Uniquely Positioned for Consumer Channel Shift Ocado Group plc Annual Report for the 52 weeks ended 1 December 2013 www.ocadogroup.com Stock Code: OCDO 22965.04 10 March 2014 3:21 PM Proof 3 Welcome Welcome to Ocado, the world’s largest dedicated online grocery retailer. We have developed and operate a unique business model which positions us strongly as more consumers choose to shop online. Our focus is on improving our customers’ shopping experience, with the clear objectives of driving strong growth and delivering long- term shareholder value. ONLINE results13.ocadogroup.com OCADO EXPLAINED ocadogroup.com Contents Strategic Report Welcome Overview Our business and strategy Performance Page 04 Page 14 Page 26 02 Chairman’s letter 06 Ocado at a glance 16 Operating model 28 Chief Executive Officer’s Review 03 Highlights 08 The opportunity: channel shift 18 Strategic objectives 32 Operating review: Driving growth 10 Marketplace 19 Driving growth: Connecting with 33 Case study: Fetch customers online 12 Ten reasons to invest 34 Operating review: Maximising 22 Maximising efficiency: Unique efficiency fulfilment capabilities to operate 35 Case study: Dordon CFC at the lowest possible cost 36 Operating review: Utilising 23 Utilising knowledge: Technology knowledge leadership 37 Case study: Morrisons 24 Utilising knowledge: Morrisons 38 Key Performance Indicators 40 Chief Financial Officer’s Review 44 Our Risks 48 Corporate Social Responsibility Report Front Cover These icons illustrate the change in how customers shop and the format of grocery retail operations. More information about the changing trends and channel shift can be found on pages 8-9. 22965.04 10 March 2014 3:21 PM Proof 3 Ocado Group plc Annual Report for the 52 weeks ended 1 December 2013 01 Strategic Report : Welcome Governance Directors’ Report Our Financials Shareholder Information Page 52 Page 106 Page 114 Page 170 54 Board of Directors 108 Directors’ Report 116 Independent Auditor’s Report 172 Glossary (Group) 56 Chairman’s Governance 174 Five year summary Introduction 119 Consolidated Income Statement IBC Financial calendar 57 Statement of Corporate 120 Consolidated Statement of IBC Company information Governance Comprehensive Income 66 Audit Committee Report 121 Consolidated Balance Sheet 70 Nomination Committee Report 122 Consolidated Statement of Cash Flows 72 Directors’ Remuneration Report 123 Consolidated Statement of Changes in Equity 124 Notes to the Consolidated Financial Statements 159 Independent Auditor’s Report 161 Company Balance Sheet 162 Company Statement Cash Flows 163 Company Statement of Changes in Equity 164 Notes to the Company Financial Statements 22965.04 10 March 2014 3:21 PM Proof 3 02 www.ocadogroup.com Stock Code: OCDO Chairman’s Letter Dear Shareholder, Customers and suppliers On behalf of the Board, may I present Ocado Group It was an exciting year for the Group and its plc’s Annual Report and Accounts for the 52 weeks suppliers, with the expansion into non-food, ended 1 December 2013. significant growth of our product range by about 6,000 products including continued increase in the A transformational year Ocado own-label range. This range growth provides I have assumed the role of Chairman in what has opportunities for more suppliers and greater choice been a truly transformational year for the Group. The for our customers. Our continued rapid growth expansion of our offer into the non-food sector took suggests that our focus on improving our offer to a leap forward in January 2013 with the opening customers through broader product range, better of a dedicated Non-Food Distribution Centre and pricing initiatives, enhanced online usability and again in June, with the launch of an online pet store, maintaining the reliability of our service, is meeting a “I have assumed Fetch. February saw the completion and opening of growing group of customers’ expectations. our second Customer Fulfilment Centre at Dordon, the role of Warwickshire (“CFC2”). The initial phase of this Corporate governance project, ultimately costing over £230 million, was One of the Board’s responsibilities is ensuring that Chairman in what delivered on time and on budget, and will eventually the Group applies good corporate governance to increase capacity by around 180,000 orders per facilitate effective management of the Company. has been a truly week. This increase in potential capacity was As the Company’s new Chairman I am pleased to instrumental in securing another milestone event, note that the Group is fostering an environment of transformational the signing of the agreement with Wm Morrison innovation and progress in a framework of strong Supermarkets plc (“Morrisons”) to provide the governance and risk management. A detailed technology and logistics for their online grocery statement on