ANNUAL FINANCIAL REPORT
OCADO GROUP PLC
29 February 2024
Ocado Group plc
("Ocado")
Annual Financial Report
2023
In compliance with Listing Rules
9.6.1 and 9.6.3 Ocado has today submitted to the
Financial Conduct Authority's National Storage Mechanism its annual report and accounts for the 53 weeks ended
3 December 2023 ("annual report and accounts").
In compliance with Disclosure
Guidance and Transparency Rule 6.3.5(3), the
annual report and accounts is available to view on Ocado's
website: www.ocadogroup.com
(and will
also be available for viewing on the
National Storage
Mechanism at https://data.fca.org.uk/#/nsm/nationalstoragemechanism).
This announcement follows Ocado's
announcement today of its preliminary results for the same period.
A condensed set of Ocado's financial statements and information on
important events that have occurred during the year and their
impact on the financial statements and related party information
were included in Ocado's preliminary results announcement. That
information together with the information set out below is the
information provided to satisfy
the requirements of Disclosure Guidance and
Transparency Rule 6.3.5. The description of principal risks and
uncertainties below is extracted in unedited full text from the
annual report and accounts. Reading this announcement and/or the
preliminary results announcement should not be a substitute for
reading the full annual report and accounts.
Principal risks and uncertainties
Market proposition (OSP & OIA)
|
Partner success (OSP)
|
What is the risk? Our OSP and
OIA product offer, features, implementation schedule, pricing or
terms may not be sufficiently attractive to potential partners or
may not be commercially attractive to them at a level that delivers
adequate and sustainable returns for us.
|
What is the risk? We invest in
robots and MHE alongside our partners in the CFCs that we develop
for them and we rely on the growth of our partners' online
businesses to generate appropriate economic returns from this
investment. If our partners do not achieve sustainable returns from
their investment then they may not expand their utilisation of the
capacity that we have jointly invested in, in which case we may
fail to generate our planned returns. It is also possible that if
our partners are unable to generate acceptable returns themselves
they may close existing CFC facilities.
|
Key
risks
●
Commercial viability both for us and our partners
● Our
pricing is not competitive
● The
functionality of our products is not sufficiently
attractive
● We
fail to market our products professionally
●
Competitive environment
|
Key
risks
●
Partners may be unable to generate sufficient demand to fill the
capacity of the CFCs in which they have invested
●
Partners may be unable to operate their online grocery businesses
efficiently enough to generate the planned returns, including the
ability to generate density in last mile operations
● The
strategies that our partners adopt may compromise their ability to
generate viable ecommerce businesses
|
Risk owner John Martin, Mark
Richardson
|
Risk owner John
Martin
|
Movement - no change
|
Movement -
increasing
|
Link to strategy - Grow our
revenue; Optimise OSP Economics; Embed a responsible business
approach
|
Link to strategy - Grow our
revenue; Optimise OSP economics; Deliver transformational
technology; Drive success for our partners
|
Responsible business -
Environment and natural resources;
Platform resilience and
innovation
|
Responsible business -
n/a
|
How
we manage this risk
● Our
regional and commercial teams undertake quarterly pricing reviews,
review market pricing and seek price disclosure from prospective
partners to ensure that we remain competitive.
● We
analyse prospective partner profitability to ensure that our
products can deliver benefits to both ourselves and our partners.
Ocado is in the position of running a large scale operation of our
own using the same products that we are selling to our clients,
which provides us with a unique and valuable perspective of the
value that our products bring.
● We
constantly develop our products to reduce their costs in order to
maximise market appeal and commercial viability.
● We
review the features and functionality that our solutions provide,
and discuss this with potential clients and partners to understand
how well our solutions fulfil their needs and determine whether it
is appropriate to develop specific features that our prospective
partners require.
● We
invest substantially in product teams to develop our technology
roadmaps to ensure that our products are as relevant as possible
and cost effective to our current and prospective
partners.
● We
invest significant sums in the development of our products to
ensure that they remain leading-edge.
● We
assess the potential for new business in each of our three
international regions.
● In
2023 we launched OIA to deploy our product to a new market
segment.
