Than a Supermarket
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Ocado Group plc Annual report and accounts for the 53 weeks ended 2 December 2012 MORE THAN A SUPERMARKET ANNUAL REPORT and ACCOUNTS for the 53 weeks ended 2 DECEMBER 2012 Stock code: OCDO Ocado Group plc Annual report and accounts for the 53 weeks ended 2 December 2012 FEEL GOOD SHOPPING Overview Strategy Performance Page 02 Page 08 Page 20 04 Ocado at a glance 10 Chief Executive Officer’s review 22 Chief Financial Officer’s review 06 Highlights 12 The market opportunity 26 Measuring performance against our strategy 13 Our operating model 28 Corporate social responsibility report 14 Strategy 16 Driving growth 18 Delivering profitability www.ocadogroup.com Stock code: OCDO www.ocadogroup.com 01 We give our customers their time back by making shopping for life’s essentials – and luxuries – uncomplicated. OVERVIEW STRATEGY PERFORMANCE Governance Financial Information Page 30 Page 72 Page 126 GOVERNANCE 32 The Board 74 Independent auditors’ report 128 Glossary 34 Chairman’s letter 75 Consolidated income statement 129 Financial calendar 35 Statement of corporate governance 75 Consolidated statement of comprehensive 129 Company information 43 Principal risks and uncertainties income 50 Directors’ remuneration report 76 Consolidated balance sheet 68 Directors’ report 77 Consolidated statement of cash flows 78 Consolidated statement of changes in equity FINANCIAL 79 Notes to the consolidated financial statements 112 Independent auditors’ report 113 Company balance sheet 114 Company statement of cash flows 115 Company statement of changes in equity 116 Notes to the Company financial statements Five year summary 125 INFORMATION 21718-04 26/02/2013 Proof 5 02 Ocado Group plc Annual report and accounts for the 53 weeks ended 2 December 2012 Overview Contents 04 Ocado at a glance 06 Highlights We continually extend the range of quality products we sell. We seek to cover all our customers’ daily needs, as well as introducing new specialist products such as our French, Spanish or Swedish international lines, and the widest “free from” range available in the UK today. Our centralised model enables us to introduce new ranges quickly and efficiently, and has supported our continued move into non-food lines. Now our customers can buy other products – for the home, their pets, their children, or some health and beauty treats – and have them conveniently delivered with their weekly grocery order. Read more @ results12.ocadogroup.com 21718-04 26/02/2013 Proof 5 Stock code: OCDO www.ocadogroup.com 03 OVERVIEW STRATEGY PERFORMANCE GOVERNANCE FINANCIAL INFORMATION 21718-04 26/02/2013 Proof 5 04 Ocado Group plc Annual report and accounts for the 53 weeks ended 2 December 2012 Ocado at a glance Established in 2000 and listed on the London Stock Exchange in July 2010, Ocado is the UK’s, and the world’s, largest dedicated online grocery retailer providing and delivering quality groceries and other products directly to customers’ homes. Our objective is to be more than a supermarket, improving the experience for our customers allowing them to “feel good shopping”, while building a business that will deliver attractive financial returns. OCADO AT A GLANCE OCADO AT WE ❱ The world’s leading online only grocery retailer ❱ Challenging the traditional retail business model ARE ❱ Cash generative ❱ Cashflow covers interest and replacement capex ❱ Investing for future growth ❱ Carefully investing to secure our future growth and investor returns WE ❱ A significant market opportunity ❱ Huge grocery market and rapidly growing shift into online grocery shopping HAVE ❱ A unique business model with specific structural ❱ Centralised stock picking model driven by advantages technology ❱ A superior offer to customers which drives online ❱ Wider range, competitive prices and superior adoption service ❱ Proprietary intellectual property (“IP”) creating a ❱ Our own software and know-how powers our “best in class” operation operation and sets us apart from our competition ❱ A completely scalable business with considerable ❱ Operational leverage converts into margin as we inherent operational leverage scale the business WE ❱ Create a virtuous cycle of sustainable growth ❱ Increasing scale drives growth and returns, which and profitability can be reinvested to continue fuelling growth and PLAN improving profits TO ❱ Further enhance our offer to customers to drive ❱ Drive the “feel good shopping” experience for growth customers ❱ Leverage our technological know-how ❱ Utilise technology to improve the customer experience, growth, profitability and develop the business ❱ Deliver additional value from our IP ❱ Monetise our proprietary IP platform to enhance investor returns Service Delivering products in perfect condition, on time. Measured Choice by service Providing the delivery KPIs. widest choice of quality Unique model products. Measured Measured Technology and logistics through SKU and through Unique skills enable a lower cost category growth. internal model to invest in the customer proposition proposition to surveys. customers. Offering exceptional value and confidence in pricing. 