Niall McBride respectively. Tim Steiner is the
chairman of the board.
Reporting to shareholders
Ocado Retail is responsible for its own day-to-day business
operations. However, there are a number of reserved matters which
Ocado Retail must seek approval from its shareholders before any
action or decision can be taken. Certain of these reserved matters,
for example approval of the business plan and appointment of the
Chief Executive Officer for Ocado Retail, rest with Ocado if there is a
disagreement between the shareholders. This process is documented
in the Ocado Retail shareholders’ agreement for which the Ocado
Retail company secretary ensures compliance and communication
with all shareholders.
The Chief Executive Officer of Ocado Retail attends the Board
meetings of Group from time to time to update the Board on its
trading performance and strategic matters.
Risk Management
Ocado Retail has mirrored the Group’s risk management framework
including risk management process for identifying, recording
and monitoring risks.
The Ocado Retail legal function will have responsibility for
implementing the risk management framework and processes, and
developing Ocado Retail risk registers. It will periodically report to the
Group on risk management and its key risks, which in turn inform the
Group’s principal risks statement.
Ocado Retail Limited
Retail Board
Core Documents
Audit Committee
Leadership Team
Shareholders’ Agreement
Articles of Association
Board Reserved Matters
Committee Terms of
Reference
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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.
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 this reporting period. The Board has,
where appropriate and feasible, adopted the new provisions in the
2018 Code earlier than required and provides disclosure on these
requirements in this Annual Report.
A copy of the Code and further information on the 2018 Code can be
found on the Financial Reporting Council’s website, www.frc.org.uk.
The following points outline key requirements under D.T.R.7.2, the
content of which are covered in greater detail throughout the Annual
Report for which we provide reference as follows:
• The Board and Committee composition can be found on pages 70,
88, 92 and 98.
• Board Diversity is discussed in the Corporate Governance Report
on page 77 and in the Nomination Committee Report on pages 88
to 90.
• The Group’s risk management and internal control framework,
and the Group’s principal risks and uncertainties are described
on pages 48 to 52.
• The Directors’ Remuneration Report on pages 98 to 131.
• The Directors’ Report on pages 132 to 138.
• The Going Concern and Viability Statements on page 53 all contain
information required to be included in this Corporate Governance
Statement, and so are incorporated into this statement by reference.
• Charitable donations on page 57.
The terms of reference for each of the main Board Committees can be
found on our Corporate Website, www.ocadogroup.com.
This Corporate Governance Statement 2019 covers the following
areas:
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• 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 provision
D.2.2. Additional explanation is provided for the following provisions of the Code:
Code Provision
Area
Explanation
Senior Independent Director
The Company appointed Andrew Harrison as the Senior Independent Director
part way through the period.
A.4.1
E.1.1
Senior Independent Director
attending shareholder meetings
The SID has had significant communication with shareholders in relation to
remuneration. Shareholder meetings have traditionally been attended by the
Chairman and other members of the Board. Attendance at these meetings will
be reviewed in light of the appointment of the SID during the year.
As explained on page 102, the Remuneration Committee monitors, but
has not as yet made recommendations concerning, the level and structure
of remuneration for senior management of the Company other than the
Executive Directors.
D.2.2
Senior management remuneration
Stock Code: OCDO
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Continued
Corporate Governance Statement 2019 Continued
The Company aims to explain how its practices are consistent with the principle to which the particular provision relates, contributes to good
governance and promotes the 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
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.
Section of
Annual Report
Board of Directors,
Composition of the
Board
Board Structure
The chairman is responsible for leadership of the board and ensuring its effectiveness on all
aspects of its role.
Board Structure
As part of their role as members of a unitary board, non-executive directors should
constructively challenge and help develop proposals on strategy.
EFFECTIVENESS
The board and its committees should have the appropriate combination 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 an induction on joining the board and should regularly update and
refresh their skills and knowledge.
Board Structure,
Board Responsibilities
and Actions
Board of Directors,
Director Biographies
Director Election
External Board
Appointments
and Conflicts
Board Induction
and Professional
Development
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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.
Information for
Directors
The board should undertake a formal and rigorous annual evaluation of its own performance
and that of its committees and individual directors.
Review of Board
Effectiveness
All directors should be submitted for re-election at regular intervals, subject to continued
satisfactory performance.
Director Election
ACCOUNTABILITY
The board should present a fair, balanced and understandable assessment of the company’s
position and prospects.
Strategic Report,
How We Manage Our
Risks and Emerging
Risks, Going Concern
Statement, Viability
Statement,
Corporate Governance
Statement
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.
How We Manage
Our Risks
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.
Audit Committee
Report
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Section
Principle
REMUNERATION
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.
RELATIONS WITH
SHAREHOLDERS
Section of
Annual Report
Directors’
Remuneration
Report
Directors’
Remuneration
Report
Engagement with
Shareholders
The board should use general meetings to communicate with investors and to encourage their
participation.
Engagement with
Shareholders
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.
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Lord Rose
Chairman
11 February 2020
Neill Abrams
Group General Counsel and Company Secretary
Stock Code: OCDO
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26615 11 February 2020 5:55 am Proof 3Nomination Committee Report“ During the year, the Committee undertook a thorough review of the Board’s composition, succession plans and its diversity policy, refreshed its Terms of Reference and undertook a process to choose a new external Board evaluator.”Lord RoseNomination Committee ChairmanCOMMITTEE MEMBERSHIPThe membership of the Nomination Committee, together with the appointment dates, are set out below: Lord RoseCommittee ChairmanAppointed 11 March 2013* – PresentIndependent: NoJörn RausingAppointed 9 March 2010* – PresentIndependent: YesAndrew HarrisonAppointed 1 March 2016* – PresentIndependent: Yes Emma LloydAppointed 1 December 2016* – PresentIndependent: YesJulie SouthernAppointed 1 September 2018* – PresentIndependent: YesJohn MartinAppointed 1 June 2019* – PresentIndependent: Yes Claudia ArneyAppointed 1 September 2019* – PresentIndependent: YesDoug McCallumRetiredAppointed 3 October 2011* – 1 June 2019Independent: YesRuth AndersonRetiredAppointed 9 March 2010* – 30 September 2019Independent: YesDear ShareholderOn behalf of the Board, I am pleased to present the report of the Nomination Committee for the 52 weeks ended 1 December 2019. This has been a busy year for the Nomination Committee. As mentioned in last year’s report a number of changes to the Board were foreshadowed because Directors were approaching or had exceeded nine years on the Board.In line with the above, during the year we have welcomed two new Non-Executive Directors to the Board. John Martin and Claudia Arney took up their positions on 1 June 2019 and 1 September 2019 respectively as independent Non-Executive Directors. As a Committee, we believe these appointments represent an excellent fit with Ocado Group’s current and future strategic needs.I would like to thank Doug McCallum and Ruth Anderson following their stepping down from the Board for their dedication to their roles. During their tenure with Ocado, Doug served as Remuneration Committee Chairman until 2018 and Ruth chaired the Audit Committee until she stepped down from this position in April 2019. During the year, the Committee undertook a thorough review of the Board’s composition, succession plans and its diversity policy, refreshed its Terms of Reference and undertook a process to choose a new external Board evaluator. Please read on for more information about the work of the Committee during the year.I will be available at the AGM to answer any questions about the work of the Nomination Committee.Lord RoseNomination Committee Chairman 11 February 2020* Appointed to Committee➔ For Committee attendance see the table on page 7188Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019www.ocadogroup.comGOVERNANCEOcado Annual Report 2019 Governance.indd 8811/02/2020 06:31:38Back to contents 26615 11 February 2020 5:55 am Proof 3Board Composition and Succession PlanningThe Nomination Committee seeks to ensure that the Board’s composition, and that of its Committees, is appropriate to discharge its duties effectively. During the year the Nomination Committee undertook a thorough review of the Board’s composition. This review took into account various considerations including the tenure of Director, independence, diversity and ensuring a combination of Board knowledge, experience and skills. This review preceded the Board agreeing changes to the composition of the Board over the last 12 months, which included the appointments of John Martin and Claudia Arney as Non-Executive Directors with effect from 1 June 2019 and 1 September 2019 respectively. Andrew Harrison was appointed as Senior Independent Director and Designated Non-Executive Director for workforce engagement. ➔ More information about the Board’s composition, independence and effectiveness can be found on pages 76 to 79The 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, supported by a self-assessment analysis completed by each Director. As announced in the previous period, it was likely that changes would happen in the medium term, and these were undertaken, with two of the Company’s longest-standing Directors stepping down. The Company also appointed a Senior Independent Director during the period, a role that had been vacant following the resignation of Alex Mahon.As a result of the changes to the Board composition, there were also changes to the composition of the Board Committees during the period. Following Ruth Anderson’s resignation, two new members, Emma Lloyd and John Martin, joined the Audit Committee during the period, taking total membership to four. The Remuneration Committee remained at three members, with Julie Southern and Claudia Arney replacing Doug McCallum and Ruth Anderson respectively. The Nomination Committee’s membership also remained stable with John and Claudia replacing Doug and Ruth too. 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 senior management and plans to expand on existing arrangements for building relationships between Non-Executive Directors and senior management outside of formal Board meetings. KEY RESPONSIBILITIES• Review the structure, size and composition of the Board and its committees• Give full consideration to succession planning for the Board and senior management • Review the leadership needs of the organisation, both Executive and Non-Executive • Identify and nominate potential candidates for Board vacancies as and when they arise, in line with its succession planning• Evaluate the combination of skills, experience, independence, diversity and knowledge on the Board and its Committees• Review and act upon the results of the Board performance evaluation process and assess how effectively members work together to achieve objectives • Support workforce initiatives that promote a culture of inclusion and diversityMembershipAs required under the Terms of Reference, the Nomination Committee has seven members, the Chairman and the six independent Non-Executive Directors, and holds a minimum of two meetings a year. John Martin and Claudia Arney became members of the Nomination Committee on their appointments to the Board on 1 June 2019 and 1 September 2019 respectively. The biography of each member of the Nomination Committee is set out on page 73. Other attendees at Nomination Committee meetings include the Chief Executive Officer and the Group Chief People Officer. The Deputy Company Secretary is the secretary to the Committee.How the Committee Spent its Time During the YearThe responsibilities of the Nomination Committee are set out in its Terms of Reference. The Nomination Committee has an annual work plan, developed from its Terms of Reference, whilst also dealing with specific issues as they arise predominantly relating to the appointment and succession planning of the Board and senior management, and also supporting the development of a diverse pipeline. The main matters that the Nomination Committee considered during the year are described below:• recruitment process for two new NEDs, resulting in Claudia Arney’s and John Martin’s appointments to the Board;• the process used in relation to appointments, its approach to succession planning and how both support developing a diverse pipeline;• Andrew Harrison appointed as SID and DNED, including defining the role of the DNED;• tender process for external Board evaluation consultants and discussing the results of the evaluation;• senior management succession plans including the gender balance of those in senior management and their direct reports; and• the policy on diversity and inclusion, its objectives and linkage to company strategy, how it has been implemented and progress on achieving the objectives.89Stock Code: OCDO Annual Report and Accounts Ocado Group plc GOVERNANCEOcado Annual Report 2019 Governance.indd 8911/02/2020 06:31:38Back to contents Nomination Committee Report
Continued
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Board Diversity
The Nomination Committee supports 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 improved decision-making, enabling it to meet its
responsibilities.
The Board’s diversity policy considers a broad range of characteristics
when considering diversity including age, disability, social and
educational backgrounds, 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 considering diversity
principles throughout recruitment process at both Board and senior
management level. At the end of the period, the Board had 25%
female representation in line with the previous period. There was a
slight decrease in female representation at the senior management
level this period, from 36% to 31% owing largely to the creation of
the Ocado Retail joint venture. The Board is committed not only
to increasing the percentage of women and ethnically diverse
individuals on the Board and senior management, but also to
supporting initiatives throughout the workforce that foster a culture of
inclusion and diversity. In this connection the Nomination Committee
noted with approval the appointment of the Group’s first Head of
Diversity and Inclusion.
Any future appointments to the Board will continue to be based on
merit and objective criteria to ensure that the best individuals are
considered and appointed to the role. Wherever possible, the search
pool will be widened and where executive search consultancy 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 throughout
the year.
➔ For more information on diversity in respect of all the Group’s
employees, see the Our People section on pages 60 to 65
The Board participated in a process to identify their own cognitive
diversity characteristics taking into account less tangible factors
such as life experience and personal attitudes. The charts on page 77
illustrate these characteristics.
Annual Review
The Nomination Committee carried out a review of its Terms
of Reference in the previous period, as mentioned in last year’s
report. The review reflected the 2018 Code’s expanded remit for
the Nomination Committee in relation to succession planning and
promoting diversity.
➔ The Nomination Committee’s Terms of Reference can be found on
the Corporate Website, www.ocadogroup.com
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Back to contents 26615 11 February 2020 5:55 am Proof 3Audit Committee Report“ The Committee plays a valuable role in the Company’s governance framework, providing independent challenge and oversight across the Company’s financial reporting and internal control procedures.”Julie SouthernAudit Committee Chairmanthe Andover CFC fire and the expansion of Ocado Solutions and Ocado Ventures. The scale and pace of change has highlighted some weaknesses in the internal control environment present in the Company today that management recognise need to be addressed.We have seen a Finance team that has been stretched to complete all that has been asked of it. The Company needs to grow this team and fill specific new senior specialist roles within the team in areas such as Treasury if the team is to meet the new demands that come from the transformation of the Group. I am happy to report that management have taken swift action to grow and strengthen the Finance team and in turn help provide additional control rigour. There has been a high degree of professionalism in how the Finance team have responded to the challenges that have presented themselves during the period. Despite the challenges that the Finance team have faced, I am pleased to confirm that overall the control environment is satisfactory and provides a good foundation for evolution in 2020. The Committee looks forward to continuing to support the necessary changes and to seeing continued improvement in the coming year. In this report, we aim to share some of the Committee’s discussions from the year, which have often focused on the many new accounting and reporting issues that have come about because of the significant change occurring in the business. 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 including the Ocado Retail joint venture accounting, the Andover CFC insurance claim and Ocado Solutions revenue recognition. 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.This report also provides insight regarding the other roles of the Committee, including reviewing the effectiveness of the Group’s assurance functions.Some of the responsibilities of the Committee changed during the course of the year as a result of the Ocado Retail joint venture, including the oversight of compliance with the GSCOP regime. I will be available at the AGM to answer any questions about our work.Julie SouthernAudit Committee Chairman 11 February 2020COMMITTEE MEMBERSHIPThe membership of the Audit Committee, together with the appointment dates, are set out below: Julie SouthernCommittee ChairmanAppointed 1 September 2018* – PresentIndependent: YesEmma LloydAppointed 1 April 2019* – PresentIndependent: YesAndrew HarrisonAppointed 1 March 2016* – PresentIndependent: YesJohn MartinAppointed 1 June 2019* – PresentIndependent: Yes Ruth AndersonRetired Committee ChairmanAppointed 9 March 2010* – 30 September 2019Independent: YesDear ShareholderI am pleased to present the report of the Audit Committee for the 52 weeks ended 1 December 2019, my first such report as Chairman of the Audit Committee. The entire Committee gives thanks to Ruth Anderson who served the Committee as Chairman so proficiently from 2010 to her retirement as Chairman on 1 April 2019. The Committee plays a valuable role in the Company’s governance framework, providing independent challenge and oversight across the Company’s financial reporting and internal control procedures. We work with other Committees and the Board to ensure that stakeholder interests are protected and the Company’s long-term strategy is supported.There is no doubt that this has been a year of significant and rapid change for the Company. The transformation of the business has introduced additional complexity and created significantly more work, which has had a major impact on the Finance team; requiring them to take on new permanent responsibilities and also deliver a response to significant ‘exceptional’ activities. The exceptional activities include the creation of the Ocado Retail joint venture, * Appointed to Committee➔ For Committee attendance see the table on page 7192Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019www.ocadogroup.comGOVERNANCEOcado Annual Report 2019 Governance.indd 9211/02/2020 06:32:01Back to contents 26615 11 February 2020 5:55 am Proof 3• viability and going concern paper; • financial reporting process; • segmental reporting ;• Governance, Risk and Compliance annual plan;• GSCOP compliance report;• cyber program update; • review of auditor appointment policy; • Internal Audit plan; • non-audit work; and • evaluation of committee paper. 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 page 82 of the Corporate Governance Report. 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 Group adopted IFRS 15 – Revenue from Contracts with Customers, in the financial year ended 2 December 2018. The main area of impact of the standard on the Group is in respect of Solutions revenue. Revenue is not recognised until the customer is able to benefit from the services, and therefore no revenue is recognised in the early years of a Solutions contract until the services go live. During the course of the current financial year management have continued to report to the Audit Committee on technical aspects of the standard and their application to Group revenues. Each Solutions contract is assessed independently and management judgement is required on matters including contract life, the existence of a financing component or the creation of material rights for the customer. All of these factors impact the amount and timing of revenue recognised in the Income Statement and the value of contract liabilities included in the Balance Sheet and disclosed in the Notes to the Consolidated Financial Statements in Note 2.4.KEY RESPONSIBILITIES• Monitor the integrity of the financial statements of the Company and Group• Review the Company’s internal control and risk management systems – monitor and review the effectiveness of the Company’s Internal Audit function • Review the effectiveness of the external auditor process • Develop and implement policies on the engagement of the external auditor to supply non-audit services • Monitor and review the external auditor’s independence and objectivity • Fulfil its reporting obligations Membership As required under the Terms of Reference, the Audit Committee members are independent Non-Executive Directors and the Audit Committee has held seven meetings during the year. At least two members of the Audit Committee (Julie Southern and John Martin) are considered by the Board to have competence in accounting and all members have recent and relevant financial experience. John Martin and Julie Southern are chartered accountants with the Institute of Chartered Accountants in England and Wales. In line with the Code, the Audit Committee as a whole has competence relevant to the sectors in which the Company operates, notably the retail and technology sectors. The biography of each member of the Audit Committee is set out in the Corporate Governance Report on page 72. During the year, Ruth Anderson stepped down from the position of Chairman and was succeeded by Julie Southern with effect from 1 April 2019. John Martin and Emma Lloyd also joined the Audit Committee during the period increasing the membership to four members.MeetingsThe 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.How the Committee Spent its Time During the YearThe 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:• Ocado Retail joint venture; • Ocado Solutions accounting treatment;• Andover CFC fire accounting;• IFRS 16 adoption paper; • accounting for new investments;93Stock Code: OCDO Annual Report and Accounts Ocado Group plc GOVERNANCEOcado Annual Report 2019 Governance.indd 9311/02/2020 06:32:02Back to contents Audit Committee Report
Continued
Accounting for leases: The Audit Committee reviewed the impact of the new standard IFRS 16 – Leases and has agreed with the management
proposal to adopt this standard for the current financial year, using the modified retrospective approach. Under this new standard the majority of all
leases will be reflected on the Balance Sheet recognising the right to use the asset for an agreed period of time and the associated liability for the future
payments. The net impact of adopting IFRS 16 is an increase in EBITDA as previous operating lease expenses are no longer charged to administrative
and distribution expenses. Operating lease expenses are replaced with depreciation and finance costs which fall outside the calculation of EBITDA. The
prior year impact will be reflected in the opening reserves as at 3 December 2018 and comparative amounts are not restated.
The Group uses its incremental borrowing rate (“IBR”) to measure lease liabilities. The IBR is the rate of interest that the Group would have to
pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in
a similar economic environment. The IBR therefore reflects what the Group would have to pay, which requires estimation when no observable
rates are available or when they need to be adjusted to reflect the terms and conditions of the leases.
Management judgement is required during the transition to IFRS 16 relating to the likelihood of termination or extension of the lease agreement
and selection of an appropriate discount factor to use to calculate lease liability. The Audit Committee have received reports from management
on the impact of the transition and financial impact as disclosed in the notes in section 4.
➔ See the Notes to the Consolidated Financial Statements on pages 156 to 207
Major Audit Committee Judgements and Estimates during the period
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Area
Revenue
recognition
Key Accounting Policies, Judgements and
Key Sources of Estimation Uncertainty
Factors and Reasons Considered
and Conclusion
The accounting for Solutions contracts is
complex. Key areas of management
judgement include the timing of recognition
of upfront and ongoing fees payable under the
relevant contract.
Impact on Financial Information
and Disclosure in Financial
Statements
The accounting treatment is included
in the Consolidated Income Statement
on page 151 and Note 2.1 to the
Consolidated Financial Statements. The
treatment is also described in Note 2.1.
The Ocado Retail joint venture is
accounted for as a subsidiary and as
such is consolidated fully in the financial
statements of the Group. A Non-
Controlling Interest is reported to reflect
the fact that 50% of the ownership is
held outside the Group. See Note 5.2 to
the Consolidated Financial Statements.
There is no impact to the financial
statements and no additional
disclosures required for the period. See
Note 3.13 to the Consolidated Financial
Statements.
The Audit Committee reviewed and agreed with
management’s proposed accounting treatment
and policies, reviewing each Solutions customer
individually in light of IFRS 15 guidance (including
the underlying performance obligations and
the identification of material rights under the
contract).
The Audit Committee reviewed management’s
assessment that the Group retained control of
the Ocado Retail joint venture. The shareholders
agreement for the joint venture contains certain
dispute resolution procedures in relation to
approval of the business plan and appointment
and removal of the Ocado Retail CEO, if there
is a disagreement between the shareholders.
The Audit Committee concurred with the
assessment that the Group retained control.
The Audit Committee considered the
management report concerning the progress
of all current Solutions projects in order to
assess whether liabilities might arise for non-
performance or delay. At the balance sheet
date, it was concluded that there were no
material risks to key milestones that would
result in payment obligations by the Group and
hence there were no contingent liabilities to
disclose.
Accounting
for
the Ocado
Retail
joint
venture
The Ocado Retail joint venture, in which the
Group holds 50% of the voting rights, required
management to exercise judgement over
whether the rights granted to Ocado under
the Ocado Retail joint venture gives the Group
control under IFRS 10.
Provisions
for
Contingent
Liabilities
and
Contingent
Assets
The implementation of the platform 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.
Exceptional
items
Management judgement was applied in
order to treat certain one-off transactions as
exceptional, including in respect of the Andover
CFC fire, the disposal of Fabled and the sale of
the 50% interest in Ocado Retail.
The Audit Committee considered the
management reports on the accounting
treatment of these one-off transactions as not
ordinary course, and the clear disclosure of
these items in the Group accounts.
See Note 2.7 to the Consolidated
Financial Statements for the
exceptional items disclosed, and the
explanation on page 95.
Fair value of
contingent
consideration
Share
incentives
A significant estimate concerns the contingent
consideration payable to the Group in connection
with the sale of Ocado Retail of up to £187.5
million. Management had to consider the
likelihood of achieving the agreed performance
targets linked to the deferred payment.
The Audit Committee discussed management’s
expectations regarding the achievement of
the performance targets and concurred with
management’s conclusions that the full amount
(as discounted) of the payment be recognised in
view of the projections for the Retail business.
During the period, management judgement
was applied to the valuation of various share
schemes and in particular the share price
volatility assumption applied to the new VCP
incentive scheme.
The Audit Committee debated the management
justifications for the assumed volatility applied
for the VCP fair value including the supporting
historical share price volatility and the resulting
impact on the accounting treatment.
See Note 4.8 to the Consolidated
Financial Statements for the fair
value applied to the contingent
consideration.
See Note 4.11 to the Consolidated
Financial Statements for the fair value
of incentive schemes including the VCP.
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The previous table is not a complete list of all the Group’s accounting
issues, judgements, 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 and the recognition of
deferred tax assets are recurring issues for the Group, but did not
require a significant change in the basis of the estimate or judgement
during the period. The accounting treatment of all significant issues
and judgements was subject to audit by the external auditor. For
a discussion of the areas of particular audit focus by the external
auditor, refer to pages 142 to 150 of the Independent Auditor’s Report.
The Audit Committee considers that the Company has adopted
appropriate accounting policies and made appropriate estimates and
judgements.
Andover Insurance Claim: The Group’s financial results were impacted
by the fire that destroyed the Andover customer fulfilment centre in
February 2019. Management provided the Audit Committee with periodic
updates during the year on the accounting treatment of insurance
proceeds and costs including for loss of inventory and assets and the
business interruption costs. The Audit Committee considered the
appropriate accounting treatments and also the clear reporting of these
amounts in the financial statements and external announcements.
Review of Ocado Retail Joint Venture: As explained on page
94, the Audit Committee was required to consider the Ocado Retail
joint venture transaction during the negotiation phase, and in doing
so reviewed the financial information and working capital report
and the financial procedures report presented by management, in
support of the Class 1 transaction. The Audit Committee forms part
of the Company’s governance reviews and challenges the reporting
disclosures and new internal control framework for the joint venture.
In particular the Audit Committee considered the roles that would be
played in the joint venture, when established, by the external auditors,
Internal Audit and the Ocado Retail audit committee in providing
oversight and assurance with respect to Ocado Retail‘s new financial
reporting and internal control framework. The Ocado Retail audit
committee will assist the Ocado Retail board to:
• oversee integrity of Ocado Retail’s financial statements;
• oversee effectiveness of Ocado Retail’s internal controls and risk
management; and
•
review reports of internal audit and the external auditors.
The Ocado Retail audit committee will also oversee Ocado Retail’s
compliance with GSCOP and approve the annual compliance report.
Reports for Ocado Retail including internal audit reports and external
audit reports are provided to the Group Audit Committee.
Segmental Reporting: Following the Ocado Retail joint venture,
management reconsidered how they manage, plan and report the
performance of the business internally. Subsequently, this has led
to a change in the Group’s reporting segments from three to four.
Management prepared and presented an analysis of this change
to the Audit Committee who provided important challenge on the
methodology used by management for segmenting the business
and the disclosure to be provided to shareholders including financial
statement information and key performance indicators.
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 53) 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 expansion of the Solutions business including the impact of
delays. 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 53) 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 and Internal Control 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 and internal
control 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 Internal Audit assurance reports, the assurance provided
by the external auditor and other third parties in specific risk areas,
and an annual assessment report provided by Governance, Risk
and Compliance. In addition, the Audit Committee Chairman gains
additional insight on the management of risk in Ocado, by attending
the Group’s regular Risk Committee meetings. The Risk Committee,
which is chaired by the Group General Counsel and Company
Secretary, receives reports from the business on a range of risk topics
and discusses principal risks and risk appetite.
As outlined from page 92, the Audit Committee and the Board have
given consideration to the effectiveness of the Group’s system of
internal control and risk management and noted that improvements
are required to the Group’s underlying control environment. During the
period, the Group underwent significant transformation, introducing
significant complexity and placing substantial pressure on the
Finance team. The Audit Committee noted that a range of exceptional
activities including the separation of the Ocado Retail joint venture and
expansion of the Solutions business internationally has meant that
particular focus has been placed at year-end on the rigour applied to
and oversight of controls during this exceptional period. Additional
support processes had been created across a range of areas to support
the expansion of the business, including payroll, financial reporting
systems, expense claims and tax. The Audit Committee received reports
from the external auditors regarding the additional audit work carried
out by the external auditors for the financial year-end to address the
control concerns identified. As well as these additional procedures,
management reported on the steps taken by the business to respond
to the areas of potential risk. Management outlined its initial proposals
to broaden and strengthen the Finance team to address this additional
complexity and to help support the creation of an improved internal
control environment for the Group. Management will report periodically
to the Audit Committee in 2020 on their improvement plans and
proposals for expanding the Finance team. The Audit Committee will
monitor improvement plans and progress and ensure that necessary
action is taken.
Stock Code: OCDO
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As well as considering internal control system effectiveness, the Board
and the Audit Committee discussed the changing risk landscape for
the business as a result of the international expansion of the Solutions
business. Because of the transformation of the business, the Board
recognised that the Group’s principal risks and uncertainties were
shifting towards the Solutions business. New principal risks were
emerging such as the challenges of creating a global supply chain of
equipment for the Solutions platform and the increased importance
of improving and expanding the Group’s engineering and technology
capabilities. The Board discussed and reviewed the Group’s risk appetite
when reviewing the principal risks and the strategy for the Group while
the Audit Committee reviewed 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 information technology systems and the
programme for compliance with GSCOP. The Group has taken a
number of steps to develop its readiness for Service Organisation
Control (“SOC”) assessments for the Group’s new Ocado Solutions
platform security and privacy internal control systems. Internal Audit
has regularly reported to the Audit Committee on the readiness
programme including the introduction of a SOC steering group and
SOC programme manager to oversee the programme, preparation of
a tender for a SOC auditor role and an externally facilitated review of
the Group’s current SOC control catalogue. The Audit Committee have
discussed progress made with the programme and considered the
risks identified in reviews of the existing control framework.
➔ 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 48 to 52
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, resourcing and prioritisation in
January 2019 and considered it appropriate to the Group having
regard to the emerging and principal risks of the business.
The Internal Audit plan, which is risk-based, sets out a number of audit
activities for the 2019 Financial Year, including key assurance reviews,
most notably the work on the Solutions platform security and privacy
internal control system. Additional support was given by external
consultants to review the Group’s security and privacy controls for
the Solutions platform. The audit plan also included audits for key
financial and operational risk areas such as the Group’s operational
health, safety and environment function, its technology procurement
control environment, distribution, transport and logistics function and
the control design for planning and analytics function.
Internal Audit reports to each Audit Committee meeting. The report from
Internal Audit enables the Audit Committee to discuss key findings, plans
to address areas of weakness, and plans by management to address
actions. Management actions are tracked and the status of these actions
is reported alongside progress against the Internal Audit plan.
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.
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1
A questionnaire was 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.
2
3
The results of the
questionnaire were
reviewed by the
Audit Committee
and Internal Audit.
Informal feedback
from management
and the external
auditor was
considered during
the period.
Result of
Review:
The Audit
Committee
concluded that
the Internal Audit
function was
effective.
Internal Audit Effectiveness Review: As noted above, Internal Audit is subject to an effectiveness review each year. Using this assessment
process outlined, the Audit Committee concluded the Internal Audit function was effective. During the period, the Audit Committee met with the
Head of Internal Audit, without management present. Internal Audit will be subject to an external review in the 2020 financial year.
External Audit Effectiveness Review:
1
The Audit Committee, the executive team, and members
of management from across the Company completed an
external audit effectiveness review questionnaire at the
end of the period. The questionnaire asked respondents
to consider the robustness of the audit process and the
quality of delivery, reporting, people and service.
2
The Audit Committee reviewed
the results of the questionnaire,
in addition to meeting with
management, without Deloitte
present, to listen to views on
the effectiveness of the external
auditor.
Result of Review:
The Audit Committee concluded
that Deloitte delivered a robust
and quality audit, with effective
challenge and providing the
appropriate resources to the
Company in the period and that
therefore Deloitte had remained
effective in their role.
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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 2.5 to the Consolidated
Financial Statements on page 168. The non-audit service fees of
£415,000 (2018: £39,000) paid to Deloitte during the period related to
£50,000 paid for audit-related assurance services for an interim review
and £335,000 in connection with public reporting responsibilities and
other permissible services in relation to the establishment of the Ocado
Retail joint venture, of which £70,000 is for transaction support services
required by regulation. 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. The external auditors provided a report to the Audit
Committee on the specific safeguards put in place for each piece
of non-audit work confirming that it was satisfied that neither the
extent of the non-audit services provided nor the size of the fees
charged had any impact on its independence as statutory 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 £868,000 (2018: £456,000) was
appropriate and that an effective audit could be conducted for such a
fee. The Audit Committee noted the significant year-on-year increase
in audit fees was consistent with the additional audit work done by
the external auditors in connection with the additional complexity for
the Group for 2019. 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 2019. At the 2019 annual general meeting, 100% 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.
Assessing the Effectiveness of the External Audit Process
and the External Auditor
It is important to the Audit Committee that the annual external audit
plan is consistent with the scope of the audit engagement. As noted
on the previous page, the Audit Committee reviewed and approved
the external audit plan. As part of the review of the audit plan, the
Audit Committee considered certain significant and elevated risk areas,
identified by the external auditors, which might give rise to material
financial reporting errors or those perceived to be of higher risk thereby
requiring further audit attention. These risk areas include those set out
in the Independent Auditor’s Report on page 142. The Audit Committee
also considered the audit scope and materiality threshold.
The Audit Committee met with the external auditors at various stages
throughout the period, including without management present,
and discussed the remit and any issues arising from the work of the
auditor.
Independence and Objectivity: The Audit Committee
considered the safeguards in place to protect the external auditor’s
independence. The external auditors 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.
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
Approver
Chief Financial Officer
Over £30,000 and up to £100,000 per
engagement
Chief Financial Officer and
Audit Committee Chairman
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
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 or for services required by regulation) 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.
Stock Code: OCDO
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Back to contents 26615 11 February 2020 5:55 am Proof 3Directors’ Remuneration Report“ The Remuneration Committee is committed to ensuring the Company’s leadership is motivated to deliver longer-term sustainable growth for shareholders.”Andrew HarrisonRemuneration Committee ChairmanCOMMITTEE MEMBERSHIP The membership of the Remuneration Committee, together with the appointment dates, are set out below: Andrew HarrisonCommittee ChairmanAppointed 1 March 2016* – PresentIndependent: Yes Claudia ArneyAppointed 1 September 2019* – PresentIndependent: Yes Julie SouthernAppointed 1 June 2019* – PresentIndependent: YesDoug McCallumRetired Committee ChairmanAppointed 3 October 2011* – 1 June 2019Independent: YesRuth AndersonRetiredAppointed 9 March 2010* – 30 September 2019Independent: Yes* Appointed to CommitteeLetter from the Chairman of the Remuneration Committee Dear Shareholder On behalf of the Board, I am pleased to present the Directors’ Remuneration Report for 2019. The tremendous success that our business has seen over the last two years has changed our business entirely in terms of complexity, reach and scale. This Director’s Remuneration Report reflects this success and should be taken in light of this transformation.The performance of the Group saw continued growth in the Retail business; in particular our 50:50 joint venture with M&S will enable us to continue to transform online grocery retail and provides a firm base from which we can continue to grow the Solutions business and innovate. In addition, we have seen steady improvement in the efficiency of OSP and a very rapid expansion of the Solutions business, with the Group having signed its sixth and seventh international agreements to develop OSP in Australia and Japan this year. The Group achieved strong gross sales and customer growth for the 52 weeks ended 1 December 2019. Shareholders benefitted from the strong growth of the Group, with the share price having increased 265% since December 2017.The Remuneration Committee is committed to ensuring the Company’s leadership is motivated to deliver both longer-term sustainable growth for shareholders whilst simultaneously upholding the core pillars of our responsible business. As our business has grown in size, so have our responsibilities, and to ensure we continue to achieve inspiring, tangible results for both our Company and the communities we interact with, we have built our responsible business around these four core pillars: Education, Entrepreneurship, the Environment and Eating well. The Remuneration Committee is dedicated to ensuring that remuneration outcomes reflect all the above elements of corporate strategic performance and strategy.➔ For Committee attendance see the table on page 7198Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019www.ocadogroup.comGOVERNANCEOcado Annual Report 2019 Remuneration.indd 9811/02/2020 06:29:20Back to contents 26615 11 February 2020 5:55 am Proof 3Relationship Between Pay and Performance2019 Annual Incentive Plan (“AIP”)We have approved a bonus payment to the Executive Directors based on 55% to 58.5% achievement against objectives under the AIP for the period. ➔ More detail about the AIP can be found on pages 121 to 123We did not exercise any discretion to depart from the formulaic outcome for the AIP for this year on the basis that this reflected our view of the underlying performance of the business over the financial year.2017 Long Term Incentive Plan (“LTIP”) Vesting During the period, we reviewed the performance against the 2017 LTIP award targets, which had a performance period ending on 1 December 2019. The 2017 LTIP awards were subject to the achievement of targets relating to Ocado Group and Ocado Retail’s performance, including the Retail business revenue and EBITDA and the Solutions business revenue for OSP. Based on the results to the end of the performance period, the Directors achieved 46.1% against the objectives under the LTIP for the period. The 2017 LTIP awards are expected to vest in March 2020. ➔ More detail about the LTIP vesting can be found on page 123We did not adjust the awards to take into account share price growth over the period; on the basis that this reflected our view of the underlying performance of the business over the performance period. The Committee exercised discretion to prorate the targets under the Platform Operating Efficiency measure to reflect the impact of the fire at the Andover CFC. The efficiency of this CFC was assessed just prior to the fire, against the prorated targets as at that point in time, on the basis that a sufficient proportion of the performance period had passed and the Committee was comfortable that the trajectory of improvement to this point would have continued to the end of the performance period. In this way, in line with our Directors’ Remuneration Policy and plan rules, the Committee was satisfied that the amended targets were equally difficult to satisfy as the original condition would have been had such circumstances not arisen.Growth Incentive Plan (“GIP”) VestingIn 2014, the Remuneration Committee implemented a one-off five-year GIP to incentivise a focus on the key strategic drivers and delivery of exceptional growth and shareholder returns over the long-term. The GIP was approved by shareholders at the 2014 annual general meeting with vesting due in May 2019, subject to the share price growth relative to the FTSE 100 performance condition being met over this five-year period. In order for full vesting to be achieved, Ocado’s share price growth had to exceed the growth of the FTSE 100 by 20% p.a. Over the period, Ocado’s share price growth was 31.02% p.a. compared to 1.79% p.a. for the FTSE 100. On this basis, 100% of the GIP vested. The Remuneration Committee was satisfied that the outcomes under the GIP reflect the intended purpose of it when it was first implemented, delivering above-market pay-outs only for outstanding results. Therefore, the Remuneration Committee did not amend the outcome or make any adjustments.The following table shows the absolute value of the total shareholder returns for shareholders over the performance period compared to the value received by the Executive Directors who participated in the GIP:ReturnsShareholders £7,476,000,000Executive Directors £87,539,100The Remuneration Committee feels that the above demonstrates clearly that the outcomes were fair. The following table sets out the value of the nil cost options on vesting:CEOCFOCOOCEO Ocado SolutionsGroup General Counsel & Company Secretary£54m£14m£14m£6mDid not participateClearly this will mean that the single figures of our Executive Directors will be significantly higher this year, reflecting the outcomes under this plan.➔ Further detail on single figures can be found on page 1072016 Sharesave Scheme VestingAs a result of Ocado’s substantial share price growth, the Committee is pleased to announce that vesting under the 2016 Sharesave Scheme has been incredibly successful. Participation under the 2016 offer was 15% across the workforce, with average profits of £31,940 earned by those who participated in the scheme.163 employees, including the Executive Directors, participated at the maximum level and earned £104,596 each. The Remuneration Committee continues to believe that the Sharesave Scheme is very valuable, encourages employee engagement and enables employees to share in the long-term success of the Group.PensionsThe Remuneration Committee is very aware of the focus on Executive Director pensions. Given the change in the Group’s headcount over the year and in order to continue to be in line with the 2018 Code, Executive Director pension contribution levels are being changed to 7% of salary in the 2020 financial year to ensure continued alignment with the levels received by the wider workforce.Base Salaries In light of Ocado’s substantial growth over the past two years, resulting in the Company establishing itself as a firm constituent of the FTSE 100, the Remuneration Committee decided to undertake a review of base salaries to ensure that they accurately reflected the enhanced scale and complexity of the Executive Directors’ roles. The review focused on many factors including business performance, total remuneration, market data for comparable organisations and roles as well as individual performance. The Committee concluded that the significant growth in scale and complexity of the business warranted increases to the Executive Directors’ salaries. Furthermore, it was determined that the increases would be awarded in two steps, with the second increase subject to continued strong individual performance and the Company remaining in the FTSE 100. The resulting salaries (after both increases) position the Executive Directors around the lower quartile of FTSE 100 equivalent roles. In addition, the Company is continuing with its historic approach of awarding the same salaries and increases to three of its Executive Directors, with this approach being extended to the Group General Counsel and Company Secretary role for the first time. It was felt that a differentiation in salary in this role was no longer warranted, 99Stock Code: OCDO Annual Report and Accounts Ocado Group plc GOVERNANCEOcado Annual Report 2019 Remuneration.indd 9911/02/2020 06:29:21Back to contents Directors’ Remuneration Report
Continued
and that the Group General Counsel and Company Secretary role
remains integral to Ocado’s future success, involving the legal support
on additional Ocado Solutions deals and the execution of existing
Ocado Solutions deals (including international corporate structure
and regulatory compliance), as well as support on negotiations with
existing partners. In order to bring the Group General Counsel and
Company Secretary’s salary into line with the other Executive Directors,
a more substantial increase was required in 2019.
