Directors' report

Principal activities

Ocado Group plc is the holding company of the Ocado group of subsidiary companies (the "Group"). The principal activities of the Group are the retailing, logistics and distribution of grocery and consumer goods and the development and monetisation of intellectual property and technology for the online retailing, logistics and distribution of these goods.

Share capital

The Company's authorised and issued ordinary share capital as at 2 December 2012 comprised a single class of ordinary shares of 2 pence each. As at the the latest practicable date prior to publication of this report, the Company's issued share capital consisted of 614,660,938 issued ordinary shares.

Placing of shares: The Company raised additional equity capital of £35.8 million on 19 November 2012 (the "Placing") through the issue of 55,875,557 ordinary shares in the Company at a price of 64 pence per share. The Placing represented approximately 9.99% of the Company's then existing issued share capital. The Placing price represented a premium of 5.7% to the closing middle market price of 60.55 pence per ordinary share on 16 November 2012, being the latest trading date prior to the announcement of the Placing.

As part of the Placing, the Company agreed to place:

  • 8,381,334 new ordinary shares with direct and indirect subsidiaries of FIL Limited, a substantial shareholder of the Company;
  • 6,503,317 new ordinary shares with direct and indirect subsidiaries of The London and Amsterdam Trust Company Limited, a substantial shareholder of the Company;
  • 6,274,825 new ordinary shares with Hamilton Trust Company Limited as trustee for Apple II Trust (of which Jörn Rausing, a Director of the Company, is a beneficiary), a substantial shareholder of the Company;
  • 1,732,142 new ordinary shares with Trident Trust Co (BVI) Limited as trustee of The Jason Gissing Life Settlement II (of which Jason Gissing, a Director of the Company, is a beneficiary); and
  • 1,000,000 new ordinary shares with Arthur Seligman as trustee of the Steiner 2008 Millennium Trust (of which Tim Steiner, a Director of the Company, is a beneficiary).

Each of the persons above is a related party of the Company for the purposes of the Listing Rules.

In addition, an aggregate of 266,921 new ordinary shares were placed with Neill Abrams, Robert Gorrie, Michael Grade, Duncan Tatton-Brown and Ruth Anderson, all of whom are Directors of the Company.

No commissions were paid by the Company to placees in respect of the Placing. Further details of the Placing are at Note 4.6.1 of the consolidated financial statements.

The issue of the Placing shares was effected by way of a cashbox placing. The Company alloted and issued the Placing shares on a non-pre-emptive basis to the placees in consideration for Goldman Sachs International transferring its holdings of ordinary shares and redeemable preference shares in Weir Developments Limited to the Company. Accordingly, instead of receiving cash as consideration for the issue of Placing shares, at the conclusion of the Placing the Company owned the entire issued share capital of Weir Developments Limited whose only asset was its cash reserves, which represented an amount approximately equal to the net proceeds of the Placing.

The Placing shares were credited as fully paid and ranked pari passu in all respects with the existing issued ordinary shares of 2 pence per share in the capital of the Company, including the right to receive all dividends and other distributions declared, made or paid in respect of such ordinary shares after the date of issue of the Placing shares.

Voting rights

Each ordinary share carries one right to vote at a general meeting of the Company. At any general meeting, a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is demanded. On a show of hands, every member who is present in person or by proxy at a general meeting of the Company shall have one vote. On a poll, every member who is present in person or by proxy shall have one vote for every share of which they are a holder. The Articles provide a deadline for submission of proxy forms of not than less than 48 hours before the time appointed for the holding of the meeting or adjourned meeting.

JSOS voting rights: Of the issued ordinary shares, 36,305,099 are held by Greenwood Nominees Limited on behalf of Appleby Trust (Jersey) Limited, the independent company which is the trustee of Ocado's employee benefit trust (the "EBT Trustee").

The EBT Trustee has waived its right to exercise its voting rights and to receive dividends in respect of these 36,305,099 ordinary shares, although it may vote in respect of 16,779,416 ordinary shares which have vested under the joint share ownership scheme and remain in the trust at period end, at the request of a participant. The total of 36,305,099 ordinary shares held by the EBT Trustee are treated as treasury shares in the group's consolidated balance sheet in accordance with IAS 32 ''Financial Instruments: Presentation''. As such, calculations of earnings per share for Ocado exclude the 36,305,099 ordinary shares held by the EBT Trustee. However, the Company does not hold any shares in treasury. Note 4.6.1(a) to the consolidated financial statements provides more information on the Group's accounting treatment of treasury shares.