corporate governance can be found on year for the Group.” offering. The deal is part of the Group’s wider pages 56 to 65. strategy to commercialise our industry-leading know- how and intellectual property through agreements The Ocado family with strategic customers in the UK and worldwide. Our success this year would not have been possible Further detail on the Morrisons transaction can be without the passion and commitment of our found on pages 24 and 25 and in the case study on outstanding employees. On behalf of the Board, I page 37. would like to thank all members of the Ocado family for their contribution in making this an outstanding Strong financial and operational year for the Group. performance and balance sheet I am very proud to report that during the last year I am also pleased to report the Group’s strong Ocado has created over 1,000 new jobs in the UK, financial performance. The rate of sales growth through the opening and expansion of CFC2 and increased year-on-year and EBITDA increased Non-Food Distribution Centre in Welwyn Garden City 35.1% to £45.8 million for the period (2012: (“NFDC”), the significant growth of our head office 1 £33.9 million) . Operational efficiency levels in Hatfield, and growth at all nine of our spoke sites continued to improve over the financial year as the in England. At the end of the period we employed utilisation of CFC2 increased. over 6,700 people in the UK. The Group’s financial position improved markedly Looking to the future following the sale to and lease back from Morrisons of the land and buildings at CFC2 With the first orders under the Morrisons deal and a 50% interest in the related mechanical being fulfilled in January this year, the Group has handling equipment, allowing the full repayment of entered the next phase of its development. Looking approximately £85 million of outstanding debt and to the future, the Group intends to make greater creating a significant cash reserve. investment in the innovation and development of its intellectual property and technology. The Board Despite making a loss before tax for the period remains committed to finding further strategic of £(12.5) million (2012: 53 week basis: loss of customers, monetising our intellectual property and £(0.6) million) our shareholders have recognised Notes to supporting and overseeing the executive team in 1 the Company’s overall improved performance and Financial performance compared to 52 driving growth and the creation of further long-term weeks in 2012. position, given that total shareholder returns for shareholder value in our business. 2 Total shareholder return is the increase in the the Company increased by more than 450% over Company’s share price in the 12 months up the past 12 months2. Further detail on the Group’s Sir Stuart Rose to 4 March 2014 (being the last practical date financial position and performance can be found in prior to publication of this Annual Report). Chairman the Chief Financial Officer’s Review on pages 40 The Company did not pay any dividends in Ocado Group plc to 43. that period. 22965.04 10 March 2014 3:21 PM Proof 3 Ocado Group plc Annual Report for the 52 weeks ended 1 December 2013 03 Strategic Report : Welcome Chairman’s Letter Highlights1 STRATEGIC AND ON TIME OR EARLY AVERAGE BASKET SIZE OPERATIONAL % £ HIGHLIGHTS 92.3 92.7 95.2 112 112 114 ❱ Landmark agreement signed with Morrisons to provide technology and operating services, with Morrisons.com launched in January 2014 ❱ Industry leading service levels improved further with on time deliveries 95.2% and order accuracy 99.0% ❱ Range extended to 34,000 SKUs 2011 2012 2013 2011 2012 2013 ❱ Active customers increased to over 385,000 CFC EFFICIENCY (CFC1) ❱ Average baskets increased to £113.53 SERVICE DELIVERY ❱ Improved Hatfield CFC (“CFC1”) productivity to UPH DPV 135 160 135 units per hour (“UPH”) 152 121 145 ❱ Delivery performance improved to 160 111 deliveries per van per week (“DPV”) ❱ CFC2 opened on time and on budget, generating over 60,000 orders per week (“OPW”) by the end of the period 2011 2012 2013 2011 2012 2013 Our business PAGE 14 Ourand strategy Performance GROSS SALES (GROUP) GROSS SALES (RETAIL) £m £m 853 843 FINANCIAL HIGHLIGHTS 719 719 643 643 ❱ Gross sales (Group) up 18.6% to £852.5m ❱ Gross sales (Retail) up 17.2% to £843.0m ❱ Revenue up 18.8% to £792.1m ❱ EBITDA up 35.1% to £45.8m ❱ Loss before tax and exceptional items of £5.1m (2012: profit of £1.8m) 2011 2012 2013 2011 2012 2013 ❱ Balance sheet transformed following sale and leaseback of CFC2 real estate and equipment EBITDA NET ASSETS with net assets of £202.4m £m £m 45.8 205.70 202.40 172.90 34.0 27.9 2011 2012 2013 2011 2012 2013 Notes ¹ 2012 was a 53 week accounting period. 2012 comparable figures based on 52 weeks to OurPerformance Performance PAGE 26 2 December 2012.