● Our
Board approves all material new deals.
|
How
we manage this risk
● We
have established and expanded our Partner Success teams with the
sole aim of supporting our partners in the profitable growth of
their online businesses. The Partner Success teams include
specialists in ecommerce, marketing, retail media, retention,
operations, last mile and solutions.
● We
review and benchmark partner performance at least monthly to
identify areas for improvement which we discuss with our
partners.
● We
review our technology roadmap with our partners to identify
specific, relevant features that we can develop to support their
growth and profitability.
● We
develop training and development materials and best-practice
information which we share with our partners.
● We
appoint dedicated account management and development teams to
support professional account management and partner success. These
teams are encouraged to locate either on or close to partner
sites.
|
Product innovation, protection & performance (OSP &
OIA)
|
Supply chain
|
What is the risk? Our
innovation and development processes may not meet partner needs, or
we may fail to provide protected, reliable and commercially viable
products. This could undermine our ability to attract and retain
partners.
|
What is the risk? Disruption in
our extended and complex supply chain may adversely affect product
availability and responsible sourcing. This could result in
increased costs and fines, delays to contractual commitments and
loss of revenue.
|
Key
risks
●
Product strategy and roadmap
●
Disruptive technologies are not adopted and invested in early
enough, e.g. AI
● IP
infringement and lack of protection
●
Insufficiently sustainable design
●
Insufficient product quality and performance
● Site
implementation timeframes
|
Key
risks
●
Contract performance and forecasting demand
●
Regulation and responsible sourcing (natural resources)
●
Supplier dependencies
|
Risk owner James Matthews,
Neill Abrams
|
Risk owner James
Matthews
|
Movement - no change
|
Movement - no change
|
Link to Strategy - Optimise OSP
economics; Deliver transformational technology; Embed a responsible
business approach
|
Link to Strategy - Grow our
revenue; Optimise OSP economics; Deliver transformational
technology; Drive success for our partners; Embed a responsible
business approach
|
Link to ESG - Our people and
skills for the future; Environment and natural resources; Platform
resilience and innovation
|
Link to ESG - Our people and
skills for the future; Environment and natural resources; Platform
resilience and innovation
|
How
we manage this risk
● The
Technology Solutions Committee and Risk Committee provide
overarching governance.
● Our
design development (or engineering) teams undertake quarterly
product planning meetings within each stream that are presented to
the Executive Committee for oversight and approval.
● Our
research teams continually monitor the market and actively
participate in funded research with academic institutions, and we
are currently involved in three parallel Horizon projects where
Ocado Technology is funded to undertake state of the art
research.
● Our
IP team conducts freedom to operate searches and IP filing
monitoring.
● Our
specialist patent attorneys work with product developer teams to
ensure we protect not just the systems we build but also the other
ideas and concepts that are generated during the innovation and
development lifecycle. For example, in 2023 we had a successful
outcome in the AutoStore litigation.
●
Innovation development lifecycle including: ideation sessions with
IP; mergers and acquisitions strategy; integration of AI into our
systems; and partner conferences to demonstrate our latest
technology innovations. For example at our Beyond Conference we
presented the latest iteration of the OGRP system.
● Our
"Build Right, Run Right" initiative embeds product
industrialisation within the development lifecycle for our ASRS
product to meet the needs of our OIA client base.
|
How
we manage this risk
●
Improved internal forecasting of product demand and client
requirements in 2023 has helped better manage Ocado's
requirements.
●
Governance is provided by the Sales and Operations Planning
executive review meetings.
●
Management KPI reporting packs are reviewed to align supply and
demand.
● We
are embedding strategic sourcing and supplier relationship
management into the business.
●
Supplier assessments, due diligence and site audits are undertaken
during the product development process.
● We
are deploying materials resource planning across new categories
which helps manage the areas of higher global supply chain
volatility.
● The
Responsible Sourcing Working Group monitors multiple work streams
and reports to the ESG Committee.