The Committee recognises that these increases are above the
“normal” percentage range for other UK-based monthly paid
employees, however the increases were considered necessary to
ensure Executive Directors are commensurately rewarded for their
stewardship of a FTSE 100 company in a competitive environment.
➔ Please see page 113 for further information on salary increases
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The aforementioned salary increases reflect our intention last year as a
Committee to design a new policy whereby the fixed elements (salary,
benefits and pension) would be lower quartile compared to the FTSE
100, with the new Annual Incentive Plan, if the target is earned, still
resulting in a below-market positioning. The above salary changes are
consistent with this approach.
Our intention was that the remuneration package provided to our
Executive Directors would only result in substantial comparative reward
for transformational performance. This is why the minimum hurdle on
our long term incentive plan, the Value Creation Plan (“VCP”), which has
to be achieved before any value starts to be earned by the Executive
Directors, was set at a 10% Total Shareholder Return (“TSR”) Compound
Annual Growth Rate, which for this period would require a share price of
£15.16.
Shareholder Consultation and 2019
Annual General Meeting Voting
The Board recognises that at our 2019 annual general meeting all
resolutions were successfully passed with the requisite majority,
although there was a significant minority vote against four remuneration-
related resolutions: Resolution 2 (the Directors’ Remuneration Policy),
Resolution 3 (the Directors’ Remuneration Report), Resolution 19 (the
Ocado Value Creation Plan) and Resolution 23 (the amendments to the
Chairman’s Share Matching Award). The Remuneration Committee notes
that the Company was aware, prior to voting, of the above concerns of
shareholders due to the extensive shareholder consultation process that
was conducted prior to the issue of the notice of the 2019 annual general
meeting. The Remuneration Committee is, however, encouraged by the
support of the majority of its shareholders and their understanding of
the strategic rationale behind the Policy changes. The Remuneration
Committee also believes its remuneration proposals continue to be
appropriate to incentivise and retain a highly entrepreneurial executive
team over the next stage of the Company’s development. The Company
remains committed to governance best practice and will continue its
policy of continually keeping remuneration under review and proactively
engaging with shareholders and advisory bodies on such matters.
➔ Further details on our response to the 2019 annual general meeting
voting outcomes are included on page 130
Changes to the Implementation of the Policy in 2020
This year marked the first year of the operation of our new
Remuneration Policy. We do not intend to make any material changes
to its implementation in 2020. Our intention to increase salaries for
2020 is set out on page 113 along with our rationale for doing so.
In addition, the Committee is reviewing the performance conditions
for the AIP in 2020. Historically the AIP has had four measures based
on targets around Retail Revenue, Retail Profitability, Solutions
Commitments and operational and strategic objectives, which are
assessed over a 12 month performance period.
No changes to the AIP structure are proposed. In order to ensure that
the bonus remains aligned to the business strategy and achievement
of significant business goals, the Remuneration Committee has
proposed to expand the AIP to five measures. These would be based
around Solutions commitments, Retail EBITDA, Erith CFC capacity, OSP
features and operational and strategic objectives, and to be assessed
over a 12 month performance period.
Pay-outs under the AIP are subject to a mandatory deferral of at
least half of any AIP award into shares. The maximum amount of
any bonus 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 time they cannot be sold.
Changes to Non-Executive Director Remuneration
Changes to fees for the Non-Executive Directors were also agreed in 2019
including the Chairman’s fee, Non-Executive Director (“NED”) base fees
and Committee Chairman fees (effective 1 April 2019). The Remuneration
Committee (in the case of the Chairman fees) and the Executive Directors
and Chairman (in the case of the Non-Executive Director fees) recognise
that these increases are above the “normal” percentage, but the increases
were made to reflect the growing complexity of the Ocado business and
subsequent responsibilities, workload and time commitment required
from the Chairman and the Non-Executive Directors.
➔ Please see page 120 for further information on NED fees
Executive Remuneration and the Broader Context
Ocado is an organisation where diversity is valued, and we seek to
grow and innovate by using and nurturing our workforce’s talents
and expertise. The Company is committed to hiring and developing
our people in accordance with our Equal Opportunities Policy. We
want to have the right people with a common focus on delivering
our strategy whilst demonstrating our Ocado values. The Company
ensures that promotion and recruitment is fair and objective and
that all of our people are rewarded justly and competitively for their
valued contribution to our achievements. When making decisions on
executive remuneration, the Remuneration 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 116
I will be available at the AGM to answer any questions about the
work of the Remuneration Committee.
Andrew Harrison
Remuneration Committee Chairman
11 February 2020
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Back to contents 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.
Other attendees at the Remuneration Committee meetings included
the Chairman of the Board, the Chief Executive Officer, the Chief
Financial Officer, the Group Chief People Officer and the external
adviser to the Remuneration Committee. The Chairman, Executive
Directors and other attendees are not involved in any decisions of
the Remuneration Committee and are not present at any discussions
regarding their own remuneration. The Deputy Company Secretary is
secretary to the Remuneration Committee.
External Advice
During the period, the Remuneration Committee and the Company
retained independent external advisers to assist them on various aspects
of the Company’s remuneration and share schemes as set out below:
Adviser
PricewaterhouseCoopers LLP
Retained by
Remuneration Committee
Services Provided
to the
Remuneration
Committee
Other Services
Provided by PwC
Advice on a range of remuneration issues
including attendance at Remuneration
Committee meetings, information on market
practice in relation to various aspects of
remuneration, market trends and benchmarking
of Executive Director remuneration.
Other PwC advisory teams advised the Group on
a range of matters during the period including
internal controls, risk management, cyber
security, accounting and translation advice.
PricewaterhouseCoopers LLP Reappointment and Review
The Remuneration Committee considered the reappointment of
PricewaterhouseCoopers LLP (“PwC”). This review took into account
PwC’s effectiveness, independence, period of appointment and fees.
PwC were initially appointed by the Remuneration Committee in 2017
following a tender process and were reappointed in 2019.
The Remuneration Committee reviewed the performance of PwC based
on feedback from members of the Remuneration Committee and senior
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 continued to maintain independence and objectivity.
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For the period, £127,600 (2018: £161,833) in fees were paid or
payable to PwC for advisory services provided to the Remuneration
Committee. The basis for this is a fixed retainer fee and a time-based
fee for additional work.
Following the review by the Remuneration Committee, it was agreed
that PwC should be reappointed.
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
Group Chief People Officer 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.
Stock Code: OCDO
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Continued
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How the Committee Spent its Time in 2019
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. In
line with its Terms of Reference, the Remuneration Committee’s work
during the period is set out below:
Key agenda items
• Approving changes regarding remuneration in light of the 2018
Code.
• Approving the 2019 Directors’ Remuneration Policy and Directors’
Remuneration Report for FY18.
• Approving the annual general meeting explanatory notices and
incentive plan rules.
• Receiving a report on output from shareholder consultation
meetings in November 2018.
• Receiving a report from the CEO and Chairman on performance
and remuneration of the Executive Directors.
• Approving the FY19 AIP performance targets and reviewing the
design/measures for the FY20 AIP.
• Receiving a report on Director performance and/or pay (Executive
Director, Non-Executive Director and Chairman).
• Approving the Executive Director and Chairman pay increases.
• Reviewing performance under the FY18 AIP and consideration of
any bonuses payable.
• Reviewing performance and approving payments under the
FY16 and FY17 LTIP awards.
• Review of Committee composition, Terms of Reference and
performance.
• Receiving reports and advice from advisers on a range of matters
including senior executive pay, market themes and trends and
new governance requirements.
• Receiving a report on shareholder feedback on the FY18 annual
report and 2019 annual general meeting.
• Receiving a report on Group-wide and management remuneration
for FY19.
• Reviewing a proposal for new international share schemes.
• Receiving a report on the Group’s share scheme and plans for FY20.
• Reviewing the performance of advisers.
• Approving the VCP awards to management.
• Approving the GIP vesting.
• Various senior management arrangements on joining and leaving
the Company.
In line with the 2018 Code, the Remuneration Committee’s work
now includes monitoring and considering the level and structure of
remuneration for the Management Committee (previously this was the
responsibility of the Chief Executive Officer). The Executive Directors and
the Chairman reviewed the remuneration arrangements of the Non-
Executive Directors.
102 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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Back to contents 26615 11 February 2020 5:55 am Proof 3Directors’ Remuneration ReportContinued£1,617mRetail revenueANNUAL INCENTIVE PLAN (AIP)Link to strategy: The five AIP measures for 2020 which are listed on page 110 provide a good balance of rewarding performance based on both the Retail and Solutions businesses, as well as focusing on individual performance. VALUE CREATION PLAN (VCP)Link to strategy: The single total shareholder return measure is well aligned to our strategy of delivering substantial and sustained returns to shareholders by driving innovation and growth in our platform business.Our 2019 Remuneration Policy has enabled us to simplify our remuneration framework by operating two incentive plans that focus on driving exceptional, sustainable growth over the long-term (via the VCP) and also reward short-term operational and strategic decisions (via the AIP).Annual Incentive Plan (AIP)Link to strategy: The current four AIP measures of Retail Revenue (20%), Retail EBITDA (20%), Solutions Commitments (40%), and individual objectives (20%) provide a good balance of re-warding performance based on both the Retail and Solutions businesses, as well as focusing on indi-vidual objectives. 2New Ocado Solutions Partners£79.2mRetail EBITDA1£70.5mSolutions revenue259.4%Share price growthREMUNERATION AT A GLANCEKey Business OutcomesEXECUTIVE PAY AT OCADOThe Components of RemunerationThe different components of remuneration in this report are colour coded as follows: Salary Benefits Pension Shareholding AIP LTIP VCP GIPKeySalaryFixedVariableBenefitsPensionAIP Cash + Deferred BonusOne-off Value Creation PlanTotal remunerationReflects the value of the individual, their role, skills, experience and contribution to the businessAligned with all other employee arrangementsProvides an appropriate level of retirement benefits. All Executive Directors are aligned with employee pension contributionsIncentivises achievement of annual objectives and aligns Director and shareholder interests by delivering some of AIP in sharesMotivates key individuals to achieve long-term targets and exceptional levels of performanceSum of the fixed and variable components of remuneration1 Presented on the previous segmental reporting basis in place when the targets were set.2 Solutions revenue as measured under pre-IFRS 15 accounting standard in place when the targets were set.104Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019www.ocadogroup.comGOVERNANCEOcado Annual Report 2019 Remuneration.indd 10411/02/2020 06:29:36Back to contents VCP
GIP
Outcomes for 2019
FIXED COMPONENTS
Salary (£)
Benefits (include car allowance, private medical and other
benefits) (£)
Pension - up to 8% of salary (£)
Total (£)
VARIABLE COMPONENTS
2019 AIP OUTTURN
Tim
Steiner
CEO
660,667
Duncan
Tatton-Brown
CFO
406,000
Mark
Richardson
COO
406,000
Neill Abrams
Group GC &
CoSec
385,733
Luke
Jensen
CEO Ocado
Solutions
406,000
17,572
49,098
727,334
1,273
32,480
439,753
1,273
32,815
440,088
1,273
30,720
417,726
16,770
19,368
442,138
Under this Plan, the Chief Executive Officer had a maximum bonus opportunity of 275% of salary, the Group General Counsel and Company
Secretary had a maximum opportunity of 190% of salary, and the other Executive Directors had a maximum opportunity of 215% of salary.
A summary of the outcomes is as follows.
Threshold (5/10% of
award payable)
Maximum (20/40% of
award payable)
Outcome (% total
award)
Retail revenue (20%)
Retail EBITDA (20%)
No of non-UK Solutions
commitments (40%)
Individual objectives (20%)
Total
0%
0%
40%
15%–18.5%
55%–58.5%
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➔ Further details are set out on pages 121 to 123 in the Annual Report on Remuneration
2017 LTIP OUTTURN
Under this Plan, the Chief Executive Officer was granted an award of 200% of salary, the Group General Counsel and Company Secretary was granted an
award of 120% of salary, and the other Executive Directors were granted awards of 150% of salary. A summary of the outcomes is as follows.
Threshold (6.25% of
award payable)
Maximum (25% of
award payable)
Outcome (% total
award)
Retail revenue (25%)
Adjusted Retail EBT (25%)
Platform operational
efficiency (25%)
Solutions revenue (25%)
Total
No awards will be made to Executive Directors under the LTIP from FY19 onwards.
➔ Further details are set out on page 123 in the Annual Report on Remuneration
0%
0%
21.1%
25%
46.1%
Tim Steiner
Duncan Tatton-Brown
Mark Richardson
Neill Abrams
Luke Jensen
2019 AIP
2017 LTIP
Outcome
(% salary)
Outcome
(£)
157% £1,073,738
£510,195
122%
£496,650
118%
£461,244
110%
£528,074
126%
Number of
shares vesting
208,778
96,797
96,797
65,036
95,387
Value on
vesting (£)
£2,680,540
£1,242,795
£1,242,795
£835,015
£1,224,689
Stock Code: OCDO
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Continued
2014 GIP OUTTURN
Awards under the one-off shareholder approved GIP were granted on 8 May 2014 and vested on 8 May 2019. Performance was tested based on
Ocado’s share price performance relative to the growth of the FTSE 100 Share Index over the same period. Due to the exceptional performance
of the Company, achieving 31.02% p.a. share price growth compared to 1.79% p.a. growth in the FTSE 100, the GIP vested in full during the year.
The Group General Counsel and Company Secretary did not participate in the GIP.
Number of nil-cost options vesting
Value of nil-cost options vesting (£)
GIP performance Chart
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a
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y
-
5
e
h
t
r
e
v
o
–
.
a
.
p
e
c
n
a
m
r
o
f
r
e
p
e
c
i
r
p
e
r
a
h
S
d
o
i
r
e
p
e
c
n
a
m
r
o
f
r
e
p
P
G
I
35%
30%
25%
20%
15%
10%
5%
0%
Tim Steiner
CEO
Duncan
Tatton-Brown
CFO
Mark
Richardson
COO
Luke Jensen
CEO Ocado
Solutions
Neill Abrams,
Group GC & CoSec
4,000,000
1,000,000
1,000,000
470,000
54,120,000
13,530,000
13,530,000
6,359,100
n/a
n/a
Maximum
Threshold
FTSE 100
FTSE 100 +5% FTSE 100 +10% FTSE 100 +15% FTSE 100 +20%
Ocado
Ocado
outperformance
106 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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Year 1
Value
Attributed
£
Number
of Shares
Subject to
Nil Cost
Options
Participant
Rate
Percentage
Values
£
Number
of
Shares
Name
Tim Steiner
1.00%
Duncan
Tatton-Brown
Mark
Richardson
Neill Abrams
Luke Jensen
0.25%
0.25%
0.25%
0.25%
£0
£0
£0
£0
£0
£0
£0
£0
£0
£0
£0
£0
£0
£0
£0
0
0
0
0
0
The table below sets out estimates of the minimum Threshold TSR
that would need to be obtained in each of the five years of the VCP
before any value is delivered to Executive Directors. These Threshold
TSR figures are calculated by compounding the Initial Price (£13.97)
by 10% p.a., however the actual Threshold TSR is the higher of the
compounded Initial Price and the highest previous Measurement TSR.
As mentioned above, the figures in the table below are estimates
which are subject to change depending on the exact date that the
Company’s results for the relevant financial year are published.
Minimum Threshold TSR
Year
Market capitalisation (£ billion)
Share price (£)
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1
2
3
4
5
£10.61 bn
£11.67 bn
£12.83 bn
£14.12 bn
£15.53 bn
£15.16
£16.68
£18.35
£20.18
£22.20
➔ For full terms and conditions of the VCP, see the notice of the 2019
annual general meeting
Single figure for 2019
The table below provides a summary total single figure of
remuneration for 2019. Further details are set out on page 119
in the Annual Report on Remuneration.
Executive Director
Tim Steiner
Duncan Tatton-Brown
Mark Richardson
Neill Abrams
Luke Jensen
Total 2019
(£’000)
Total 2018
(£’000)
58,727
15,847
15,834
1,835
8,554
3,996
1,965
1,957
1,435
2,015
2019 VCP
VCP awards were granted in May 2019. The award gives Executive
Directors the opportunity to share in a proportion of the total value
created for shareholders above a 10% Total Shareholder Return (“TSR”)
hurdle (“Threshold TSR”) at the end of each year (“Measurement Date”)
over a five-year period. At each Measurement Date, up to 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 initial price for the VCP is £13.97 (the average price over the
30-day period prior to the 2019 annual general meeting). The
Executive Directors will receive the right at the end of each year of the
performance period to share awards with a value representing the
level of the Company’s total shareholder return (“Measurement TSR”)
above the Threshold TSR at the relevant Measurement Date.
The Threshold TSR 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 TSR; and
the Initial Price (£13.97) compounded by 10% p.a.
If the value created at the end of a given year does not exceed the
Threshold TSR, 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:
(1) A minimum TSR underpin of 10% Compound Annual Growth Rate
being maintained.
(2) Any shares vesting cannot be sold prior to the fifth anniversary.
(3) An annual cap on vesting of £20 million for the CEO and £5 million
for other Executive Directors.
The first VCP Measurement Date will be 30 days after the publication
of the financial results. The following table sets out the calculation for
the first Measurement Date under the VCP. At the time of writing the first
Measurement Date has not yet occurred and hence the Measurement TSR
is an estimate based on a 30-day average share price for the 30 days up to
and including 21 January 2020.
Initial Value (share price)
Threshold TSR (per share)
Measurement TSR (Measurement Price)
(illustrated as at 21 January 2020)
Estimated difference between
Measurement TSR and Threshold TSR
Aggregate of Participant Rate Percentages for the
Executive Directors
Estimated Aggregate Value of Nil-Cost Options
granted to Executive Directors
£9.77 billion
(£13.97)
£10.61 billion
(£15.16)
£9.05 billion
(£12.94)
(£1.55 billion)
2.0%
£0
(1) The Measurement Price is the 30-day average closing share price for the 30 days
following the announcement of the results for the financial year. For the purpose of
providing a VCP performance update for this report, we have used the 30 day average
closing share price for 30 days up to 21 January 2020 which is 1,294 pence.
(2) The Threshold TSR is the Initial Value share price, compounded by 10%p.a. between
1 May 2019 and 12 March 2020, being the start of the VCP performance period, and the
first Measurement Date.
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
107
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Directors’ Remuneration Report
Continued
Base
Salary
Reflects the skills 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
E
C
N
A
N
R
E
V
O
G
Reward philosophy
Our remuneration principles, which we also
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 pay-outs 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.
The Remuneration Policy for 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
has 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 deferral
and holding periods and the minimum
shareholding requirements all help to
ensure a longer term focus for the business
from the Executive Directors.
108 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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Back to contents Summary Policy table for Executive Directors
In this section we provide a summary of the key elements of the 2019 Remuneration Policy for Executive Directors approved by shareholders at our 2019
annual general meeting on 1 May 2019. In addition, we have set out how the Policy was operated in 2018/19 and how it is intended to be operated in 2019/20.
➔ You can find the full Remuneration Policy on the Corporate Website, www.ocadogroup.com
BASE SALARY
To attract and retain the right calibre of senior executives required to support the long-term interests of the business.
t
n
e
m
e
l
E
0
2
/
9
1
0
2
1
2
/
0
2
0
2
2
2
/
1
2
0
2
3
2
/
2
2
0
2
4
2
/
3
2
0
2
5
2
/
4
2
0
2
Operation
Opportunity
There is no prescribed
maximum.
Normally, maximum salary
increases will be within the
normal percentage range
applied to the UK-based
monthly paid employees of
the Company in that year.
Larger increases may be
awarded in exceptional
circumstances for example,
if the role has increased
significantly in scope or
complexity.
Paid monthly in cash.
Reviewed annually or when
there is a change in position
or responsibility.
The review takes into
account:
• 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 locations to
the Company.
• An individual’s
contribution to the Group.
y
r
a
l
a
S
e
s
a
B
BENEFITS
Operation in
the year ended
1 December 2019
As at 1 April 2019:
• Tim Steiner (CEO):
£685,000
• Duncan Tatton-Brown
(CFO): £420,000
• Mark Richardson (COO):
£420,000
• Neill Abrams (Group GC &
CoSec): £420,000
• Luke Jensen (CEO Ocado
Solutions): £420,000
Operation in
the year ending
1 December 2020
Subject to continued strong
individual performance and
the Company remaining a
constituent of the FTSE 100,
as at 1 April 2020:
• Tim Steiner (CEO):
£720,000
• Duncan Tatton-Brown
(CFO): £440,000
• Mark Richardson (COO):
£440,000
• Neill Abrams (Group GC &
CoSec): £440,000
• Luke Jensen (CEO Ocado
Solutions): £440,000
See page 120 for further
details on salaries
G
O
V
E
R
N
A
N
C
E
To attract and retain the right calibre of senior executives required to support the long-term interests of the business.
t
n
e
m
e
l
E
0
2
/
9
1
0
2
1
2
/
0
2
0
2
2
2
/
1
2
0
2
3
2
/
2
2
0
2
4
2
/
3
2
0
2
5
2
/
4
2
0
2
Operation
Opportunity
Operation in
the year ended
1 December 2019
s
t
i
f
e
n
e
B
PENSION
Benefits provided aligned
with those provided to all
employees under our flexible
benefits policy.
Benefits are set at a level
which is considered to be
appropriate against market
data for comparable roles.
Includes car allowance,
driver, private medical
insurance and other benefits.
Operation in
the year ending
1 December 2020
No planned change.
To attract and retain the right calibre of senior executives required to support the long-term interests of the business.
t
n
e
m
e
l
E
0
2
/
9
1
0
2
1
2
/
0
2
0
2
2
2
/
1
2
0
2
3
2
/
2
2
0
2
4
2
/
3
2
0
2
5
2
/
4
2
0
2
Operation
Opportunity
Operation in
the year ended
1 December 2019
Operation in
the year ending
1 December 2020
n
o
i
s
n
e
P
Executive Directors can
choose to participate in the
defined contribution Group
personal pension scheme
or an occupational money
purchase scheme.
Where lifetime or pension
allowances have been met,
the balance of employer
contributions may be paid
as a cash allowance or into a
personal pension arrangement.
Maximum contribution of 8%
of salary.
Maximum pension
contributions of up to 8% of
salary offered to Executive
Directors.
In order to ensure continued
alignment between
Executive Director and
wider workforce pension
contributions, all Executive
Directors will receive a
contribution rate of 7% of
salary from April 2020.
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
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Directors’ Remuneration Report
Continued
ANNUAL INCENTIVE PLAN (AIP)
To reinforce and reward delivery of annual strategic business priorities, based on performance measures relating to both Group and individual
performance.
Bonus deferral provides alignment with shareholder interests.
t
n
e
m
e
l
E
0
2
/
9
1
0
2
1
2
/
0
2
0
2
2
2
/
1
2
0
2
3
2
/
2
2
0
2
4
2
/
3
2
0
2
5
2
/
4
2
0
2
Operation
Opportunity
Operation in
the year ended
1 December 2019
Maximum opportunity of
275% of salary.
Maximum potential for the
year of (as % of salary):
• CEO: 275%
Operation in
the year ending
1 December 2020
No change to maximum
potential for Executive
Directors.
Up to 50% of any bonus
will be paid in cash (up to a
maximum of 100% of salary)
and at least 50% will be
deferred into shares.
Main terms of deferred
shares:
• Minimum deferral period
of three years from the
date of grant.
• Additional two-year post
vesting holding period.
• Continued employment
to the end of the deferral
period (unless “good
leaver”).
Dividend equivalents may be
awarded on deferred shares.
E
C
N
A
N
R
E
V
O
G
)
P
I
A
(
n
a
l
P
e
v
i
t
n
e
c
n
I
l
a
u
n
n
A
• Group GC & CoSec: 190%
• Other Executive Directors:
AIP will be measured against
the following performance
measures:
• Number of modules
ordered by international
Solutions partners (30%)
• Retail segment EBITDA
(20%)
• Erith Capacity (20%)
• OSP Features (10%)
•
Individual objectives
(20%) (further details on
page 114)
Percentage of maximum
bonus earned for levels of
performance:
• Threshold: 25%
• Maximum: 100%
215%
AIP was measured against
the following performance
measures:
• Retail Revenue (20%)
• Retail EBITDA (20%)
• Number of Non-UK
Solutions commitments
(40%)
•
Individual Objectives
(20%)
Executive Directors awarded
bonuses of:
• Tim Steiner (CEO): 157%
of salary
• Duncan Tatton-Brown
(CFO): 122% of salary
• Mark Richardson (COO):
118% of salary
• Neill Abrams (Group GC &
CoSec): 110% of salary
• Luke Jensen (CEO Ocado
Solutions): 126% of salary
➔ See page 121 for further
details on outcomes
The specific performance targets for the AIP are not disclosed for the 2020 financial year on the basis the Remuneration Committee considers that these targets are commercially
sensitive to the Company and if disclosed could damage the Company’s commercial interests at this stage.
110 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
www.ocadogroup.com
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ONE-OFF PLAN: VALUE CREATION PLAN (VCP)
To reward and align to the delivery of sustained long-term shareholder return outperformance and to align the interests of participants
with those of shareholders.
t
n
e
m
e
l
E
0
2
/
9
1
0
2
1
2
/
0
2
0
2
2
2
/
1
2
0
2
3
2
/
2
2
0
2
4
2
/
3
2
0
2
5
2
/
4
2
0
2
Operation
Opportunity
Operation in
the year ended
1 December 2019
A one-off award that grants
Executive Directors the
opportunity to share in
2.75% of the total value
created for shareholders
above a 10% p.a. Total
Shareholder Return (“TSR”)
hurdle over a five-year
performance period.
The maximum number of
share awards that may vest
under the VCP is 2.75% of
the issued share capital.
Awards are subject to an
annual cap on the value
on vesting of:
• CEO: £20 million;
For Executive Directors, the
following maximum limits
apply:
• CEO: 1% of the total value
created above the hurdle;
• Other Executive Directors:
0.25% of the value
created.
Vesting schedule:
• Other Executive Directors:
Operation in
the year ending
1 December 2020
No planned change.
)
P
C
V
(
n
a
l
P
n
o
i
t
a
e
r
C
e
u
l
a
V
:
n
a
l
P
f
f
o
-
e
n
O
£5 million.
• 50% of the cumulative
number of share awards
vest following the third
and fourth Measurement
Dates.
• 100% of the cumulative
number of share awards
vest following the fifth
Measurement Date.
Additional holding periods
apply such that vested
shares become unrestricted
no earlier than five years
from the start of the plan.
Vesting of awards is also
subject to a minimum return
of 10% TSR p.a.
Executive Directors may
choose to receive their share
awards by acquiring jointly
owned equity awards at the
time that they are invited to
join the VCP.
G
O
V
E
R
N
A
N
C
E
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
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Directors’ Remuneration Report
Continued
SHAREHOLDING REQUIREMENT
t
n
e
m
e
l
E
0
2
/
9
1
0
2
1
2
/
0
2
0
2
2
2
/
1
2
0
2
3
2
/
2
2
0
2
4
2
/
3
2
0
2
5
2
/
4
2
0
2
Operation
Opportunity
i
l
s
g
n
d
o
h
e
r
a
h
S
Shareholding requirement
for Executive Directors:
• CEO: 400% of salary.
• Other Executive Directors:
300% of salary.
Shareholding requirement
for Non-Executive Directors:
• Hold shares equivalent to
one year’s annual fee.
Post-cessation shareholding
requirement of 100% of
pre-cessation shareholding
requirement for 12 months
from leaving the Company.
Operation in
the year ending
1 December 2020
No change.
Operation in
the year ended
1 December 2019
Current Executive Director
shareholdings are:
• CEO: 43,032% of salary
• CFO: 4,521% of salary
• COO: 4,599% of salary
• Group GC & CoSec:
10,704% of salary
• CEO Ocado Solutions:
578% of salary
➔See page 127 for
Non-Executive
Director Shareholding
requirements.
(1) The assessment for the Executive Directors’ shareholdings as a percentage of salary was based on the Directors’ shareholdings at the end of the period, and the share price as at 28
January 2020 (being the last practicable date prior to the publication of this Annual Report).
SUMMARY POLICY TABLE FOR NON-EXECUTIVE DIRECTORS
The table below summarises the key elements of the 2019 Remuneration Policy for the Chairman and Non-Executive Directors.
E
C
N
A
N
R
E
V
O
G
Element
Operation
Opportunity
Operation in the year
ended 1 December 2019
Operation in the year
ended 1 December 2020
As at 1 April 2019:
• Lord Rose (Chairman):
£300,000.
Fee to be reviewed
by the Remuneration
Committee during the
annual pay review period.
Normally, any increases
will be within the normal
percentage range applied
to the UK-based monthly
paid employees of the
Company in that year.
Normally, any increases
will be within the normal
percentage range applied
to the UK-based monthly
paid employees of the
Company in that year.
As at 1 April 2019:
• Base fee: £65,000.
• SID fee: £15,000.
• Committee Chairman
fee: £16,000.
Fee to be reviewed by the
Board during the annual
pay review period.
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.
Paid monthly in cash.
Reviewed annually by the
Remuneration Committee.
The review takes into account:
• The Group’s annual review
process.
• Business performance.
• Appropriate market data for
comparable roles for companies
of equivalent size and complexity
in similar sectors or locations to
the Company.
Paid monthly in cash.
Fee structure includes an annual
base fee and may include
additional fees for being the Senior
Independent Director (SID), a Board
Committee Chairman or other
additional responsibility.
Reviewed annually by the Executive
Directors and Chairman.
The review takes into account:
• The Group’s annual review
process.
• Business performance.
• Appropriate market data for
comparable roles for companies
of equivalent size and complexity
in similar sectors/locations to the
Company.
112 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
www.ocadogroup.com
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During the period, the Executive Directors continued their
participation in the all-employee Sharesave and SIP schemes. It
is expected that in 2020, the Executive Directors will carry on their
participation in the schemes.
Base Salaries
The Remuneration Committee seeks to ensure that the quantum of
remuneration provided to Executive Directors is both commensurate
and competitive, in order to support the long-term success of the
business and sustainable long-term shareholder value.
Ocado’s 2019 approved Directors’ Remuneration Policy states that
any base salary review will consider a number of factors, including
business performance, total remuneration, appropriate market data
for comparable roles for companies of equivalent size and complexity,
and an individual’s contribution to the Group.
Over the past few years Ocado has grown substantially, establishing
itself firmly in the FTSE 100 Index since its admission in June 2018.
This growth reflects a series of successful deals with companies
such as Morrisons, Sobeys, Kroger, Casino, ICA, Coles and Aeon
as well as the recent joint venture with M&S, and has meant the
Company’s share price has increased by around 265% over the past
two years. Executive Director salaries as set out in the FY18 Directors’
Remuneration Report are significantly below that of the FTSE 100
lower quartile for equivalent roles (see page 115 for benchmarking).
Considering the above, the Remuneration Committee felt that a
review of Executive Director salaries was necessary to ensure salaries
reflect the significant growth in scale and complexity of the business.
The Remuneration Committee concluded that Ocado’s rapid growth
rate and the resulting increase in the scale and complexity of the
Directors’ roles reflect exceptional circumstances, and determined
that increases be applied to Executive Directors’ salaries in two steps:
The Policy also states the following in respect of the level of Director
salary increases:
(1) An initial increase effective 1 April 2019
• 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.
(2) A second increase to be awarded on 1 April 2020 subject to
continued strong individual performance and the Company
remaining a constituent of the FTSE 100.
The resulting salaries (after both increases) are positioned around the
lower quartile of the FTSE 100 equivalent roles. The salary increases
are summarised in the table below.
G
O
V
E
R
N
A
N
C
E
Salary (£000s)
April 2018 – March 2019
April 2019 – March 2020
April 2020 – March 2021
Salary increases (rounded to the nearest 0.5%)
First increase
Second increase
CFO, COO, CEO
Ocado Solutions
Group GC &
CoSec
378
420
440
11%
5%
317
420
440
32.5%
5%
CEO
612
685
720
12%
5%
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
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Continued
E
C
N
A
N
R
E
V
O
G
Individual Objectives for 2020 AIP
The following table sets out the categories of individual objectives that will be assessed over 2020. More detail on the objectives and assessment
against these will be disclosed in next year’s report.
Tim Steiner
• Grow the international Ocado Solutions client base and build the foundations for future revenue growth
• Launch Sobeys and Casino OSPs in set timeframe
• Deliver Ocado Retail sales and EBITDA
• Successful delivery against the technology and innovation strategy
• Deliver the organisational transformation
Duncan Tatton-
Brown
• Review and enhance operation of the broader Finance team including the Transformation team
•
Identify and complete suitable new venture investments and ensure optimal outcome for existing investments with
limited support from the core business
• Reduce the long term ownership cost of the solution
• Ensure suitable funding structure remains in place to allow the Group to achieve its strategic objectives
Mark Richardson
• Launch of Sobeys and Casino CFCs in set timeframes
• Grow Erith order capacity
• Create Implementation team capable of meeting OSP roll-out challenge
• Create Client Services team capable of supporting live and future OSP clients
Neill Abrams
• Support the execution of signed international Ocado Solutions deals
• Support CEO in continued transformation of Ocado Group into a technology business
• Continue transformation of Legal, Governance and IP function
Luke Jensen
• Grow the international Ocado Solutions client base
• Build the foundations for future revenue growth of Ocado Solutions
• Develop Ocado Solutions/International infrastructure to support future growth
• Build profile and reputation of Ocado Solutions
Additional Context on Executive Director pay
Overall link to remuneration and equity of the Executive Directors
The table below sets out, for each Executive Director, the single figure for 2018/19, the number of shares held by the Director at the beginning
and end of the financial year and the impact on the value of these shares taking the opening price and closing price for the year. It is the
Remuneration Committee’s view that the total exposure of the Executive Directors to the Company is more relevant to their focus on the long-
term sustainable performance of the Company than the single figure of remuneration for a particular year.
Tim Steiner
Duncan Tatton-Brown
Mark Richardson
Neill Abrams
Luke Jensen
2018/19
single figure
(£000s)
Shares held
at start of
year
Shares held
at end of year
Value of
shares at
start of year
(£000s)
Value of
shares at
end of year
(£000s)
Difference
(£000s)
58,727
15,847
15,834
1,835
8,554
23,478,117
23,597,672
195,150
312,669
+117,519
1,467,988
1,494,393
4,707,093
177,765
1,521,327
1,547,739
3,602,071
194,524
12,202
12,421
39,125
1,478
20,158
20,508
47,727
2,577
+7,956
+8,087
+8,602
+1,099
The closing market price of the Company’s shares as at 29 November 2019, being the last trading day in the period ended 1 December 2019, was
1,325 pence per ordinary share (2018: 831.2 pence), and the share price range applicable during the period was 749.8 pence to 1,435 pence per
ordinary share.
114 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
www.ocadogroup.com
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Proof 3
Back to contents How does our salary/target total remuneration compare to our peers?
The following tables show the Company’s comparative positioning of both salary and total remuneration against the FTSE 100 (data as
at January 2019). This demonstrates the Remuneration Committee’s positioning of salaries below the market with competitive levels of
remuneration only earned by the Executive Directors if strong performance is delivered.
FTSE 100 salary positioning
Salary £000s
Upper Quartile
Median
Lower Quartile
Ocado (before any increases)
Ocado (after both increases)
FTSE 100 Total Target Remuneration positioning
Total Target Remuneration £000s
Upper Quartile
Median
Lower Quartile
Ocado (without the VCP)
Ocado (with the VCP)
CEO
1,060
860
715
612
720
CEO
4,365
3,150
2,265
1,870
4,788
CFO
700
550
465
378
440
CFO
2,660
1,865
1,415
995
1,725
COO
690
585
430
378
440
COO
2,205
1,590
1,310
995
1,725
CEO, Ocado
Solutions
Group GC
& CoSec
645
500
410
378
440
645
500
410
317
440
CEO, Ocado
Solutions
Group GC
& CoSec
2,310
1,545
1,260
995
1,725
2,310
1,545
1,260
932
1,662
Note: Total Target Remuneration figures for Ocado are based on current salaries, target AIP and includes pension contributions. The value of the VCP shown is the IFRS 2 fair value which
has been annualised to reflect a five-year term. Source of information: Annual Reports of FTSE100 companies, benchmarking methodology aligned to standard approach taken by the
company
Source of data: PwC Annual Report database.
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Proof 3
Back to contents Directors’ Remuneration Report
Continued
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Annual Report on Remuneration – 2019
Introduction
This part of the Directors’ Remuneration Report sets out the Directors’
remuneration paid in respect of the 2019 Financial Year. It details the
payments to Directors and the link between Company performance and
remuneration of the Chief Executive Officer.
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 Remuneration Policy is designed in line with the remuneration
principles outlined on page 108, which reflect the remuneration
principles for the Group. In this section, we provide context to our
Executive Director pay by explaining our approach to fairness, as well
as the ratio of CEO pay to that of the wider workforce.
Group-wide remuneration report
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.
Share schemes
A key remuneration principle for the Group is that share awards be used to
recognise and reward good performance, and attract and retain employees.
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 Sharesave plan alone has delivered around £34,000,000 of value
to our employees this year with the average participant earning £31,940.
Employment at Ocado
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, environment and pay strategy that supports all
individuals irrespective of their gender, age, race, disability, sexual
orientation, or religion.
Chief Executive Officer pay ratios
The tables below set out the total pay of the Group Chief Executive
Officer and UK employee population as a whole at median, lower
quartile and upper quartile using the methodology applied to the
single figure of remuneration. We set this out on the following bases:
• An estimate of the 2018 CEO pay ratio
• The 2019 pay ratio, both with and without the one-off GIP payment
• An illustrative figure for the 2020 pay ratio
The CEO pay ratio, when calculated in line with the Regulations, is
particularly high for 2019 due to the inclusion of the GIP which was granted
in 2014 and vested in 2019. Due to the one-off nature of the GIP, we believe
the ratio excluding the GIP is more meaningful as it more accurately reflects
the levels of remuneration that Ocado’s CEO typically receives.
This is highlighted by the fact then when we compare the 2019 pay
ratio excluding the GIP to last year’s estimated pay ratio and the
illustrative ratio for next year (2020), the figures are far less volatile.
Executive Director pay is more at risk than wider employee pay due to
the use of variable pay, resulting in a total pay ratio that can change
significantly from year to year.
Year
2018/19 – reported figures
2017/18 – equivalent calculation
2018/19 – without GIP payment
2019/20 – illustrative remuneration
CEO
Remuneration
(£’000)
25th
percentile
pay ratio
Median pay
ratio
£58,727
£3,996
£4,607
£5,214
2,820:1
198:1
221:1
242:1
2,605:1
183:1
204:1
223:1
75th
percentile
pay ratio
2,337:1
164:1
183:1
200:1
(1) Option B was selected to calculate CEO pay ratios as a proportionate, sustainable and repeatable approach given the size and structure of the Ocado workforce.