Restrictions on transfer of securities

The Company's shares are freely transferable, save as set out below.

The Company may, under the Companies Act, send out statutory notices to those it knows or has reasonable cause to believe have an interest in its shares, asking for details of those who have an interest and the extent of their interest in a particular holding of shares. When a person receives a statutory notice and fails to provide any information required by the notice within the time specified in it, the Company can apply to the court for an order directing, among other things, that any transfer of shares which are the subject of the statutory notice is void.

The transferor of a share is deemed to remain the holder until the transferee's name is entered in the register. The Board can decline to register any transfer of any share which is not a fully paid share. The Company does not currently have any partially paid shares. The Board may also decline to register a transfer of a certificated share unless the instrument of transfer (in any usual form or in any other form which the Board may approve): (A) is duly stamped or certified or otherwise shown to the satisfaction of the Board to be exempt from stamp duty and is accompanied by the relevant share certificate or such other evidence of the right to transfer as the Board may reasonably require; (B) is in respect of only one class of share; and (C) if to joint transferees, is in favour of not more than four such transferees. Registration of a transfer of an uncertificated share may be refused in the circumstances set out in the uncertificated securities rules (as defined in the Articles) and where, in the case of a transfer to joint holders, the number of joint holders to whom the uncertificated share is to be transferred exceeds four.

JSOS: Participants' interests under the JSOS are generally non-transferable during the period beginning on acquisition of the interest and ending at the expiry of the relevant restricted period as set out in the JSOS rules. However, interests can be transferred to a spouse, civil partner or lineal descendant of a participant; a trust under which no person other than the participant or their spouse, civil partner or lineal descendant has a vested beneficial interest or any other person approved by the EBT Trustee. If a participant purports to transfer, assign or charge his interest other than as set out above, the EBT Trustee may acquire the participant's interest for a total price of £1.

Other than as described above, the Company is not aware of any agreements existing at the end of the period between holders of securities that may result in restrictions on the transfer of securities or that may result in restrictions on voting rights.

Powers for the Company issuing or buying back its shares

The Company was authorised by shareholders on 23 May 2012, at the annual general meeting, to purchase in the market up to 10% of its issued ordinary shares (excluding any treasury shares). No shares have been bought back under this authority during the period. This standard authority is renewable annually; the Directors will seek to renew this authority at the AGM.

The Directors were granted authority at the previous annual general meeting to allot shares in the Company. That authority will apply until the conclusion of the AGM. At the AGM, shareholders will be asked to grant an authority to allot shares in the Company (A) up to one-third of the issued share capital, and (B) comprising equity securities up to two-thirds of the issued share capital but after deducting any allotments or grants made under (A) above in connection with an offer by way of a rights issue, such authorities to apply until the end of the next AGM or, if earlier, until the close of business on 10 August 2014.

A special resolution will also be proposed to renew the Directors' powers to disapply pre-emption rights in connection with the allotment of equity securities for cash and otherwise up to 5% of the issued share capital.

Significant shareholders

During the period (up to 2 December 2012), the Company has received notifications, in accordance with Disclosure and Transparency Rule 5.1.2R, of interests in 3% or more of the voting rights attaching to the Company's issued share capital, as set out in the table below:

Number of
Percentage of
issued share
Nature of
Lansdowne Partners 35,144,035 5.72 Indirect
The Nomad Investment Partnership L.P. 39,573,655 7.08 Not stated
FIL Limited 56,085,345 10.03 Indirect
UBS Investment Bank Below 3% Below 3% Direct & Indirect
Manning and Napier Advisors LLC Below 5% Below 5% Direct

These figures represent the number of shares and percentage held as at the date of notification to the Company.