●
Combining the above capability we are now better able to review our
supply chain suitability, developing deeper strategic relationships
and systematically aligning scale of supply with demand to maintain
confidence in our delivery. In addition, our enhancements in our
people capability, systems, data and root cause analysis allow us
to provide greater insight to the business to underpin strategic
decision-making.
|
Talent & capability
|
Cybersecurity & data
|
What is the risk? Difficulty in
filling key positions, a loss of top performers and an inability to
embed diversity could undermine business operations and growth
plans.
|
What is the risk? The
disruption or loss of critical assets and sensitive information as
a result of a cyber attack, insider threat or a data breach within
our Group network or our supply chain could result in business
interruption, reputational damage or regulatory impacts, for both
Ocado and our partners.
|
Key
risks
●
Retention and rewards
●
Attraction
●
Training and development
●
Diversity and inclusion
●
Succession planning
●
Culture and wellbeing
●
Organisational structure
|
Key
risks
●
Deliberate destruction of systems
●
Commercial data loss
●
Third party compromise
●
Infrastructure outage
●
Personal data loss
|
Risk owner Claire
Ainscough
|
Risk owner James
Matthews
|
Movement - no change
|
Movement -
increasing
|
Link to Strategy - Deliver
transformational technology; Drive success for our partners; Embed
a responsible business approach
|
Link to Strategy - Deliver
transformational technology; Embed a responsible business
approach
|
Link to ESG - Our people and
skills for the future; Platform resilience and
innovation
|
Link to ESG - Platform
resilience and innovation
|
How
we manage this risk
● We
launched new Technology Solutions values and measured these in our
regular employee survey.
● We
also have very transparent communication processes (e.g. open
Q&A tools and Slack) and we prioritise our goals process to
ensure it is highly aligned between our commercial and technical
teams.
● We
continue to work with our employees to create lifestyle policies to
support our culture and launched Fertility and Menopause community
groups.
●
Governance is provided by the Risk Committee and People
Committee.
● We
conduct periodic reviews of remuneration and incentive plans to
align with market trends and internal and external
fairness.
● We
continue to undertake employee surveys to analyse opinions and
engagement levels.
● We
launched a talent and performance framework to help us
differentiate, develop and deploy the talent we have, supporting
future business growth and high performance.
● We
launched two new learning platforms, LinkedIn Learning and
Learnerbly, to better support our people in developing the skills
they need to grow their careers.
● We
have invested in developing management capabilities by launching a
signature programme focused on critical practices for leading a
team, including creating a feedback culture.
● We
have launched DE&I and wellbeing learning programmes to build
awareness of unconscious bias and how to create an inclusive
culture with practical tools, guidance and resources.
|
How
we manage this risk
● Our
security strategy defines priorities and is agreed with the Ocado
Board.
●
Regular governance and oversight of our security programme is
provided by the Information Security Committee.
● Our
Information Security function is led by our Chief Information
Security Officer who is responsible for the management of our
security strategy, the security programme and security
risks.
● Our
dedicated Security Operations team, supported by a 24/7 specialist
security partner, detects and responds to security
incidents.
● We
regularly test our cyber incident response plan, including annual
cyber simulations for the Executive Committee.
● We
have developed secure build standards for our core IT
assets.
●
Security patching is in place for our core IT assets and is
measured each month.
●
Regular penetration testing is carried out for the Ocado
Platform.
● Our
zero trust solution provides employees with secure access to
Ocado's systems.
● Each
year the security controls environment for the Ocado Platform is
externally audited as part of our SOC2 certification.
● The
Ocado Platform is PCI compliant and is externally audited every
year. No payment card data is processed directly by the Ocado
Platform.
●
Cyber insurance is in place to reduce the cost impact of a major
cyber incident.
●
Immutable backups have been set up to help protect the Ocado
Platform from deliberate destruction.
● Our
Data Protection Officer oversees the Group's privacy compliance
programme.
|
Fire & safety
|
Regulatory & compliance
|
What is the risk? Fire, or
injury to a worker or customer, caused by product design or
operating failures could result in business disruption, loss of
assets and reputational loss.
|
What is the risk? Failure to
comply with local and international regulations could lead to loss
of trust, penalties and personal liability for our employees, and
undermine our ability to operate.