(2) From the information used to calculate the most recent gender pay return at each of the 25th, 50th and 75th percentiles twenty employees were identified as comparators and their
remuneration calculated. The median remuneration for each group of twenty employees is reported as the comparator value for CEO pay ratio calculations. Using the median value from
groups of employees at each of the 25th, 50th and 75th percentiles provides a more representative estimate than if based on an individual employee, reducing the influence of outlier value.
(3) The 2017/18 equivalent calculation follows the same methodology as applied for the 2018/19 reported figures, identifying a median remuneration for each group of twenty
employees that best represents the 25th, 50th and 75th percentiles.
(4) The 2019/20 illustrative ratio assumes a 3.65% increase in employee annual remuneration for the 25th, 50th and 75th percentile representative employees, derived from the
percentage increase in annual salary between 2018 and 2019 as set out on page 118.
(5) The 2019/20 illustrative remuneration for the CEO single total figure of remuneration is based on a CEO salary of £720,000 (salary as of 01/04/2020), a 7% pension contribution as set
out on page 109, 2018/19 reported taxable benefits uplifted at 3%, an AIP and LTIP vesting of 57% and 46.1% respectively in line with those received during the period and the SIP
awards that will become unrestricted during the next period at a share price of 1,325 pence per share.
Chief Executive Officer
UK employees (full time equivalents)
Total pay and
benefits
(£’000)
58,727
Total pay and benefits (£’000)
Salary (£’000)
Salary
(£’000)
661
25th
percentile
20.8
Median
22.5
75th
percentile
25.1
25th
percentile
19.3
Median
20.9
75th
percentile
23.1
Year
2018/19
116 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
www.ocadogroup.com
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Proof 3
Back to contents Gender Pay Gap
The Company will be reporting specific information about the difference in average pay for its male and female employees as required by
gender pay gap legislation. The Company’s gender pay gap metrics are submitted by the Group’s main employing entity, Ocado Central Services
Limited and the headline gender pay metric is the difference in the median hourly pay received by men and women. For 2019, this metric
remains balanced as it has done in previous years, although now marginally favours men, with a difference of 0.4%. For more information and to
view the full metrics see the Government Gender Pay Gap portal or the Corporate Website, www.ocadogroup.com.
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 entered the FTSE 100 in 2018. 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.
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
800
700
600
500
400
300
200
100
0
Ocado TSR
FTSE 100 TSR
FTSE 250 TSR
G
O
V
E
R
N
A
N
C
E
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 29 Nov 2019
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 nine financial years.
Year
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
Chief Executive
Officer Total
Remuneration
(£’000)
58,727
3,996
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)
Value of AIP or Bonus
Payment
(£’000)
Long-Term Incentives
as a Percentage
of Maximum
Opportunity
(% of maximum)
57
70.5
41.8
43.6
65.0
56.0
98.3
29.7
0
n/a
1,074
539
310
315
459
385
528
104
0
220
94.5
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 had vesting dates in 2019 and 2017 respectively. As of this period, the VCP is now the main form of long-term incentive plan.
(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 2019 period see note 1 of the total remuneration table on page 119.
(4) The 2017 LTIP vested at 46.1% of maximum and the GIP vested at 100% of maximum. The 2019 period Long-Term Incentive value is a weighted average of the 2017 LTIP and the GIP.
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
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Proof 3
Back to contents
Directors’ Remuneration Report
Continued
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 2018 to 2019
Percentage change in taxable benefits from 2018 to 2019
Percentage change in AIP earned from 2018 to 2019
(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 salary for the Chief Executive Officer is based on the base salary review set out on page 109.
(4) The change in taxable benefits for the Chief Executive Officer is as set out on pages 119 to 120.
(5) UK employees have been chosen as the majority of our workforce is UK-based.
Chief
Executive
Officer
11.9%
(6.9%)
99.1%
UK
employees
3.65%
7%
125.9%
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 table is:
• Loss – Group loss before tax as set out in Note 2.1 to the
Consolidated Financial Statements.
• Total gross employee pay – total gross employment costs for the
Group (including pension, variable pay, share-based payments and
social security) as set out in Note 2.6 to the Consolidated Financial
Statements.
Loss before tax
Total gross employee pay
1 December
2019
(£m)
2 December
2018
(£m)
(214.5)
476.8
(44.4)
388.4
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Cascade of Remuneration through company
All UK staff in the Company are eligible to participate in the
Company’s all-employee share schemes, pension scheme and
life assurance arrangements. In line with the 2018 Code, the 2019
Remuneration Policy ensures that pension contributions for existing
and any future Executive Directors will be aligned with the level
currently offered to all employees to ensure greater fairness across the
Company.
The remuneration arrangements for employees below Board level
reflect the seniority of the role and individual performance. 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.
Members of the Management Committee participate in various
combinations of the AIP, LTIP, VCP and other bespoke one-off
arrangements, with limited or no share deferral or holding periods
operating on these plans. The exact package received by a
member of the Management Committee reflects their job role and
responsibilities, seniority and time in role. 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.
The all employee remuneration report produced by the Company is
considered by the Remuneration Committee when making decisions
on pay for both Executive Directors and the wider workforce population.
118 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
www.ocadogroup.com
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Proof 3
Back to contents 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
Duncan
Tatton-Brown
Mark Richardson
Neill Abrams
Luke Jensen
Total
2019
£’000
2018
£’000
2019
£’000
2018
£’000
2019
£’000
2018
£’000
2019
£’000
2018
£’000
2019
£’000
2018
£’000
Salary
Taxable Benefits
Pensions
Total Fixed Pay
Variable Pay
AIP
LTIP
Cash LTIP
GIP
ESOS and 2014
ESOS
SIP
661
18
49
728
1,074
2,681
–
54,120
–
19
105
–
57,999
Sharesave
VCP
Total Variable Pay
Recovery of Sums
–
Paid
Total Remuneration 58,727
606
19
54
679
539
2,767
–
–
–
11
–
–
3,317
406
1
33
440
510
1,243
–
13,530
–
19
105
–
15,407
374
2
29
405
266
1,283
–
–
–
11
–
–
1,560
406
1
33
440
497
1,243
–
13,530
–
19
105
–
15,394
–
3,996
–
15,847
–
1,965
–
15,834
374
2
27
403
260
1,283
–
–
–
11
–
–
1,554
–
1,957
386
1
31
418
461
835
–
–
–
16
105
–
1,417
–
1,835
314
2
25
341
225
860
–
–
–
9
–
–
1,094
–
1,435
406
17
19
442
528
1,225
–
6,359
–
–
–
–
8,112
–
8,554
2019
£’000
2,265
38
165
2,468
281
5
21
307
271
–
1,438
–
3,070
7,227
–
87,539
–
–
–
73
–
–
1,709
420
–
98,329
2018
£’000
1,949
30
156
2,135
1,561
6,193
1,438
–
–
42
–
–
9,234
G
O
V
E
R
N
A
N
C
E
–
–
2,016 100,797
–
11,369
(1) The value of LTIP awards for 2016 included in the column for the 2018 financial year has been restated to show the actual vested amount (based on the vesting of the award on
27 March 2019 at a price of 1,287 pence per share. The actual vested amount is £2,051,000 higher than the estimated vested amount stated in the 2018 annual report of £4,138,000.
The estimated vested amount was based on the three-month average share price from 30 August 2018 to 2 December 2018 of 860.03 pence per share. No dividends were paid.
(2) The value of LTIP awards for 2017 included in the column for the 2019 financial year has been based on 46.1% vesting and estimated using the three-month average share price from
2 September 2019 to 29 November 2019 of 1,283.92 pence per share, as these awards are not capable of vesting until after the end of the period, on 20 February 2020. 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 included in the column for the 2018 financial year has
been restated to show the actual vested amount based on the vesting of the award on 15 March 2019 at a price of 1,001 pence. The actual vested amount is £282,000 higher than
the estimated vested amount stated in the 2018 Annual Report. The estimated vested amount was based on the average share price in the final twenty business days in the 2018
Financial Year, being 804.5 pence per share. More detail can be found on page 124.
(4) Under the Share Incentive Plan, awards of Free Shares and Matching Shares became unrestricted during the period. These awards are explained on page 124 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) The value of the GIP included in the column for the 2019 financial year displays the face value of the nil-cost options at the time of vesting on 8 May 2019, at a price of 1,353 pence per
share.
(7) 50% of the AIP payment is deferred in shares for a period of three years, with an additional two year holding period. There are no performance conditions attached to the deferred
element.
(8) No figures are stated for the VCP, to show that there is no expected value for the 2019 financial year. This is based upon a Measurement Threshold TSR of £12.94, estimated using the
average share price of the 30 days up to and including 21 January 2020, as the Measurement Date for the VCP falls outside of the period, on 12 March 2020.
(9) Due to an administrative error, an over-payment of pension benefits was made to Luke Jensen in the 2018 financial year, therefore there has been a downward adjustment in this
financial year to rectify the error.
An explanation of each element of remuneration paid in the table is set out in the following section.
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
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Proof 3
Back to contents
Directors’ Remuneration Report
Continued
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 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 2019
(£)
Salary 2018
(£)
Effective from
685,000
420,000
420,000
420,000
420,000
612,000
01/04/2019
378,000
01/04/2019
378,000
01/04/2019
317,200
01/04/2019
378,000
01/04/2019
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The changes to base salary were made in line with the Directors’ Remuneration Policy. The Executive Directors received an increase in base pay
of 11%–32.5% (rounded accordingly) to reflect the significant growth in the Company over the past two years.
➔ Further details are set out on pages 99 to 100
CHANGES FOR NON-EXECUTIVE DIRECTORS AND CHAIRMAN
The fees for Non-Executive Directors are reviewed and agreed annually. The fees are set out in the table below.
Fees
Effective from 1 April 2018
Effective from 1 April 2019
% change
TAXABLE BENEFITS (AUDITED)
Chairman NED base fee
Committee
Chairman fee
£200,000
£300,000
50%
£52,000
£65,000
25%
£13,000
£16,000
23%
SID Fee
–
£15,000
–
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 119 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 up to 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 the 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.
120 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
www.ocadogroup.com
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Proof 3
Back to contents ANNUAL INCENTIVE PLAN (AIP) (AUDITED)
The 2019 AIP was based on the performance targets and weightings set out below. The Chief Executive Officer had a maximum bonus
opportunity of 275% of salary, the Group General Counsel and Company Secretary had a maximum bonus opportunity of 190% of salary
and the other Executive Directors had a maximum opportunity of 215% of salary.
Weighting
of each
condition
Performance targets
required
Actual
Performance
Percentage
of maximum
performance
achieved
Tim
Steiner
Duncan
Tatton-
Brown
Mark
Richardson
Neill
Abrams
Luke
Jensen
Annual bonus value achieved (£’000)
£1,617m
20% Threshold
Maximum
20% Threshold
Maximum
40% Threshold
£1,619.6m
£1,730m
£85m
£100m
5 new CFCs
Maximum 10 new CFCs 10 new CFCs
£79.2m
0%
0%
0
0
0
0
0
0
0
0
0
0
40%
754
361
361
319
361
See next page
20%
100%
15.0% -
18.5%
320
1,074
149
510
136
497
142
461
167
528
Performance
conditions
Retail Revenue
Retail EBITDA
No. of Non-
UK Solutions
commitments
Individual
Objectives
Total
G
O
V
E
R
N
A
N
C
E
(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.
(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 20. Performance may range from zero to 20.
(3) The applicable salary used for calculating the bonus payment under the rules of the 2019 AIP is the applicable base salary on the date of payment.
50% of the AIP achieved in the year will be deferred into shares for three years (subject to a two-year holding period on vesting).
The Retail revenue measure is linked to revenue for the Retail business segment for the Financial Year. Retail EBITDA is EBITDA for the Retail
business segment for the Financial Year, calculated pre-exceptional costs and post any assumed payout under the Plan.
Stock Code: OCDO
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Proof 3
Back to contents Directors’ Remuneration Report
Continued
INDIVIDUAL OBJECTIVES FOR 2019 AIP
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.
Objective
Achievement
% achievement
Tim Steiner
• Lead strategic change in the retail business to drive
• Successful completion of the joint venture agreement with Marks &
Met
long term profitability
Spencer
• Oversee growth of the International Solutions client
base and future revenue stream
• Oversaw significant growth in the Ocado Solutions business with
£140m fees invoiced to date and signing of Coles and Aeon deals
• Drive down platform costs to ensure execution of
• Cost reduction of 20% in forecast bot costs
Met/ongoing
Met/ongoing
Ocado Solutions deals
• Create long term value from CTO office
• Further progression with development of Ocado ventures with four
Ongoing
investments made
• Provide direction and manage direct reports to
• Board judgement on overall company performance and
ensure objective delivery
achievement of Executive Directors against their objectives
Overall performance against individual strategic objectives (maximum opportunity: 20%)
Duncan Tatton-Brown
• Optimise the group funding structure
• Funding structure suitable, with Board agreed retention of existing
Met
17
Met
• Comprehensive investor engagement
• Reduce engineering costs
• Growth in Retail EBITDA margin %
bond, £600m convertible issued at better end of pricing indications,
and with funding requirements in place for all existing needs
• Extensive programme of engagement activity with investors (with
over 500 investor meetings in the year)
• Reduction in Erith costs per order by one third
•
Increase in Retail EBITDA as % of Retail revenue prior to Andover
fire and expectations of continued improvement post fire
Overall performance against individual strategic objectives (maximum opportunity: 20%)
Mark Richardson
•
Increase CFC capacity
• Erith capacity increased to over 70,000 OPW, 95% of target for the
Met/ongoing
Ongoing
Met
16.5
Met/ongoing
•
Increase CFC productivity
• Weekly productivity in mature CFCs increased to 167 UPH and Erith
Met/ongoing
period
E
C
N
A
N
R
E
V
O
G
• Third generation robot on track to begin production
by year end
above Hatfield at year end, 100% of target
• Third generation robots now being produced
• Establish overseas engineering teams
• Engineering teams in France and Canada established ahead of
launch
• Current forecast has cost per bot reduction of 20%
• Reduce long term production costs per bot
Overall performance against individual strategic objectives (maximum opportunity: 20%)
Neill Abrams
• Lead the Group operations departments, including
certain specific measurable KPIs for legal and
governance, risk and compliance performance and
international expansion of People Department
• Support CEO in continued transformation of the
• Successful leadership and implementation of workflow
management software, despite disruptive events such as the fire
in the Andover CFC, with KPIs for legal and governance, risk and
compliance still in progress
• Expanded IP protection programme and successfully completed
Met
Met
Ongoing
15
Met/ongoing
Ongoing
Company
corporate transactions
• Support the execution of Ocado Solutions deals
• Executed various existing deals and provided extensive support on
Met/ongoing
• Successful prosecution of litigation and regulatory
• Successful leadership of litigation throughout the period including
prospects
investigations
Institute a pragmatic Brexit response plan
•
identification of IP material
• Led analysis of Brexit response team, planned to mitigate risks
including contingency planning with suppliers and capitalised on
opportunities whilst focussing on employees
Met
Met
• Strategic progress of the General Merchandise
• Sale of Fabled business to Next, and improvements in Fetch prior to
Met/ongoing
division
transfer to Ocado Retail
Overall performance against individual strategic objectives (maximum opportunity: 20%)
17.8
122 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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Proof 3
Back to contents Objective
Achievement
Luke Jensen
• Grow the Ocado Solutions client base
• Growth in Ocado Solutions’ future revenue
• Develop Ocado Solutions infrastructure to support
future growth
• Aeon and Coles partnerships signed within the period
• New orders and commitments from partners within the period -
well above expectations, with £140m of fees invoiced to date
• US office opened and running, also with employees in France,
Canada, Australia and broader offers ready to market to clients
% achievement
Met
Met/ongoing
Met/ongoing
• Build profile and reputation of Ocado Solutions
• More than 20 meetings held with international retailers.
Ongoing
Successfully developed Ocado Solutions’ profile via press
interviews and social media
•
Implement deals to agreed timescales and budgets • All client projects currently running within contractual timelines,
Overall performance against individual strategic objectives (maximum opportunity: 20%)
with costs tracking within budgets
Met
18.5
LONG-TERM INCENTIVE PLAN (LTIP) (AUDITED)
The three-year performance period for the 2017 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 2019 Financial Year and has recommended overall vesting of 46.1%.
The value of the 2017 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 1,283.92 pence per share. The expected vesting date of the 2017 LTIP award is 20 February 2020. Subject to the
continued satisfaction of the award conditions, final vesting will be determined.
G
O
V
E
R
N
A
N
C
E
Performance
conditions
Weighting
of each
condition
Performance targets
required
Actual
Performance
Retail Revenue
25% Threshold
£1,700m
£1,617m
Adjusted Retail
EBT
Platform
Operational
Efficiency
Solutions
Revenue
Maximum
£1,850m
25% Threshold
Maximum
£33m
£45m
25%
Threshold 132.3 UPH
Maximum 155.6 UPH
25% Threshold £20m
Maximum £45m
Percentage
of maximum
performance
achieved
Estimated LTIP value (£’000)
Tim
Steiner
Duncan
Tatton-
Brown
Mark
Richardson
Neill
Abrams
Luke
Jensen
0%
0%
0
0
0
0
0
0
0
0
0
0
(£6.1m)
150.7 UPH
21.1%
1,227
569
569
382
561
£70.5m
25%
1,454
674
674
453
664
Total
100%
46.1%
2,681
1,243
1,243
835
1,225
(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, 5% 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 2017 LTIP awards are shown in the table on 127.
(3) The Solutions Revenue target was measured under the pre-IFRS accounting standard that was in place when the targets were set.
Neither Retail business target met the threshold. The revenue used
as a performance condition for the LTIP includes Retail Revenue
generated by Ocado.com and the other Retail site – Fetch– 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 2017 LTIP
only. It is not considered an Alternative Performance Measure.
During the year revenue from the Solutions business exceeded £45m
resulting in maximum payout for this measure.
The Remuneration Committee exercised discretion to prorate the
Platform Operational Efficiency targets in light of the fire at the
Andover CFC. The threshold and maximum targets were prorated for
time up to the point prior to the fire and efficiency was also tested at
this point, on the basis that a sufficient proportion of the performance
period had passed and the Remuneration Committee was
comfortable that the trajectory of improvement to this point would
have continued to the end of the performance period. In line with
our Directors’ Remuneration Policy and plan rules, the Remuneration
Committee was satisfied that the amended targets were equally
difficult to satisfy as the original condition would have been had
such circumstances not arisen.
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
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Proof 3
Back to contents Directors’ Remuneration Report
Continued
GROWTH INCENTIVE PLAN (GIP) (AUDITED)
The five-year performance period for the 2014 GIP awards expired on 8 May 2019. The shareholder approved GIP was subject to a single
performance condition, the share price growth of the Company relative to the growth of the FTSE 100 Share Index over that same period.
The Executive Directors’ total GIP awards were as follows:
Director
Tim Steiner
Type of
interest
Option with nil
exercise price
Duncan Tatton-
Brown
Option with nil
exercise price
Number
of nil-cost
options
granted
Date of
Grant
Face Value
of Award
(£)
End of
Performance
Period
08/05/14
4,000,000
12,744,000
08/05/19
08/05/14
1,000,000
3,186,000
08/05/19
Mark Richardson Option with nil
08/05/14
1,000,000
3,186,000
08/05/19
Luke Jensen
exercise price
Option with nil
exercise price
22/02/17
470,000
1,191,450
08/05/19
Number
of nil-cost
options
vesting
Value of
nil-cost
options on
vesting (£)
Value due to
share price
appreciation
(£)
4,000,000
54,120,000
41,376,000
1,000,000
13,530,000
10,344,000
1,000,000
13,530,000
10,344,000
470,000
6,359,100
5,167,750
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) The face value of the options was determined based on a price of 318.60 pence per share being the price on the date of grant.
(2) The value of the options on vesting was determined based on a price of 1,353.00 pence per share being the price on the date of vesting.
(3) Neill Abrams did not participate in the 2014 GIP.
(4) The nil cost options were exercised on 23 May 2019 at an option price of £12.402 with a total gain of £80,240,940 (lower than the figures presented in the single figure table). On the
basis of the Directors’ intention to sell on exercise, in the interests of all stakeholders, the Committee decided to pay the gains in cash as permitted under the GIP scheme rules.
E
C
N
A
N
R
E
V
O
G
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.
Actual outcome: Growth in the FTSE 100 Share Index + 29.23% p.a.
Percentage of
award vesting
(%)
0
25
50
75
100
100
The criteria as approved by shareholders was significantly overachieved, and so the Remuneration Committee recommended 100% vesting.
Cash Long-Term Incentive Plan (“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
was eligible to receive depended on the extent to which the Company
achieved a performance target linked to the number of Ocado
Solutions deals signed by the Group during the performance period.
The Cash LTIP had 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
the award vested on 15 March 2019. Pay-out of the full value of the
award was based on the average share price of the Company’s shares
in the twenty business days prior to the pay-out date, being 1,001
pence per share.
Share Incentive Plan (SIP)
The 2016 award of Free Shares made under the Share Incentive Plan
(the “SIP”) became unrestricted during the period on 15 September
2019. 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.
124 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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Proof 3
Back to contents 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.
Non-Executive
Director
Lord Rose
Ruth Anderson
Jörn Rausing
Doug McCallum
Andrew Harrison
Emma Lloyd
Julie Southern
John Martin
Claudia Arney
Total
Fees
Taxable
Benefits
Pension
Entitlements
Annual
Bonus
Long-term
Incentives
Recovery of
Sums Paid
Total
Remuneration
2019
£’000
2018
£’000
2019
£’000
2018
£’000
2019
£’000
2018
£’000
2019
£’000
2018
£’000
2019
£’000
2018
£’000
2019
£’000
2018
£’000
2019
£’000
2018
£’000
267
200
54
61
28
86
61
71
33
16
65
52
56
59
52
13
–
–
677
497
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
267
200
54
61
28
86
61
71
33
16
65
52
56
59
52
13
–
–
677
497
G
O
V
E
R
N
A
N
C
E
(1) John Martin joined the Board with effect from 1 June 2019.
(2) Claudia Arney joined the Board with effect from 1 September 2019.
(3) Doug McCallum retired from the Board with effect from 1 June 2019.
(4) Ruth Anderson retired from the Board with effect from 30 September 2019.
(5) Julie Southern’s 2018 fees have been restated to £13,000 from £11,000
(6) Due to an administrative error, a Non-Executive Director was overpaid £12,583 in the period. This amount will be repaid by the next audited period.
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 £65,000 (2018: £52,000), whilst the fee for chairing
a Committee was increased to £16,000 (2018: £13,000). The Chairman does not receive a fee for his role as Nomination Committee Chairman. A
Senior Independent Director fee of £15,000 was also introduced during the period.
The Chairman’s fee was reviewed by the Remuneration Committee and was increased to £300,000 (2018: £200,000). This is the first time the
Chairman’s fee has increased since the Chairman’s appointment in March 2013.
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 principal terms of these contracts are as follows:
Effective date of
contract
Notice period
From
Company From Director
23 June 2010
12 months
6 months
29 June 2012
12 months
27 February 2012
12 months
6 months
6 months
6 months
6 months
Executive Director
Position
Tim Steiner
Chief Executive Officer
Duncan Tatton-Brown
Chief Financial Officer
Mark Richardson
Chief Operating Officer
Neill Abrams
Luke Jensen
Group General Counsel and Company Secretary
23 June 2010
12 months
CEO Ocado Solutions
30 January 2017
12 months
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).
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
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Proof 3
Back to contents Directors’ Remuneration Report
Continued
Non-Executive Directors’ Letters of Appointment
The Chairman and the Non-Executive Directors do not have service contracts and were appointed by letter of appointment for an initial period
of three years, subject to annual reappointment at the annual general meeting and usually for a maximum of nine years. Copies of the letters of
appointment and the service contracts of the Directors are available for inspection at the Company’s registered office.
Director
Lord Rose
Andrew Harrison
Emma Lloyd
Jörn Rausing
Julie Southern
John Martin
Claudia Arney
Date of Original
Appointment
11 March 2013
1 March 2016
1 December 2016
13 March 2003
1 September 2018
1 June 2019
1 September 2019
Date of Reappointment
Notice Period
Expiry of Nine Year Term
1 May 2019
1 May 2019
1 May 2019
1 May 2019
1 May 2019
N/A
N/A
6 Months
1 Month
1 Month
1 Month
1 Month
1 Month
1 Month
March 2022
March 2025
December 2025
N/A
September 2027
June 2028
September 2028
E
C
N
A
N
R
E
V
O
G
Director Retirement Arrangements and Payments for Loss of Office (Audited)
As announced on 28 March 2019, it was determined in accordance with the Directors’ Remuneration Policy that the arrangements set out below
should apply in relation to Doug McCallum and Ruth Anderson’s remuneration on retirement.
Element of Remuneration
Treatment
Remuneration Payments
All outstanding fees were paid to Doug McCallum and Ruth Anderson up to 1 June 2019 and 30 September 2019
respectively, in accordance with the terms of their letters of appointment. No payments are expected after the
date of retirement.
Payment for Loss of Office
No payment for loss of office or other remuneration payment was made or is expected to be made to Doug
McCallum or Ruth Anderson.
Share Schemes
At the time of retirement, neither Doug McCallum or Ruth Anderson were participants in a Group share scheme.
• 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, and ASOS plc, an AIM listed company. During the financial
year, he received Board attendance fees of €25,417 for his role in
Hana Group and £4,538 for his role at ASOS.
Director Shareholdings (Audited)
The table opposite 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.
Director Appointment Arrangements (Audited)
As announced on 29 March 2019, John Martin and Claudia Arney
were appointed to the Board as Non-Executive Directors with effect
from 1 June 2019 and 1 September 2019 respectively. John Martin
and Claudia Arney’s remuneration is in line with the Directors’
Remuneration Policy. On appointment, John Martin and Claudia
Arney’s basic annual fee was £65,000, which was in line with the
other Non-Executive Directors. John Martin and Claudia Arney will
not receive any other benefits or payments, in line with the Directors’
Remuneration Policy.
Payments to Past Directors (Audited)
None.
External Remuneration for Executive Directors
As at the date of this Annual Report:
•
•
In addition to his role as Executive Director of the Company,
Duncan Tatton-Brown is a non-executive director of Karakuri Ltd
and Trainline Plc. During the Financial Year, he received fees of
£35,937.50 for his role at Trainline.
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 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.
126 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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Proof 3
Back to contents Ordinary Shares
of 2 pence each held at
1 December 2019
Ordinary Shares
of 2 pence each held at
2 December 2018
Direct
Holding
Indirect
Holding
Direct
Holding
Indirect
Holding
Minimum
shareholding
requirement
(% of Base
Salary
or Fee)
Met
minimum
shareholding
requirement?
23,589,652
1,453,476
1,534,755
2,336,180
117,314
8,020
67,851
12,984
1,265,891
77,210
23,475,936
1,400,753
1,482,032
3,050,825
94,656
7,411
67,235
12,361
1,265,268
83,109
602,284
–
– 69,015,602
–
–
–
–
–
18,166
17,300
3,779
–
5230
1,202,284
–
18,166
17,300
3,779
–
–
–
69,015,602
–
–
–
–
400
300
300
300
300
100
100
100
100
100
100
100
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
N/A
N/A
N/A
Name
Executive Directors
Tim Steiner
Duncan Tatton-Brown
Mark Richardson
Neill Abrams
Luke Jensen
Non-Executive
Directors
Lord Rose
Jörn Rausing
Andrew Harrison
Emma Lloyd
Julie Southern
John Martin
Claudia Arney
Basis for compliance
Indirect and direct shareholdings
Indirect and direct shareholdings
Indirect and direct shareholdings
Indirect and direct shareholdings
Indirect and direct shareholdings
Indirect and direct shareholdings
Indirect shareholdings
Direct shareholdings
Direct shareholdings
N/A
N/A
N/A
G
O
V
E
R
N
A
N
C
E
(1) 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 pages 128 to 129.
(2) No Director had an interest in any of the Company’s subsidiaries at the beginning or end of the period.
(3) 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. On 2 June 2019, Tim Steiner agreed again to extend the completion
dates for the contracts to future dates.
(4) 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. The contracts completed on 30 June 2019.
(5) The Executive Director shareholdings have increased during the period due to the vesting of the 2016 LTIP awards. Read more on page 127 and 128.
(6) Julie Southern, John Martin and Claudia Arney were appointed on 1 September 2018, 1 June 2019 and 1 September 2019 respectively. 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 John Martin and Claudia Arney do not hold the requisite
number of shares to comply with the shareholding requirement currently, they are compliant with the policy.
(7) 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 28 January 2020 (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 1,308 pence per share on 28 January 2020), of
the relevant shareholdings.
(8) Where applicable, the above indirect holdings include SIP Partnership and Free Shares held under the SIP, which are held in trust.
(9) The indirect holding for Neill Abrams includes holdings by Caryn Abrams (wife of Neill Abrams) who holds 78,109 (2018: 78,109) ordinary shares and as a discretionary beneficiary of a trust
holding 74,100 (2018: 133,100) ordinary shares, Daniella Abrams (daughter of Neill Abrams) who holds 1,363 (2018: 2,143) ordinary shares, Mia Abrams (daughter of Neill Abrams) who holds
2,143 (2018: 2,143) ordinary shares, Joshua Abrams (son of Neill Abrams) who holds 2,143 (2018: 2,143) ordinary shares.
(10) The indirect holding for Duncan Tatton-Brown includes a holding by Kate Tatton-Brown (wife of Duncan Tatton-Brown) who holds 59,889 (2018: 59,889) ordinary shares (however this was
inadvertently stated as 49,889 in the 2018 Annual Report).
(11) The indirect holding for Mark Richardson includes a holding by Rebecca Richardson (wife of Mark Richardson) who holds 4,970 (2018: 4,970) ordinary shares.
(12) The indirect holding for Luke Jensen includes a holding by Sandrine Jensen (wife of Luke Jensen) who holds 74,670 (2018: 74,670) ordinary shares.
Director Interests in Share Schemes (Audited)
LONG-TERM INCENTIVE PLAN (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
Stock Code: OCDO
Type of Interest Date of Grant
Conditional shares
Conditional shares
Conditional shares
Conditional shares
Conditional shares
Conditional shares
Conditional shares
Conditional shares
Conditional shares
Conditional shares
20/02/17
01/03/18
20/02/17
01/03/18
20/02/17
01/03/18
20/02/17
01/03/18
20/02/17
01/03/18
Basis on
which Award
is made
(% of Salary)
Number of
Shares
Face Value of
Award
(£)
End of
Performance
Period
Expected
Vesting Date
200
200
150
150
150
150
120
120
150
150
452,881
219,621
209,972
101,769
209,972
101,769
141,077
68,326
206,913
97,609
1,155,658
1,187,996
535,805
550,499
535,805
550,499
359,999
369,596
527,996
527,999
01/12/19
03/12/20
01/12/19
03/12/20
01/12/19
03/12/20
01/12/19
03/12/20
01/12/19
03/12/20
20/02/20
18/03/21
20/02/20
18/03/21
20/02/20
18/03/21
20/02/20
18/03/21
20/02/20
18/03/21
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Continued
Vested: The 2016 LTIP awards had a vesting date of 20 March
2019 for a three-year performance period that ended with the
2017/18 Financial Year. As explained in the 2018 Annual Report, the
Remuneration Committee reviewed the performance against the
award’s four equally weighted performance conditions, which were
Retail Revenue, Adjusted Retail EBT*, Platform Operational Efficiency
and Platform Capital Efficiency for the 2017/18 Financial Year.
Achievement against the performance targets was 50%.
The performance period for the 2017 LTIP awards finished in the
year, although these awards are not capable of vesting until
20 February 2020.
➔ More detail can be found on page 123
* This measure is used by the Remuneration Committee to assess management
performance for the LTIP only. It is not considered an Alternative Performance Measure.
GROWTH INCENTIVE PLAN (GIP) (AUDITED)
➔ For details on the operation of the GIP please see page 106
Vested: The 2014 GIP vested in May 2019 at 100% of maximum. For
further details please see page 124.
VALUE CREATION PLAN (VCP) (AUDITED)
The VCP was approved by shareholders on 1 May 2019. The scheme
aligns the remuneration of Executive Directors with the value
generated for shareholders.
The value delivered to participants represents 2.75% of the total value
created for shareholders above a minimum return of 10% TSR per
annum (“Threshold TSR”) in line with the scheme rules. The Threshold
TSR at the first measurement date is £15.16. As at 21 January 2020, the
share price of the Company was £12.94 (based on a 30 day average).
Therefore, the indicative value of VCP awards as at 21 January 2020
is £0 for all participants. The first measurement date where share
awards will formally accrue will be 30 days post the announcement of
the Financial Year results on the average closing share price for that
30 day period.
The final amount of the nil-cost options that accrue at the first
Measurement Date will be fully disclosed in our 2020 Annual Report.
Please see page 104 for the Remuneration at a Glance section and
page 107 of the Summary Policy table for Executive Directors for
further details on the operation of the VCP.
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Executive Share Option Scheme and 2014 Executive Share Option Scheme (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
(£)
Face Value of
Grant
(£)
Exercise
Period
3.02
2.562
29,967
29,998
08/07/16 – 07/07/23
15/03/20 – 14/03/27
Share Incentive Plan (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
Matching
Shares
Awarded in
the Year
Free Shares
Awarded in
the Year
Total Face Value of
Free Shares and
Matching Shares
Awarded in the Year
(£)
Total SIP
Shares Held
01/12/2019
SIP Shares
that Became
Unrestricted
in the Period
Total
Unrestricted
SIP Shares
Held at
01/12/2019
162
162
162
162
163
23
23
23
23
23
267
267
267
267
267
3,843
3,843
3,844
3,844
3,843
8,180
8,122
8,173
7,392
2,634
1,418
1,407
1,406
1,197
0
6,113
6,055
6,106
5,553
660
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.
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 2019 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 124
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 28 January 2020, 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:
128 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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Tim Steiner
Duncan Tatton-Brown
Mark Richardson
Neill Abrams
Luke Jensen
Partnership
Shares
Acquired
Matching
Shares
Awarded
Free Shares
Award
Total Face Value of
Free Shares and
Matching Shares
(£)
Total SIP
Shares
Held at
28/01/2020
24
24
24
24
24
3
3
4
4
3
0
0
0
0
0
38
38
51
51
38
8,207
8,149
8,201
7,420
2,661
(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 128.
Sharesave Scheme (Audited)
At the end of the period, the Executive Directors’ option interests in the Sharesave scheme were as follows:
Director
Neill Abrams
Type of
Interest
Options
Date of
Grant
27/08/19
Number
of Share
Options
1,610
Exercise
Price
(£)
Face Value
(£)
Exercise Period
11.17
17,991
01/12/22 – 01/05/23
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Granted: Neill Abrams elected to participate in the 2019 Ocado
Sharesave Scheme, where he was granted options to purchase
ordinary shares in the Company on the same terms as all other
employees, at an exercise price of £11.17 per ordinary share, as set
out in the table above. The exercise price for an option was the market
value of the Company’s shares for the five dealing days during the
Sharesave application window, less a discount of 10%.
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 VCP (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.
Vested: A savings contract under the Sharesave Scheme matured
after period end, on 1 December 2019. Tim Steiner, Duncan Tatton-
Brown, Mark Richardson and Neill Abrams each held 7,894 options
at this date.
The value of the Directors’ Sharesave awards at 1 December 2019
is the value of the savings made by each Director under the savings
contract. At the time of vesting on 1 December 2019 , the share
price (of 1,325 pence per share) was higher than the exercise price
(of 228 pence per share), meaning that the value of the options on
vesting was £104,596. Accordingly, this value is shown in the Total
Remuneration table for each of the participants.
Dilution
Dilution Limits
Awards granted under the Company’s Sharesave and SIP schemes
are met by the issue of new shares when the options are exercised
or shares granted. Awards granted under the VCP 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.
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 28 January 2020, 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
1
%
8
0
.
6
%
0
0
.
5
%
3
3
.
3
Actual
Limit
Actual
Limit
Stock Code: OCDO
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Directors’ Remuneration Report
Continued
Shareholder Approval and Votes at AGM
The 2019 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 table below sets out the actual voting in respect of resolutions regarding remuneration at the previous annual general meeting.
Resolution Text
2019 Annual General Meeting
Votes
For
%
For Votes Against
% Against
Total
Votes
Votes
Withheld
Approve the 2019 Directors’ Remuneration Policy
440,260,450
Approve the 2018 Directors’ Remuneration Report 436,208,712
75.8
74.6
140,813,977
148,357,899
24.2
25.4
581,074,427
3,596,366
584,566,611
104,182
(1) A withheld vote is not a vote in law and is not counted in the calculation of the proportion of votes cast for and against a resolution.
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Shareholder Consultation and 2019 Annual General
Meeting Voting
Resolution 2 – Policy and Resolution 19 – Value Creation
Plan
Ocado’s Remuneration Policy (“the Policy”) was approved at the
2019 annual general meeting with broad shareholder support of
75.8% of votes in favour and 24.2% of votes against the Policy. The
Company understands that this outcome was attributable, in large
part, to concerns regarding the implementation of a Value Creation
Plan (“VCP”) and the potential level of quantum available to Executive
Directors under this Plan. It was therefore expected that the votes in
favour of Resolution 19 (the Ocado Value Creation Plan, 75.7%) would
be similar to that for the Policy.
Ocado’s 2019 Policy was subject to an extensive consultation with
all major shareholders and investor bodies prior to the 2019 annual
general meeting. Investors are thanked for their time and input
during this consultation process. It was important to meet as many
shareholders as possible and to hear their views on such an important
topic. It was apparent at the time of the consultation that there were
differing views amongst shareholders on the suitability of a VCP,
which were ultimately reflected in the votes against these particular
resolutions.
During the shareholder engagement process, feedback was carefully
considered and, where appropriate, reflected in subsequent
amendments to the Policy and the VCP. Examples of these
amendments include a reduction in the CEO’s share of the VCP and
increasing the hurdle of the VCP. Further details on the consultation
process and discussions can be found in the Company’s 2018 Annual
Report on pages 110 and 111. It was encouraging to see the majority
of our shareholders understood Ocado’s need for a non-standard
incentive plan that aims to drive strong and sustainable growth
over the long-term, whilst simultaneously motivating and rewarding
a highly entrepreneurial leadership team. The Company believes
that the VCP is aligned with Ocado’s strategy and business needs
and hence remains the right vehicle to remunerate our Executives.
Pay-outs under the VCP are directly linked to Company performance,
whereby substantial growth must first be delivered to shareholders
before Executives are rewarded. For example, for any vesting to occur
in year 3 of the VCP, the Company’s share price must be greater than
or equal to £18.35, which represents about 31% growth since the
launch of the VCP (when the share price was £13.97).
In conclusion, it is understood why some shareholders were
unsupportive of these resolutions. However, in line with the majority
of shareholders, it is firmly believed that the 2019 Remuneration
Policy is fit for purpose and in the best interests of the Company and
its shareholders. Therefore, the Committee and the Board believe any
modifications to the Policy at this time would not be the right course
of action for Ocado.
Resolution 3 – Directors’ Remuneration Report
In relation to the annual approval of the Directors’ Remuneration
Report, the Committee has received feedback for a number of years
from shareholders around the limited disclosure of annual bonus
and LTIP targets. It is understood that the primary reason 25.4% of
shareholders voted against this resolution (74.6% voted for) was due
to a lack of satisfaction with the level of disclosure of the targets under
both incentive plans. The Committee recognises that the Company
has historically struggled with balancing the conflicting needs for both
commercial confidentiality and transparency in relation to targets.
