Accounting policies
Revenue
Revenue comprises the fair value of consideration received or receivable for the sale of goods and services.
Sales through the Webshop are shown net of returns, relevant marketing vouchers/offers and value added taxes. Relevant vouchers/offers include money-off coupons, conditional spend vouchers and offers such as buy three for the price of two. Delivery charges are included in revenue.
Revenue is recognised at the point when the significant risks and rewards of products have been passed to the buyer and can be reliably measured; in general this is deemed to occur when customers take delivery of the goods. Income from "Ocado Delivery Pass", the Group's discounted pre-pay delivery scheme, is recognised in the period to which it relates on an accruals basis.
Cost of sales
Cost of sales represents the cost of groceries and other products the Group sells, any associated licence fees which are linked to 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.
At the period end the Group is required to estimate supplier income due from annual agreements. Estimates are required due to the fact that the majority of these agreements end after the financial year end of the Group, which results in the Group only receiving firm confirmation of amounts due after the period end. This income is estimated on historical data and review of major contracts with suppliers.
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, sublease payments receivable and amounts receivable not in the ordinary course of business.
Employee benefits
The Group contributes to the personal pension plans of its staff through a defined contribution personal pension scheme which is administered by Standard Life. Employer contributions to the scheme are calculated as a percentage of salary based on length of scheme membership. Contributions are charged to the income statement in the period to which they relate.
Distribution costs
Distribution costs consist of all the costs incurred, excluding product costs, to the point of sale, 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.
Administrative expenses
Administrative expenses consist of all IT costs, advertising and marketing expenditure, employment costs of all central 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, expenses relating to the Group's share schemes and the depreciation, amortisation and impairment associated with IT equipment, software, fixtures and fittings.
Exceptional items
Exceptional items, as disclosed on the face of the income statement, are 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.
2.1.1 Segmental reporting
The Group's principal activity is that of grocery retailing, derived solely from the UK. The Group is not reliant on any major customer for 10% or more of its revenue.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, as required by IFRS 8. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Directors.
The principal activity of the Group is managed as one segment. The Group does not split its activities into any further regional or product subdivisions in its internal management reporting, as any such split would not provide the Group's management with any meaningful information. Consequently, all activities relate to this one segment.
The chief operating decision-maker's main indicator of performance of the segment is EBITDA, which is reconciled to operating profit below the income statement.
2.1.2 Gross sales
| 53 weeks
ended
2 December
2012
£m | 52 weeks
ended
27 November
2011
£m |
|---|
| Revenue |
678.6 |
598.3 |
| VAT |
41.9 |
36.5 |
| Marketing vouchers |
11.4 |
8.0 |
| Gross sales |
731.9 |
642.8 |
2.1.3 Operating profit
| Notes | 53 weeks
ended
2 December
2012
£m | 52 weeks
ended
27 November
2011
£m |
|---|
| Operating profit is stated after charging/(crediting) the following: |
|
|
|
| Cost of inventories recognised as an expense |
|
458.0 |
400.9 |
| Employment costs |
2.1.4 |
122.2 |
110.7 |
| Amortisation expense |
3.1.1 |
6.2 |
5.5 |
| Depreciation of property, plant and equipment |
3.2.1 |
22.8 |
21.3 |
| Impairment of property, plant and equipment, included in: |
3.2.1 |
1.0 |
0.1 |
| — Distribution costs |
|
0.1 |
0.1 |
| — Exceptional items |
2.1.5 |
0.9 |
— |
| Operating lease rentals |
|
|
|
| — Land and buildings |
|
3.7 |
2.9 |
| — Other leases |
|
0.4 |
0.5 |
| Net foreign exchange gains |
|
(0.7) |
(0.2) |
During the period, the Group obtained the following services from its auditors:
| 53 weeks
ended
2 December
2012
£'000 | 52 weeks
ended
27 November
2011
£'000 |
|---|
| Audit services |
|
|
| — Statutory Group and Company audit |
45 |
47 |
| — Statutory audit of subsidiaries |
153 |
162 |
| Non-audit services |
|
|
| — Advisory support |
49 |
19 |
|
247 |
228 |
2.1.4 Employee information
Employment costs during the financial period were as follows:
| Notes | 53 weeks
ended
2 December
2012
£m | 52 weeks
ended
27 November
2011
£m |
|---|
| Staff costs during the period: |
|
|
|
| Wages and salaries |
|
124.0 |
109.3 |
| Social security costs |
|
11.4 |
10.3 |
| Pension costs — defined contribution plans |
|
1.7 |
1.4 |
| Share-based payment expense |
|
0.9 |
0.6 |
| Total gross employment costs |
|
138.0 |
121.6 |
| Staff costs capitalised to intangible assets |
3.1.1 |
(11.5) |
(7.9) |
| Staff costs capitalised to property, plant and equipment |
3.2.1 |
(4.3) |
(3.0) |
| Total employment cost expense |
|
122.2 |
110.7 |
| Average monthly number of employees (including Executive Directors) by function: |
|
|
|
| Operational staff |
|
4,595 |
4,567 |
| Support staff |
|
661 |
613 |
|
|
5,256 |
5,180 |
Two revisions have been made to the prior period disclosure of the total employment cost expense; i) the amount of staff costs capitalised to property, plant and equipment have now been excluded from the total employment cost expense disclosed, whereas previously only internal development costs capitalised to intangible assets were excluded from this amount, and ii) disclosure of staff costs capitalised to intangible assets previously included the costs of externally bought-in software developers, which have now been excluded from the amount disclosed.
This is a change in disclosure only and has no impact on the income statement expense in the prior period.
2.1.5 Exceptional items
In the current period the Group incurred costs relating to the set-up of CFC2 and its new non-food business. As part of the set-up of CFC2, land, buildings and plant and machinery with a net book value of £0.9 million were impaired due to it being superseded by assets from CFC2. This impairment charge is included in the charge as disclosed in Note 3.2.
| 2 December
2012
£m | 27 November
2011
£m |
|---|
| Set-up costs |
|
|
| — CFC2 |
1.2 |
— |
| — Non-food |
0.3 |
— |
| Impairment charge |
0.9 |
— |
|
2.4 |
— |