21718-04 26/02/2013 Proof 5 Stock code: OCDO www.ocadogroup.com 05 MARKETPLACE AND BUSINESS MODEL Ocado operates in a very large, but competitive, UK We utilise a different business model, built on technology and marketplace. According to IGD over £163 billion was spent logistics skills rather than real estate, to fulfil orders. We invest in the UK grocery market in 2012, with food and grocery in this platform to deliver an ever more compelling proposition representing 54p in every £1 of retail spending. The financial to a wider set of customers, and to drive growth through the pressures on consumers has increased the importance of creation of a virtuous cycle of investment, customer demand creating a differentiated offer which is understood and is and financial return. We take significant costs out of the A GLANCE OCADO AT attractive to customers. traditional grocery retail business model. This allows us to OVERVIEW invest in a market leading fulfilment and delivery service for our We are an online only grocery retailer. While customers have customers, and build a sustainable, profitable business for been slower to adopt online for their grocery requirements than our investors. in other general merchandise categories, online is increasingly important to grocery shoppers. Various market estimates suggest 4-5% of food and grocery sales are now made online. Faster broadband speeds, improved customer interfaces and better service provision has supported this growth. Grocery retail is dominated by the large store formats (hypermarkets, supermarkets and superstores) which account STRATEGY for over 65% of sales. Common to all formats across the sector is physical store space, with increasing space driving growth historically. PERFORMANCE WHERE WE OPERATE Ocado marketplace LEEDS Our reach and delivery area now covers GOVERNANCE over 70% of the UK population. We fulfil MANCHESTER orders from our centralised Customer Fulfilment Centres in Hatfield (“CFC1”) and Dordon, Warwickshire (“CFC2”). From these CFCs we directly deliver orders to local catchment customers, CFC 2 with the remainder of orders being COVENTRY “shipped” to spoke sites, from where local delivery takes place. FINANCIAL OXFORD Key CFC 1 ● CFC DARTFORD ● Spoke BRISTOL WHITE CITY WEYBRIDGE WIMBLEDON SOUTHAMPTON INFORMATION Ocado delivery area covers over 70% of UK population. 21718-04 26/02/2013 Proof 5 06 Ocado Group plc Annual report and accounts for the 53 weeks ended 2 December 2012 1 Highlights HIGHLIGHTS Operating highlights — Driving growth Customers ❱ Product range now exceeding 28,000 SKUs ❱ Launch of new price initiatives, including Low Price Promise ❱ Stable basket size ❱ Enhanced usability and service, including growing mobile significantly with 28% of checkouts across apps and mobile checkouts across website growing rapidly ❱ Service on-time and in-full delivery metrics 92.7% and 98.3% ❱ Active customer base2 grown to 355,000 Efficiency ❱ CFC efficiency improved to 120 UPH ❱ Service delivery efficiency improved to 151 DPV Capacity ❱ CFC1 capacity now running consistently at over 140,000 orders per week ❱ CFC2 open with first orders delivered in February 2013 ❱ Dedicated non-food warehouse operations commenced January 2013 Financial highlights — Delivering profitability ❱ Gross sales up 11.4% to £716.2 million 3 ❱ EBITDA up 20.4% to £33.5 million ❱ Operating profit of £2.6 million 3 ❱ Adjusted profit before tax of £1.3 million ❱ Refinancing of credit facility to July 2015 completed ❱ Balance sheet strengthened with equity capital raising in November 2012 1 References to performance in these highlights pages are stated on a 52 week basis to 25 November 2012, unless otherwise specified. 2 For the 53 weeks ended 2 December 2012. 3 Adjusted to exclude exceptional items. 21718-04 26/02/2013 Proof 5 Stock code: OCDO www.ocadogroup.com 07 HIGHLIGHTS 2 ACTIVE CUSTOMERS AVERAGE BASKET SIZE OVERVIEW £114 £112 355,000 £112.13 £112 355,000 298,000 262,000 2010 2011 2012 2010 2011 2012 STRATEGY CFC EFFICIENCY SERVICE DELIVERY 121 120 151 120 UPH 151 DPV 145 111 133 PERFORMANCE 2010 2011 2012 2010 2011 2012 GOVERNANCE GROSS SALES EBITDA £716m £716m £33.5m £33.5m £643m £27.9m £551m FINANCIAL £22.0m 2010 2011 2012 2010 2011 2012 INFORMATION 21718-04 26/02/2013 Proof 5 08 Ocado Group plcplc AnnualAnnual reportreport andand accountsaccounts forfor thethe 5353 weeksweeks endedended 22 DecemberDecember 20122012 Strategy Contents 10 Chief Executive