However, the new Remuneration Policy approved at the 2019 annual
general meeting provides for greater transparency to shareholders
under the new AIP and VCP with regards to performance conditions
and their satisfaction. The Committee is confident that the concerns
of these shareholders will be addressed going forward.
Resolution 23 – Chairman’s Share Matching Award
The Board noted that 77.0% of shareholders voted for the
amendments to the Chairman’s Share Matching Award. Ocado’s
Remuneration Committee and the Board continue to believe that
it was reasonable to remove the sale restrictions on Lord Rose’s
“Acquired Shares”, given six years had elapsed since the shares were
purchased by him and in light of the Chairman’s dedication to the
Company over this period. It is also noted the Chairman’s “Matching
Shares” continue to be subject to an ongoing sale restriction for one
year post his ceasing to be a Director of the Company. This post-
cessation holding requirement is in line with the 2018 Code and
whilst its application is not common for a Non-Executive Chairman,
the Committee believes that this approach ensures long-term
alignment. There is no intention to remove the restrictions on the
Matching Shares in the future, thereby ensuring that the interests of
the Chairman and those of the Company continue to be aligned going
forward.
130 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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This report is a Directors’ Remuneration Report for the 52 weeks
ended 1 December 2019, prepared for the purposes of satisfying
Section 420(1) and Section 421(2A) of the Companies Act 2006. It has
been drawn up in accordance with the Companies Act 2006 and the
Code, the Regulations and the Listing Rules.
In accordance with section 497 of the Companies Act 2006 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
Corporate Website, www.ocadogroup.com.
This Directors’ Remuneration Report is approved by the Board and
signed on its behalf by:
Andrew Harrison
Remuneration Committee Chairman
Ocado Group plc
11 February 2020
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Stock Code: OCDO
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Introduction
This section of the Annual Report is a Directors’ Report required by the
Companies Act 2006 to be prepared by the Directors for the Company
and the Group.
➔ A full list of the Board during the period and their biographies can be
found on pages 72 and 73
Information Required by Listing Rules 9.8.4 (R)
Topic
Section of the Report
Directors’ Interests in Shares
Going Concern and Viability
Statements
Long-term incentive schemes Remuneration Report
Remuneration Report
Strategic Report
Page
127
53
123-128
Directors’ Report Disclosures
The Board felt that some of the matters required to be disclosed in
the Directors’ Report are of strategic importance and are therefore
included in the Strategic Report on pages 12 to 65 in accordance with
the Companies Act 2006.
These matters, together with those referenced in the table below are
incorporated by reference into this Directors’ Report.
Information Required by DTR 7.2
Topic
Section of the Report
Page
Corporate Governance
Statement
Corporate Governance Report 70-87
Disclosure Guidance and Transparency Rule 4.1.8
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 DTR 4.1.8.
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 2006
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.
Section of the Report
Management Report, as
defined in the Directors’
Report
Management Report, as
defined in the Directors’
Report
Strategic Report
Strategic Report
Our People
Strategic Report
Strategic Report
Key Performance Indicators
Page
12-131
48-52
12-65
12-65
62
12-65
12-65
37-39
Key Performance Indicators
37-39
Note 4.8 of the consolidated
financial statements
Corporate Responsibility
Report
Corporate Responsibility
Report
Corporate Responsibility
Report
Stakeholder Engagement
Corporate Responsibility
Report
Stakeholder Engagement
Corporate Responsibility
Report
Board Induction and
Professional Development
189-191
The information that fulfils the strategic report requirements is set
out in the Strategic Report on pages 12 to 65. The Non-Financial
Information Statement on page 138 forms part of the Strategic Report.
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 85 to 87 and the Statement of
Directors’ Responsibility on page 137
54-57
54-57
54-59
54-57
58-59
54-57
81
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Topic
Fair review of the Company’s
business
Principal risks and
uncertainties
Strategy
Business Model
Gender breakdown
Important events impacting
the business
Likely future developments
Financial key performance
indicators
Non-financial key
performance indicators
Financial instruments
Environmental matters
Employee disabilities
Company’s employees
Social, community and
human rights issues
s172 and relationships with
customers, suppliers and
others
Greenhouse gas emissions
Directors’ induction and
training
132 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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Back to contents Amendment of the Articles
The Articles, which govern a number of constitutional aspects of
the Company’s management, are to be put to the members for
amendment at the AGM. This proposed amendment will bring the
current Articles (which have not been updated since the Admission)
in line with updated corporate practices such as introducing gender
neutral language, the ability to hold electronic general meetings and
amending the Company’s net borrowing limits. Please see the Notice
of Meeting resolution number 26 for more information on this.
Appointment and Replacement of Directors
The appointment and replacement of Directors of the Company is
governed by the Articles.
Appointment of Directors: A Director may be appointed by the
Company by ordinary resolution of the shareholders or by the Board.
The Board or any Committee authorised by the Board may from
time to time appoint one or more Directors to hold any employment
or executive office for such period and on such terms as they may
determine and may also revoke or terminate any such appointment.
A Director appointed by the Board holds office only until the next
annual general meeting of the Company and is then eligible for
reappointment.
Retirement of Directors: At every annual general meeting of the
Company, each Director shall retire from office and may offer himself
or herself for reappointment by the members.
Removal of Directors by Special Resolution: The Company may,
by special resolution, remove any Director before the expiration of his
or her period of office.
Vacation of Office: The office of a Director shall be vacated if: (i) they
resign; (ii) their resignation is requested by all of the other Directors
(not fewer than three in number); (iii) they have been suffering from
mental or physical ill health and the Board resolves that their office
be vacated; (iv) they are absent without the permission of the Board
from meetings of the Board (whether or not an alternate Director
appointed by them attends) for six consecutive months and the Board
resolves that their office is vacated; (v) they become bankrupt; (vi)
they are prohibited by law from being a Director; (vii) they cease to
be a Director by virtue of the Companies Act 2006; or (viii) they are
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 Report on pages 70 to 87
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 2006. 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
2006 and the Articles. An indemnity deed is usually entered into by a
Director at the time of his or her appointment to the Board.
Share Capital
The Company’s authorised and issued ordinary share capital as at
1 December 2019 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 28 January 2020, being the last practicable date prior to
publication of this report, the Company’s issued share capital
consisted of 711,072,430 issued ordinary shares, compared with
698,309,337 issued ordinary shares per the 2018 annual report. Details
of movements in the Company’s issued share capital can be found
in Note 4.10 to the Consolidated Financial Statements. During the
period, shares in the Company were issued to satisfy options and
awards under the Company’s share and incentive schemes, as set out
in Note 4.10 to the Consolidated Financial Statements. There are no
branches of the Company.
Rights Attached 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.
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Except in relation to dividends that may 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 2006 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 no
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 or her if any call or sum then
payable by him or her in respect of such share remains unpaid or
if a member has been served a restriction notice, described on the
following page.
Stock Code: OCDO
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Continued
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JSOS Voting Rights: Of the issued ordinary shares, as at 1 December
2019, 869,358 (2018: 6,401,306) were held by Wealth Nominees
Limited and 9,981,158 were held by Numis Nominees (Client) Ltd,
both 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 9,981,158 of these ordinary shares, although
it may at the request of a participant vote in respect of 869,358
ordinary shares which have vested under the JSOS and remain in the
trust at period end. The total of 10,850,516 ordinary shares held by the
EBT Trustee are treated as treasury shares in the Group’s Consolidated
Balance Sheet in accordance with IAS 3 – Financial Instruments:
Presentation. As such, calculations of earnings per share for Ocado
exclude the ten ordinary shares held by the EBT Trustee. Note 4.10 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 that 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: (i) is duly stamped or certified or otherwise
shown to be exempt from stamp duty and is accompanied by the
relevant share certificate; (ii) is in respect of only one class of share;
and (iii) 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.
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 or her
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 pages 126 to 127 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 1 May 2019, at the
2019 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 2019 annual general
meeting on 1 May 2019, 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 1 August 2020).
The Directors were also granted authority at the 2019 annual general
meeting on 1 May 2019 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 2018 annual general
meeting, though not in respect of the additional 5%.
The Company will, at the AGM, continue to seek authority to allot
shares on the basis of the authorities sought at the 2019 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.
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.
Baillie Gifford & Co Limited
Number of
Ordinary
Shares/Voting
Rights
Percentage of
Issued Share
Capital
Nature of
Holding
108,513,884
15.51% Direct/Indirect
90,697,454
35,407,069
12.99%
Indirect
5.01% Direct/Indirect
134 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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Back to contents No changes have been disclosed in accordance with Disclosure Guidance and Transparency Rule 5.1.2R in the period between 1 December 2019
and 28 January 2020 (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
Percentage of
Issued Share
Capital
Nature of
Holding
84,679,826
11.94%
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 listed on the
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 arrear. 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.
On 17 June 2019 the Company redeemed £25,000,000 of the
aggregate principal amount of the Notes at a redemption price equal
to 103% of the principal amount of the Notes redeemed, plus accrued
and unpaid interest.
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Convertible Bonds Due 2025 due to be listed on the
unregulated open market of the Frankfurt Stock Exchange
(Freiverkehr)
The Company issued £600 million of guaranteed senior unsecured
convertible bonds due 2025 (the “Bonds”) on 9 December 2019. The
net proceeds of the Bonds will be used by the Company to fund capital
expenditure in relation to Ocado Solutions’ commitments and general
corporate purposes. The Bonds are currently guaranteed by certain
members of the Ocado group.
The Bonds were issued at par and carry a coupon of 0.875% per annum
payable semi-annually in arrear in equal instalments on 9 June and 9
December, with the first payment on 9 June 2020. The Bonds will be
convertible into ordinary shares of the Company (the “Ordinary Shares”).
The initial conversion price shall be £17.9308, representing a premium of
45.0% above the reference price of £12.3661, being the volume weighted
average price (VWAP) of an Ordinary Share on the London Stock Exchange
between the opening and pricing of the offering on 2 December 2019. The
conversion price will be subject to adjustment in certain circumstances
in line with market practice. The conversion period commenced on 19
January 2020 and shall end on the tenth calendar day prior to the maturity
date or, if earlier, ending on the tenth calendar day prior to any earlier
date fixed for redemption of the Bonds. Unless previously redeemed, or
purchased and cancelled, the Bonds will be convertible at the option of
the Bondholders on any day during the conversion period. The Company
has the option to redeem all, but not some only, of the Bonds on or after 30
December 2023, at par plus accrued but unpaid interest, if the parity value
(as described in the Terms and Conditions) on each of at least 20 dealing
days in a period of 30 consecutive dealing days shall have exceeded 130%
of the principal amount. The Company also has the option to redeem all
outstanding Bonds, at par plus any accrued but unpaid interest, at any
time if 85% or more of the principal amount of the Bonds shall have been
previously converted or repurchased and cancelled.
Settlement and delivery of the Bonds took place on 9 December 2019. If not
previously converted, redeemed or purchased and cancelled, the Bonds
will be redeemed at par on 9 December 2025. Application is being made
for the Bonds to be admitted to trading on the unregulated open market
(Freiverkehr) of the Frankfurt Stock Exchange and shall be done by no later
than the first interest payment date (9 June 2020).
Significant Related Party Agreements
There were no contracts of significance during the period between the
Company or any Group company and: (i) a Director of the Company;
(ii) a close member of a Director’s family; or (iii) a controlling
shareholder of the Company.
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
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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 of the 2018 annual report.
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 change of control provisions of these
agreements are summarised below.
Solutions Agreements: The Group has a number of agreements to
provide retailers with access to the OSP (comprising the Ocado Group’s
proprietary MHE and end-to-end software platform). The key Solutions
agreements are those with Aeon, Bon Preu, Coles, Groupe Casino, ICA,
Kroger, Ocado Retail and Sobeys.
Under those agreements (save for those with Ocado Retail and Kroger),
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 certain controllers
with whom the client has a strategic conflict) 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 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 within
those agreements on the UK retail grocers to whom the Company is
entitled to provide certain services would cease to apply. 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).
Amended and Restated Credit Facility Agreement: The Group has
a secured £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 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.
Convertible Bonds Due 2025: Following a change of control of the
Company, the holder of each Bond will have the right to require the
Company to redeem that Bond at par, together with accrued and
unpaid interest or the bondholders may exercise their conversion
right using the formula as described in the Terms and Conditions.
Shareholders’ Agreement relating to Ocado Retail: If there is a
change of control of Ocado Holdings and / or the Company where the
person having control following the change of control is a competitor
of M&S, this would amount to an event of default and M&S could elect
to purchase all shares held in Ocado Retail at a price prescribed in the
agreement.
Solutions and Third Party Logistics Agreement with Ocado
Retail: If there is a competitor change of control of Ocado Operating,
Ocado Retail may terminate the third party logistics agreement
by giving six months’ written notice within three months of the
competitor change of control becoming effective. In addition, if there
is a change of control (whether or not a competitor change of control)
and there is a marked deterioration in the service levels thereafter,
Ocado Retail may terminate the third party logistics agreement. If
there is a change of control (whether or not a competitor change
of control) and there is a marked deterioration in the service levels
thereafter, Ocado Retail may terminate the Solutions agreement.
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.
Greenhouse Gas Emissions (“GHG”) Methodology
Greenhouse Gas Emissions Methodology: To calculate our greenhouse
gas emissions, we use an operational control approach, in accordance with
selected aspects of the GHG protocol by the World Business Council for
Sustainable Development and World Resources Institute’s (WBCSD/WRI).
The following sources of information have been considered, government
conversion factors published by BEIS (2019), IPCC fourth assessment
report: climate change 2007, IPCC fifth assessment report: climate change
2013, guidelines and statistics published by IEA (2019) and revised IPCC
guidelines for national GHG inventories published by the intergovernmental
panel on climate change (IPCC) 2007.
➔ Further information is contained in the Strategic Report on page 56
Future Developments of the Business
The Group’s likely future developments including its strategy are
described in the Strategic Report on pages 12 to 65.
136 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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Back to contents G
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Employees with Disabilities
During the period, the Group appointed its first Diversity and Inclusion
manager, to focus inter alia on disabled employees. 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/Loss and Dividends
The Group’s results for the period are set out in the Consolidated
Income Statement on pages 151 and 152. The Group’s loss before tax
for the period amounted to £214.5 million (2018: £(44.4) million). The
Directors do not propose to pay a dividend for the period
(2018: £nil).
Branches
There are no branches of the Company.
Post Balance Sheet Events
There have been no material events after the Balance Sheet date
of 1 December 2019 to the date of this Annual Report except for
the below.
The Company issued GBP £600 million of guaranteed senior
unsecured convertible bonds due 2025 (the “Bonds”) on 9 December
2019 of whereby settlement and delivery took place. If not previously
converted, redeemed or purchased and cancelled, the Bonds will be
redeemed at par on 9 December 2025. Application is being made for
the Bonds to be admitted to trading on the unregulated open market
(Freiverkehr) of the Frankfurt Stock Exchange and shall be done by no
later than the first interest payment date (9 June 2020).
Political Donations
No donations were made by the Group to any political party,
organisation or candidate during the period (2018: nil).
Independent Auditor and Tenure
There was an auditor tenure completed by the Audit Committee in
2017 which resulted in new external auditors, Deloitte LLP, being
appointed at the 2017 annual general meeting. Deloitte have
indicated their willingness to continue their role as the Company’s
auditor. There are no current plans for another auditor tender. The
senior statutory auditor has been Mark Lee-Amies FCA since 2017.
Resolutions concerning the reappointment of Deloitte as auditor
of the Company and to authorise the Directors to determine their
remuneration will be proposed at the AGM and are set out in the
Notice of Meeting.
Disclosure of Information to Auditor
In accordance with Section 418 of the Companies Act 2006, 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 70 confirms that, so far as they are 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 they ought to have
taken as a Director in order to make themselves 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 2006 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
Corporate Website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
As is required under the Code, 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 70
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
132) 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.
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
137
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Continued
Non-Financial Information Statement
The following table sets out where stakeholders can find relevant Non-Financial information within this Annual Report, further to the Financial
Reporting Directive requirements contained in sections 414CA and 414CB of the Companies Act 2006. Where possible, it also states where
additional information can be found that support these requirements.
Reporting requirement
Relevant Ocado policies and procedures
Where to read more in this report
Business model
N/A
Our Business Model
Principal risks and impact of
business activity
Ocado Risk Management Process
How We Manage our Risks
Non-financial KPIs
N/A
Our Strategic Objectives: Driving Growth
Our Strategic Objectives: Maximising Efficiency
Key Performance Indicators
Employee Engagement
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Human rights
The Ocado Citizenship Code
The Ocado Way
Whistleblowing policy
Ocado Council
Board Diversity policy
Employee engagement platform – Fuse
The Ocado Citizenship Code
Human Rights policy
Social matters
The Ocado Way
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
Anti-Bribery and Money Laundering policy
Our People
Environmental matters
The Ocado Way
Corporate Responsibility
Page
24–26
48–52
32–39
24–26
60–65
92–97
88–90
98–131
132–138
60–65
54–57
60–65
60–65
54–57
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
11 February 2020
Registered number: 07098618
Registered office address: Buildings One & Two Trident Place,
Mosquito Way, Hatfield, Hertfordshire, United Kingdom,
AL10 9UL
Country of incorporation: England and Wales
Type: Public Limited Company
138 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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Back to contents 26615 11 February 2020 5:55 am ShellOcado Annual Report 2019 Remuneration.indd 13911/02/2020 06:30:03Back to contents 26615 11 February 2020 6:54 am Proof 3Ocado Annual Report 2019 Financials.indd 14011/02/2020 06:54:25Back to contents 26615 11 February 2020 6:54 am Proof 3CONTENTS 142 Independent Auditor’s Report151 Consolidated Income Statement153 Consolidated Balance Sheet154 Consolidated Statement of Changes in Equity155 Consolidated Statement of Cash Flows156 Notes to the Consolidated Financial StatementsGroupFinancialsOcado Annual Report 2019 Financials.indd 14111/02/2020 06:54:26Back to contents 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 1 December 2019 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 cash flow statements; and
the related notes 1 to 5.6 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. Detailed of fees for non-audit services are disclosed in note 2.5. We
confirm that we did not provide any non-audit services to the Group or the parent company that are prohibited by the FRC’s Ethical Standard.
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 were:
• Control of Ocado Retail
• Recognition of retail revenue
• Accounting for Solutions contracts
•
Impairment of capitalised project costs
Materiality
Scoping
Significant changes
in our approach
❭ and any key audit matters which are the same as the prior
Within this report, any new key audit matters are identified with ❭
year identified with ❭❭ .
The materiality that we used for the Group financial statements was £8.5 million which was determined on the basis of revenue
as the primary benchmark. We also considered net assets as a supporting benchmark.
The scope of the Group audit includes all significant trading companies in the UK, whose results taken together account for over
95% of the Group’s revenue and net assets. We performed analytical procedures over the remaining entities, which includes
overseas development operations and Solutions entities, and the Group’s captive insurance company in Malta.
In the current year we have included control of Ocado Retail and recognition of retail revenue as key audit matters. See further
detail on page 144.
There have been no other significant changes to our audit approach for the period ended 1 December 2019.
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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 Group, 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 Group’s
ability to continue as a going concern, including challenging the underlying data and key assumptions
used to make the assessment, and evaluated the directors’ plans for future actions in relation to their
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 48 to 52 that describe the principal risks, procedures to identify emerging
risks and an explanation of how these are being managed or mitigated;
the directors’ confirmation on page 49 that they have carried out a robust assessment of the principal
and emerging risks facing the Group, including those that would threaten its business model, future
performance, solvency or liquidity; or
the directors’ explanation on page 53 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.
Going concern is the basis of preparation
of the financial statements that assumes
an entity will remain in operation for a
period of at least 12 months from the date
of approval of the financial statements.
We confirm that we have nothing material to
report, add or draw attention to in respect of
these matters.
Viability means the ability of the company
to continue over the time horizon
considered appropriate by the directors.
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.
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Independent Auditor’s Report
to the members of Ocado Group plc
❭
Control of Ocado Retail ❭
Key audit matter description
How the scope of our
audit responded to the
key audit matter
Key observations
❭
Recognition of retail revenue ❭
Key audit matter description
How the scope of our
audit responded to the
key audit matter
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As explained on page 14, a joint venture arrangement was established on 5 August 2019 when 50% of
Ocado Retail Limited (“Ocado Retail” or the “Retail business”) was sold to M&S Group plc (“M&S”).
Management determined that under IFRS 10 Consolidated Financial Statements the Group retained
control of the entity and hence all of Ocado Retail’s results should be consolidated.
The arrangement specifies that Ocado and M&S each holds 50% of the share capital of Ocado Retail.
However, the substance of the arrangement gives control to whichever party holds determinative rights,
after agreed dispute resolution procedures, in relation to the approval of 1) Ocado Retail’s business
plan and budget and 2) the appointment and removal of Ocado Retail’s chief executive officer who is
responsible for directing the relevant activities of the business.
This is an important judgement because if the Group does not control the entity it would not be able to
recognise the performance of the Retail business on a line by line basis from the point of the transaction.
Were the Group deemed not to control the Retail business the presentation of the Group’s performance
for the period ended 1 December 2019, and balance sheet position as at that date, would be materially
different.
Refer to page 158 where this is disclosed as a critical accounting judgement and the audit committee
report on page 92.
Our audit procedures included:
•
reviewing and assessing management’s accounting papers and evaluation of the arrangement;
• challenging management’s conclusions by reviewing the share purchase agreement for the
arrangement and comparing this to the requirements of IFRS 10; and
• considering the weight of both supportive and contradictory evidence in relation to whether or not the
Group, as opposed to M&S, holds determinative rights. We considered in particular the appointment
of a former M&S director as the chief executive officer of Ocado Retail, which was one potential aspect
of contradictory evidence. We inspected written minutes and agreements, conducted independent
enquiry with senior management at both the Group and the Retail business, and obtained persuasive
evidence on the process that was followed for the chief executive officer’s appointment.
We are satisfied that management’s conclusion on control is appropriate under IFRS 10 Consolidated
Financial Statements.
The Group recognised retail revenue of £1.6 billion for the period ended 1 December 2019 (2018: £1.5
billion).
Retail revenue is a key metric when evaluating the performance of the business, and has received
increased scrutiny externally and internally. As a result, this year we identified a potential risk of bias or
fraud through management manipulation. In addition, while there have been no significant changes
to the underlying systems and manual and automated controls compared to prior year, the effective
operation and interfacing of these is critical to the appropriate recognition of retail revenue.
For these reasons, we have included recognition of retail revenue as a key audit matter.
The accounting policy for retail revenue recognition is on page 162.
In order to address the risk of inappropriate recognition of retail revenue our procedures included:
• obtaining an understanding of management’s controls over the appropriate recognition of retail
revenue, in particular the reconciliation between sales order reports, the revenue recorded in the
general ledger and cash;
• using our analytics specialists, we used raw order data to independently model sales order reports;
• an independent re-performance of the reconciliation from sales reports to the general ledger and to
reports from third party payment service providers and to cash;
•
•
tests on the reconciling items to validate that they were not the result of management manipulation;
tracing an independent sample of orders from origination to raw order data; and
• challenging management on the business rationale for manual adjustments to retail revenue that
exhibit potential fraud indicators.
Key observations
We are satisfied that retail revenue is not materially misstated.
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Accounting for Solutions contracts ❭❭
Key audit matter description
The Ocado Solutions business has agreed contracts with nine (2018: six) customers.
At period end, the Group had contract liabilities £191.8 million (2018: £115.2 million). Of this amount,
£5.1 million (2018: £6.6 million) is expected to be recognised within the next year with the remainder over
future periods.
The accounting for these arrangements is complex and requires significant judgement. This is due to the
need to identify relevant performance obligations and determine the appropriate timing and profile of
revenue recognition under IFRS 15 Revenue from Contracts with Customers (“IFRS 15”).
Given the considerable external focus on the development of the Solutions business, we considered there
to be a potential risk for fraud in relation to the inappropriate timing and profile of revenue recognition.
Refer to pages 92 to 97 (Audit Committee report) and the accounting policies and critical accounting
judgements on page 158.
In order to address the risk of incorrect identification of performance obligations, our audit procedures
included:
• obtaining an understanding of management’s controls over the accounting for Solutions contracts;
•
independently reviewing and assessing each contract to understand the substance of the
arrangements, the various activities inherent in each new contract and to consider potential
accounting matters such as the existence of additional performance obligations and material rights;
and
• challenging management’s interpretation of IFRS 15 and relevant guidance.
Our procedures to address the timing and profile of revenue recognition, including the potential for fraud
or bias, included:
• ascertaining the appropriate amount of revenue that should be allocated to each performance
obligation by assessing the fees that the Group will receive over the course of each contract;
• assessing the time period and profile over which revenue should be recognised as well as
consideration of any material rights identified and potential contradictory evidence;
• where relationships have “gone live”, obtaining evidence to support transactions such as invoices for
services, cash receipts, or proof of delivery for software solutions; and
•
independently recalculating the recognition of revenue and comparing to management’s workings.
We are satisfied that revenue from Ocado Solutions contracts have been recognised appropriately in line
with IFRS 15.
How the scope of our
audit responded to the
key audit matter
Key observations
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Independent Auditor’s Report
to the members of Ocado Group plc
Impairment of capitalised project costs ❭❭
Key audit matter description
How the scope of our
audit responded to the
key audit matter
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Key observations
The Group continues to invest significantly in developing the software and hardware it uses to operate the
Retail business and to provide the end-to-end Ocado Solutions Platform (“OSP”) to Solutions customers.
The net book value of the Group’s intangibles and property, plant and equipment continues to grow
(excluding the impact of the £99.0m impairment in relation to the Andover CFC – see note 2.7).
Amounts that have been capitalised in the year includes internal development costs of £93.8 million
(2018: £68.7 million) and fixtures, fittings, plant and machinery of £140.4 million (2018: £119.8 million).
Expenditure is held in work-in-progress and is not depreciated or amortised if it relates to projects that are
not yet live and ready for use. This includes expenditure for overseas Solutions contracts as well as bot
and automation development for future use. At period end, capital work-in-progress amounts to £141.2
million (2018: £59.7 million).
Given the nature of this expenditure, we identified the possibility of unrecorded impairment as a key audit
matter. The significant sums being invested each year, the fast pace of development and the potential
for new technology to supersede previously capitalised assets mean there is significant judgement in
determining whether an impairment charge or acceleration of depreciation and amortisation may be
required. There is also judgement in assessing whether project assets in relation to the Solutions business
will generate future economic benefits. As a result, there is a potential risk that management exhibits bias
in their judgements over the identification and timeliness of recognition of impairment.
Refer to page 94 (Audit Committee statement), notes 3.1 and 3.2 and the disclosures in respect of Critical
Accounting Judgements and Key Sources of Estimation Uncertainty in note 1.4.
To address the risk that the value of capitalised project costs are overstated due to unrecorded
impairments, our audit procedures included:
• obtaining an understanding of management’s impairment review control;
•
selecting a risk-focused sample of projects and:
• conducting detailed enquiries with project managers, outside of the finance function, to enhance
our understanding of the plans, business rationale and economic benefits of those projects, and
obtaining evidence of budget approvals and extensions;
• making specific enquiries to identify indicators of impairment, such as levels of expenditure against
budget, milestones achieved against timetable, and whether expenditure replaces and supersedes
previously capitalised assets; and
• benchmarking the useful economic lives of the Group’s asset categories against comparable
companies and against potential contradictory evidence, such as any instances of accelerated
depreciation, identified as part of our testing; and
• challenging management and applying professional scepticism on the significant judgements
adopted in their impairment review by searching for contradictory evidence, for example indicators
that the project may not be feasible or that assets including software have or will be scrapped
earlier than intended.
In addition to the above to help consider and address the fraud risk we performed a series of analytical
tests on the costs capitalised to identify items that appeared unusual, for example projects with limited or
negative costs capitalised, and obtained explanations and supporting evidence.
We have not identified any material unrecorded impairments of capitalised project costs at period end.
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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
Rationale for the
benchmark applied
Group financial statements
£8.5 million (2018: £6.6 million)
Parent company financial statements
£6.8 million (2018: £6.5 million)
We determined materiality based on revenue as the primary
benchmark (0.5% of revenue; 2018: 0.4%). In 2019, we also
considered the supporting benchmark of net assets (2019:
0.8%; 2018: 1.2%)
We determined materiality principally based on revenue
given the importance of this as a measure of overall
performance of the Group. However, we also considered
net assets as a supporting benchmark as the Group has
continued to investment significant sums in technology and
development of CFCs, much of which is work-in-progress.
Parent company materiality is determined on the basis
of net assets and capped at 80% of Group materiality. It
equates to 0.6% of net assets (2018: 0.6%).
The parent company’s principal activities include holding
investments in other Group companies and incurring costs
and liabilities on behalf of the Group, including borrowings.
As a result, we considered net assets to be the most relevant
benchmark on which to base materiality.
On the basis of our risk assessment, our assessment of the Group’s control environment including our plan to rely on the effective operation of certain
systems and controls, and management’s willingness to correct errors that may be identified, we set performance materiality for the Group at £5.9
million (2018: £4.6 million) which represents 70% (2018: 70%) of Group materiality. We use performance materiality to determine the extent of our
testing; it is lower than Group 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 £0.4 million (2018: £0.3 million), 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.
An overview of the scope of our audit
The scope of our audit was broadly consistent with the prior year. In line with 2018, we planned to test and rely on the key manual and automated
controls over the following business processes: capitalisation of intangible assets and property, plant and equipment; inventory; supplier income;
operating expenses; and payroll. We also involved IT specialists to test the general IT controls over key financial reporting systems, such as Oracle and
the Warehouse Management Systems.
As noted on page 92 of the Report from the Chairman of the Audit Committee, improvements are required to the underlying control environment. In
particular, given the Group’s rapid growth, significant organisational changes and increased complexity, finance function resources have been stretched
and controls, including controls over IT (such as access rights) whilst operating, have not always operated on a timely basis and with the rigour and
oversight expected. Furthermore, the operational separation of the Retail business, including data and systems, has been challenging. This increased the
audit effort required to complete our work.
As a consequence, our final approach only placed reliance on key controls in the inventory and supplier income processes. In addition, we performed
additional procedures to respond to the potential risks, including the risk of fraud which are outlined in on page 149.
We visited three of the four operating Customer Fulfilment Centres (“CFCs”) and both General Merchandise Distribution Centres (“GMDCs”).
The Audit Partner met members of the Audit Committee, the Chairman, and Executive Directors throughout the year. In addition, as part of
understanding the business and performing our audit procedures we met with senior management across the Group within and outside the finance
functions. Taken together, this informed the Group audit scope.
The scope of the Group audit includes all significant trading companies in the UK, including Ocado Retail Limited (a joint venture with M&S Group plc
but which is controlled and consolidated by the Group) and the joint venture with Morrisons. The results for these entities accounts for over 95%
(2018: 95%) of the Group’s revenue and net assets.
For the entities not subject to detailed audit work, which includes overseas development operations and Solutions entities, the Group’s captive
insurance company in Malta, and the Fabled business that was disposed of during the year, we tested the consolidation process and conducted
analytical procedures to confirm our conclusion that there were no material misstatements in the aggregated financial information. All entities are
currently managed from one central location in the UK and all audit work relevant to the Group audit is conducted by the Group audit team based
in London.
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We have nothing to report in respect of these
matters.
Independent Auditor’s Report
to the members of Ocado Group plc
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.
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 directors’ responsibilities statement, 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.
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.
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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:
• considering the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration
policies, key drivers for directors’ remuneration, bonus levels and performance targets
• enquiring of management, internal audit 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;
•
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 IT and tax specialists, 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:
recognition of retail revenue, accounting for Solutions contracts and impairment of capitalised project costs; and
• obtaining an understanding of the legal and regulatory framework Group operates in, focusing on those laws and regulations that had a direct effect
on the financial statements. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules and relevant tax
legislation. We also considered the Groceries Supply Code of Practice (“GSCOP”) as having a fundamental effect on the operations of the Group.
Audit response to risks identified
As a result of performing the above, we identified recognition of retail revenue, accounting for Solutions contracts and impairment of capitalised project
costs as key audit matters with a potential risk of fraud. 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
described as having a direct effect on the financial statements;
• enquiring of management, the audit committee and in-house legal counsel concerning actual and potential litigation and claims, and any matters
relevant to compliance with GSCOP;
• 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;
• as noted above, we also considered the risk of fraud arising from deficiencies in the control environment and involved our fraud specialists in
designing procedures to respond to this risk. These procedures included obtaining evidence to support a sample of payments made to suppliers
used only once and considering payments other than salary related into employee bank accounts; 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.
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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 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.
Other matters
We have nothing to report in respect of these
matters.
We have nothing to report in respect of these
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 3 years, covering the periods ending 3 December 2017 to 1 December 2019.
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
11 February 2020
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Consolidated Income Statement
for the 52 weeks ended 1 December 2019
Notes
2.2, 2.3
2.4
3.6, 3.7
2.5
2.7
4.6
4.6
2.8
Revenue
Cost of sales
Gross profit
Other income
Distribution costs
Administrative expenses
Operating loss before results from joint ventures and associate
Share of results from joint ventures and associate
Operating loss
Loss on disposal of subsidiary
Finance income
Finance costs
Loss before tax
Income tax
Loss for the period
Attributable to:
Owners of Ocado Group plc
Non-controlling interests
Loss per share
Basic and diluted loss per share
52 Weeks Ended 1 December 2019
Exceptional
Results Before
Exceptional
Items A
£m
1,756.6
(1,159.3)
597.3
83.9
(564.8)
(209.9)
(93.5)
0.7
(92.8)
–
3.3
(30.9)
(120.4)
2.7
(117.7)
Items A
(Note 2.7)
£m
–
(5.5)
(5.5)
23.8
(7.0)
(104.3)
(93.0)
–
(93.0)
(1.1)
–
–
(94.1)
–
(94.1)
Notes
2.9
Total
£m
1,756.6
(1,164.8)
591.8
107.7
(571.8)
(314.2)
(186.5)
0.7
(185.8)
(1.1)
3.3
(30.9)
(214.5)
2.7
(211.8)
(213.1)
1.3
(211.8)
pence
(29.37)
52 Weeks
Ended
2 December
2018(1)
£m
1,598.8
(1,051.3)
547.5
71.9
(485.4)
(167.1)
(33.1)
1.2
(31.9)
–
2.2
(14.7)
(44.4)
(0.5)
(44.9)
(44.9)
–
(44.9)
pence
(6.85)
Non-GAAP measure: Earnings before interest, taxation, depreciation, amortisation, impairment and exceptional items (EBITDA) A
Operating loss
Adjustments for:
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation expense
Impairment of property, plant and equipment
Impairment of intangible assets
Exceptional items A
EBITDA A
52 Weeks
Ended
1 December
2019
£m
(185.8)
46.0
50.4
37.3
0.6
1.8
93.0
43.3
Notes
3.3
3.4
3.2
3.3
3.2
2.7
52 Weeks
Ended
2 December
2018(2)
£m
(31.9)
63.3
–
27.1
0.5
0.4
0.1
59.5
(1) Exceptional items of £0.1 million in 2018 have been reclassified to administrative expenses in the Consolidated Income Statement for the purposes of presenting the comparative
information.
(2) EBITDA for the prior period has not been restated for the effects of IFRS 16 in line with the modified retrospective approach (see note 1.5).
The notes on pages 156 to 207 form part of these financial statements.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
–
G
R
O
U
P
A See Alternative Performance Measures on pages 227 and 228.
Stock Code: OCDO
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Consolidated Statement of Comprehensive Income
for the 52 weeks ended 1 December 2019
Loss for the period
Other comprehensive income:
Items that may be reclassified to profit or loss in subsequent periods:
Cash flow hedges
– Gains arising on hedging contracts
– Losses arising on hedging contracts
Foreign exchange loss on translation of foreign subsidiaries
Items that will not be reclassified to profit or loss in subsequent years:
Gain on equity investments designated as at fair value through other comprehensive income
Reclassification of equity of Jones Food Company
Other comprehensive income for the period, net of income tax
Total comprehensive expense for the period
Attributable to:
Owners of Ocado Group plc
Non-controlling interests
The notes on pages 156 to 207 form part of these financial statements.
Notes
4.10
4.10
4.10
4.10
4.10
52 Weeks
Ended
1 December
2019
£m
(211.8)
52 Weeks
Ended
2 December
2018
£m
(44.9)
–
(1.7)
(0.6)
2.8
0.1
0.6
(211.2)
(212.5)
1.3
(211.2)
1.0
–
(0.3)
–
–
0.7
(44.2)
(44.2)
–
(44.2)
P
U
O
R
G
–
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
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Consolidated Statement of Comprehensive Income
for the 52 weeks ended 1 December 2019
Consolidated Balance Sheet
as at 1 December 2019
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Contract assets
Costs to obtain contracts
Financial assets
Investment in joint ventures
Investment in associate
Current assets
Asset held for sale
Inventories
Contract assets
Trade and other receivables
Insurance reimbursement asset
Derivative financial instruments
Financial assets
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Contract liabilities
Lease liabilities
Derivative financial instruments
Provisions
Net current assets
Non-current liabilities
Contract liabilities
Borrowings
Lease liabilities
Provisions
Deferred tax liabilities
Net assets
Equity
Share capital
Share premium
Treasury shares reserve
Reverse acquisition reserve
Other reserves
Retained earnings
Equity attributable to owners of Ocado Group plc
Non-controlling interests
Total equity
1 December
2019
£m
2 December
2018
£m
Notes
3.1
3.2
3.3
3.4
2.8
2.3
2.3
3.5
3.6
3.7
3.8
3.9
2.3
3.10
3.13
4.7
3.5
3.11
3.12
2.3
4.3
4.7
3.13
2.3
4.2
4.3
3.13
2.8
4.10
4.10
4.10
4.10
4.10
5.2
4.7
185.8
468.6
368.8
27.2
0.3
0.8
177.3
45.8
4.7
1,284.0
4.2
52.3
0.1
150.0
49.2
–
2.8
750.6
1,009.2
2,293.2
(349.6)
(5.1)
(50.1)
(0.5)
(54.0)
(459.3)
549.9
(186.7)
(219.7)
(338.4)
(14.5)
(16.3)
(775.6)
1,058.3
14.2
705.3
(113.6)
(116.2)
4.0
555.2
1,048.9
9.4
1,058.3
–
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
589.9
(9.2)
(116.2)
1.4
76.7
556.6
–
556.6
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
–
G
R
O
U
P
The notes on pages 156 to 207 form part of these financial statements.