No changes have been disclosed in accordance with Disclosure and Transparency Rule 5.1.2R in the period between 3 December 2012 and 11 March 2013, except as set out in the table below:

Number of
Percentage of
issued share
Nature of
Credit Suisse Group AG Below 3% Below 3% Indirect

Appointment and replacement of Directors

The appointment and replacement of Directors is governed by the Articles, the 2010 Code, the Companies Act and related legislation. A Director may be appointed by the Company by ordinary resolution of the shareholders or by the Board. Under the Articles, at every annual general meeting of the Company, each Director shall retire from office and may offer himself for reappointment by the members.

Amendment of the Articles

The Company's Articles may be amended by a special resolution of its shareholders.

Significant related party agreements

Apart from the Placing noted above, there were no contracts of significance during the period between any Group company and either (1) a Director of the Company or (2) a controlling shareholder of the Company.

Change of control

The Company does not have any agreements with any Director or employee that would provide compensation for loss of office or employment resulting from a takeover except that it should be noted that: (i) provisions of the Company's share schemes may cause options and shares granted to employees under such schemes to vest on a takeover; and (ii) certain members of senior management (not including the Directors) who were employed prior to 2010 are entitled to a payment contingent on a change of control of the Company or merger of the Company (irrespective of loss of employment) as set out in his or her respective employment contract.

There are a number of important agreements to which the Group is a party that take effect, alter or terminate upon a change of control of the Company following a takeover bid. Details these agreements are as follows:

Sourcing Agreement with Waitrose: If the Sourcing Agreement were to end or if Waitrose were unable to source products for the Group, Ocado would need to find or create replacement own-label products and find appropriate suppliers. More information on Waitrose can be found at

If certain competitors of Waitrose or John Lewis acquire 50% or more of the shares or control of the Company's Board, the parties may terminate the Sourcing Agreement. In these circumstances, Ocado is obliged to pay Waitrose the lower of £40 million and 4% of the market capitalisation of the Company. This change of control provision will cease to bind the parties if, prior to the change of control, any party has already given a valid notice of termination.

Credit facility agreement: The Group's £100 million credit facility with Barclays Bank plc, HSBC Bank plc and Lloyds TSB Bank plc may be terminated in certain circumstances, including through an event of default or if the Group were to breach one or more of the covenants under this facility. Details concerning each of the lenders under the facility can be found on, in the case of Barclays Bank, its website (, in the case of HSBC Bank, its website ( and in the case of Lloyds TSB Bank, its website (

HSBC Equipment Finance Limited: On 22 July 2004 Ocado (as lessee) and HSBC Equipment Finance (UK) Limited (as lessor) entered into a master sale and leaseback agreement. At period end, 12 sale and leaseback agreements remained (with total amounts outstanding of £9.4 million) covering the majority of the conveyor systems and associated capital goods that have been added to CFC1 since August 2004. Pursuant to side letters between Ocado and HSBC varying the original agreement, HSBC is able to terminate the master agreement if there is a change of control of the Company or if the Sourcing Agreement is terminated for any reason.

Creditor payment policy

It is Group policy to agree, either directly or via an agent, terms and conditions for its business transactions with suppliers. The Company is a holding company and has an insignificant number of trade creditors. Under the Sourcing Agreement with Waitrose, Waitrose negotiates terms and conditions with suppliers of grocery products on behalf of both itself and Ocado Limited, the Group's main trading entity. Ocado Limited also negotiates payment terms for its suppliers. The Group did not follow any code or standard on payment practice in the period. The average trade payables time period for resale goods for Ocado Limited for the 53 weeks ended 2 December 2012 was 27 days (2011: 26 days), based on the ratio of its average trade payables for resale goods to the amounts invoiced during the period by those trade payables.

Research and development and future developments

The Group has dedicated in-house software, logistics and engineering design and development teams with primary focus on IT and improvements to the CFCs and the material handling equipment. Costs relating to the development of computer software are capitalised if they relate to internal capital projects.

The Group's likely future developments including its strategy are described in the Strategy section.

Going concern

In adopting the going concern basis for preparing the financial statements, the Directors have made appropriate enquiries and have considered the Group's cash flows, liquidity position and borrowing facilities and business activities as set out in the Principal activities and the Group's principal risks and uncertainties. Based on the Group's rolling forecasts, the Directors are satisfied that the Company, and the Group as a whole, have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the financial statements have been prepared on the going concern basis in accordance with Going Concern and Liquidity risk: Guidance for Directors of UK Companies 2009, published by the Financial Reporting Council in October 2009.