|
Key
risks
● Fire
safety
●
Product safety
● Food
safety
●
People safety (construction, operation and logistics)
|
Key
risks
●
Statutory compliance across jurisdictions of operation
●
Fraud, bribery, sanctions and industry specific
compliance
● New
geographies
●
Accelerating pace of global regulatory change (mandatory
climate-related disclosures, and wider sustainability reporting and
supply chain requirements)
●
Governance
|
Risk owner James
Matthews
|
Risk owner Neill
Abrams
|
Movement - no change
|
Movement -
increasing
|
Link to Strategy - Drive
success for our partners; Embed a responsible business
approach
|
Link to Strategy - Embed a
responsible business approach
|
Link to ESG - Our people and
skills for the future; Platform resilience and
innovation
|
Link to ESG - Platform
resilience and innovation
|
How
we manage this risk
● Our
governance programme is overseen by the Safety
Committee.
● Our
team of technical experts monitors and audits compliance against
regulations, policies and procedures in safety areas including
food, product, occupational health, fire and
construction.
● We
deploy training and carry out risk and safe systems of work
assessments to raise awareness and knowledge.
● We
monitor regulatory change, leveraging third-party expert advice to
introduce appropriate mitigations.
● This
year we continued our programme of fire insight days for local
authorities; and introduced an expert third-party Fire Risk
Assessment programme for UK premises. This is supplemented by our
annual programme of risk engineering surveys.
●
Following the Andover CFC fire, we started to investigate fire
retardant tote designs. The activity involved lengthy
investigations supported by FM Global and its fire research campus.
This has resulted in the current metal tote design which is
anticipated to significantly reduce our fire risk These are
currently being deployed at significant cost across our global
footprint.
|
How
we manage this risk
●
Governance is provided by the Risk Committee.
●
Co-ordinated by the Regulatory & Compliance team, the business
tracks global regulatory changes, leveraging third-party advice as
needed to inform our actions and respond to new requirements. The
business has had to respond rapidly in 2023 to minimise disruption
to our operations and supply chain and ensure we operate in a
compliant manner with the dynamic changes to sanctions and export
control laws in particular.
● In
2023 our global regulations tracking process broadened to encompass
wider ESG requirements and was aimed at supporting the business to
prepare to meet multiple new non-financial reporting
requirements.
● Our
Due Diligence and Territory Research teams conduct extensive
research and engage specialist advice to understand local market
regulatory issues when exploring new territories and new partners
to ensure we understand and fully cost the potential
risks.
● We
have deployed and continue to develop a compliance framework of
policies and procedures underpinned by employee training, guidance
and tailored awareness campaigns, refreshing policies where needed
to reflect evolving standards, including updating our Human Rights
Policy, and we are also implementing a new Sanctions and Export
Control Policy.
● We
conduct periodic risk assessments on core compliance topics to
ensure that we identify and close gaps arising from organisational
change and evolving standards. This year we refreshed our
anti-bribery risk assessment and next year we will focus on our
fraud risk assessment to account for new legislation on this
topic.
|
Climate, environment & geopolitical
|
Liquidity & cash management
|
What is the risk? Transformation pressures and adverse external events could
increase cost, disrupt our supply chain and operations, and the
demand for our product.
|
What is the risk? Insufficient
liquidity (cash balances plus undrawn facilities) to deliver our
business goals and/or settle our liabilities.
|
Key
risks
●
Internal combustion engine vehicles ban
●
Energy usage
●
Natural resources
● Net
Zero Challenge
●
Extreme weather
● War,
conflict and sanctions
●
Civil unrest and activism
●
Societal disruption (pandemic, cost of living)
|
Key
risks
●
Inability to access the capital markets to refinance our debt as it
approaches maturity
●
Inability to extend or access our RCF including due to failure to
comply with its financial covenants
●
Deterioration in financial performance (profitability and cash flow
generation) that causes refinancing of existing debt to become
difficult
● Poor
cash management forecasting processes leading to unanticipated
shortfalls in liquidity which compromise our ability to meet our
commitments
|
Risk owner Stephen Daintith,
Neill Abrams
|
Risk owner Stephen
Daintith
|
Movement - no change
|
Movement - no change
|
Link to Strategy - Grow our
revenue; Optimise OSP economics; Deliver transformational
technology; Drive success for our partners; Embed a responsible
business approach
|
Link to Strategy - Embed a
responsible business approach
|
Link to ESG - Our people and
skills for the future; Environment and natural resources; Platform
resilience and innovation
|
Link to ESG - Platform
resilience and innovation
|
How
we manage this risk
●
Governance is provided by our ESG Committee and Risk Committee,
with other relevant forums such as our Environmental Sustainability
Compliance and Reporting Working Group co-ordinating environmental
sustainability risk, compliance and reporting
activities.