The consolidated financial statements on pages 156 to 207 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)
11 February 2020
Stock Code: OCDO
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Consolidated Statement of Changes in Equity
for the 52 weeks ended 1 December 2019
Attributable to Owners of Ocado Group plc
Reverse
Acquisi-
tion
Reserve
£m
(116.2)
–
Treasury
Shares
Reserve
£m
(48.0)
–
Other
Reserves
£m
0.7
–
Share
Premium
£m
261.3
–
Retained
Earnings
£m
137.2
(44.9)
Notes
Share
Capital
£m
12.6
–
Balance at 3 December 2017(1)
Loss for the period
Other comprehensive income:
Cash flow hedges
– Gains arising on hedging contracts
– Losses arising on hedging contracts
Translation of foreign subsidiaries
Total comprehensive income/(expense)
for the period ended 2 December 2018
Transactions with owners:
– Issue 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 (1)
IFRS 9: impact of change in accounting
policy
Adjusted balance at 2 December 2018 (1)
Loss for the period
Other comprehensive income:
Cash flow hedges
– Losses arising on hedging contracts
Translation of foreign subsidiaries
Gain on equity investments designated
as at fair value through other
comprehensive income
Reclassification of equity of Jones Food
Company
Total comprehensive income/(expense)
for the period ended 1 December 2019
Transactions with owners:
– Issue of ordinary shares
– Allotted in respect of share option
schemes
– Disposal of treasury shares on exercise
by participants
– Disposal of unallocated treasury shares
– Transfer of treasury shares to participants
– Reclassification between reserves
– Growth Incentive Plan cash settlement
on vesting
– Share-based payments charge
– Part-disposal of Ocado Retail
– Acquisition of Jones Food Company
Total transactions with owners
Balance at 1 December 2019
P
U
O
R
G
–
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
4.10
4.10
4.10
4.10
4.10
4.10
4.10
4.10
4.11
4.10
4.10
4.10
4.10
4.10
4.10
4.10
4.10
4.11
4.11
5.2
–
–
–
–
1.3
0.1
–
–
–
–
–
1.4
14.0
–
14.0
–
–
–
–
–
–
–
–
–
–
322.1
6.2
–
–
0.3
–
–
328.6
589.9
–
589.9
–
–
–
–
–
–
–
–
–
–
–
–
11.7
27.8
(0.7)
–
–
38.8
(9.2)
–
(9.2)
–
–
–
–
–
–
0.2
113.0
(111.1)
–
–
–
–
–
–
–
–
–
0.2
14.2
2.4
–
–
–
–
–
–
–
–
–
115.4
705.3
0.5
5.7
0.8
(0.3)
–
–
–
–
(104.4)
(113.6)
–
–
–
–
–
–
–
–
–
–
–
–
(116.2)
–
(116.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(116.2)
–
–
–
–
–
–
–
–
1.4
2.0
3.4
–
(1.7)
(0.6)
2.8
0.1
Total
£m
247.6
(44.9)
1.0
–
(0.3)
1.0
–
(0.3)
–
–
–
0.7
(44.9)
(44.2)
–
–
3.5
(27.8)
0.4
6.1
2.2
(15.6)
76.7
323.4
6.3
15.2
–
–
6.1
2.2
353.2
556.6
Non-
Control-
ling
Interests
£m
–
–
Total
Equity
£m
247.6
(44.9)
–
–
–
–
–
–
–
–
–
–
–
–
–
1.0
–
(0.3)
(44.2)
323.4
6.3
15.2
–
–
6.1
2.2
353.2
556.6
–
76.7
(213.1)
2.0
558.6
(213.1)
–
–
1.3
2.0
558.6
(211.8)
–
–
–
–
(1.7)
(0.6)
2.8
0.1
–
–
–
–
(1.7)
(0.6)
2.8
0.1
0.6
(213.1)
(212.5)
1.3
(211.2)
–
–
–
–
–
–
–
–
–
–
–
4.0
–
–
0.3
48.5
(0.8)
0.3
(80.2)
12.8
710.7
–
691.6
555.2
2.1
2.4
0.8
54.2
–
–
–
–
–
–
–
–
2.1
2.4
0.8
54.2
–
–
(80.2)
12.8
710.7
–
702.8
1,048.9
–
–
6.0
2.1
8.1
9.4
(80.2)
12.8
716.7
2.1
710.9
1,058.3
(1) Historic losses of £2.9 million on the utilisation of treasury shares to satisfy vestings of Long-Term Incentive Plan awards have been reclassified from share premium to retained
earnings, and reflected in Balance at 3 December 2017 and Balance and Adjusted balance at 2 December 2018.
The notes on pages 156 to 207 form part of these financial statements.
154 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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Consolidated Statement of Cash Flows
for the 52 weeks ended 1 December 2019
Cash flows from operating activities
Loss before tax
Adjustments for:
– Depreciation, amortisation and impairment losses
– Write-off of fixed assets, intangible assets and inventories
– Movement in provisions
– Share of result from joint ventures
– Share of result from associate
– Net loss on derivative financial instruments
– Revenue from long-term contracts
– Other income from insurance proceeds
– Share-based payments charge
– Net finance costs
– Movement in costs to obtain contracts
– Settlement of cash flow hedges
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
Cash settlement of Growth Incentive Plan
Insurance proceeds relating to destroyed inventory and business interruption
Net cash flows from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from disposal of Fabled, net of cash sold
Dividend received from joint venture
Purchase of investments in associate and joint venture
Purchase of Jones Food Company, net of cash acquired
Purchase of unlisted equity investment
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 allotment of share options
Proceeds from disposal of treasury shares on exercise by participants
Proceeds from Value Creation Plan - jointly-owned equity awards
Proceeds from disposal of unallocated treasury shares, net of transactions costs
Proceeds from part-disposal of Ocado Retail, net of transaction costs
Repayment of borrowings
Repayments of lease liabilities
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
The notes on pages 156 to 207 form part of these financial statements.
52 weeks
ended
1 December
2019
£m
52 weeks
ended
2 December
2018
£m
Notes
(214.5)
(44.4)
3.2, 3.3, 3.4
3.6
3.7
4.9
2.3
2.4
4.11
4.6
2.3
2.3
3.6
3.1
3.11
233.0
9.5
(1.0)
(0.9)
0.2
(1.7)
(2.9)
(23.8)
12.8
27.6
–
(0.1)
(7.6)
(29.4)
8.0
79.5
88.7
(30.6)
(80.2)
73.8
51.7
(175.5)
(84.1)
(0.5)
15.6
(13.6)
(7.6)
(1.6)
3.3
(264.0)
0.8
2.4
0.8
1.3
54.2
558.3
(25.0)
(40.2)
(0.5)
552.1
339.8
410.8
750.6
91.3
–
7.0
(1.2)
–
–
–
–
6.1
12.5
(0.8)
1.6
(13.6)
(36.1)
55.0
65.5
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
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
–
G
R
O
U
P
Stock Code: OCDO
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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 One & Two Trident
Place, Mosquito Way, Hatfield, Hertfordshire, AL10 9UL. The financial statements comprise the results of the Company and its subsidiaries (hereafter “the
Group”) (see note 5.1). The financial period represents the 52 weeks ended 1 December 2019. The prior financial period represents the 52 weeks ended
2 December 2018. The principal activities of the Group are described in the Strategic Report on pages 12 to 65.
1.2 Basis of Preparation
The financial statements have been prepared in accordance with the Listing Rules and the Disclosure Guidance and Transparency Rules of the UK
Financial Conduct Authority (where applicable), International Financial Reporting Standards (“IFRS”) and International Financial Reporting Standards
Interpretation Committee (“IFRIC”) interpretations as endorsed by the European Union (“IFRS-EU”), and with those parts of the Companies Act 2006
applicable to companies reporting under IFRS. The accounting policies applied are consistent with those described in the Annual Report and Financial
Statements for the 52 weeks ended 2 December 2018 of Ocado Group plc, with the exception of the adoption of IFRS 9 “Financial Instruments” and early
adoption of IFRS 16 “Leases”.
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 consider it appropriate to adopt the going concern basis of accounting in preparing the financial statements of the Group.
New Standards, Amendments and Interpretations Adopted by the Group
In the current period, the Group has adopted IFRS 9 “Financial Instruments” and IFRS 16 “Leases” for the first time.
Due to the transition methods chosen by the Group in applying these standards, comparative information throughout these financial statements has
not been restated to reflect the requirements of the new standards. Rather, reclassifications and any adjustments arising from the adoption of IFRS 9
and IFRS 16 have been recognised in the opening equity balances at 3 December 2018. Accordingly, the Group is not required to present a third Balance
Sheet. 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 3 December 2018 and concluded that they are either not relevant to the Group or that they would not have a significant
effect on the Group’s financial statements other than disclosures:
IFRS 2
IFRS 4
IAS 40
IFRIC 22
Annual Improvements to
IFRSs 2014–2016 Cycle
Share-based Payment (amendments)
Insurance Contracts (amendments)
Investment Property (amendments)
Foreign Currency Transactions and Advance Consideration
Amendments to IFRS 1, IFRS 12 and IAS 28
Effective Date
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
New Standards, Amendments and Interpretations Not Yet Adopted by the Group
The following 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 3 December 2018 and have not been adopted early:
IFRS 9
IAS 19
IAS 28
IFRIC 23
Annual Improvements to IFRS
Standards 2015–2017 Cycle
IFRS 3
IAS 1, IAS 8
Various
IFRS 17
IFRS 10
IAS 28
Financial Instruments (amendments)
Employee Benefits (amendments)
Investments in Associates and Joint Ventures (amendments)
Uncertainty over Income Tax Treatments
Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23
Business Combinations (amendments)
Definition of Material (Amendments to IAS 1 and IAS 8)
Amendments to References to the Conceptual Framework in IFRS Standards
Insurance Contracts
Consolidated Financial Statements (amendments)
Investments in Associates and Joint Ventures (amendments)
Effective Date
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2020
1 January 2020
1 January 2020
1 January 2021
Deferred
Deferred
These standards, interpretations and amendments to published standards and interpretations are not expected to have a material effect on the Group’s
financial statements.
P
U
O
R
G
–
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
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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 and associates.
Subsidiaries
The financial statements of subsidiaries are included in the consolidated financial statements from the date on which the Company obtains control and
excluded when the Company loses control. Control 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
exists 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 2019, 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 2019, as established in their articles of
association. There were no material movements in balances between the reporting date of the Group and the reporting dates of these entities. Jones
Food Company has a year end of 31 March but has prepared additional financial information for 1 December 2019 to enable consolidation.
All other subsidiaries have a period end of 1 December 2019.
All intercompany balances and transactions, including recognised gains arising from intra-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.
The Group attributes the total comprehensive income/expense of subsidiaries between the owners of the Company and the non-controlling interests,
based on their respective ownership interests.
Joint Ventures and Associates
The Group’s share of the results of joint ventures and associates is included in the Consolidated Income Statement using the equity method of
accounting. Investments in joint ventures and associates are carried on 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 and dividends received. The carrying values of the investments in joint ventures
and associates include goodwill.
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.
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 applied consistently 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”). The pound sterling is the Company’s functional and the Group’s presentational currency.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange
rates prevailing on the reporting date. Income and expenses are translated at the average exchange rates for the period or at the date of the transaction.
Exchange differences arising are recognised in other comprehensive income and accumulated in a separate component of equity.
Transactions and Balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or
valuations where items are remeasured. Foreign exchange gains or losses resulting from the settlement of such transactions and from the translation
at period 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 costs. All other foreign exchange gains and losses are presented in the Consolidated Income Statement within operating profit/loss.
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 presentational currency are translated into the presentational 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 the 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 rates on the dates
of the transactions); and
c. all resulting exchange differences are recognised as a separate component of equity.
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Notes to the Consolidated Financial Statements
Continued
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 date 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 has 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 control 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.
Note
2.1
For Ocado Solutions, revenue from the rendering of services is recognised over the life of the contract from the date the
customer first benefits from those services.
Key Estimation Uncertainties:
Area
Fair value
measurement
Estimate
The fair value of contingent consideration receivable is based on an estimate of discounted future cash inflows. At year end
the fair value recognised was £169.1m. The primary element of this relates to the agreed deferred payment of up to £187.5m
that arises from the sale of Ocado Retail, which is subject to agreed performance targets being achieved. At present we have
recognised the full amount (discounted) as, based on current projections, we expect to achieve the agreed performance targets.
If these targets were not achieved or were partially achieved, or if there were to be a change in the discount rate applied, there
would be a direct impact on the consideration to be received.
Note
4.8
Critical Accounting Judgements:
Area
Consolidation
of Ocado Retail
Revenue from
contracts with
customers
Provisions,
contingent
liabilities and
contingent
assets
Exceptional
items
Share options
and other equity
instruments
Recognition
of deferred tax
assets
Judgement
Management has concluded that the Group controls Ocado Retail, since it holds 50.0% of the voting rights of the company and
an agreement signed by the shareholders grants the Group determinative rights, after agreed dispute-resolution procedures in
relation to the approval of Ocado Retail’s business plan and budget and the appointment and removal of Ocado Retail’s Chief
Executive Officer who is responsible for directing the relevant activities of the business.
Due to the size and complexity of Ocado Solutions’ contracts, there are significant judgements to be applied. The identification
of performance obligations in the contract is a critical judgement as this is a key driver of the profile over which revenue is
recognised under the contract. Under our current judgement, we believe that there is one underlying performance obligation
in a Solutions contract and that revenue begins to be recognised when a working solution is in operation for a partner. A further
key judgement is the consideration and identification of material rights under the contract as this impacts the time period over
which upfront fees are recognised as revenue. Alternative judgements could have resulted in the business recognising revenue
from these contracts in an alternative profile over time. The amount of revenue recognised from our Solutions agreements is
expected to continue to increase in the future as these agreements go live.
A typical Ocado Solutions’ contract includes numerous key milestones and failure to reach these can be subject to contractual
financial penalties. Management judgement is required to review the progress of these ongoing projects, and assess whether a
provision should be made for these potential penalties. Management have determined that no liability is required in the current
year from discussions with senior management and key business streams.
The Group applies judgement in identifying the significant items of income and expenditure that are recognised as exceptional
to help provide an indication of the Group’s underlying performance. These measures are not meant to replace, or be
considered superior to, IFRS measures. Management judgement was applied to exceptionalise a number of one-off transactions
during the period; a fire that destroyed the Andover CFC impacting our capacity by 10%; the sale of 50% of the shares of Ocado
Retail; the disposal of Fabled; and the high profile litigation with former employees surrounding IP theft. Management deem
that disposal of core business streams are not within ordinary course of business, as well as litigation in protecting the IP of the
business. The statutory impact of these items is clearly disclosed in the Group Income Statement.
When determining the fair value of equity instruments granted, the Group applies valuation techniques. The Group reviews
the particular features of each share-related incentive scheme. Management judgement is exercised on appropriate option
pricing model selection to ensure it is relevant for the schemes in question. In the current period, management judgement
was exercised around the VCP scheme, and consideration and experience was relied upon in determining key assumptions
such as share price volatility. Volatility was a key judgement in respect of the fair valuation of the VCP scheme and this
judgement was made based on historical volatility trends alongside implied forward volatility trends. If the volatility applied
had been 5 percentage points higher or lower the fair value of the scheme over 5 years would have increased or decreased by
approximately £15.0 million.
The deferred tax asset recognised at 1 December 2019 is £27.2 million (2018: £16.6 million). In determining the recognition of a
deferred tax asset, management judgement is applied in considering the level of taxable profits expected to be received by the
business over a 4 year period and whether this is sufficient to support the recognition of an asset. This judgement on profitability
considers future business risks and the prudent forecasting of future taxable profits, underpinned by the businesses going concern
and viability view.
Note
5.1
2.1
3.13,
3.14
2.7
4.11
2.8
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1.4 Significant Accounting Policies and Critical Estimates, Judgements and Assumptions Continued
Other estimates, assumptions and judgements are applied by the Group. These include, but are not limited to, the determination of the rates of
depreciation and amortisation of tangible and intangible assets respectively, and of lease terms and provisions. These estimates, assumptions and
judgements are also evaluated on a continual basis but are not significant.
1.5 Changes in Significant Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year except for the adoption of IFRS 9 “Financial Instruments”
and IFRS 16 “Leases”.
Initial Adoption of IFRS 9 “Financial Instruments”
IFRS 9 “Financial Instruments” replaces IAS 39 “Financial Instruments: Recognition and Measurement” for financial periods beginning on or after
1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement, impairment and
hedge accounting.
The main changes the new standard introduced were:
• new requirements for the classification and measurement of financial assets and financial liabilities;
• a new model for recognising impairment of financial assets; and
• changes to hedge accounting by aligning hedge accounting more closely to an entity’s risk management objectives.
The Group has chosen not to restate comparative information on adoption of IFRS 9 and, therefore, reclassifications and any adjustments arising from
the adoption of IFRS 9 are recognised in the opening equity balances as at 3 December 2018. In accordance with IFRS 9 transition guidance, comparative
financial information in the primary financial statements remains compliant with the classification and measurement requirements of IAS 39.
Classification and Measurement
IFRS 9 introduced a principles-based approach to the classification of financial assets. Classification is determined by the business model in which the
financial assets are managed and their contractual cash flow characteristics. Financial assets are measured at fair value through profit or loss (“FVTPL”),
fair value through other comprehensive income (“FVTOCI”) and amortised cost. These categories replace the existing IAS 39 classifications. For financial
liabilities, most of the pre-existing requirements for classification and measurement previously included in IAS 39 were carried forward unchanged
into IFRS 9.
An assessment of the Group’s business models was made as at the date of initial application on 3 December 2018 and applied prospectively. The Group
has elected to classify its unlisted equity investments as FVTOCI as it intends to hold these investments for the foreseeable future. A summary of the
respective classifications under IAS 39 and IFRS 9 is presented below:
Measurement Category
Carrying Amount at 3 December 2018
Non-current financial assets
Unlisted equity investment(1)
Other receivables
Current financial assets
Trade receivables
Other receivables
Derivative financial instruments
Cash and cash equivalents
Current financial liabilities
Trade payables
Other payables
Lease liabilities
Derivative financial instruments
Non-current financial liabilities
Senior secured notes
Lease liabilities
Original (IAS 39)
New (IFRS 9)
Available-for-sale
Loans and receivables
FVTOCI
Amortised cost
Loans and receivables
Loans and receivables
FVTPL
Loans and receivables
Amortised cost
Amortised cost
Amortised cost
FVTPL
Amortised cost
Amortised cost
FVTPL
Amortised cost
Amortised cost
Amortised cost
Amortised cost
FVTPL
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Original
£m
0.4
3.7
52.4
39.4
0.1
410.8
133.4
135.2
22.9
0.5
244.3
93.4
New
£m
2.4
3.7
52.4
39.4
0.1
410.8
133.4
135.2
22.9
0.5
244.3
93.4
Difference
£m
2.0
–
–
–
–
–
–
–
–
–
–
–
(1) Previously the Group measured the investment at cost less impairment as permitted by IAS 39. Measurement at cost is no longer permitted and an election to measure the
investment at FVTOCI has been made.
Impairment
IFRS 9 replaces the “incurred loss” model in IAS 39 with an “expected credit loss” (ECL) model when calculating impairment losses on financial assets
measured at amortised cost. Under IFRS 9, credit losses are recognised earlier than under IAS 39 and therefore for assets within the scope of the IFRS 9
impairment model, impairment losses are generally expected to increase and become more volatile.
The Group was required to revise its impairment methodology under IFRS 9. The Group applies the simplified approach allowed under IFRS 9 to measure
expected credit losses for trade receivables, which uses a lifetime expected loss allowance.
The Group has found there to be an immaterial difference between the incurred loss model and the ECL model. See note 3.10 for further details.
Hedge Accounting
In accordance with IFRS 9’s transition provisions for hedge accounting, the Group has elected to continue applying the hedge accounting requirements
of IAS 39.
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Notes to the Consolidated Financial Statements
Continued
1.5 Changes in Significant Accounting Policies Continued
Initial Adoption of IFRS 16 “Leases”
IFRS 16 “Leases” replaces IAS 17 “Leases”. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases
and requires lessees to account for all leases under a single on-Balance-Sheet model.
The standard has an effective date of 1 January 2019 but the Group has decided to adopt it early as it will provide more reliable and useful information to
investors and other stakeholders and allow the Group to remain more readily comparable with competitors who will be adopting the standard during the
2019/20 reporting season.
IFRS 16 has been applied using the modified retrospective approach with the date of initial application of 3 December 2018. Under this approach, right-
of-use assets being equal to lease liabilities, there is no effect on retained earnings at 3 December 2018. Prior periods have not been restated.
On adoption of IFRS 16 the Group has recognised lease liabilities in relation to leases which had previously been classified as operating leases. These
liabilities were measured at the present values of the remaining lease payments, discounted using the incremental borrowing rates at 3 December 2018.
For leases previously classified as finance leases, the right-of-use assets and lease liabilities are measured at the date of initial application at the same
amounts as under IAS 17 immediately before the date of initial application.
Practical Expedients Applied
The Group has used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases:
• applying a single discount rate to a portfolio of leases with similar characteristics;
•
relying on previous assessments as to whether leases are onerous as an alternative to performing an impairment review – there were no onerous
contracts as at 3 December 2018;
• excluding initial direct costs from measuring right-of-use assets at the date of initial application; and
• using hindsight when determining a lease term if the contract contains options to extend or terminate the lease.
The Group has applied the exemption not to recognise the right-of-use assets and liabilities for leases with a remaining lease term of less than 12 months
from the date of initial application.
Upon transition several contracts that had previously been identified as leases, and included within the operating lease commitments note at 2 December
2018, were reassessed and determined not to be leases.
Measurement of Lease Liabilities
The following is a reconciliation of total operating lease commitments disclosed at 2 December 2018 with the lease liabilities recognised at 3 December 2018:
Total operating lease commitments disclosed under IAS 17 at 2 December 2018
Fixed commitments for service contracts costs
Operating lease liabilities before discounting
Operating lease liabilities after discounting
Finance lease liabilities recognised under IAS 17 at 2 December 2018
Total lease liabilities recognised under IFRS 16 at 3 December 2018
Representing:
Current lease liabilities
Non-current lease liabilities
£m
408.3
(18.2)
390.1
283.1
116.3
399.4
35.2
364.2
399.4
Measurement of Right-of-Use Assets
The Group has elected to measure the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments
that existed at the date of transition, including unamortised lease incentives.
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1.5 Changes in Significant Accounting Policies Continued
Adjustments Recognised on the Balance Sheet on 3 December 2018
The following is a reconciliation of the financial statement line items from IAS 17 to IFRS 16 at 3 December 2018:
Property, plant and equipment
Right-of-use assets
Trade and other receivables
Trade and other payables
Lease liabilities
Provisions
Total
Carrying
Amount at
2 December
2018
£m
556.7
–
104.7
(291.0)
(116.3)
(17.1)
237.0
Notes
3.3
3.4
3.10
3.12
4.3
3.13
Re-
classification
£m
(114.1)
114.1
–
–
–
–
–
Re-
measurement
£m
–
275.9
(0.9)
11.3
(283.1)
(3.2)
–
IFRS 16
Carrying
Amount at
3 December
2018
£m
442.6
390.0
103.8
(279.7)
(399.4)
(20.3)
237.0
The application of IFRS 16 to leases previously classified as operating leases under IAS 17 resulted in the recognition of right-of-use assets of £275.9
million, lease liabilities of £283.1 million and dilapidations provisions of £3.2 million.
Assets under finance lease arrangements of £114.1 million previously presented within property, plant and equipment were reclassified to right-of-use
assets.
Lease incentive liabilities of £11.3 million previously recognised with respect to operating leases and previously presented within trade and other
payables are now presented in the right-of-use assets line.
Prepaid lease payments of £0.9 million previously recognised with respect to operating leases and previously presented within trade and other
receivables were reclassified in the right-of-use assets line.
There was no net effect on retained earnings at 3 December 2018.
IFRS 16 requires entities to make certain judgements and estimations. Management has exercised judgement around the use of extension and break
options for leases.
Where the Group has the option to extend or terminate a lease early, management has used its judgement to determine whether or not the option is
reasonably certain to be exercised. Management has considered all facts and circumstances including past practice and current and future business
strategy and any costs that could be incurred on use of the option in exercising its judgement.
Post transition the Group would use optional exemptions for low value items and short term leases.
1.6 Going Concern Basis
Accounting standards require that Directors satisfy themselves that it is reasonable for them to conclude on whether or not 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 £750.6 million (2018: £410.8 million), external gross debt A (excluding lease liabilities payable to MHE
JVCo) of £544.2 million (2018: £286.1 million) and net current assets of £549.9 million (2018: £247.0 million). The Group has a mix of short and medium-
term financing arrangements and has £225.0 million of senior secured notes due in 2024 and a £100.0 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. The financial position
of the Group, including information on cash flows, can be found in Our Financials on pages 142 to 221. 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 12 and 65) and the Group’s principal risks and the likely effectiveness of any mitigating actions and controls available to the
Directors (see pages 48 to 52).
Further details of the Group’s considerations are provided in the Group’s Viability and Going Concern Statement on page 53.
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Notes to the Consolidated Financial Statements
Continued
Section 2 — Results for the Period
2.1 Loss Before Tax
Accounting Policies
Revenue
Revenue represents the transaction prices to which Ocado expects to be entitled in return for delivering 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 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 applies the practical expedient allowed
under IFRS 15 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 doing so does not materially affect the financial statements.
Determining Transaction Prices
Customers pay in full at the 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 guidance on variable consideration in IFRS 15. Standard
delivery charges and carrier bag receipts are included in transaction prices. Smart Pass transaction prices are the contracted values of the memberships
for the agreed periods of delivery services.
Allocation of Transaction Prices to Performance Obligations
Each contract has a single performance obligation and so the whole 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. The
contingent consideration is estimated at expected value.
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
usually 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.
UK Solutions and International Solutions Segments
Identification of Performance Obligations
Solutions contracts are allocated to one of the two Solutions segments based on geography. The approach taken to evaluate the accounting treatment
of a contract is the same for both segments, with each contract being 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. Depending on the individual customer, fulfilment of an order may include the delivery of goods to the final consumer,
and this would make up part of the obligation.
Consequently, designing the CFC or building the customer OSP is not a separate 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 its judgement to determine whether
there are separable performance obligations from which the customer is able to benefit independently.
Determining Transaction Prices
At the inception of a contract, 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 is initially required to make a judgement about the duration of the contract. The majority of
our Solutions contracts do not have a fixed term, but run for an indefinite period until cancelled. For the purposes of applying IFRS 15, and in particular
making the disclosures in respect of unsatisfied performance obligations, management determines the duration of a contract having considered the
type of contract, performance against contractual service-level agreements (“SLAs”) and termination provisions. The point at 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.
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
period 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 contractual SLAs, the evolving technology and competitive landscape. The judgements
made for contract duration may be different to those judgements for expected customer life.
162 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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2.1 Loss Before Tax Continued
A Solutions contract often includes recurring fees which are due on an annual basis throughout the contract, and are recognised over the duration of the
contract and are included in the estimate of the 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 reached our constrained estimate by assuming 90.0% of FY18 performance. This estimate 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 effect 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 whether any finance benefit is significant.
Allocation of Transaction Prices to Performance Obligations
Single component contracts have a single performance obligation and the whole 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 way of measuring the satisfaction of obligations is to use 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 to 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.
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 needs 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 uses its 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.
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Notes to the Consolidated Financial Statements
Continued
2.1 Loss Before Tax Continued
Contract Costs and Liabilities
As a result of the contracts into which the Group enters 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 or not 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 are 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, 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 has 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
1 December 2019, promotional allowances represent 84% (2018: 80%) of commercial income, with volume-related rebates representing 16% (2018: 20%).
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
these are 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 the period 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 periods 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 period and are reviewed regularly by senior management.
Uncollected Commercial Income
Uncollected commercial income at the Balance Sheet date is classified within trade and other receivables. Where commercial income has been earned,
but not 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 for the amount of income in relation to campaigns that may span the period end; however, such adjustments are not typically material.
164 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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2.1 Loss Before Tax Continued
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. These include 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 payment 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. These include costs incurred on behalf of Morrisons which are subsequently recharged.
Exceptional Items
Exceptional items, as disclosed on the face of the Consolidated Income Statement, are items that due to their material and/or non-recurring nature
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. The Group applies judgement in
identifying the significant non-recurring items of income and expense that are recognised as exceptional.
The Group has adopted a three-columned approach to the Consolidated Income Statement to aid clarity and allow users of the financial statements
to understand more easily the performance of the underlying business and the impact of one-off events.
The Group believes this format is useful as it highlights non-recurring items, such as the costs relating to a warehouse fire, corporate reorganisation
and restructuring costs, profit or loss on disposal of operations, impairment of assets and any material costs outside the normal course of business.
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 online
grocery retailing, fulfilment and logistics and services in the UK. The Group is not currently 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.
The separation of Ocado’s Retail and Logistics operations into distinct business units and the creation of the joint venture with M&S have led to changes
in how the management team reports and manages performance. The Group has determined it now has three reportable segments: Retail, UK Solutions
and International Solutions. The 2019 segmental disclosures have been prepared to reflect this structure for the full year, with the 2018 comparatives
re-presented on this basis.
The Retail segment provides online grocery and general merchandise offerings to customers within the United Kingdom, and comprises the Ocado
Retail joint venture. The UK Solutions segment provides the IT platform, CFCs and logistics for customers in the United Kingdom (Morrisons and Ocado
Retail). The International Solutions segment provides end-to-end online retail solutions to corporate customers outside the United Kingdom. In order to
reconcile segmental revenues and EBITDA A with the Group’s revenue and EBITDA A two other headings are used: “Other” represents revenue and costs
which do not relate to any of the three segments; “Group Eliminations” relates to revenue and costs arising from intra-Group transactions.
The Board assesses the performance of all segments on the basis of EBITDA A . EBITDA A , as reported internally by segment, is the key measure utilised in
assessing the performance of operating segments within the Group.
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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. Segmental results and assets include items directly attributable to a segment as well as those that
can be allocated on a reasonable basis.
Segmental Revenue and EBITDA A
2018
Segmental revenue A
Segmental EBITDA A
2019
Segmental revenue A
Segmental EBITDA A
Retail
£m
UK Solutions
£m
1,466.6
30.1
1,617.5
35.0
541.1
67.5
583.2
84.8
International
Solutions
£m
0.5
(28.4)
0.5
(62.1)
Other
£m
9.2
(9.7)
9.8
(14.4)
Group
Elimination
£m
(418.6)
–
(454.4)
–
Total
£m
1,598.8
59.5
1,756.6
43.3
(1) Revenue and EBITDA A for the prior period have been re-presented to reflect the change in reportable segments during the period.
No measure of total assets and total liabilities is reported for each reportable segment, as such amounts are not regularly provided to the chief operating
decision-maker.
A See Alternative Performance Measures on pages 227 and 228.
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Notes to the Consolidated Financial Statements
Continued
2.3 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:
Segmental Revenue
Retail
UK Solutions
International Solutions
Other
Group Eliminations
Timing of Revenue Recognition
At a point in time
Over time
Contract Balances
Trade receivables
Contract assets
Contract liabilities
Analysis of total contract assets:
Current
Non-current
52 Weeks
Ended
1 December
2019
£m
1,617.5
583.2
0.5
9.8
(454.4)
1,756.6
52 Weeks
Ended
2 December
2018
£m
1,466.6
541.1
0.5
9.2
(418.6)
1,598.8
1,626.4
130.2
1,756.6
1,475.8
123.0
1,598.8
Notes
3.10
1 December
2019
£m
12.3
0.4
(191.8)
2 December
2018
£m
8.6
–
(115.2)
3 December
2017
£m
8.6
–
(49.7)
1 December
2019
£m
0.1
0.3
0.4
2 December
2018
£m
–
–
–
3 December
2017
£m
–
–
–
The contract assets represent Solutions revenue recognised in the Consolidated Income Statement, but net yet invoiced.
Significant changes in the contract assets balance during the period are as follows:
At the beginning of the period
Recognised as revenue
At the end of the period
Analysis of total contract liabilities:
Current
Non-current
52 Weeks
Ended
1 December
2019
£m
–
0.4
0.4
52 Weeks
Ended
2 December
2018
£m
–
–
–
1 December
2019
£m
(5.1)
(186.7)
(191.8)
2 December
2018
£m
(6.6)
(108.6)
(115.2)
3 December
2017
£m
(4.7)
(45.0)
(49.7)
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.
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2.3 Revenue from Contracts with Customers Continued
Significant changes in the contract liabilities balance during the period are as follows:
At the beginning of the period
Increase due to cash received
Recognised as revenue
At the end of the period
Set out below is the amount of revenue recognised from:
Amount included in the contract liabilities at the beginning of the period
52 Weeks
Ended
1 December
2019
£m
(115.2)
(79.5)
2.9
(191.8)
52 Weeks
Ended
2 December
2018
£m
(49.7)
(70.2)
4.7
(115.2)
52 Weeks
Ended
1 December
2019
£m
2.9
52 Weeks
Ended
2 December
2018
£m
4.7
The transaction price allocated to the remaining performance obligations (unsatisfied or partially unsatisfied) is as follows:
Within one year
Between one and five years
More than five years
Total transaction price
1 December
2019
£m
114.5
1,004.9
3,308.8
4,428.2
2 December
2018
£m
112.0
833.4
2,135.6
3,081.0
Total transaction price includes £1,824.0 million (2018: £1,736.3 million) in respect of potential revenues in relation to the recovery of costs that are
expected to be incurred in existing 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
At the beginning of the period
Additions
At the end of the period
52 Weeks
Ended
1 December
2019
£m
0.8
–
0.8
52 Weeks
Ended
2 December
2018
£m
–
0.8
0.8
Management expects that the incremental costs of obtaining contracts (i.e. sales bonuses) are recoverable. The Group therefore capitalises them as costs
to obtain contracts.
These capitalised costs will be amortised over the period of transferring goods or services to the customer.
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2.4 Other Income
Other income comprises:
Media and other income
Exceptional insurance income
Rental income
Other income
52 Weeks
Ended
1 December
2019
£m
70.6
23.8
13.3
107.7
52 Weeks
Ended
2 December
2018
£m
58.5
–
13.4
71.9
Stock Code: OCDO
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Notes to the Consolidated Financial Statements
Continued
2.5 Operating Expenses
Operating expenses include:
Cost of inventories recognised as an expense
Employment costs
Amortisation expense
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Impairment of property, plant and equipment included in distribution costs
Impairment of intangible assets included in administrative expenses
increase/(decrease) in provision for impairment of receivables
Research and development costs
Operating lease rentals:
– Land and buildings
Net foreign exchange movements
During the period, the Group paid the following to its auditor:
Notes
2.6
3.2
3.3
3.4
3.3
3.2
3.10
Fees payable to the Company’s auditor and its associates for the audit of the Company’s annual financial statements
Fees payable to the Company’s auditor and its associates for the audit of the Company’s subsidiaries
Other fees payable for statutory audit services
Total audit fees
Audit-related assurance services
– ISRE 2410 services
Other assurance services:
– Transaction support services required by regulation
– Other transaction support services
– Agreed upon assurance services
Total non-audit fees
52 Weeks
Ended
1 December
2019
£m
1,145.8
383.0
37.3
46.0
50.4
0.6
1.8
0.7
0.1
52 Weeks
Ended
2 December
2018
£m
1,035.5
319.7
27.1
63.3
–
0.5
0.4
(1.1)
–
0.7
0.4
20.9
0.1
52 Weeks
Ended
1 December
2019
£’000
80
718
70
868
52 Weeks
Ended
2 December
2018
£’000
75
356
25
456
50
70
265
30
415
1,283
39
–
–
–
39
495
The Audit Committee considered that certain non-audit services relating to the part-disposal of Ocado Retail should be provided by the external auditor
because its existing knowledge of the business made this the most efficient and effective way for these services to be performed.
2.6 Employee Information
Employment costs during the financial period were as follows:
Wages and salaries
Social security costs
Other pension costs
Share-based payment expense(1)
Total gross employment costs
Staff costs capitalised as intangible assets
Staff costs capitalised as property, plant and equipment
Total employment cost
Average monthly number of employees (including Executive Directors) by function
Operational staff
Support staff
Notes
3.2
3.3
52 Weeks
Ended
1 December
2019
£m
403.2
37.3
12.1
24.2
476.8
(70.2)
(23.6)
383.0
52 Weeks
Ended
2 December
2018
£m
337.8
29.8
7.7
13.1
388.4
(51.5)
(17.2)
319.7
12,406
2,738
15,144
11,199
2,253
13,452
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(1) Included in the share-based payment expense is the IFRS 2 equity-settled charge of £12.8 million (2018: £6.1 million) and an additional provision of £11.4 million (2018: £7.0 million)
for the payment of amounts due to participants in the Cash LTIP and for the payment of employer’s National Insurance contributions on certain employee incentive schemes.
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2.7 Exceptional Items
Andover CFC
– Write-off of property, plant and equipment
– Write-off of intangible assets
– Loss of inventory
– Insurance reimbursement
– Other exceptional costs
Loss on disposal of Marie Claire Beauty Limited (“Fabled”)
Costs on creation of joint venture with Marks & Spencer
Litigation costs
Other exceptional costs
52 Weeks
Ended
1 December
2019
£m
52 Weeks
Ended
2 December
2018
£m
96.9
2.1
5.5
(23.8)
7.3
1.1
3.4
1.3
0.3
94.1
–
–
–
–
–
–
–
0.1
–
0.1
Andover CFC
In February 2019 a fire destroyed the Andover CFC, including the building, machinery and all inventory held on site. The Group has comprehensive
insurance and claims have been formally accepted by the insurers.
Write-Off of Property, Plant and Equipment and Intangible Assets
Property, plant and equipment with a net book value of £96.9 million was destroyed or damaged to the extent that no amount is expected to be recoverable.
Where amounts are expected to be recovered, for example through scrap proceeds, those assets are impaired to that recoverable amount. Intangible assets
with a net book value of £2.1 million were written off as it was determined these costs were specific to the Andover location and infrastructure.
Loss of Inventory
Inventory held at cost of £5.5 million was destroyed by the fire.
Other Exceptional Costs
These include, but are not limited to, temporary costs of transporting employees to other warehouses to work, professional fees relating to the insurance
claims process, reimbursement of employees’ personal assets that were destroyed and redundancy costs.
Insurance Reimbursement
This includes insurance reimbursements for the retail price of destroyed inventory and other incremental costs plus a portion of business interruption
losses. The reimbursement has been presented within “other income”. A portion of reimbursements has been received and recorded as deferred income.
This will be released to profit or loss in the future as the rebuilding costs of the CFC are incurred.
The Group expects to receive further insurance reimbursements in respect of reconstruction costs and business interruption losses. Claim negotiations
are ongoing and the Group has not included any further amount in respect of these reimbursements as the likely insurance proceeds cannot be
quantified accurately at this point. Income will be recognised in the future as the rebuilding costs of the CFC are incurred.
Disposal of Fabled
On 8 July 2019 the Group sold Fabled, its wholly-owned subsidiary, to Next Holdings Limited for a nominal upfront payment and an earn-out based on its
sales in each of the four years ending January 2021–2024, with a minimum guaranteed payment of £3.0 million. At the time of the sale, the fair value
of the consideration was determined to be £15.5 million, resulting in a profit on disposal of £8.8 million. At 1 December 2019 the fair value was re-
estimated to be £5.6 million. The loss of £9.9 million has been deducted from the profit on disposal, creating a loss of £1.1 million. The consideration
receivable has been recognised as a financial asset at fair value through profit or loss (see note 3.5). In January 2020 £2.9 million was received by Ocado
as an initial payment of the consideration.
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Consideration received:
Cash
Fair value of contingent consideration
Total disposal consideration
Less: carrying amount of net assets sold
Less: transaction fees
Loss on disposal
52 Weeks
Ended
1 December
2019
£m
–
5.6
5.6
(6.3)
(0.4)
(1.1)
Stock Code: OCDO
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Notes to the Consolidated Financial Statements
Continued
2.7 Exceptional Items Continued
The carrying amounts of Fabled’s assets and liabilities as at the date of sale were:
Property, plant and equipment
Trade and other receivables
Inventories
Cash and cash equivalents
Total assets
Trade and other payables
Total liabilities
Net assets
8 July 2019
£m
1.2
2.0
6.2
0.3
9.7
(3.4)
(3.4)
6.3
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Joint venture with Marks & Spencer (“M&S”)
In August 2019 the Group completed the creation of a new 50:50 joint venture with M&S. The joint venture comprises Ocado’s grocery retail business in
the United Kingdom supported by a new partnership for Solutions services underpinned by Ocado Smart Platform and the provision of branding and
sourcing from M&S. M&S products will be available on Ocado.com by September 2020, replacing Ocado’s current sourcing agreement with Waitrose
Limited. M&S has paid Ocado £562.5 million cash upfront and has agreed to a deferred cash payment of £187.5 million five years after completion
dependent on the satisfaction of certain financial and operational conditions. The difference between the fair value of the identifiable net assets of
Ocado Retail and the fair value of the consideration received has been recognised directly in equity and attributed to the owners of the Group (see note
5.2). The contingent consideration receivable has been recognised as a financial asset at fair value through profit or loss (see note 3.5).