The principal risks and uncertainties section describes the principal risks and uncertainties facing the Group including those that may have an adverse impact on the Group's operations, performance or future prospects and the going concern basis noted above. The Group's cash flows, liquidity position and borrowing facilities and business activities are described in the Principal activities and set out in the Group's financial statements. Further information on going concern is set out in Section 1 to the consolidated financial statements.

The Company's going concern statement has been reviewed by the Company's auditors, PricewaterhouseCoopers LLP.

Financing arrangements

Borrowings and covenants: The most material of the Group's borrowing facilities is its £100 million credit facility with Barclays Bank plc, HSBC Bank plc and Lloyds TSB Bank plc. During the period, the Group agreed with the banks to extend the maturity of the facility agreement for a further 18 months to 6 July 2015. The extended facility comprises a term facility of £90 million and a working capital revolving credit facility of £10 million.

The facility contains customary covenant provisions in respect of net debt, gross debt and interest cover. The financial covenants are as follows:

  • Net debt ratio – the net debt financial covenant requires that the ratio of net debt to adjusted EBITDA must not exceed 3.5:1 for the test periods falling in the financial years ending in 2012 and 2013. This ratio gradually reduces to 2.25:1 during the subsequent 18 month extension period.
  • Interest cover ratio – the interest cover financial covenant requires that the ratio of EBITDA to net interest at the end of each quarter period be not less than 4:1 for the test periods falling in the financial years ending 2012 and 2013, gradually increasing to 5:1 during the subsequent 18 month extension period.
  • Gross debt ratio – the gross debt financial covenant requires that the ratio of gross debt to adjusted EBITDA must not exceed 5.5:1 for any test period in respect of which EBITDA is less than £35 million. EBITDA in respect of a test period refers to EBITDA for the relevant prior 12 month period.

For any financial year, in which the net debt: EBITDA ratio exceeds 2.5:1 there is a cap on capital expenditure which is set above the Company's current expectations over the extended term of the facility agreement.

All covenant tests which exist under the terms of the facility are tested quarterly.

The table below outlines the relevant covenant tests and the actual position of the Group at the end of the period:

Net debt/EBITDA <3.5:1 1.72:1
Fixed interest cover >4:1 5.12:1
Gross debt/EBITDA <5.5:1 4.34:1

Disclosure of information to auditors

In accordance with the Companies Act, each Director who held office at the date of the approval of this Directors' report confirms that, so far as he or she is aware, there is no relevant audit information of which the Group's auditors are unaware, and that each Director has taken all of the steps that they ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and to establish that the Group's auditors are aware of that information.

Independent auditors

The Company's auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue their role as the Company's auditors. Resolutions concerning the reappointment of PricewaterhouseCoopers LLP as auditors of the Company and to authorise the Directors to determine their remuneration will be proposed at the AGM and set out in the Notice of Meeting.

Statement of Directors' responsibilities

The Directors are responsible for preparing the 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 (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the result of the Company and the Group for that period. In preparing these financial statements, the Directors are required to:

  • select suitable accounting policies and then apply them consistently;
  • make judgements and accounting estimates that are reasonable and prudent;
  • state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; and
  • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' remuneration report comply with the Companies Act and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Group's corporate website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, who held office at the date of the approval of this annual report, confirms, to the best of their 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 and loss of the Group; and
  • the Directors' report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

Forward-looking statements

Certain statements made in this report are forward-looking statements. Such statements are based on current expectations and assumptions and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results expressed or implied in these forward-looking statements. They appear in a number of places throughout this report and include statements regarding the intentions, beliefs or current expectations of the Directors concerning, amongst other things, the Group's results of operations, financial condition, liquidity, prospects, growth, strategies and the business. Persons receiving this report should not place undue reliance on forward-looking statements. Unless otherwise required by applicable law, regulation or accounting standard, Ocado does not undertake to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

Approved by the Board

Neill Abrams
Company Secretary and Legal and Business Affairs Director

13 March 2013

Ocado Group plc
Registered in England and Wales no. 07098618