● We
are involved in several vehicle manufacturer engagement programmes
to aid the development of zero-emission vehicle
alternatives.
● We
use various energy supply monitoring and diversification
initiatives, including the use of an anaerobic digester.
● Our
MHE stock levels provide resilience in construction and
operation.
● Our
global client footprint provides resilience from local
shocks.
● We
conduct risk assessments prior to entering new geographical markets
or undertaking new ventures.
● We
maintain financial and physical reserves to cushion any operational
impact.
● This
year we engaged external experts to support our physical climate
risk assessment using third-party scenario-based data.
● In
2023 we formally established our Net Zero programme.
|
How
we manage this risk
● We
ensure that we carry out our refinancing activities well in advance
of our maturity dates.
● We
monitor the capital markets carefully and, with the assistance of
our advisors, assess the accessibility of the capital markets on a
regular basis (at least monthly).
● We
prepare robust five-year cash flow forecasts (which are updated
annually and are tested on a regular basis for their
integrity).
● We
have also prepared a five-year cash flow forecast that includes
various downside scenarios and used this to determine future cash
requirements, liquidity levels and covenant compliance metrics
under these scenarios.
● The
five-year cash flow forecasts include all investment plans. These
are reviewed by the Board (subject to materiality tests) and
approved only after meeting strict return requirements.
● Over
the course of the year we have enhanced our cash flow forecasts to
include quarterly compliance with financial covenants. This helps
us assess our ability to access the RCF on a quarter-by-quarter
basis. This gives us further comfort in our testing of sufficient
liquidity headroom.
● We
engage regularly with our relationship banking group to maintain
the strong relations that we have with them. We also ensure that
they are well informed of our cash flows and liquidity.
● We
have recently appointed a new Head of Capital Markets to work
alongside the CFO and the Group FD to maintain these strong working
relationships with our relationship banks.
● We
continue to monitor the capital markets and our refinancing
strategy and update the Board on these matters at each Board
meeting. These Board discussions will also include a review of the
optimal time to carry out any refinancing activities.
|
For further information on the
financial risks see pages 112 to 114 and 278 to 280 of the notes to
the consolidated financial statements in the annual report and
accounts for the 53 weeks ended 3 December 2023.
Directors' Responsibility Statement
Ocado's annual report and
accounts contains the following statements
regarding responsibility for the financial statements and the
annual report in compliance with DTR 4.1.12. This responsibility
statement is repeated here (below) solely for the purposes of
complying with Disclosure Guidance and Transparency Rule 6.3.5. It
is not connected to the extracted information presented in the
preliminary results announcement or this announcement.
Each of the Directors who held
office at the date of the approval of the
Annual Report (included in the biographies of the
Directors on pages 118 to 121) confirms, to
the best of their knowledge,
that:
●
the Group financial statements, which have been
prepared in accordance with UK-adopted IFRSs, 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 205) 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.
The Directors of Ocado Group plc are
listed on pages 118 to 121 of the annual report and
accounts and are listed on the Ocado Group's corporate
website: www.ocadogroup.com.
The Directors of Ocado Group plc as at the date of this
announcement are as follows:
Rick Haythornthwaite;
Tim Steiner;
Stephen Daintith;
Jörn Rausing;
Andrew Harrison;
Emma Lloyd;
Julie Southern;
Nadia Shouraboura;
Julia M. Brown; and
Rachel Osborne.
Enquiries
For further information
contact:
Person responsible for arranging the release of this
announcement:
Neill Abrams
Group General Counsel & Company
Secretary
Ocado Group plc
Buildings One & Two
Trident Place
Mosquito Way
Hatfield
Hertfordshire AL10 9UL
Fax: +44 (0)1707 227 997
email: company.secretary@ocadogroup.com
Ocado Group plc LEI:
213800LO8F61YB8MBC74