While certain costs relating to the transaction are permitted to be accounted for directly within equity, there are others that do not meet the requirements and
as a result have been reported as exceptional costs. These include, but are not limited to, legal fees for advice relating to TUPE regulations, contractors’ fees
incurred relating to transitional arrangements and accelerated share-based payment expenses for those employees who transferred to the new joint venture.
Litigation Costs
The Group has made a claim for damages and for injunctive relief against Jonathan Faiman, Jonathan Hilary and Project Today Holdings Limited, a
software and online fulfilment company trading under the name T0day, because of the theft and unlawful use of the Group’s Intellectual Property (“IP”).
The Group believes strongly in the merit of its case. Ocado’s IP is its greatest asset and represents a significant portion of the Group’s value. It has spent
the last 20 years developing its IP, technology and know-how. The Group relishes fair competition, but vigorously protects its IP and challenges any
individual or organisation that uses information obtained illegally, whether directly or indirectly. Management is determined to protect its stakeholders’
interests.
Legal and other costs have been incurred to recover the stolen items and seek compensation.
There were no material tax effects arising from exceptional items. For cash flow effects from exceptional items, refer to the Consolidated Statement of
Cash Flows on page 155.
2.8 Income Tax
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 Tax
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 evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes
provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred Tax
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 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 tax assets against current tax
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 Bill 2017-18, the credit due to the Group
is equal to 12.0% 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.
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2.8 Income Tax Continued
During the period the Group claimed a credit of £4.1 million for the 52 weeks ended 2 December 2018 (2018: £3.0 million for the 53 weeks ended
3 December 2017).
Future Changes to Tax Legislation
The Group undertakes regular reviews in order to ensure its ongoing compliance with current and future proposed changes to United Kingdom 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 United Kingdom’s future
relationship with the European Union could have an impact on such matters. We continue to monitor developments in this area.
Income Tax — Income Statement
Recognised in the Consolidated Income Statement
Current tax:
UK Corporation Tax on profits for the period
Overseas corporation tax on profits for the period
Adjustments in respect of prior periods
Total current tax
Deferred tax:
Overseas deferred tax on profits for the period
Origination and reversal of temporary differences
Total deferred tax
Income tax (credit)/charge
52 Weeks
Ended
1 December
2019
£m
52 Weeks
Ended
2 December
2018
£m
–
0.5
–
0.5
–
(3.2)
(3.2)
(2.7)
–
–
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% (2018: 19%)
Effect of:
Losses arising in period on which no deferred tax is recognised
Permanent differences
Differences in overseas tax rates
Temporary differences on which no deferred tax is recognised
Prior period adjustments
Income tax (credit)/charge for the period
Income Tax — Balance Sheet
Movement in the deferred tax asset is as follows:
As at 3 December 2017
Recognised through the Consolidated Income Statement
As at 2 December 2018
Recognised through the Consolidated Income Statement
As at 1 December 2019
52 Weeks
Ended
1 December
2019
£m
(214.5)
(40.8)
52 Weeks
Ended
2 December
2018
£m
(44.4)
(8.4)
10.7
(15.0)
(0.1)
42.5
–
(2.7)
Tax Losses
Carried
Forward
£m
14.3
(4.8)
9.5
13.0
22.5
Other
Short-Term
Timing
Differences
£m
–
7.1
7.1
(2.4)
4.7
(2.0)
(8.3)
–
19.1
0.1
0.5
Total
£m
14.3
2.3
16.6
10.6
27.2
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The Finance Act 2016 included legislation to reduce the main rate of UK Corporation Tax from 19.0% to 17.0% from 1 April 2020. Deferred tax has been
provided at the rate at which the deferred tax asset is expected to be utilised.
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
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Notes to the Consolidated Financial Statements
Continued
2.8 Income Tax Continued
Movement in the unrecognised deferred tax asset is set out below:
As at 3 December 2017
Potential movement in the period unrecognised through:
– Consolidated Income Statement
As at 2 December 2018
Effect of change in UK Corporation Tax rate
Potential movement in the period unrecognised through:
– Consolidated Income Statement
As at 1 December 2019
Tax Losses
Carried
Forward
£m
20.9
Accelerated
Capital
Allowances
£m
22.7
Other
Short-Term
Timing
Differences
£m
(3.1)
13.7
34.6
(8.7)
25.9
(2.3)
20.4
18.6
39.0
4.1
1.0
–
1.0
Total
£m
40.5
15.5
56.0
9.9
65.9
As at 1 December 2019 the Group had approximately £284.7 million of unutilised tax losses (2018: approximately £256.4 million) available to offset
against future profits. A deferred tax asset of £22.5 million (2018: £9.5 million) has been recognised in respect of £132.4 million (2018: £55.9 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 has concluded that there is sufficient evidence for the recognition of the deferred tax asset of £27.2 million (2018: £16.6 million).
Movement in the recognised deferred tax liability is set out below:
As at 3 December 2017
Recognised through the Consolidated Income Statement
As at 2 December 2018
Recognised through the Consolidated Income Statement
As at 1 December 2019
Accelerated
Capital
Allowances
£m
(7.0)
(1.9)
(8.9)
(7.4)
(16.3)
For the period ended 1 December 2019 the Group has recognised a deferred tax liability of £16.3 million (2018: £8.9 million). Of this amount, £16.3 million
(2018: £8.8 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.
2.9 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 Joint Share Ownership Scheme (“JSOS”), and linked jointly-owned
equity (“JOE”) awards under the Value Creation Plan (“VCP”), 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 four classes of instruments that are potentially dilutive: share options, share interests held pursuant to the
Group’s JSOS, linked JOE awards under the VCP 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 and diluted loss per share have been calculated as follows:
P
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Weighted 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
1 December
2019
Million
725.7
52 Weeks
Ended
2 December
2018
Million
655.4
£m
(213.1)
pence
(29.37)
£m
(44.9)
pence
(6.85)
172 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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Section 3 — Assets and Liabilities
3.1 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 values 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 IFRS Standards.
On 7 June 2019 the Group acquired 64.1% of the issued share capital of Jones Food Company Limited, a non-listed company based in England and
specialising in vertical farming, thereby obtaining control over it. The acquisition was made to allow access to advanced growing technology that will
enable the Group to offer the freshest and most sustainable produce, with delivery to a customer’s kitchen possible within an hour of it being picked,
complementing the Group’s existing businesses.
The Group has elected to measure the non-controlling interest in Jones Food Company as the proportionate share of its interest in Jones Food
Company’s identifiable net assets.
Assets Acquired and Liabilities Assumed
The fair values of the identifiable assets and liabilities of Jones Food Company as at the date of acquisition were:
Assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Liabilities
Trade and other payables
Total identifiable net assets at fair value
Consideration transferred
Add: non-controlling interest (35.9% of net assets)
Less: fair value of identifiable net assets
Goodwill
Analysis of cash flows on acquisition
Transaction costs of the acquisition (included in cash flows from operating activities)
Net cash acquired with the subsidiary (included in cash flows from investing activities)
Cash paid
Net cash flow on acquisition
Fair Value
Recognised
on
Acquisition
£m
5.5
0.1
1.0
6.6
(0.5)
6.1
8.6
2.2
(6.1)
4.7
Cash Flow on
Acquisition
£m
(0.1)
1.0
(8.6)
(7.7)
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The acquisition of Jones Food Company was settled in cash amounting to £8.6 million. Transaction costs of £0.1 million were expensed and are included
in administrative expenses.
The goodwill of £4.7 million is primarily related to the skills and expertise of Jones Food Company’s workforce and expectations of growth. Goodwill is
allocated entirely to the Other segment and is not expected to be deductible for tax purposes.
From the date of acquisition, Jones Food Company contributed revenue of £0.1 million and a loss of £1.1 million to the Group’s results. If the acquisition
had occurred at the beginning of the period, the Group estimates that consolidated revenue would have been £0.1 million and consolidated loss before
tax would have been £1.7 million.
The above numbers are provisional.
Stock Code: OCDO
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Notes to the Consolidated Financial Statements
Continued
3.1 Business Combinations Continued
Goodwill
The movements in the net carrying amount of goodwill are as follows:
Cost
At 3 December 2017 and 2 December 2018
Acquired through business combination
At 1 December 2019
Accumulated impairment
At 3 December 2017 and 2 December 2018
Impairment loss
At 1 December 2019
Net book value
At 2 December 2018
At 1 December 2019
Goodwill
£m
–
4.7
4.7
–
–
–
–
4.7
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For the purpose of annual impairment testing, goodwill has been allocated to the Other operating segment.
The acquisition of Jones Food Company occurred towards the end of the financial year. Management has reconsidered areas such as the skills and
expertise of the workforce and expectations of future growth, and at the time of writing there were no indicators to suggest that the goodwill has been
impaired.
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 was one (2018: zero) significant investment in new subsidiaries during the 52 weeks ended 1 December 2019, being that in Jones Food Company.
3.2 Other Intangible Assets
Accounting Policies
Intangible Assets
Intangible assets, other than goodwill, 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.
Amortisation of intangible assets is calculated on a straight-line basis from the date on which they are brought into use, is charged to administrative
expenses, and is calculated based on the useful lives indicated below:
Internally generated assets
3–15 years, or the lease term if shorter
Other intangible assets
3–15 years, or the lease term if shorter
Right to use land
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 determines 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 period management has 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, CFCs and General
Merchandise Distribution Centres, and the enhancement and efficiency improvements of existing warehouse system capabilities to accommodate
expanding capacity and scalable opportunities. Time has also been spent continuously implementing and integrating 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 expenses 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 assesses 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.
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3.2 Other Intangible Assets Continued
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 assesses the
capitalisation of these costs by consulting the guidance outlined in IAS 38 “Intangible Assets” and exercises 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 treats 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 assesses each material addition of an internally generated asset and considers whether it is integral
to the successful operation of a related item of hardware, can be used across a number of applications and therefore whether the asset should be
recognised as property, plant and equipment. If the asset could be used on other existing or future projects it will be recognised as an intangible asset.
For example, should an internally generated asset, such as the software code to enhance the operation of existing CFC equipment, be expected to form
the foundation or a substantial element of future software development, it has been recognised as an intangible asset.
Of the internally generated assets capitalised, 25.2% (2018: 25.0%) relate 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 reviewed for appropriateness regularly. 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 affect 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.
Impairment of Non-Financial Assets (Including Tangible Assets (Note 3.3))
Those non-financial assets which do not have indefinite useful lives are subject to an annual amortisation or depreciation charge. These assets are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may exceed its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less costs to sell, and its value in use. Management makes an assessment based on the current
usage level and condition of the assets and assesses 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 is subsequently reversed, 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 periods. A reversal of an impairment loss is recognised immediately as income.
Given the Group’s current operating structure, the lowest level at which cash flows can reasonably be assessed is at a group of asset level.
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.
Internally
Generated
Assets
£m
Other
Intangible
Assets
£m
Total
Intangible
Assets
£m
Cost
At 3 December 2017
Additions
Internal development costs capitalised
Disposals
At 2 December 2018
Additions
Internal development costs capitalised
Impairment of Andover CFC (see note 2.7)
At 1 December 2019
Accumulated amortisation
At 3 December 2017
Charge for the period
Impairment
Disposals
At 2 December 2018
Charge for the period
Impairment
Impairment of Andover CFC (see note 2.7)
At 1 December 2019
Net book value
At 2 December 2018
At 1 December 2019
160.3
–
51.5
(0.4)
211.4
–
70.2
(3.3)
278.3
(68.8)
(23.6)
(0.4)
0.4
(92.4)
(32.6)
(0.6)
1.2
(124.4)
119.0
153.9
27.9
6.8
–
–
34.7
13.6
–
–
48.3
(7.0)
(3.5)
–
–
(10.5)
(4.7)
(1.2)
–
(16.4)
24.2
31.9
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
188.2
6.8
51.5
(0.4)
246.1
13.6
70.2
(3.3)
326.6
(75.8)
(27.1)
(0.4)
0.4
(102.9)
(37.3)
(1.8)
1.2
(140.8)
143.2
185.8
175
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Notes to the Consolidated Financial Statements
Continued
3.2 Other Intangible Assets Continued
Included within intangible assets is capital work-in-progress for internally generated assets of £17.7 million (2018: £10.9 million) and capital work-in-
progress for other intangible assets of £8.3 million (2018: £2.9 million).
The net book value of intangible assets held under lease liabilities is analysed below:
Cost
Accumulated amortisation
Net book value
1 December
2019
£m
14.4
(14.1)
0.3
2 December
2018
£m
14.4
(13.8)
0.6
From 2019 leased assets are presented as a separate line item on the Consolidated Balance Sheet (see note 3.4). Refer to note 1.5 for details about the
changes in accounting policy.
3.3 Property, Plant and Equipment
Accounting Policies
Property, Plant and Equipment
Property, plant and equipment excluding land is 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 20.4% of the total asset base of the Group in 2019 (2018: 41.2%). 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 assesses 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 (see note 3.2). Management exercises judgement in reviewing each material addition of an asset and considers whether the intangible
asset element can be used for other property, plant and equipment additions in the current or future periods. 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 has been identified as a separate asset because it will improve software stability for both existing operational CFCs.
Depreciation on items of property, plant and equipment is calculated on a straight-line basis from the date on which the item is brought into use, is
charged to distribution costs and administrative expenses and is calculated based on the useful lives indicated below:
Freehold buildings and leasehold properties
30 years, or the lease term if shorter
Fixtures and fittings
Plant and machinery
Motor vehicles
Land is held at cost and not depreciated.
5–10 years, or the lease term if shorter
3–20 years, or the lease term if shorter
2–7 years, or the lease term if shorter
Assets in the course of construction are carried at cost less any recognised impairment loss. Cost includes professional fees and other directly
attributable costs. Depreciation of these assets commences when the assets are ready for their intended use, on the same basis as other property assets.
Gains and losses on disposal are determined by comparing proceeds with the asset’s carrying amount and are recognised within operating profit.
For more information on the Group’s policy on capitalisation of borrowing 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 once a year for appropriateness.
Management also assesses the useful lives based on historical experience with similar assets as well as anticipation of future events which may affect
their useful lives, such as changes in technology. A review of useful lives took place in the current period and no changes in useful lives was required.
For the Group’s impairment policy on non-financial assets see note 3.2.
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3.3 Property, Plant and Equipment Continued
Cost
At 3 December 2017
Additions
Internal development costs capitalised
Disposals
Transfer of non-current asset held for sale
At 2 December 2018
Adjustment for change in accounting policy (see note 1.5)
Additions
Internal development costs capitalised
Acquired on purchase of Jones Food Company Limited
Impairment on Andover CFC (see note 2.7)
Disposals
At 1 December 2019
Accumulated depreciation
At 3 December 2017
Charge for the period
Impairment
Disposals
Transfer of non-current asset held for sale
At 2 December 2018
Adjustment for change in accounting policy (see note 1.5)
Charge for the period
Impairment
Impairment of Andover CFC (see note 2.7)
Disposals
At 1 December 2019
Net book value
At 2 December 2018
At 1 December 2019
Fixtures,
Fittings,
Plant and
Machinery
£m
Land and
Buildings
£m
Motor
Vehicles
£m
130.5
5.8
–
–
(5.8)
130.5
(32.4)
0.9
–
0.6
(32.3)
–
67.3
(25.2)
(4.2)
–
–
1.6
(27.8)
23.2
(2.8)
–
2.6
–
(4.8)
102.7
62.5
560.3
119.8
17.2
(0.3)
–
697.0
(211.1)
140.4
23.6
4.8
(82.8)
(2.6)
569.3
(237.9)
(45.2)
(0.5)
0.3
–
(283.3)
143.2
(41.6)
(0.6)
15.6
0.8
(165.9)
413.7
403.4
74.1
13.7
–
(5.3)
–
82.5
(69.8)
1.0
–
–
–
(2.7)
11.0
(33.6)
(13.9)
–
5.3
–
(42.2)
32.8
(1.6)
–
–
2.7
(8.3)
40.3
2.7
Total
£m
764.9
139.3
17.2
(5.6)
(5.8)
910.0
(313.3)
142.3
23.6
5.4
(115.1)
(5.3)
647.6
(296.7)
(63.3)
(0.5)
5.6
1.6
(353.3)
199.2
(46.0)
(0.6)
18.2
3.5
(179.0)
556.7
468.6
Included within property, plant and equipment is capital work-in-progress for land and buildings of £0.1 million (2018: £0.1 million) and capital work-in-
progress for fixtures, fittings, plant and machinery of £115.1 million (2018: £45.8 million).
The net book value of property, plant and equipment held under finance leases is set out below:
At 2 December 2018
Cost
Accumulated depreciation and impairment
Net book value
At 1 December 2019
Cost
Accumulated depreciation and impairment
Net book value
Fixtures,
Fittings,
Plant and
Machinery
£m
Land and
Buildings
£m
32.4
(23.2)
9.2
–
–
–
211.1
(143.2)
67.9
–
–
–
Motor
Vehicles
£m
69.8
(32.8)
37.0
–
–
–
Total
£m
313.3
(199.2)
114.1
–
–
–
From 2019 leased assets are presented as a separate line item on the Consolidated Balance Sheet (see note 3.4). Refer to note 1.5 for details about the
changes in accounting policy.
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Notes to the Consolidated Financial Statements
Continued
3.4 Right-of-Use Assets
Accounting Policies
Right-of-Use Assets
In the previous period, the Group only recognised lease assets and lease liabilities in relation to leases that were classified as “finance leases” under
IAS 17 “Leases”. The assets were presented in property, plant and equipment and the liabilities as part of the Group’s borrowings. For adjustments
recognised on adoption of IFRS 16 on 3 December 2018, please refer to note 1.5.
Right-of-use assets are measured at cost, which is made up of the initial measurement of the lease liability adjusted for any lease payments made at or
before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the asset at the end of the lease,
less any lease incentives received.
The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the
right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist.
The right-of-use assets are included in a separate line within non-current assets on the Consolidated Balance Sheet.
Cost
At 3 December 2017 and 2 December 2018
Reclassified from property, plant and equipment
Recognised on adoption of IFRS 16
At 3 December 2018
Additions
Disposals
At 1 December 2019
Accumulated depreciation
At 3 December 2017 and 2 December 2018
Reclassified from property, plant and equipment at 3 December 2018
Charge for the period
Disposals
At 1 December 2019
Net book value
At 2 December 2018
At 1 December 2019
Fixtures,
Fittings,
Plant and
Machinery
£m
Land and
Buildings
£m
Motor
Vehicles
£m
–
32.4
268.5
300.9
8.9
–
309.8
–
(23.2)
(19.4)
–
(42.6)
–
267.2
–
211.1
3.0
214.1
–
(0.2)
213.9
–
(143.2)
(15.6)
0.2
(158.6)
–
55.3
–
69.8
4.4
74.2
20.4
(3.8)
90.8
–
(32.8)
(15.4)
3.7
(44.5)
–
46.3
Total
£m
–
313.3
275.9
589.2
29.3
(4.0)
614.5
–
(199.2)
(50.4)
3.9
(245.7)
–
368.8
3.5 Financial Assets
Accounting Policies
Financial Assets
Financial assets comprise unlisted equity investments, prepaid fees in relation to financing activities, contributions towards dilapidations costs and
contingent consideration.
Unlisted equity investments have been designated as at fair value through other comprehensive income (“FVTOCI”) because they represent strategic
investments which the Group intends to hold for the long term. In 2018 these investments were classified as available-for-sale (see note 1.5).
Prepaid fees in relation to financing activities are recognised when incurred. The prepaid fees are amortised in proportion to the 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 has not been amortised when the facility is refinanced or repaid will be charged immediately to the
Consolidated Income Statement.
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Unlisted equity investments(1)
Prepaid financing fees
Contributions towards dilapidation costs
Contingent consideration (see note 2.8)
Financial assets
Disclosed as:
Current
Non-current
(1) These investments were classified as available-for-sale in 2018, see note 1.5.
1 December
2019
£m
6.8
2.8
1.4
169.1
180.1
2.8
177.3
180.1
2 December
2018
£m
0.4
2.2
1.5
–
4.1
–
4.1
4.1
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3.5 Financial Assets Continued
Investments
The investments are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and
accumulated in other reserves. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments; instead it
will be transferred to retained earnings. Dividends are recognised as other income in profit or loss.
Unlisted equity investments include a 25.0% interest in Paneltex Limited (“Paneltex”), a company incorporated in the United Kingdom, which has not
been treated as an associated undertaking since 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 Joint Ventures” 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 fair value of the investment is £5.2 million (2018: classified as held-
for-sale and measured at cost of £0.4 million).
During the current period the Group acquired a 5.9% interest in Inkbit Corporation, a company incorporated in Delaware, United States of America, which
has been recognised as an unlisted equity investment and designated as at FVTOCI. The fair value of the investment is £1.6 million (2018: £nil).
Prepaid Financing Fees
The prepaid financing fees relate to financing facilities entered into in 2016. The non-current portion relates to amounts capitalised which will not be
amortised to the Consolidated Income Statement within the next 12 months.
Contributions towards Dilapidations
Contributions towards dilapidations are due from the former tenant of two properties whose leases the Group took over in 2017 and will be utilised
when dilapidation costs are incurred at the ends of the leases.
Contingent Consideration
As part of the creation of the joint venture with M&S, contingent consideration has been agreed. There will be an additional cash payment of up to
£187.5 million if certain financial and operational conditions are satisfied in the five-year period after completion. At 1 December 2019 the fair value of
the contingent consideration was estimated to be £163.5 million. Gains and losses due to changes in the fair value of the consideration are recognised
directly in retained earnings in accordance with the accounting treatment of the gain on disposal.
Furthermore, as specified in the “earn-out” clause in the sale agreement of Fabled, additional cash consideration will be receivable based on sales in each of
the four years ending January 2021–2024. At 1 December 2019 the fair value of the consideration was estimated to be £5.6 million. Gains and losses due to
changes in the fair value of the consideration are recognised in the Consolidated Income Statement. In January 2020 £2.9 million was received by the Group
as an initial payment of the consideration.
3.6 Investment in Joint Ventures
Accounting Policies
The Group has assessed the nature of its joint arrangements with MHE JVCo Limited and Infinite Acres Holding B.V. under IFRS 11 “Joint Arrangements”
and determined both to be joint ventures.
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 on 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 assets 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 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.
Investment in Joint Ventures
During the current period the Group acquired a 33.3% interest in Infinite Acres Holding B.V., a private company incorporated in the Netherlands.
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Name of Entity
MHE JVCo Limited
Infinite Acres Holding B.V.
Total joint ventures
Place of Business/
Country of
Incorporation
United Kingdom
Netherlands
Principal Activity
Leasing assets
Design and construction of
vertical farms
% of
Ownership
Interest as at
1 December
2019
%
50.0
33.3
% of
Ownership
Interest as at
2 December
2018
%
50.0
–
Carrying
Amount as at
1 December
2019
£m
37.6
8.2
Carrying
Amount as at
2 December
2018
£m
52.2
–
45.8
52.2
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Notes to the Consolidated Financial Statements
Continued
3.6 Investment in Joint Ventures Continued
The tables below provide summarised financial information of the Group’s joint ventures. The information disclosed reconciles the amounts presented
in the financial statements of the relevant joint ventures with the Group’s share of those amounts.
Non-current assets
Current assets
– Cash and cash equivalents
– Other current assets
Current liabilities
– Financial liabilities (excluding trade and other payables)
– Other current liabilities
Non-current liabilities
– Financial liabilities (excluding trade and other payables)
– Other non-current liabilities
Net assets
Group’s share of net assets
Adjustment for specific allocations among investors
Goodwill
Legal costs capitalised on acquisition
Carrying amount
Revenue
Cost of sales
Gross profit
Administrative expenses
Depreciation and amortisation
Interest income
Income tax expense
Profit and total comprehensive income for the period
Group’s share of total comprehensive income
Foreign exchange difference recognised in other comprehensive income
Dividends received from joint ventures
MHE JVCo Limited
1 December
2019
£m
57.6
2 December
2018
£m
73.4
Infinite Acres Holding B.V.
1 December
2019
£m
3.1
2 December
2018
£m
–
1.5
17.0
–
(0.3)
–
–
75.8
37.9
(0.3)
–
–
37.6
1.2
35.4
–
(4.8)
–
–
105.2
52.6
(0.4)
–
–
52.2
1.1
0.2
–
(1.1)
–
–
3.3
1.1
–
6.6
0.5
8.2
–
–
–
–
–
–
–
–
–
–
–
MHE JVCo Limited
52 Weeks
Ended
1 December
2019
£m
–
–
–
–
(1.6)
3.7
–
2.1
1.0
–
15.6
52 Weeks
Ended
2 December
2018
£m
–
–
–
–
(2.0)
4.4
–
2.4
1.2
–
–
Infinite Acres Holding B.V.
10 Weeks
52 Weeks
Ended
Ended
1 December
2 December
2019
2018
£m
£m
–
–
–
–
–
–
–
(0.3)
–
(0.1)
–
–
–
–
–
(0.4)
–
(0.1)
–
(0.5)
–
–
3.7 Investment in Associate
Accounting Policies
The Group’s share of the results of its associate is included in the Consolidated Income Statement and is accounted for using the equity method of
accounting. Investments in associates are carried on 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 assets to associates, 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 an associate equals or exceeds its investment in the associate, the Group does not recognise further losses, unless it has
incurred obligations to do so or made payments on behalf of the associate.
Unrealised gains arising from transactions with associates are eliminated to the extent of the Group’s interest in the entity.
Investment in Associate
During the current period the Group acquired a 20.8% interest in Karakuri Limited, which is a robotics start-up. Karakuri is a private company
incorporated in the United Kingdom and registered at 14 Amherst Avenue, London, England, W13 8NQ. Its principal place of business is Unit 2,
55a Yeldham Road, London, W6 8JF, United Kingdom.
The carrying amount of the Group’s investment is £4.7 million (2018: £nil). Karakuri made a loss after tax of £0.7 million for the period from the date
of the Group’s acquisition to 1 December 2019, of which £0.2 million is attributable to the Group.
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3.8 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 Asset Held for Sale
The non-current asset held for sale of £4.2 million (2018: £4.2 million) represents the carrying value of a property in the United Kingdom, previously used
in the Group’s distribution network, which the Group is in the process of selling.
The completion of the sale has been delayed by circumstances beyond the Group’s control but negotiations are well advanced, and the Group remains
committed to the sale which is expected to complete in the first quarter of 2020. Accordingly, the asset has continued to be classified as held for sale.
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.
3.9 Inventories
Accounting Policies
Inventories comprise goods held for resale, fuel and other consumable goods. Inventories are valued at the lower of cost and net realisable value as
using the first-in-first-out basis 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.
Goods for resale
Consumables
1 December
2019
£m
50.6
1.7
52.3
2 December
2018
£m
55.3
1.2
56.5
The provision for slow-moving, obsolete and defective stock decreased by £0.6 million from the prior period (2018: £0.6 million increase) and the
corresponding income has been recognised in the Consolidated Income Statement.
3.10 Trade and Other Receivables
Accounting Policies
Trade and Other Receivables
Trade receivables are non-interest-bearing and are due 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 also non-interest-bearing and are recognised initially at fair value, and subsequently at amortised cost, reduced by appropriate
provisions for estimated irrecoverable amounts.
Provision for Impairment of Trade Receivables
The Group elected to apply the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade
receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on similar credit risk and ageing.
The expected loss rates are based on the Group’s historical credit losses, adjusted for reasonable and supportable information that is available at the
reporting date about past events, current conditions and forecasts of future economic conditions.
The Group also calculated the provision that would be required under the incurred loss model of the old standard (IAS 39) and found there to be an
immaterial difference between it and that required under IFRS 9. It was decided to continue applying the incurred loss model since this gives a higher
provision, and management believes it to be more prudent. The prior period comparative is also reported under IAS 39.
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Notes to the Consolidated Financial Statements
Continued
3.10 Trade and Other Receivables Continued
For a reconciliation of the provisions at the end of the current and prior periods, see note 4.9.
Trade receivables
Less: provision for impairment of trade receivables
Net trade receivables
Other receivables
Prepayments
Accrued income
1 December
2019
£m
69.7
(2.2)
67.5
32.9
26.0
23.6
150.0
2 December
2018
£m
53.9
(1.5)
52.4
10.0
12.9
29.4
104.7
Included within trade receivables is a balance of £nil (2018: £3.3 million) owed by MHE JVCo. £12.3 million (2018: £8.6 million) of trade receivables relates
to contract balances outstanding for Solutions contracts. See note 2.3 for more detail.
Included in trade receivables is £43.1 million (2018: £29.9 million) due from suppliers in relation to commercial and media income. As at 9 January 2020
£26.0 million has been received. Included in accrued income is £8.0 million (2018: £8.4 million) to be invoiced to suppliers in relation to supplier-funded
promotional activity and £10.8 million (2018: £10.8 million) to be invoiced to suppliers in relation to volume-related rebate amounts. As at 9 January 2020
£2.6 million of accrued income has been invoiced.
Also included in accrued income is £1.1 million (2018: £3.8 million) relating to the Group’s right to consideration for work completed but not billed at the
reporting date on Solutions contracts.
3.11 Cash and Cash Equivalents
Accounting Policies
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.
Cash at bank and in hand
1 December
2019
£m
750.6
2 December
2018
£m
410.8
£2.9 million (2018: £2.5 million) of the Group’s cash and cash equivalents is held by the Group’s captive insurance company to maintain its solvency
requirements. Included in cash and cash equivalents are credit card payments of £27.6 million (2018: £28.2 million) received within ten days. A further
£2.4 million (2018: £1.2 million) is held by the Trustee of the Group’s Employee Benefit Trust in relation to the Ocado Group Sharesave Scheme for
employees in Poland. Therefore, these funds are restricted and are not available to circulate within the Group on demand.
3.12 Trade and Other Payables
Accounting Policies
Trade and other payables are initially recognised at fair value and subsequently at amortised cost, using the effective interest rate method.
Trade payables
Taxation and social security
Accruals and other payables
Deferred insurance income
Other deferred income
1 December
2019
£m
120.9
10.2
132.6
71.3
14.6
349.6
2 December
2018
£m
133.4
9.9
135.2
–
12.5
291.0
Deferred income includes 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. It also includes a portion of insurance reimbursements received relating to the Andover CFC
(see note 2.7). This will be released to profit or loss in the future as the rebuilding costs of the CFC and further business interruption costs are incurred.
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3.13 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 on 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 estimated reliably.
The amounts recognised as a provision are management’s best estimates of the expenditure required 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 bases its 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 and vehicle-by-vehicle
basis and are based on the Group’s best estimate of the likely committed cash outflow. Where relevant, these estimated outflows are discounted to net
present value.
Employee Incentive Schemes
Provisions for employee incentive schemes relate to HMRC unapproved equity-settled schemes and the Cash-Based Long-Term Incentive Plan (“Cash
LTIP”). For all unapproved schemes and the Cash LTIP, the Group is liable to pay employer’s NIC upon allotment of the share awards.
Unapproved schemes are the Long-Term Incentive Plan (“LTIP”), the Growth Incentive Plan (“GIP”), the Value Creation Plan (“VCP”), the Ocado
Technology award, the Long-Term Operating Plan and Executive Share Ownership Scheme (“ESOS”). For more details on these schemes, refer to note
4.11.
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.
Insurance Reimbursement
In February 2019, a fire destroyed the Andover CFC, including the building, machinery and all inventory held on site. Under the terms of the lease the
Group has an obligation to restore the site, but the costs of reconstruction are covered under the Group’s insurance policy. Therefore, management has
recognised the future insurance reimbursement as an asset on the face of the Consolidated Balance Sheet, and a corresponding provision representing
the obligation to reinstate the building.
Provisions
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
Recognised on adoption of IFRS 16 at 3 December 2018
Charged/(credited) to the Consolidated Income Statement:
– Additional provision
– Unused amounts reversed
– Unwinding of discount
Used during the period
Recognition of insurance reimbursement asset
As at 1 December 2019
Analysis of total provisions as at 2 December 2018
Current
Non-current
Insurance
Claims
£m
0.5
–
0.2
(0.1)
(0.3)
0.3
–
Dilapidations
£m
6.2
–
0.8
–
(0.1)
6.9
3.2
Employee
Incentive
Schemes
£m
3.4
–
7.2
(0.2)
(0.5)
9.9
–
Insurance
Reimburse-
ment
£m
–
–
–
–
–
–
–
0.5
(0.2)
–
–
–
0.6
3.4
(0.2)
0.3
(0.1)
–
13.5
11.8
(0.5)
–
(16.0)
–
5.2
–
–
–
–
49.2
49.2
Insurance
Claims
£m
0.1
0.2
0.3
Dilapidations
£m
0.6
6.3
6.9
Employee
Incentive
Schemes
£m
7.6
2.3
9.9
Insurance
Reimburse-
ment
£m
–
–
–
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
Total
£m
10.1
–
8.2
(0.3)
(0.9)
17.1
3.2
15.7
(0.9)
0.3
(16.1)
49.2
68.5
Total
£m
8.3
8.8
17.1
183
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Notes to the Consolidated Financial Statements
Continued
3.13 Provisions Continued
Analysis of total provisions as at 1 December 2019
Current
Non-current
Insurance
Claims
£m
0.2
0.4
0.6
Dilapidations
£m
–
13.5
13.5
Employee
Incentive
Schemes
£m
4.6
0.6
5.2
Insurance
Reimburse-
ment
Provision
£m
49.2
–
49.2
Total
£m
54.0
14.5
68.5
Insurance Claims
The Ocado Cell uses statistical information built up over several years to estimate, as accurately as possible, the future outcome 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 must be allocated to the period of loss (i.e. the underwriting period of occurrence). The calculation of this provision involves estimating
a number of variables, principally the level of claims which may be received and the level of any compensation which may be payable. Uncertainty
associated with these factors may result in the ultimate liability being different from the reported provision. Although it is expected that £0.2 million
of claims will be settled within 12 months of the Balance Sheet date, the exact timing of utilisation of the provision is uncertain.
Dilapidations
The dilapidations provision is based on the future expected repair costs required to restore the Group’s leased buildings and vehicles to their fair
condition at the end of their respective lease terms.
The Hatfield CFC lease expires in 2032, the Dordon CFC lease expires in 2038, the Andover CFC lease expires in 2092, the Erith CFC lease expires in 2046,
the GMDC leases expire between 2027 and 2033, and the head office leases expire between 2022 and 2029, 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 an average of five years, with the contractual obligation per vehicle payable at the end of the lease term. If a non-contractual
option to extend individual leases for a further six months is exercised by the Group, the contractual obligation remains the same but is deferred by six
months.
Employee Incentive Schemes
The provision consists of the Cash LTIP and employer’s NIC on HMRC unapproved equity-settled schemes.
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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 period 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 period 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 and the VCP, external valuations were carried out to determine the fair value of the awards granted (see notes 4.11 (e) and (g)).
If at any point during the life of each share award, any non-market conditions are subject to change, such as the retention rate or the likelihood of the
performance condition being met, the number of share awards likely to vest will need to be recalculated which will cause the value of the employer’s
NIC provision to change accordingly.
Once the share awards under each of the schemes have vested, the provision will be utilised when they are allocated to participants. Vesting will occur
between 2021 and 2023.
3.14 Contingent Liabilities
Obligations under Solutions Contracts
In the construction phases of its Solutions contracts, the Group agrees to reach key milestones by agreed points in time. If it fails to reach these
milestones, financial penalties may be incurred. These potential financial penalties could have a material impact on the Group’s financial statements,
and therefore are considered contingent liabilities.
At the end of the period Management undertook a review of the agreed milestones within its Solutions contracts, and concluded that the possibility of
not reaching them was remote.
Claims and Litigation
The Group also has contingent liabilities in respect of legal claims arising in the ordinary course of business, all of which the Group expects will either be
covered by its insurances or will not have a material effect on the Group’s financial statements.
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Section 4 — Capital Structure and Financing Costs
4.1 Leases and Borrowings
Accounting Policies
Borrowings
Interest bearing bank loans and overdrafts are initially recorded at fair value, net of transaction costs. Subsequent to initial recognition, interest bearing
borrowings are stated at amortised cost with any difference between cost and redemption value being capitalised to qualifying assets or recognised in
the Consolidated Income Statement over the period of the borrowings on the effective interest rate basis.
Leases
As described in note 1.5, the Group has applied IFRS 16 using the modified retrospective approach and therefore comparative information has not been
restated. This means comparative information is still reported under IAS 17.
Accounting Policy Applicable from 3 December 2018
The Group considers whether any new contract entered into on or after 3 December 2018 is, or contains, a lease.
At the lease commencement date, the Group recognises a right-of-use asset and a lease liability on the Balance Sheet.
The Group measures the lease liability at the present value of the lease payments that have not been paid at that date, discounted using the interest rate
implicit in the lease (if that rate is readily available) or the Group’s incremental borrowing rate. Subsequent to initial measurement, the liability is reduced for
payments made and increased for interest. It is remeasured to reflect any modification, with a corresponding adjustment reflected in the right-of-use asset.
The Group has elected to account for short-term leases and leases of low-value assets using practical expedients. Instead of recognising a right-of-use
asset and lease liability, the payments in relation to these are recognised as expenses in the Consolidated Income Statement on a straight-line basis over
the lease term.
Accounting Policy Applicable before 3 December 2018
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 CFC, 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 increase 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 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
or 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
and 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.
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Notes to the Consolidated Financial Statements
Continued
4.2 Borrowings and Lease Liabilities
Current liabilities
Lease liabilities
Non-current liabilities
Borrowings
Lease liabilities
Total borrowings and lease liabilities
Borrowings
At 2 December 2018
Senior secured notes
Total borrowings
At 1 December 2019
Senior secured notes
Chattel mortgages
Total borrowings
1 December
2019
£m
2 December
2018
£m
Notes
4.3
4.3
50.1
50.1
219.7
338.4
558.1
608.2
Less Than
One Year
£m
Between
One Year and
Two Years
£m
Between
Two Years
and
Five Years
£m
Over
Five Years
£m
–
–
–
–
–
–
–
–
–
–
–
–
219.5
0.2
219.7
244.3
244.3
–
–
–
22.9
22.9
244.3
93.4
337.7
360.6
Total
£m
244.3
244.3
219.5
0.2
219.7
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The loans outstanding at 2 December 2018 can be analysed as follows:
Principal Amount
£m
250.0
Inception
June 2017
Security
Held
Collateral
Current
Interest Rate
4.0%
Instalment
Frequency
Biannual
The loans outstanding at 1 December 2019 can be analysed as follows:
Principal Amount
£m
225.0
0.3
Inception
June 2017
January 2019
Security
Held
Collateral
Collateral
Current
Interest Rate
4.0%
8.8%
Instalment
Frequency
Biannual
Biannual
In the current period, the unsecured £100.0 million revolving facility expiring in 2022 has not been utilised.
Carrying
Amount as at
2 December
2018
£m
244.3
Carrying
Amount as at
1 December
2019
£m
219.5
0.2
Final
Payment
Due
June 2024
Final
Payment
Due
June 2024
January 2023
Senior secured notes were issued in June 2017 raising £250.0 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 which acted as guarantors for the notes. During the current period £25.0 million
was repaid, incurring early repayment fees of £0.8 million.
The Group reviews its financing arrangements regularly. The revolving facility and the senior secured notes contain typical restrictions concerning
dividend payments and additional debt and leases.
4.3 Lease Liabilities
The Group leases a number of offices, facilities and equipment. The leases have varying terms, escalation clauses and renewal rights. With the exception
of short-term leases and leases of low-value underlying assets, each lease is reflected on the Consolidated Balance Sheet as a right-of-use asset and a
lease liability.
In the previous period, the Group only recognised lease assets and lease liabilities in relation to leases that were classified as “finance leases” under
IAS 17 “Leases”. The assets were presented in property, plant and equipment and the liabilities as part of the Group’s borrowings. For adjustments
recognised on adoption of IFRS 16 on 3 December 2018, please refer to note 1.5.
1 December
2019
£m
2 December
2018
£m
Lease liabilities due:
Within one year
Between one and two years
Between two and five years
After five years
Total lease liabilities
186 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
50.1
42.9
90.1
205.4
388.5
22.9
26.7
60.9
5.8
116.3
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4.3 Lease Liabilities Continued
External obligations under lease liabilities are £320.4 million (2018: £41.8 million) excluding £64.0 million (2018: £74.5 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 lease liabilities
Disclosed as:
Current
Non-current
1 December
2019
£m
2 December
2018
£m
54.8
46.0
93.1
205.4
399.3
(10.8)
388.5
50.1
338.4
388.5
35.8
30.6
65.7
12.9
145.0
(28.7)
116.3
22.9
93.4
116.3
The existing 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.
The expenses relating to payments not included in the measurement of the lease liability are as follows:
Short-term leases
Leases of low-value assets
At 1 December 2019 the Group was committed to £0.2 for short-term leases.
Total cash outflow for leases for the 52-week period ended 1 December 2019 was £40.2 million.
4.4 Reconciliation of Liabilities Arising from Financing Activities
Non-cash changes
52 Weeks
Ended
1 December
2019
£m
0.6
0.1
0.7
Borrowings
Lease liabilities
4.5 Analysis of Net Cash A
Net Cash A
Current assets
Cash and cash equivalents
Current liabilities
Lease liabilities
Non-current liabilities
Borrowings
Lease liabilities
Total net cash A
Notes
4.2
4.2
2 December
2018
£m
244.3
116.3
360.6
Cash flows
£m
(25.0)
(40.2)
(65.2)
Remeasurement
for IFRS 16
£m
–
283.1
283.1
Additions
£m
–
29.3
29.3
Unwinding of
Interest
£m
0.4
–
0.4
1 December
2019
£m
219.7
388.5
608.2
1 December
2019
£m
2 December
2018
£m
Notes
3.11
750.6
4.2
4.2
4.2
(50.1)
(219.7)
(338.4)
(558.1)
142.4
410.8
(22.9)
(244.3)
(93.4)
(337.7)
50.2
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The net cash A position is £206.4 million (2018: £124.7 million net cash A ), excluding lease liability obligations of £64.0 million (2018: £74.5 million)
payable to MHE JVCo, a joint venture company. £5.3 million (2018: £3.7 million) of the Group’s cash and cash equivalents is considered to be restricted
and is not available to circulate within the Group on demand. For more information see note 3.11.
A See Alternative Performance Measures on pages 227 and 228.
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Notes to the Consolidated Financial Statements
Continued
4.5 Analysis of Net Cash A Continued
Reconciliation of Net Cash Flow to Movement in Net Cash A
Net increase in cash and cash equivalents
Net (increase)/decrease in debt and lease financing
Non-cash movements:
– Assets acquired under leases
Movement in net cash A in the period
Opening net cash A
Closing net cash A
1 December
2019
£m
339.8
57.6
2 December
2018
£m
260.8
31.0
(305.2)
92.2
50.2
142.4
(13.6)
278.2
(228.0)
50.2
4.6 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 period are £0.1 million (2018: £2.8 million). The rate used to determine the amount of finance costs capitalised
during the period is 1.0% (2018: 4%).
Finance Income and Costs
Interest income is accounted for on an accruals basis using the effective interest method. Finance costs comprise obligations on lease liabilities and
borrowings. The interest expense on lease liabilities is recognised over the lease periods so as to produce constant periodic rates of interest on the
remaining balances of the liabilities for each period. Interest expense on borrowings is recognised using the effective interest method.
Interest on cash balances
Finance income
Borrowing costs:
– Interest expense on lease liabilities
– Borrowings
Finance costs
Net finance costs
52 Weeks
Ended
1 December
2019
£m
3.3
3.3
52 Weeks
Ended
2 December
2018
£m
2.2
2.2
(20.6)
(10.3)
(30.9)
(27.6)
(6.5)
(8.2)
(14.7)
(12.5)
4.7 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 or not the derivative is designated as a hedging
instrument and on the nature of the item being hedged. At 1 December 2019 and at 2 December 2018, 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 the end of each financial reporting period. Movements on the hedging reserve within shareholders’
equity are shown in the Consolidated Statement of Comprehensive Income. The full fair value of hedging derivatives is classified as current when the
remaining maturity of the hedged item is less than 12 months.
Cash Flow Hedging
The Group uses commodity swap contracts to hedge the cost of future purchases of fuel to be used in the business. The cash flows are expected to occur
within one year of the Balance Sheet date and hedges cover 50-80% of expected risk.
The effective portion of changes in the fair value of derivatives that are designated as cash flow hedging instruments 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 in which the hedged items affect profit or loss. 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.
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4.7 Derivative Financial Instruments Continued
Commodity Swap Contracts
The notional principal amounts of the outstanding commodity swap contracts at 1 December 2019 were £13.0 million (2018: £11.3 million). The hedged
highly probable forecast transactions are expected to occur at various dates during the next 12 months. A cumulative net loss of £1.7 million (2018:
£1.0 million net gain) has 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
1 December
2019
£m
2 December
2018
£m
–
(0.5)
(0.5)
0.1
(0.5)
(0.4)
4.8 Financial Instruments
Accounting Policies
The effect of the initial application of IFRS 9 on the Group’s financial instruments is described in note 1.5. Due to the transition method chosen,
comparative information has not been restated to reflect the new requirements.
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 assets using the following categories:
• amortised cost;
•
•
fair value through profit or loss (“FVTPL”); and
fair value through other comprehensive income (“FVTOCI”).
The classification depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them.
Financial liabilities are measured at amortised cost except for derivatives which are measured at fair value with gains or losses recognised in profit or loss
(other than derivative financial instruments that are designated and effective as hedging instruments). Classification depends on the purpose for which
the liability was acquired.
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.
Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount reported on 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
IFRS 9’s impairment requirements use more forward-looking information to recognise expected credit losses – the ‘“expected credit loss (ECL) model”.
This replaces IAS 39’s “incurred loss model”.
The Group elected to apply the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade
receivables (see note 3.10.)
The Group also calculated the provision that would be required under the incurred loss model of the old standard (IAS 39) and found there to be an
immaterial difference between it and that required under IFRS 9. It was decided to continue applying the incurred loss model since this gives a higher
provision, and management believes it to be more prudent.
Financial Assets and Liabilities at Fair Value
Financial instruments carried at fair value on the Consolidated Balance Sheet comprise contingent consideration, unlisted equity investments and the
derivative assets and liabilities — see note 2.8, note 3.5 and note 4.7. The Group uses the following hierarchy for determining and disclosing the fair value
of these financial instruments:
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
–
G
R
O
U
P
• quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
•
•
inputs other than quoted prices that are observable for the asset or 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 contingent consideration and unlisted equity investments are classified as level 3. The Group’s derivative financial assets and financial liabilities
other than the senior secured notes are all classified as level 2. The senior secured notes are classified as level 1.
Stock Code: OCDO
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Notes to the Consolidated Financial Statements
Continued
4.8 Financial Instruments Continued
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:
1 December 2019
2 December 2018
Financial assets
Cash and cash equivalents
Trade receivables
Other receivables and accrued income
Financial assets
Derivative assets
Total financial assets
Financial liabilities
Trade payables
Accruals and other payables
Senior secured notes
Other borrowings
Lease liabilities
Derivative liabilities
Total financial liabilities
Carrying
Value
£m
Notes
3.11
3.10
3.10
3.5
4.7
3.12
3.12
4.2
4.2
4.3
4.7
750.6
67.5
56.5
180.1
–
1,054.7
(120.9)
(132.6)
(219.5)
(0.2)
(388.5)
(0.5)
(862.2)
Fair
Value
£m
750.6
67.5
56.5
180.1
–
1,054.7
(120.9)
(132.6)
(231.3)
(0.2)
(388.5)
(0.5)
(874.0)
Carrying
Value
£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)
Fair
Value
£m
410.8
52.4
39.4
4.1
0.1
506.8
(133.4)
(135.2)
(238.6)
–
(116.3)
(0.5)
(624.0)
P
U
O
R
G
–
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
The derivative assets and liabilities relate to forward commodity swap contracts.
The Group’s non-current financial assets consist of contingent consideration, unlisted equity investments, prepaid financing fees and contributions
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.
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 £5.4 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 following table provides information about how the fair values of financial instruments categorised in level 3 are determined:
Description
Contingent consideration
Unlisted equity investments
Significant Unobservable Inputs
Discount rate of 8.00%
Expected cash inflows of £229.2
million
Market multiple
Sensitivity of the Fair Value
Measurement to Input
An increase in the discount rate of
100 bps would decrease the fair
value by £5.9 million.
Management does not consider
that the value of expected future
cash inflows will change materially
during the next 12 months.
A change in the market multiple of
5.0% would decrease fair value by
£0.3 million.
Valuation Techniques and
Key Inputs
Discounted cash flow.
Expected cash inflows are estimated
based on the terms of the share
purchase agreements and the
Group’s expectations of future
performance and meeting financial
and operational targets
Market comparison.
The valuation model is based
on market multiples derived
from market research reports
for industries comparable to the
investee and the EBITDA A of the
investee.
The consideration relating to the part-disposal of Ocado Retail valued at £163.5 million comprises three individual amounts, with three individual
“triggers”. Management considers it probable that these triggers will be met, and this has been reflected in the calculation of the fair value.
The consideration relating to the disposal of Fabled valued at £5.6 million is based on an “earn-out” agreement whereby the Group will receive sums in
proportion to Fabled’s future sales.
The Group has categorised its financial instruments as follows (the financial instrument classifications in the prior period are in accordance with IAS 39):
A See Alternative Performance Measures on pages 227 and 228.
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4.8 Financial Instruments Continued
At 2 December 2018
Financial assets per the Consolidated
Balance Sheet
Cash and cash equivalents
Trade receivables
Other receivables and accrued income
Financial assets
Derivative assets
Total
Financial liabilities per the Consolidated
Balance Sheet
Trade payables
Accruals and other payables
Senior secured notes
Lease liabilities
Derivative liabilities
Total
At 1 December 2019
Financial assets per the Consolidated Balance Sheet
Cash and cash equivalents
Trade receivables
Other receivables and accrued income
Financial assets
Total
Financial liabilities per the Consolidated Balance Sheet
Trade payables
Accruals and other payables
Senior secured notes
Other borrowings
Lease liabilities
Derivative liabilities
Total
Available-
for-Sale
£m
Loans and
Receivables
£m
Notes
Financial
Liabilities at
Fair Value
Through
Profit and
Loss
£m
Financial
Liabilities at
Amortised
Cost
£m
3.11
3.10
3.10
3.5
4.7
3.12
3.12
4.2
4.3
4.7
–
–
–
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)
Amortised
Cost
£m
Notes
FVTOCI
£m
FVTPL
£m
3.11
3.10
3.10
3.5
3.12
3.12
4.2
4.2
4.3
4.7
750.6
67.5
56.5
4.2
878.8
(120.9)
(132.6)
(219.5)
(0.2)
(388.5)
–
(861.7)
–
–
–
6.8
6.8
–
–
–
–
–
–
–
–
–
–
169.1
169.1
–
–
–
–
–
(0.5)
(0.5)
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)
Total
£m
750.6
67.5
56.5
180.1
1,054.7
(120.9)
(132.6)
(219.5)
(0.2)
(388.5)
(0.5)
(862.2)
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
–
G
R
O
U
P
Stock Code: OCDO
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Notes to the Consolidated Financial Statements
Continued
4.9 Financial Risk Management
Overview
The Group’s financial instruments comprise trade and other receivables and payables, borrowings and lease liabilities, 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 4.8, 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 provision 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 for
At the end of the period
1 December
2019
£m
(1.5)
(2.1)
0.7
0.7
(2.2)
2 December
2018
£m
(2.6)
(1.2)
1.7
0.6
(1.5)
Notes
3.10
3.10
P
U
O
R
G
–
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
The Group has adequate cash resources to manage the short-term working capital needs of the business. The unsecured £100 million revolving facility
expiring 2022 had not been utilised as at 1 December 2019. 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 53.
The Group monitors its liquidity requirements to ensure it has sufficient cash to meet operational needs. For further details see note 4.12.
The table below splits the Group’s financial liabilities into groupings based on the remaining period to the contractual maturity date at the period end.
The amounts disclosed in the table are the carrying values and undiscounted contractual cash flows.
Financial liabilities
Trade payables
Other payables
Senior secured notes
Lease liabilities
Derivative liabilities
2 December 2018
Financial liabilities
Trade payables
Other payables
Senior secured notes
Other borrowings
Lease liabilities
Derivative liabilities
1 December 2019
Notes
3.12
3.12
4.2
4.3
4.7
Notes
3.12
3.12
4.2
4.2
4.3
4.7
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)
(310.0)
(145.0)
(0.5)
(724.1)
(133.4)
(135.2)
(10.0)
(35.8)
(0.5)
(314.9)
Carrying
Value
£m
Contractual
Cash Flows
£m
1 Year or
Less
£m
(120.9)
(132.6)
(219.5)
(0.2)
(388.5)
(0.5)
(862.2)
(120.9)
(132.6)
(270.0)
(0.3)
(399.3)
(0.5)
(923.6)
(120.9)
(132.6)
(9.0)
(0.1)
(54.8)
(0.5)
(317.9)
1–2
Years
£m
–
–
(10.0)
(30.6)
–
(40.6)
1–2
Years
£m
–
–
(9.0)
(0.1)
(46.0)
–
(55.1)
2–5
Years
£m
–
–
(30.0)
(65.7)
–
(95.7)
2–5
Years
£m
–
–
(252.0)
(0.1)
(93.1)
–
(345.2)
More Than
5 Years
£m
–
–
(260.0)
(12.9)
–
(272.9)
More Than
5 Years
£m
–
–
–
–
(205.4)
–
(205.4)
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4.9 Financial Risk Management Continued
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 Canadian dollar, euro, Polish złoty
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 – CAD
Trade payables – EUR
Trade payables – PLN
Trade payables – USD
1 December
2019
£m
2.7
5.1
3.3
(2.7)
(2.0)
(0.1)
(1.3)
5.0
2 December
2018
£m
1.2
2.9
2.9
–
(0.4)
(2.1)
(1.2)
3.3
The table below shows the Group’s sensitivity to changes in foreign exchange rates on its financial instruments denominated in foreign currencies:
10% appreciation of the above foreign currencies
10% depreciation of the above foreign currencies
1 December 2019
2 December 2018
Increase/
(Decrease)
in Income
£m
0.5
(0.5)
Increase/
(Decrease)
in Equity
£m
–
–
Increase/
(Decrease)
in Income
£m
0.3
(0.4)
Increase/
(Decrease)
in Equity
£m
–
–
The above 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
1 December
2019
£m
2 December
2018
£m
380.6
(608.2)
370.0
–
408.8
(360.6)
2.0
–
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
–
G
R
O
U
P
Sensitivity Analysis
An increase of 100 basis points (1.0%) in interest rates would affect 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
Gain
1 December
2019
£m
2 December
2018
£m
–
1.4
–
–
Stock Code: OCDO
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Notes to the Consolidated Financial Statements
Continued
4.10 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 1 December 2019, the number of ordinary shares available for issue under the Block Listing Facilities was 13,657,551 (2018: 10,014,711). 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 Sharesave schemes have been exercised. They are therefore not included in the total number of ordinary
shares outstanding below.
The reclassification in the prior period 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 3 December 2017
Issue of ordinary shares
Allotted in respect of share option schemes
Reclassification between reserves
At 2 December 2018
Issue of ordinary shares
Allotted in respect of share option schemes
At 1 December 2019
Number of
Ordinary
Shares
(Million)
630.7
65.0
2.6
–
698.3
10.0
0.9
709.2
Ordinary
Shares
£m
12.6
1.3
0.1
–
14.0
0.2
–
14.2
Share
Premium(1)
£m
261.3
322.1
6.2
0.3
589.9
113.0
2.4
705.3
P
U
O
R
G
–
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
(1) Historical losses of £2.9 million on the utilisation of treasury shares to satisfy vestings of Long-Term Incentive Plan awards have been reclassified to retained earnings, and reflected in
the share premium balances at 3 December 2017 and 2 December 2018.
Included in the total number of ordinary shares outstanding above are 10,850,516 (2018: 6,438,706) ordinary shares held by the Group’s Employee Benefit
Trust (see note 4.11(b) and (g)). The ordinary shares held by the Trustee of the Group’s Employee Benefit Trust pursuant to the JSOS, and the linked jointly-
owned equity (“JOE”) awards under the Value Creation Plan (“VCP”) are treated as treasury shares on 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 2.9 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 3 December 2017
Disposal of treasury shares
Transfer of shares to participants
Reclassification between reserves
Movement on derivative financial instruments
Translation of foreign subsidiaries
At 2 December 2018
IFRS 9: impact of change in accounting policy
Adjusted balance as at 2 December 2018
Issue of ordinary shares
Disposal of treasury shares on exercise by participants
Disposal of unallocated treasury shares
Transfer of treasury shares to participants
Reclassification between reserves
Movement on derivative financial instruments
Translation of foreign subsidiaries
Gain on equity investments designated as at fair value through
other comprehensive income
Reclassification of equity of Jones Food Company
At 1 December 2019
Notes
4.10(a)
4.10(a)
4.10(a)
4.10(b)
4.10(b)
4.10(a)
4.10(a)
4.10(a)
4.10(b)
4.10(b)
4.10(b)
4.10(b)
Treasury
Shares
Reserve
£m
(48.0)
11.7
27.8
(0.7)
–
–
(9.2)
–
(9.2)
(111.1)
0.5
5.7
0.8
(0.3)
–
–
–
–
(113.6)
Reverse
Acquisition
Reserve
£m
(116.2)
–
–
–
–
–
(116.2)
–
(116.2)
–
–
–
–
–
–
–
Fair Value
Reserve
£m
–
–
–
–
–
–
–
2.0
2.0
–
–
–
–
–
–
–
–
–
(116.2)
2.8
0.1
4.9
Hedging
Reserve
£m
0.2
–
–
–
1.0
–
1.2
–
1.2
–
–
–
–
–
(1.7)
–
–
–
(0.5)
Translation
Reserve
£m
0.5
–
–
–
–
(0.3)
0.2
–
0.2
–
–
–
–
–
–
(0.6)
–
–
(0.4)
(a) Treasury Shares Reserve
This reserve arose when the Group issued equity share capital under its JSOS. In the current period the Group issued share capital relating to the linked
jointly-owned equity (“JOE”) awards under the Value Creation Plan (“VCP”). The shares under both plans are 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 and VCP. Participant interests in unexercised shares held by participants are not included in the
calculation of treasury shares. See note 4.11(b) for more information on the JSOS and 4.11(g) on the VCP.
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4.10 Share Capital and Reserves Continued
(b) Other Reserves
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 1 December 2019 has been presented as if the Company had always been the parent company of the Group.
The fair value reserve comprises cumulative changes in the fair value of assets and liabilities.
The hedging reserve comprises cumulative gains and losses on movements in the Group’s hedging arrangements (see note 4.7).
The translation reserve comprises cumulative foreign exchange differences on the translation of foreign subsidiaries.
4.11 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 3.13 Provisions – Employee Incentive
Schemes.
The cost of equity-settled transactions is recognised, along with a corresponding increase in equity, over the periods in which the performance
conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“vesting date”). The cost of cash-settled
transactions is recognised, along with a corresponding provision for the expected cash settlement, over the vesting period.
At each reporting date, the cumulative expense recognised for equity-settled transactions reflects the extent to which the vesting period has expired and
the number of awards that, in the opinion of management, will ultimately vest. Management’s estimates are based on the best available information at
that date.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are
treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.
The Group has exposure in respect of cash-settled share-based payment transactions and share-based payment transactions with cash alternatives as
defined by IFRS 2 “Share-Based Payment” in respect of bad leaver provisions in the Group’s JSOS and the Cash LTIP (see note 3.13 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 (“ESOS”), the Joint Share Ownership
Scheme (“JSOS”), the Sharesave Scheme, the Long-Term Incentive Plan (“LTIP”), the Growth Incentive Plan (“GIP”), the Share Incentive Plan (“SIP”), the
Value Creation Plan (“VCP”), the Ocado Technology Award and the Long-Term Operating Plan. The Group also operates a cash-settled incentive scheme,
the Cash LTIP.
The total expense for the period relating to employee share-based payment plans was £24.2 million (2018: £13.1 million), of which £12.8 million
(2018: £6.1 million) related to equity-settled share-based payment transactions and £11.4 million (2018: £7.0 million) as a provision for the payment of
employers’ NIC upon allotment of HMRC unapproved equity-settled share schemes, and the Cash LTIP (see note 3.13 Provisions for further details).
(a) ESOS
The Group’s ESOS is an equity-settled share option scheme approved by HMRC. Options have also been granted under the terms of HMRC’s schedule,
which is not approved. The ESOS was established by Ocado in 2001.
Under the ESOS, Ocado or the trustees of an employee trust may grant options over shares in the Company to eligible employees. The eligible
employees to whom options are granted and the terms of such options will be determined by the Directors of Ocado or the trustees. The employees
who are eligible to participate in the ESOS are all Ocado’s Executive Directors and employees, including the employees of the Company’s wholly owned
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).
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Notes to the Consolidated Financial Statements
Continued
4.11 Share Options and Other Equity Instruments Continued
At each respective Balance Sheet date the outstanding options were as follows:
Approved
Year of Issue
1 December
2019
Exercise
Price
(£)
2 December
2018
Exercise
Price
(£)
2009
2009
2010
2011
2011
2012
2012
2012
2013
2013
2013
2014
2014
2014
2015
2015
2015
2015
2016
2016
2016
2017
2017
2017
2018
2018
2018
2018
2018
2019
2019
2009
2012
2014
2014
2014
2015
2015
2015
2015
2016
2016
2017
2017
2018
2018
2019
2019
–
–
75,439
45,066
5,317
49,031
147,451
11,003
68,782
38,898
288
4,998
94,073
2,890
88,583
1,835
7,457
9,098
184,394
4,341
6,297
860,706
46,562
14,749
285,479
15,691
1,700
17,820
2,871
196,133
241
2,287,193
–
45,800
14,997
5,328
1,975
4,858
7,877
1,638
4,638
71,014
29,314
175,390
80,966
68,546
26,589
36,667
35,321
610,918
2,898,111
–
–
1.65
2.55
1.89
1.03
1.05
0.85
1.28
3.02
3.02
5.10
4.84
4.84
3.77
3.77
4.46
4.39
2.70
2.70
2.59
2.56
2.56
2.92
5.68
5.68
5.68
10.45
10.45
12.40
12.40
–
1.05
4.84
3.36
3.27
3.77
4.46
4.46
4.39
2.70
2.59
2.56
2.92
5.68
10.45
11.37
12.40
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
–
–
Total approved options
Non-approved
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Total non-approved options
Total
Exercise Period
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
08/07/16 – 05/08/20
05/02/17 – 04/02/24
17/03/17 – 16/03/24
17/03/17 – 05/08/20
13/03/18 – 12/03/25
13/03/18 – 05/08/20
01/07/18 – 30/06/25
10/07/18 – 09/07/25
16/03/19 – 15/03/26
16/03/19 – 05/08/30
15/07/19 – 14/07/26
14/03/20 – 13/03/27
05/08/19 – 13/09/20
15/08/20 – 14/08/27
21/03/21 – 20/03/28
05/08/19 – 19/09/21
21/03/21 – 19/09/21
13/08/21 – 12/08/28
05/09/19 – 11/02/22
29/07/22 – 28/07/29
29/07/22 – 28/01/23
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
01/07/18 – 05/08/20
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
16/08/22 – 14/08/29
29/07/22 – 27/07/29
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 :
1 December 2019
2 December 2018
Number
of Share
Options
–
Exercise
Price
(£)
–
Number
of Share
Options
49,600
Exercise
Price
(£)
1.20
Year of Issue
2009
Exercise Period
31/05/12 – 30/05/19
Total options subject to performance
criteria
A See Alternative Performance Measures on pages 227 and 228.
–
–
49,600
196 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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4.11 Share Options and Other Equity Instruments Continued
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
1 December 2019
2 December 2018
Number of
Share
Options
3,679,280
273,385
(139,042)
(915,512)
2,898,111
1,107,336
Weighted
Average
Exercise
Price (£)
3.01
12.26
3.65
2.58
3.98
2.59
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
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 £11.88 (2018: £7.27).
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
1 December
2019
£12.26
£12.26
0.34
3.00
0.4%
0.0%
2 December
2018
£6.18
£6.18
0.40
3.00
1.0%
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.
The weighted average remaining contractual lives for outstanding share options under the ESOS are as follows:
1 December 2019
2 December 2018
Weighted
Average
Remaining
Contractual
Life
(years)
2.6
2.2
2.3
–
3.3
–
0.6
1.6
1.2
7.1
6.6
6.2
7.7
3.6
4.7
4.7
5.2
5.6
5.1
4.2
4.2
8.2
8.7
9.7
9.7
Number
of Share
Options
11,003
49,031
193,251
–
68,782
–
75,439
5,317
45,066
1,082,658
35,611
259,749
95,715
39,186
1,975
5,328
95,276
13,736
16,972
111,960
4,998
371,416
47,280
36,667
231,695
2,898,111
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
11.37
12.40
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
–
–
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
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
–
–
Annual Report and Accounts Ocado Group plc
197
Outstanding at the end of the period
Stock Code: OCDO
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Notes to the Consolidated Financial Statements
Continued
4.11 Share Options and Other Equity Instruments Continued
(b) JSOS
The JSOS is an executive incentive scheme which was introduced to incentivise and retain the 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, Trustee of
the Employee Benefit Trust, held at the Balance Sheet date separate beneficial interests in 1,604,915 ordinary shares (2018: 6,438,706) which represents
0.2% (2018: 0.9%) of the issued share capital of the Company. Of these ordinary shares, 735,557 (2018: 4,516,292) 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 Trustee of the Employee Benefit Trust, under which the Participant and the
Trustee of the Employee Benefit Trust jointly acquire the Shares and agree that once all vesting conditions have been satisfied the Participant is awarded
a specific number of Shares equivalent to the benefit achieved, or at their discretion, when the Shares are sold, the Participant has a right to receive a
proportion of the sale proceeds insofar as the value of the Shares exceeds the threshold amount.
Participants
In prior periods, Interests were acquired by the Participants under the first JSOS scheme (“JSOS1”) in 32,476,700 shares at an issue price of £1.50 per
share, and the second group of Participants’ JSOS scheme (“JSOS2”) in 3,990,799 shares at an issue price of £1.70 per share. In prior periods 2,953,675
shares, in which interests of Participants have lapsed, were reallocated to the third group of Participants under the JSOS scheme (“JSOS3”). For JSOS1
and JSOS2 there are four tranches, each with their own hurdle price. For JSOS3 there are two tranches, each with their own hurdle price.
JSOS1
JSOS2
JSOS3
Tranche
1 (2011)
2 (2012)
3 (2013)
4 (2014)
Vesting
Date
Hurdle
Value
%
of Issue
Price
Tranche
Vesting
Date
Hurdle
Value
%
of Issue
Price
Tranche
Vesting
Date
Hurdle
Value
%
of Market Price
Jan 2011
Jan 2012
Jan 2013
Jan 2014
£1.73
£1.91
£2.08
£2.28
115% 1 (2012) June 2012
127% 2 (2013) June 2013
139% 3 (2014) June 2014
152% 4 (2015) June 2015
£1.96
£2.15
£2.36
£2.59
115% 1 (2013)
Jan 2013
127% 2 (2014)
Jan 2014
139%
152%
–
–
–
–
£1.70
£1.80
–
–
230% – 265%
244% – 280%
–
–
For JSOS1, Participants were required to purchase their Interest for 2.0% of the issue price. For JSOS2, the price ranged from 7.1% to 10.8%, and for
JSOS3, 1.5% to 1.7% of the share price at the date of issue. When an Interest vests, the Trustee of the Employee Benefit Trust will transfer shares to
the Participant of equal value to the Participant’s Interest or the shares will be sold and the Trustee of the Employee Benefit Trust 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. In accordance with 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:
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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%
198 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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4.11 Share Options and Other Equity Instruments Continued
Expected volatility was determined by comparing the Company to a basket of others of a similar size or which operate in a similar industry.
As the Interests in JSOS3 were reallocated from lapsed Interests in JSOS1 and JSOS2, the fair value of those Interests had been calculated in prior
periods using the inputs disclosed in the tables above.
Details of the movement in the number of allocated Interests in shares during the current and prior periods 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
1 December 2019
2 December 2018
Number of
Interests in
Shares
1,922,414
(1,053,056)
869,358
869,358
Weighted
Average
Exercise Price
(£)
2.25
2.24
2.25
2.25
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
(c) 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 90.0% of the market value at launch date.
At 1 December 2019 employees of the Company’s subsidiaries held 2,610 (2018: 1,135) contracts in respect of options over 6,723,223 (2018: 5,396,601)
shares. Details of the movement in the number of Sharesave options outstanding during the current and prior periods 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
1 December 2019
2 December 2018
Number
of Share
Options
5,396,601
1,629,893
(272,599)
(30,672)
6,723,223
3,248,787
Weighted
Average
Exercise Price
(£)
3.09
11.17
5.04
2.81
4.97
2.28
Number
of Share
Options
4,454,396
2,071,434
(469,447)
(659,782)
5,396,601
1,211
Weighted
Average
Exercise Price
(£)
2.03
4.57
3.14
3.22
3.09
3.24
(d) 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 is 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, which vested in the
prior and current periods respectively, there were four equally weighted performance conditions, which were 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 vest during 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 1 December 2019 and changes during the period is presented below:
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S
–
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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
1 December
2019
4,247,037
–
(1,067,195)
(709,571)
2,470,271
Number
of Share
Awards
2 December
2018
4,308,708
927,102
(741,585)
(247,188)
4,247,037
There were no awards exercisable as at 1 December 2019 (2018: nil).
The Group recognised an expense of £2.7 million (2018: £2.8 million) related to these awards in the Consolidated Income Statement during the period.
The expectation of meeting the performance criteria, based upon internal budgets and forecasts, was taken into account when calculating this expense.
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Notes to the Consolidated Financial Statements
Continued
4.11 Share Options and Other Equity Instruments Continued
(e) 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 vested in 2019.
Performance was 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%
0.0%
Monte Carlo Pricing
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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 has had regard to an appropriate range of alternative volatility assumptions, and concluded that a change in the volatility
within this range would not has 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 1 December 2019 and changes during the period is presented below:
Outstanding at 3 December 2017 and 2 December 2018
Vested during the period
Outstanding at 1 December 2019
Number of
Share Awards
6,470,000
(6,470,000)
–
As at 1 December 2019 all awards have been exercised. There were no awards exercisable as at 2 December 2018.
The Group recognised an expense of £7.3 million (2018: £4.3 million) related to these awards in the Consolidated Income Statement during the period.
The expectation of meeting the performance criteria was taken into account when calculating this expense.
(f) 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.
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4.11 Share Options and Other Equity Instruments Continued
A summary of the status of the SIP as at 1 December 2019 and changes during the period is presented below:
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 (restated)
Outstanding at 2 December 2018
Awarded during the period
Forfeited during the period
Released during the period
Outstanding at 1 December 2019
Unrestricted at 1 December 2019
Partnership
Shares
436,789
89,553
–
(123,089)
403,253
403,253
Partnership
Shares
403,253
65,222
–
(77,926)
390,549
390,549
Matching
Shares
62,098
12,670
(14,778)
(2,679)
57,311
12,526
Matching
Shares
57,311
9,142
(5,624)
(5,365)
55,464
23,537
Free
Shares
1,800,852
276,566
(306,522)
(133,438)
1,637,458
347,898
Number of
Share Awards
Total
2,299,739
378,789
(321,300)
(259,206)
2,098,022
763,677
Free
Shares
1,637,458
208,597
(143,175)
(335,194)
1,367,686
457,688
Number of
Share Awards
Total
2,098,022
282,961
(148,799)
(418,485)
1,813,699
871,774
In the period, the Group recognised an expense of £1.4 million (2018: £1.2 million) related to these awards. The expectation of meeting the holding
period was taken into account when calculating this expense.
(g) Value Creation Plan
Following shareholder approval on 1 May 2019 the Company launched the Value Creation Plan (“VCP”).
Nature of Conditional Award
Under the VCP, participants are granted a conditional award giving the potential right to earn nil-cost options based on the absolute total shareholder
return generated over the VCP period. The award gives participants 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 Plan Year (“Measurement Date”) over a five-year VCP period.
At each Measurement Date, up to 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 Initial Price for the VCP is the average share price over the 30-day period prior to the Annual General Meeting where
shareholder approval was sought for the Plan (i.e. £13.97). The Initial Price is independent of the share price on the date of grant. Participants will receive
the right at the end of each year of the performance period to 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 Group’s results for the relevant financial year plus any dividends in
respect of the Plan.
The Threshold Total Shareholder Return or hurdle which has to be exceeded before share awards can be earned by Participants 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 Plan Year does not exceed the Threshold Total Shareholder return, nothing will accrue in that year under the VCP.
The first Measurement Date will be in March 2020, 30 days after publication of the 2019 full year results and as such, no nil-cost options were banked
during the period.
Vesting Conditions
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:
a. a minimum TSR underpin of 10% CAGR being maintained:
• where the TSR 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 TSR 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;
• where the TSR 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;
b. any shares vesting cannot be sold prior to the fifth anniversary of the date of the implementation of the VCP;
c. an annual cap on vesting of £20.0 million for the CEO and a proportionate limit for other participants:
•
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.
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Notes to the Consolidated Financial Statements
Continued
4.11 Share Options and Other Equity Instruments Continued
Valuation of awards
To date, 2.55% of a possible 2.75% has been awarded in total to participants and these grants were made during the period. The fair value of awards
granted under the VCP to date is £46.9 million spread over the five-year period. An expense of £5.7 million was recognised during the period (2018: £nil).
In determining the fair value of the VCP awards granted during the period, a Monte Carlo model was used with the following inputs:
Portion of VCP granted
Share price at grant
Initial Price
Exercise price
Expected volatility
Expected life – years
Risk-free interest rate
Expected dividend yield
31 May
2019
2.20%
£11.95
£13.97
–
0.34
2.78/3.78/4.78
0.61%
0.00%
23 October
2019
0.05%
£12.84
£13.97
–
0.34
2.39/3.39/4.39
0.44%
0.00%
8 November
2019
0.30%
£11.90
£13.97
–
0.34
2.34/3.34/4.34
0.50%
0.00%
Linked JOE awards
Under the terms of the VCP, at the time a VCP award is made, the participant may acquire a linked jointly owned equity (“JOE”) award with Estera Trust
(Jersey) Limited, the Trustee of the Employee Benefit Trust. The JOE award permits participants to benefit from the increase (if any) in the value of a
number of ordinary shares above a hurdle of 10% p.a. cumulative annual growth rate (which reflects the VCP Threshold Total Shareholder Return) over
a time period matching the performance period of the VCP. Participants acquired JOE awards over a total of 9,245,601 shares. The value of these JOE
awards (if any) will be applied to deliver part of the total value of the participants’ VCP awards on realisation of the VCP awards.
JOE award participants paid an initial cost for the JOE awards which is not repayable to them even if no value is delivered under the JOE awards.
(h) Ocado Technology Award
In the period, the Group granted shares to a senior employee of Ocado Technology. These are conditional on continued employment within the Group.
The vesting of the award is split into tranches, with vestings taking place over five years.
A summary of the status of the award as at 1 December 2019 and changes during the year is presented below:
Outstanding at 3 December 2017 and 2 December 2018
Granted during the period
Vested during the period
Outstanding at 1 December 2019
There were no awards exercisable as at 1 December 2019.
Number of
Share Awards
1 December
2019
–
235,475
(30,000)
205,475
The Group recognised an expense of £1.0 million related to this award in the Consolidated Income Statement during the period.
(i) Long-Term Operating Plan
In the period, the Group granted shares to selected employees. The number of awards issued was calculated based on a percentage of the participants’
salaries. The awards will vest in three equal tranches over three years. Upon vesting, each tranche is subject to an additional two-year holding period
after which the shares will be released to the participants. The vesting of each tranche is conditional on continued employment within the Group and
subject to the Company’s share price exceeding a predetermined minimum.
A summary of the status of the award as at 1 December 2019 and changes during the year is presented below:
Outstanding at 3 December 2017 and 2 December 2018
Granted during the period
Outstanding at 1 December 2019
There were no awards exercisable as at 1 December 2019.
The Group recognised an expense of £0.4 million related to this award in the Consolidated Income Statement during the period.
Number of
Share Awards
1 December
2019
–
166,856
166,856
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4.12 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. Net cash is calculated as total debt (obligations under lease liabilities and
borrowings as shown on the Consolidated Balance Sheet), less cash and cash equivalents. The Group’s net assets at the end of the period were £1,058.3
million (2018: £556.6 million) and it had net cash of £142.4 million (2018: £50.2 million).
The main areas of capital management revolve around working capital 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, while operating
with sufficient headroom within its bank covenants. The components of working capital management include monitoring inventory turnover, 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 period the Group has £225.0 million (2018: £250.0 million) of finance through the issue of senior secured notes with a fixed coupon rate
of 4.0% and a maturity date of five years. In 2017, the £210.0 million RCF was reduced to £100.0 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 reviews its financing arrangements regularly. 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 period end, the Group’s undrawn facilities and cash and cash equivalents were as follows:
Total facilities available
Facilities drawn down(1)
Undrawn facilities at end of period
Cash and cash equivalents
Notes
4.2
3.11
1 December
2019
£m
741.7
(608.2)
133.5
750.6
884.1
2 December
2018
£m
509.4
(360.6)
148.8
410.8
559.6
(1) The facilities drawn down at the end of the period are net of transaction costs.
As at 1 December 2019 the unsecured £100.0 million revolving facility has not been utilised. Transaction costs of £5.4 million (2018: £5.7 million) relating
to the senior secured notes have been capitalised. The Group reviews its financing arrangements regularly.
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Notes to the Consolidated Financial Statements
Continued
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 1 December 2019 is disclosed below. All undertakings are indirectly owned by Ocado Group plc unless otherwise stated.
Share Class
C shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
£1.00 “B” shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Proportion of
Share Capital
Held
33.3%
100.0%
64.1%
20.8%
100.0%
50.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
50.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
25.0%
50.0%
50.0%
Name
Infinite Acres Holding B.V.
JFC Hydroponics Ltd
Jones Food Company Limited
Karakuri Limited
Last Mile Technology Limited
MHE JVCo Limited
Ocado Bulgaria EOOD
Ocado Central Services Limited
Ocado Holdings Limited†
Ocado Innovation Limited†
Ocado International Holdings Limited
Ocado Operating Limited
Ocado Polska Sp. z o.o.
Ocado Retail Limited
Ocado Solutions Australia PTY Limited
Ocado Solutions Canada Inc.
Ocado Solutions France SAS
Ocado Solutions Limited†
Ocado Solutions Sweden AB
Ocado Solutions USA Inc.
Ocado Spain S.L.U.
Ocado Sweden AB
Ocado Ventures Holdings Limited†
(formerly Ocado Innovation Holdings Limited)
Ocado Ventures (Infinite Acres) Limited†
Ocado Ventures (Inkbit) Limited†
Ocado Ventures (JFC) Limited†
Ocado Ventures (Karakuri) Limited†
Oxford US LLC
Paneltex Limited
Paws & Purrs Limited
Speciality Stores Limited
† Interest held directly by Ocado Group plc.
Country of Incorporation
Netherlands(1)
United Kingdom(2)
United Kingdom(2)
United Kingdom(3)
United Kingdom(4)
United Kingdom(4)
Bulgaria(5)
United Kingdom(4)
United Kingdom(4)
United Kingdom(4)
United Kingdom(4)
United Kingdom(4)
Poland(6)
United Kingdom(7)
Australia(8)
Canada(9)
France(10)
United Kingdom(4)
Sweden(11)
United States of America(12)
Spain(13)
Sweden(14)
United Kingdom(4)
United Kingdom(4)
United Kingdom(4)
United Kingdom(4)
United Kingdom(4)
United States of America(15)
United Kingdom(16.)
United Kingdom(7)
United Kingdom(7)
Principal Activity
Holding company
Non-trading company
Growing of crops
Software development
Non-trading company
Trading company
Technology
Business services
Holding company
Technology
Business services
Logistics and distribution
Technology
Retail
Business services
Business services
Business services
Business services
Business services
Business services
Technology
Technology
Holding company
Holding company
Holding company
Holding company
Holding company
Non-trading company
Manufacturing
Retail
Retail
The registered offices of the above companies are as follows:
(1) Oude Delft 128, 2611 CG Delft, Netherlands
(2) Phase 2 Celsius Parc, Cupola Way, Scunthorpe, England, DN15 9YJ, United Kingdom
(3) 14 Amherst Avenue, London, England, W13 8NQ, United Kingdom
(4) Buildings One & Two, Trident Place, Mosquito Way, Hatfield, Hertfordshire, AL10 9UL, United Kingdom
(5) 17 Henrik Ibsen Street, Lozenets District, Sofia 1407, Bulgaria
(6) ul. Rakowicka 7, 31-511, Krakow, Poland
(7) Apollo Court, 2 Bishop Square, Hatfield Business Park, Hatfield, Hertfordshire, AL10 9EX, United Kingdom
(8) Level 9, 63 Exhibition Street, Melbourne, VIC 3000, Australia
(9) TMF Canada Inc, Suite 900, Purdy’s Wharf Tower One, 1959 Upper Water Street, Halifax, N.S., B3J 3N2, Canada
(10) TMF Pôle, 3-5 rue Saint-Georges, 75009 Paris, France
(11) TMF Sweden, Sergels Torg 12, Stockholm, Sweden
(12) 12 Timber Creek Lane, Newark, Delaware 19711, United States of America
(13) Av. Josep Tarradellas 38, Planta 8a, 08029, Barcelona, Spain
(14) Drottning Kristinas Väg 53, 114 28, Stockholm, Sweden
(15) 1209 Orange Street, Wilmington, Delaware 19801, United States of America
(16) Paneltex House, Somerden Road, Hull, HU9 5PE, United Kingdom
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5.1 Subsidiaries Continued
In accordance with the exemption under Section 479A of the Companies Act, the standalone financial statements for a subsidiary, Paws & Purrs Limited
(registration number 07538307), will not be audited for the period ended 1 December 2019, but are included in the Group’s consolidated financial
statements for the period.
The Group owns 50.0% of the equity shares of Ocado Retail. However, management has determined that the Group controls Ocado Retail. This is on the
basis that the Group has certain tie-breaking rights in relation to any deadlock matter which arises in respect of the approval of Ocado Retail’s business
plan and budget and the appointment or removal of the chief executive officer of Ocado Retail.
The Group has effective control over the financial and operating activities of the Ocado Cell in Atlas Insurance PCC Limited, an insurance company
incorporated in Malta and therefore consolidates the Ocado Cell in its financial statements in accordance with IFRS 10 “Consolidated Financial
Statements”. The Group uses the Ocado Cell to provide self-insurance for its vehicle fleet and public and product liability claims.
5.2 Non-Controlling Interests
Accounting Policies
Non-controlling interests (“NCI”) are measured initially at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition.
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
Non-Controlling Interests
The following table summarises the financial information for each subsidiary that has non-controlling interests, before any intra-Group eliminations,
as at 1 December 2019:
NCI percentage
Net assets
Net assets attributable to NCI
Revenue
Profit/(loss)
Other comprehensive income
Total comprehensive income/(expense)
Profit/(loss) allocated to NCI
Other comprehensive income allocated to NCI
Cash flows from operating activities
Cash flows from investment activities
Cash flows from financing activities
Net increase/(decrease) in cash and cash equivalents
No dividends were paid to the NCI during the year (2018: nil).
Ocado Retail
50.0%
Jones Food
Company
35.9%
£m
15.5
7.7
553.1
3.5
–
3.5
1.7
–
14.8
–
–
14.8
£m
5.0
1.7
0.1
(1.1)
–
(1.1)
(0.4)
–
(0.7)
(0.2)
–
(0.9)
Total
£m
20.5
9.4
553.2
2.4
–
2.4
1.3
–
14.1
(0.2)
–
13.9
In August 2019, the Group disposed of a 50.0% interest in Ocado Retail. The fair value of the consideration received was £735.9 million (including a
£9.9 million purchase price adjustment) and the carrying amount of Ocado Retail Limited’s net assets in the Group’s consolidated financial statements
on the date of disposal was £12.1 million. The Group also incurred transaction costs of £19.2 million that were directly attributable to the transaction.
Accordingly, the Group recognised an increase in non-controlling interests of £6.0 million and an increase in equity attributable to owners of Ocado
Group plc of £710.7 million. The effect on the equity attributable to the owners of Ocado Group plc is summarised as follows:
Total consideration received from NCI
NCI’s share of net assets
Transaction costs
Increase in equity attributable to owners of the Group
5.3 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
1 December
2019
£m
735.9
(6.0)
(19.2)
710.7
1 December
2019
£m
1.5
92.1
93.6
2 December
2018
£m
0.1
69.6
69.7
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Notes to the Consolidated Financial Statements
Continued
5.3 Commitments Continued
Of the total capital expenditure committed at the period end, £72.5 million (2018: £0.1 million) relates to new CFCs, £9.5 million (2018: £35.3 million)
to existing CFCs, £3.3 million (2018: £7.9 million) to fleet costs and £1.3 (2018: £nil) to technology projects.
Operating Lease Commitments
The Group leases a number of offices, facilities and items of equipment under non-cancellable operating leases. The leases have varying terms,
escalation clauses and renewal rights.
From 3 December 2018, the Group has recognised right-of-use assets for these leases, except for short-term and low-value leases (see note 1.5 and
note 4.3 for further information).
At 1 December 2019 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
1 December
2019
£m
0.2
–
–
0.2
2 December
2018
£m
37.1
108.9
262.3
408.3
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
1 December
2019
£m
4.7
14.7
19.4
2 December
2018
£m
4.2
6.1
10.3
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 98 to 131.
Other related party transactions with key management personnel made during the period related to the purchase of professional services amounted to
£5,000 (2018: £5,250). 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 was £nil (2018: £nil) owed by key management personnel to the Group. There were no other material transactions or balances between the
Group and its key management personnel or members of their close family.
Investment
The following transactions were carried out with Paneltex Limited, a company incorporated in the United Kingdom in which the Group holds a 25.0%
interest. Further information on the Group’s relationship with Paneltex is provided in note 3.5.
Purchase of goods:
– Plant and machinery
– Consumables
52 Weeks
Ended
1 December
2019
£m
52 Weeks
Ended
2 December
2018
£m
0.7
0.6
–
0.6
Indirect transactions, consisting of the purchase of plant and machinery through some of the Group’s leasing counterparties, were carried out with
Paneltex to the value of £9.1 million (2018: £8.2 million). At the period end, the Group owed Paneltex £23,000 (2018: £37,000).
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26615 11 February 2020 6:54 am Proof 35.4 Related Party Transactions ContinuedJoint VentureThe following transactions were carried out with MHE JVCo, a joint venture company, incorporated in the United Kingdom, in which the Group holds an interest:1 December 2019£m2 December 2018£mDividend received from MHE JVCo15.6–Reimbursement/(settlement) of supplier invoices paid on behalf of MHE JVCo4.2(0.6)Capital element of lease liability instalments paid to MHE JVCo24.62.8Capital element of lease liability instalments due to MHE JVCo1.212.9Interest element of lease liability instalments accrued or paid to MHE JVCo3.74.4During the period the Group incurred lease instalments (including interest) of £29.6 million (2018: £20.1 million) to MHE JVCo.Of the £29.6 million, £9.0 million (2018: £9.5 million) was recovered directly from Morrisons in the form of other income and £15.6 million (2018: £nil) was received from MHE JVCo by way of a dividend. Of the remaining £4.9 million, £1.2 million (2018: £12.9 million) represents the capital element of the lease liability instalments due to MHE JVCo and £3.7 million (2018: £4.4 million) of interest incurred on the finance lease owing to MHE JVCo. Included within trade and other receivables is a balance of £0.3 million (2018: £3.9 million) owed by MHE JVCo. £0.3 million (2018: £0.6 million) of this relates to a lease liability accrual which is included within other receivables. £nil (2018: £3.3 million) relates to capital recharges.Included within trade and other payables is a balance of £1.8 million (2018: £20.2 million) owed to MHE JVCo.Included within lease liabilities is a balance of £64.0 million (2018: £74.5 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 EventsBond IssueIn December Ocado Group plc completed an offering of £600 million of guaranteed senior unsecured convertible bonds due in 2025.The net proceeds from the issue of the bonds will be used to fund capital expenditure relating to Ocado Solutions’ commitments, and general corporate projects. The offering has enabled the Group to diversify its funding sources and capitalise on attractive issuance conditions.The bonds were issued by Ocado Group and initially guaranteed by Ocado Operating Limited, Ocado Innovation Limited, Ocado Central Services Limited, Ocado Solutions Limited and Ocado Holdings Limited.207Stock Code: OCDO Annual Report and Accounts Ocado Group plc FINANCIAL STATEMENTS – GROUPOcado Annual Report 2019 Financials.indd 20711/02/2020 06:54:34Back to contents 26615 11 February 2020 6:54 am Proof 3Ocado Annual Report 2019 Financials.indd 20811/02/2020 06:54:34Back to contents 26615 11 February 2020 6:54 am Proof 3CONTENTS Company210 Company Balance Sheet211 Company Statement of Changes in Equity212 Company Statement of Cash Flows213 Notes to the Company Financial StatementsFinancialsOcado Annual Report 2019 Financials.indd 20911/02/2020 06:54:34Back to contents Company Balance Sheet
as at 1 December 2019
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
1 December
2019
£m
2 December
2018
£m
Notes
3.1
3.3
3.4
3.5
3.6
4.1
3.6
4.2
4.2
549.8
549.8
573.8
511.2
1,085.0
1,634.8
(277.3)
(4.6)
(281.9)
803.1
(219.5)
(0.6)
(220.1)
1,132.8
14.2
705.3
413.3
1,132.8
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
The Company’s loss for the period was £8.5 million (2018: £7.2 million).
The notes on pages 213 to 221 form part of these financial statements.
The Company financial statements on pages 210 to 221 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
11 February 2020
Ocado Group plc
Company Registration Number 07098618 (England and Wales)
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Company Statement of Changes in Equity
for the 52 weeks ended 1 December 2019
Balance at 3 December 2017
Loss for the period
Total comprehensive expense 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
Loss for the period
Total comprehensive expense for the period
ended 1 December 2019
Transactions with owners:
– Issue of ordinary shares
– Allotted in respect of share option schemes
– Growth Incentive Plan cash settlement on vesting
– Share-based payments charge
Total transactions with owners
Balance at 1 December 2019
The notes on pages 213 to 221 form part of these financial statements.
Notes
Share
Capital
£m
12.6
–
Share
Premium
£m
261.6
–
Retained
Earnings
£m
490.3
(7.2)
4.2
4.2
4.3
4.2
4.2
4.3
4.3
–
1.3
0.1
–
1.4
14.0
–
–
0.2
–
–
–
0.2
14.2
–
322.1
6.2
–
328.3
589.9
–
–
113.0
2.4
–
–
115.4
705.3
(7.2)
–
–
6.1
6.1
489.2
(8.5)
(8.5)
–
–
(80.2)
12.8
(67.4)
413.3
Total
Equity
£m
764.5
(7.2)
(7.2)
323.4
6.3
6.1
335.8
1,093.1
(8.5)
(8.5)
113.2
2.4
(80.2)
12.8
48.2
1,132.8
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Stock Code: OCDO
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Company Statement of Cash Flows
for the 52 weeks ended 1 December 2019
Cash flow from operating activities
Loss before income tax
Adjustments for:
– Net finance costs
– Share-based payments
– Movement in provisions
Changes in working capital:
– Movement in other receivables
– Movement in trade and other payables
Cash generated from operating activities
Interest paid
Net cash from/(used in) 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 Value Creation Plan – jointly-owned equity awards
Proceeds from allotment of share options (on exercise)
Repayment of borrowings
Payment of financing fees
Net cash (used in)/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 213 to 221 form part of these financial statements.
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52 Weeks
Ended
1 December
2019
£m
52 Weeks
Ended
2 December
2018
£m
Notes
(8.5)
6.2
12.8
(4.7)
(37.1)
260.0
228.7
(1.3)
227.4
2.7
2.7
0.8
1.3
2.4
(25.0)
(0.6)
(21.1)
209.0
302.2
511.2
(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
3.6
3.3
3.5
3.4
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Notes to the Company Financial Statements
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 One & Two Trident Place, Mosquito Way, Hatfield, Hertfordshire, AL10 9UL. The financial period represents the 52 weeks ended 1
December 2019. The prior financial period represents the 52 weeks ended 2 December 2018.
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 pounds 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 consider 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 not to present an Income Statement or
a Statement of Comprehensive income for the Company alone.
New Standards, Amendments and Interpretations Adopted by the Company:
The Company has adopted IFRS 9 “Financial Instruments” and IFRS 16 “Leases” in the current period and has concluded that they do not have
a significant impact on the Company’s financial statements other than on disclosures.
The Company has also considered the following new standards, interpretations and amendments to published standards that are effective for the
Company for the financial year beginning 3 December 2018 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 other than on disclosures:
IFRS 2
IFRS 4
IAS 40
IFRIC 22
Annual Improvements to IFRSs 2014–2016 Cycle
Share-based Payment (amendments)
Insurance Contracts (amendments)
Investment Property (amendments)
Foreign Currency Transactions and Advance Consideration
Amendments to IFRS 1, IFRS 12 and IAS 28
Effective Date
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
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 3 December 2018 and have not been adopted early:
IFRS 9
IAS 19
IAS 28
IFRIC 23
Annual Improvements to IFRS Standards
2015–2017 Cycle
IFRS 3
IAS 1, IAS 8
Various
IFRS 17
IFRS 10
IAS 28
Financial Instruments (amendments)
Employee Benefits (amendments)
Investments in Associates and Joint Ventures (amendments)
Uncertainty over Income Tax Treatments
Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23
Business Combinations (amendments)
Definition of Material (Amendments to IAS 1 and IAS 8)
Amendments to References to the Conceptual Framework in IFRS Standards
Insurance Contracts
Consolidated Financial Statements (amendments)
Investments in Associates and Joint Ventures (amendments)
Effective Date
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2020
1 January 2020
1 January 2020
1 January 2022
Deferred
Deferred
These standards, interpretations and amendments to published standards and interpretations are not expected to have a material impact on the
Company’s 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
valuations 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.
Income Tax
Tax is recognised in the Income Statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity.
In 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
evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions
where appropriate on the basis of amounts expected to be paid to the tax authorities.
Stock Code: OCDO
Annual Report and Accounts Ocado Group plc
213
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Notes to the Company Financial Statements
Continued
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 evaluated continually 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.
Significant accounting policies, key estimation uncertainties, and judgements are provided below:
Key Estimation Uncertainties:
Area
Provisions
Estimate
The Company uses estimates to calculate provisions related to employee incentive schemes
Note
3.6
Section 2 — Results for the Period
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 £80,000 (2018: £75,000).
2.3 Employee Information
The Company does not incur 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.
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
1 December
2019
£m
476.5
2 December
2018
£m
476.5
1.1
72.2
549.8
1.1
48.1
525.7
Investments represent investments in directly-owned Group companies. A list of subsidiary undertakings held by the Company is disclosed in note 5.1 to
the Consolidated Financial Statements.
The Company charges subsidiaries 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 Payment”.
3.2 Working Capital
Accounting Policies
Other Receivables
Other receivables are non-interest-bearing and are recognised initially at fair value, and subsequently at amortised cost, reduced by appropriate
provisions 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.
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3.3 Other Receivables
Amounts due from subsidiary undertakings
Other receivables
3.4 Cash and Cash Equivalents
Cash at bank and in hand
3.5 Trade and Other Payables
Deferred income and accruals
Amounts due to subsidiary undertakings
1 December
2019
£m
573.1
0.7
573.8
2 December
2018
£m
535.7
1.0
536.7
1 December
2019
£m
511.2
2 December
2018
£m
302.2
1 December
2019
£m
6.7
270.6
277.3
2 December
2018
£m
4.6
12.7
17.3
3.6 Provisions
Employee Incentive Schemes
Provisions for employee incentive schemes relate to HMRC unapproved equity-settled schemes and the Cash-based Long-Term Incentive Plan (“Cash
LTIP”). For all unapproved schemes and the Cash LTIP, the Company is liable to pay employer’s NIC upon allotment of the share awards.
Unapproved schemes are the Long-Term Incentive Plan (“LTIP”), the Growth Incentive Plan (“GIP”), the Valuation Creation Plan (“VCP”), the Ocado
Technology award, the Long-Term Operating Plan and the Executive Share Option Scheme (“ESOS”). For more details on these schemes, refer to note
4.11 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 3 December 2017
Charged to the Income Statement:
– Additional provision
– Unused amounts reversed
Used during the period
As at 2 December 2018
Charged to the Income Statement:
– Additional provision
– Unused amounts reversed
Used during the period
As at 1 December 2019
Employee
Incentive
Schemes
£m
3.4
7.2
(0.2)
(0.5)
9.9
11.8
(0.5)
(16.0)
5.2
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Notes to the Company Financial Statements
Continued
3.6 Provisions Continued
Analysis of total provisions as at 2 December 2018
Current
Non-current
Analysis of total provisions as at 1 December 2019
Current
Non-current
Employee
Incentive
Schemes
£m
7.6
2.3
9.9
Employee
Incentive
Schemes
£m
4.6
0.6
5.2
Employee Incentive Schemes
The provision consists of the Cash LTIP and employer’s NIC on HMRC unapproved equity-settled schemes.
The Cash LTIP provision represents the expected cash payments to participants upon vesting of the awards. It has been calculated using various
assumptions regarding liquidity, participants’ retention and achievability of the performance conditions and valued with reference to the year end share
price. If at any point following initial valuation any of these assumptions are revised, the charge will need to be amended accordingly. In addition to the
base cost, since this is a cash benefit, the Company will be liable to pay employer’s NIC on the value of the cash award on vesting, which is included in
the above employer’s NIC provision.
To calculate the employer’s NIC provision, the applicable employer’s NIC rate is applied to the number of share awards which are expected to vest,
valued with reference to the year end share price. The number of share awards expected to vest is dependent on various assumptions which are
determined by management; namely participants’ retention rate, the expectation of meeting the performance criteria, if any, and the liquidity discount.
All assumptions are supported by historical trends and internal financial forecasts, where appropriate.
For the GIP and VCP, external valuations were carried out to determine the fair value of the awards granted (see notes 4.11 (e) and (g) to the consolidated financial
statements).
If at any point during the life of each share award any non-market conditions are subject to change, such as the retention rate or the likelihood of the
performance condition being met, the number of share awards likely to vest will need to be recalculated which will cause the value of the employer’s NIC
provision to change accordingly.
Once the share awards under each of the schemes have vested, the provision will be utilised when they are allotted to participants. Vesting will occur
between 2019 and 2021.
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Section 4 — Capital Structure and Financing Costs
4.1 Borrowings
Borrowings
The loans outstanding at 2 December 2018 can be analysed as follows:
Principal Amount
£m
250.0
Inception
June 2017
Security
Held
Collateral
Current
Interest Rate
4%
Instalment
Frequency
Biannual
The loans outstanding at 1 December 2019 can be analysed as follows:
Principal Amount
£m
225.0
Inception
June 2017
Security
Held
Collateral
Current
Interest Rate
4%
Instalment
Frequency
Biannual
4.2 Share Capital and Premium
Accounting Policies
Equity instruments issued by the Company are recorded as the proceeds received, net of direct issue costs.
1 December
2019
£m
219.5
2 December
2018
£m
244.3
Carrying
Amount as at
2 December
2018
£m
244.3
Final
Payment
Due
June 2024
Carrying
Amount as at
1 December
2019
£m
219.5
Final
Payment
Due
June 2024
Share Capital and Premium
Included in the total number of ordinary shares outstanding below are 10,850,516 (2018: 6,438,706) ordinary shares held by the Group’s Employee Benefit
Trust (see note 4.11(b) and (g) 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, and the linked jointly-owned equity (“JOE”) awards under the Value Creation Plan (“VCP”) 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.
At 1 December 2019, the number of ordinary shares available for issue under the Block Listing Facilities was 13,657,551 (2018: 10,014,711). 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 3 December 2017
Issue of ordinary shares
Allotted in respect of share option schemes
At 2 December 2018
Issue of ordinary shares
Allotted in respect of share option schemes
At 1 December 2019
Number of
Ordinary
Shares
Million
630.7
65.0
2.6
698.3
10.0
0.9
709.2
Ordinary
Shares
£m
12.6
1.3
0.1
14.0
0.2
–
14.2
Share
Premium
£m
261.6
322.1
6.2
589.9
113.0
2.4
705.3
4.3 Share-Based Payments
For more information on the Group’s share schemes, see note 4.11 to the consolidated financial statements.
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Notes to the Company Financial Statements
Continued
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 assets as amortised cost, fair value through profit or loss (“FVTPL”) and fair value through other comprehensive
income (“FVTOCI”).
The classification depends on the financial asset’s contractual cash flow characteristics and the Company’s business model for managing them.
Financial liabilities are measured at amortised cost except for derivatives which are measured at fair value with gains or losses recognised in profit or loss
(other than derivative financial instruments that are designated and effective as hedging instruments). Classification depends on the purpose for which
the financial liability was acquired.
Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount reported on 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
1 December 2019
2 December 2018
Notes
3.1
3.4
3.3
3.5
4.1
Carrying
Value
£m
549.8
511.2
573.8
1,634.8
(277.3)
(219.5)
(496.8)
Fair
Value
£m
549.8
511.2
573.8
1,634.8
(277.3)
(231.3)
(508.6)
Carrying
Value
£m
525.7
302.2
536.7
1,364.6
(17.3)
(244.3)
(261.6)
Fair
Value
£m
525.7
302.2
536.7
1,364.6
(17.3)
(238.6)
(255.9)
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 the current and prior periods consist primarily of amounts due from subsidiary undertakings. Management provides for
irrecoverable debts when there are indicators that a balance may not be recoverable.
The ageing of other receivables at the Balance Sheet date was as follows:
Not past due
1 December 2019
Gross
£m
573.8
Impairment
£m
–
2 December 2018
Gross
£m
536.7
Impairment
£m
–
3.3
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4.6 Liquidity Risk
In the current period, the unsecured £100.0 million revolving facility expiring in 2022 has not been utilised. The Company reviews its financing
arrangements regularly. 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 4.12 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 and other payables
Senior secured notes
2 December 2018
Financial liabilities
Trade and other payables
Senior secured notes
1 December 2019
Notes
3.5
4.1
Notes
3.5
4.1
Carrying
Value
£m
Contractual
Cash Flows
£m
1 Year or
Less
£m
1 – 2 Years
£m
2 – 5 Years
£m
(17.3)
(244.3)
(261.6)
(17.3)
(310.0)
(327.3)
(17.3)
(10.0)
(27.3)
–
(10.0)
(10.0)
–
(30.0)
(30.0)
Carrying
Value
£m
Contractual
Cash Flows
£m
1 Year or
Less
£m
1 – 2 Years
£m
2 – 5 Years
£m
More Than
5 Years
£m
–
(260.0)
(260.0)
More Than
5 Years
£m
(277.3)
(219.5)
(496.8)
(277.3)
(270.0)
(547.3)
(277.3)
(9.0)
(286.3)
–
(9.0)
(9.0)
–
(252.0)
(252.0)
–
–
–
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 banks in the United Kingdom
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
1 December
2019
£m
2 December
2018
£m
511.2
(219.5)
302.2
(244.3)
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.
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Equity
Result
Income
Gain
1 December
2019
£m
2 December
2018
£m
–
2.9
–
1.8
Stock Code: OCDO
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Notes to the Company Financial Statements
Continued
4.8 Financial Instruments by Category
The Company has categorised its financial instruments as follows (the financial instrument classifications in the prior period are in accordance with IAS 39):
As at 2 December 2018
Financial assets
Investments
Cash and cash equivalents
Other receivables
Total
Financial liabilities
Trade and other payables
Secured loan notes
Total
As at 1 December 2019
Financial assets
Investments
Cash and cash equivalents
Other receivables
Total
Financial liabilities
Trade and other payables
Secured loan notes
Total
Available-
For-Sale
£m
Loans and
Receivables
£m
Notes
3.1
3.4
3.3
3.5
4.1
525.7
–
–
525.7
–
–
–
–
302.2
536.7
838.9
–
–
–
Amortised
Cost
£m
Notes
FVTOCI
£m
3.1
3.4
3.3
3.5
4.1
549.8
511.2
573.8
1,634.8
(277.3)
(219.5)
(496.8)
–
–
–
–
–
–
–
Other
Financial
Liabilities at
Amortised
Cost
£m
–
–
–
–
(17.3)
(244.3)
(261.6)
FVTPL
£m
–
–
–
–
–
–
–
Total
£m
525.7
302.2
536.7
1,364.6
(17.3)
(244.3)
(261.6)
Total
£m
549.8
511.2
573.8
1,634.8
(277.3)
(219.5)
(496.8)
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 4.12 to the consolidated
financial statements.
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26615 11 February 2020 6:54 am Proof 3Section 5 — Other Notes5.1 Related Party TransactionsKey Management PersonnelOnly 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 127.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.SubsidiariesThe Company enters into loans with its subsidiaries. interest of £1.6 million (2018: £nil) was earned on these loans during the period.Transactions with subsidiaries52 WeeksEnded 1 December2019£m52 WeeksEnded2 December2018£mGroup share-based payments24.213.1Increase in loans made to subsidiary undertakings37.4149.2Increase/(decrease) in amounts due to subsidiary undertakings257.912.1Period end balances arising from transactions with subsidiaries1 December2019£m2 December2018£mReceivables:Loans and receivables due from subsidiaries573.1535.7Payables:Loans and receivables due to subsidiaries(270.6)(12.7)5.2 Post Balance Sheet EventsIn December 2019 Ocado Retail was granted a revolving credit facility of £30.0 million of which the Company is a guarantor for £15.0 million. For information on the bond issue, see note 5.6 to the consolidated financial statements.221Stock Code: OCDO Annual Report and Accounts Ocado Group plc FINANCIAL STATEMENTS – COMPANYOcado Annual Report 2019 Financials.indd 22111/02/2020 06:54:35Back to contents 26615 11 February 2020 6:54 am Proof 3Ocado Annual Report 2019 Financials.indd 22211/02/2020 06:54:35Back to contents 26615 11 February 2020 6:54 am Proof 3CONTENTS Additional224 Glossary227 Alternative Performance Measures 229 Five Year Summary230 Shareholder Information230 Company InformationInformationOcado Annual Report 2019 Financials.indd 22311/02/2020 06:54:36Back to contents 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.
2019 Directors’ Remuneration Policy
or 2019 Policy – means the Directors’
remuneration policy which was approved
by shareholders at the 2019 annual general
meeting.
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 6 May 2020 at
10am 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.
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 United Kingdom’s decision
to leave the European Union following the
referendum on 23 June 2016.
Cash LTIP – means the Company’s cash-based
Long-Term Incentive Plan for senior employees.
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Casino – means Casino Guichard Perrachon
SA, a company incorporated in France whose
registered office is at 24 Rue de la Montat, Saint-
Etienne.
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.
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.
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.
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 pages 72 to 73 or the Directors of the
Company’s subsidiaries from time to time as the
context may require.
Disclosure Guidance and Transparency
Rules – means the disclosure guidance and
transparency rules made under Part VI of the
Financial Services and Markets Act 2000 (as
amended).
Distribution Costs – means all the costs
incurred, excluding product costs, to the point of
sale, usually the customer’s home. This includes
the payroll-related expenses for the picking,
dispatch and delivery of product sold to the
point of sale, the cost of making those deliveries,
including fuel, tolls, maintenance of vehicles,
the operating costs of the properties required
for the picking, dispatch and onward delivery
operations and all associated depreciation,
amortisation and impairment charges, call
centre costs and payment processing charges.
DNED – means the Designated Non-Executive
Director for workforce engagement.
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 – means the non-GAAP measure
which Ocado has defined as earnings before
net finance costs, taxation, depreciation,
amortisation, impairment and exceptional
items.
EBT – as relating to the Income Statement,
means earnings before tax. As relating to share
schemes, means Employee Benefit Trust.
EBT Trustee – means the Trustee from time to
time of the Employee Benefit Trust established
for the purposes of the JSOS, currently Estera
Trust (Jersey) Limited.
EPS – means earning per share.
ESOS – means the HMRC-approved Ocado 2001
Executive Share Option Scheme and the Ocado
2001 Non-HMRC approved Executive Share
Option Scheme.
Exceptional Items – 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.
Fabled or Fabled.com – means the Group’s
premium beauty online store in collaboration
with Marie Claire and Time Inc.
Fetch or 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.
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GPP – means the Ocado Group Pension Plan.
Gross Sales – 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.
GSCOP – means Groceries Supply Code of
Practice.
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 United
Kingdom with registered number 233462 whose
registered office is at 171 Victoria Street, London,
SW1E 5NN.
Jones Food Company – means Jones Food
Company Limited.
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 United Kingdom
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 United
Kingdom 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 lease liabilities
and interest on other financing arrangements.
Non-Executive Directors – means the Non-
Executive Directors of the Company designated
as such on page 70.
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 Holdings – means Ocado Holdings
Limited.
Ocado Solutions – means Ocado Solutions
Limited.
Ocado Operating – means Ocado Operating
Limited.
Ocado Retail – means the Group’s retail
business, Ocado Retail Limited.
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.
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 186.
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.
SID – means the Senior Independent Director.
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.
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Glossary
Continued
Sourcing Agreement – means the various
sourcing and branding agreements between
Ocado, Waitrose and John Lewis.
Spoke – means the trans-shipment sites used
for the intermediate handling of customers’
orders.
Substitution – means an alternative product
provided in place of the original product
ordered by a customer.
TSR – means total shareholder return – the
growth in value of a shareholding over a
specified period, assuming that dividends are
reinvested to purchase additional units of the
stock.
UPH – means average units processed per
labour hour.
USDAW – means the Union of Shop, Distributive
and Allied Workers.
VCP – means the Company’s Value Creation
Plan for Executive Directors.
Waitrose – means Waitrose Limited, a company
incorporated in the United Kingdom 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.
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Alternative Performance Measures
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:
Segmental Revenue
Segmental revenue is a measure of reported revenue for the Group’s
Retail, UK Solutions and International 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.
Segmental Gross Profit
Segmental gross profit is a measure which seeks to reflect the profitability
of segments in relation to their revenues earned.
A reconciliation of reported gross profit, the most directly comparable
IFRS measures, with the segmental gross profit, is set out below:
Retail gross profit
UK Solutions gross profit
International Solutions gross profit
Other gross profit
Group Eliminations gross profit
Reported gross profit
2019
£m
466.4
583.2
0.4
0.9
(453.6)
597.3
2018
£m
423.6
541.1
0.5
2.1
(419.8)
547.5
Segmental Other Income
Segmental other income is a measure which seeks to reflect segmental
income which is not generated through the primary trading activities
of the segments (for example, volume-rebates from suppliers in the
Retail segment).
A reconciliation of reported other income, the most directly comparable
IFRS measures, with the segmental other income, is set out below:
Retail other income
UK Solutions other income
International Solutions other income
Other other income
Group Eliminations other income
Reported other income
2019
£m
65.6
3.0
–
15.4
(0.1)
83.9
2018
£m
59.8
2.6
–
9.5
–
71.9
• Exceptional Items;
• Segmental Revenue;
• Segmental Gross Profit;
• Segmental Other Income;
• Segmental Administrative Costs and Distribution Costs;
• EBITDA;
• Segmental EBITDA;
• External Gross Debt; and
• Net Cash
Reconciliation of these non-GAAP measures to the nearest measures
prepared in accordance with IFRS are presented below. The alternative
performance measures used may not be directly comparable with
similarly titled measures used by other companies.
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.
The Group has adopted a three-column approach to the Consolidated
Income Statement to aid clarity and allow users of the financial
statements to more easily understand the performance of the underlying
business and the impact of one-off events.
Exceptional items are disclosed in note 2.7 to the consolidated financial
statements.
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Annual Report and Accounts Ocado Group plc
227
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Alternative Performance Measures
Continued
External Gross Debt
External gross debt consists of loans and other borrowings (both current
and non-current), less lease liabilities 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 of external gross debt to gross debt can be found below:
External gross debt
Lease liabilities relating to joint ventures
Gross debt
2019
£m
544.2
64.0
608.2
2018
£m
286.1
74.5
360.6
Net Cash
Net cash consists of cash and cash equivalents less loans and other
borrowings (both current and non-current). Loans and other borrowings
are measured as the net proceeds raised, adjusted to amortise any
discount over the term of the debt.
Net cash 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” does not
necessarily mean that the cash included in the net cash calculation is
available to settle the liabilities included in this measure.
Net cash 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 of these measures to net cash
can be found in note 4.5 to the consolidated financial statements.
Segmental Administrative Costs and Distribution Costs
Segmental 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 certain
costs that are not allocated to a segment: depreciation, amortisation,
impairment and other central costs.
A reconciliation of reported distribution and administrative costs, the
most directly comparable IFRS measures, to the segmental distribution
and administrative costs, is set out below:
Retail distribution and administrative
costs
UK Solutions distribution and
administrative costs
International Solutions distribution
and administrative costs
Other distribution and administrative
costs
Group Eliminations distribution and
administrative costs
Depreciation, amortisation, impairment
and other central costs
Reported distribution costs
Reported administrative expenses
2019
£m
497.0
501.3
62.5
31.5
2018
£m
453.3
476.2
28.9
22.5
(453.7)
(419.8)
136.1
774.7
2019
£m
564.8
209.9
774.7
91.3
652.4
2018
£m
485.4
167.0
652.4
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 of operating profit to EBITDA can be found on the face of
the Consolidated Income Statement on page 151.
Segmental EBITDA
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.
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228 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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Five Year Summary
Trading weeks
Revenue
Gross profit
EBITDA A
Adjusted operating (loss)/profit(1)
52 Weeks to
1 December
2019
£m
52
1,756.6
591.8
43.3
(93.5)
(1) Adjusted to exclude exceptional items and share of results from joint ventures and associate.
Average orders per week
Average order size (£)(2), (3)
CFC efficiency (UPH)(4)
DPV/week
Product waste (%)
52 Weeks to
1 December
2019
325,000
106.30
168
196
0.7
52 Weeks to
2 December
2018
£m
52
1,598.8
547.5
59.5
(33.0)
52 Weeks to
2 December
2018
296,000
106.85
163
194
0.8
53 Weeks to
3 December
2017
£m
53
1,454.5
495.0
76.7
4.1
52 Weeks to
27 November
2016
£m
52
1,267.0
431.3
80.3
17.9
52 Weeks to
29 November
2015
£m
52
1,103.6
371.1
77.5
15.1
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
(2) 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.
(3) Average order size excludes destination sites from 2014 onwards; prior to this, destination sites were not material.
(4) Mature CFC operations are defined as CFC1 and CFC2.
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Stock Code: OCDO
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229
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Shareholder Information
Financial Calendar
19 March 2020
6 May 2020
7 July 2020
15 September 2020
10 December 2020
9 February 2021
Q1 Trading Statement
Annual General Meeting
Half Year Results Announcement
Q3 Trading Statement
Q4 Trading Statement
Final Results Announcement
Please note: all dates are provisional and subject to change.
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.
Forward-Looking Statements
Certain statements made in this Annual Report are forward-looking
statements. Such statements are based on current expectations, forecasts
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, objectives, strategies and the business. Nothing in this Annual
Report should be construed as a profit forecast.
All forward-looking statements in this Annual Report are made by the
Directors in good faith based on the information and knowledge available
to them as at the time of their approval of this Annual Report.
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
any obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events, future
developments or otherwise.
Company Information
Registered office:
Buildings One & Two
Trident Place
Mosquito Way
Hatfield
Hertfordshire
AL10 9UL
Company number:
07098618
Independent auditor:
Deloitte LLP
1 New Street Square
London
EC4A 3HQ
Registrars:
Link Market Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4ZF
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All Intellectual Property Rights in the content and materials in this Annual Report vest in and are owned absolutely by Ocado unless otherwise indicated,
including in respect of or in connection with but not limited to all trademarks 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.
Kroger is a registered trademark of The Kroger Co. Morrisons is a registered trademark of Wm Morrison Supermarkets plc. Groupe Casino is a registered
trademark of Casino Guichard-Perrachon S.A. M&S is a registered trademark of Marks and Spencer plc. ICA is a registered trademark of ICA AB. Bonpreu
is a registered trademark of Bon Preu group. Sobeys is a registered trademark of Sobeys Inc. Coles is a registered trademark of Coles Supermarkets
Australia Pty Ltd. Aeon is a registered trademark of AEON Co., Ltd. CDP logo is a registered trademark of CDP Worldwide. Sedex logo and Smeta logo are
registered trademarks of Sedex Information Exchange Limited. Stronger Together logo is a registered trademark of Stronger Together Ltd. FNET logo is a
registered trademark of Food Network for Ethical Trade. Marine Conservation Society is a registered trademark of Marine Conservation Society.
Copyright © Ocado 2020
230 Ocado Group plc Annual Report and Accounts for the 52 weeks ended 1 December 2019
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CBP002696
The paper is Carbon Balanced with World Land Trust, an international conservation charity, who offset
carbon emissionsthrough the purchase and preservation of high conservation value land.
Through protecting standing forests, under threat of clearance, carbon is locked in that would otherwise be
released. These protected forests are then able to continue absorbing carbon fromthe atmosphere,referred
to as REDD (Reduced Emissionsfrom Deforestation and forest Degradation). Thisis now recognised as
one of the most cost-effective and swiftest ways to arrest the rise in atmospheric CO2 and global warming
effects. Additional to the carbon benefits is the flora and fauna this land preserves, including a number of
species identified at risk of extinction on the IUCN Red List of Threatened Species.
This document is printed on Revive Silk 100 which is made from 100% FSC® Recycled pulp and post-
consumer waste paper. This reduces waste sent to landfill, greenhouse gas emissions, as well as the
amount of water and energy consumed
Ocado Annual Report 2019 Strategic.indd 6
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Back to contents Ocado Group plc
Buildings One & Two,
Trident Place, Mosquito Way,
Hatfield, Hertfordshire,
AL10 9UL, United Kingdom
Tel: +44(0) 1707 227800
Fax: +44(0) 1707 227999
www.ocadogroup.com
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