Ocado Group plc
Prospectus
Ocado Group plc, Titan Court, 3 Bishops Square, Hatfield Business Park, Hatfield, Herts AL10 9NE
Ocado prospectuscoverfinal.indd 1
Prospectus
Ocado Group plc
02/07/2010 09:32
A copy of this document, which comprises a prospectus relating to Ordinary Shares prepared in accordance with the Prospectus
Rules made under section 73A of FSMA, has been approved by the Financial Services Authority in accordance with section 87A of
FSMA and made available to the public as required by section 3.2 of the Prospectus Rules.
The Directors, whose names appear on page 32 of this Prospectus, and the Company accept responsibility for the information
contained in this Prospectus. To the best of the knowledge of the Directors and the Company (who have taken all reasonable care
to ensure that such is the case) such information is in accordance with the facts and this Prospectus does not omit anything likely to
affect the import of such information.
Application will be made to the UK Listing Authority for all of the Ordinary Shares (including the 32,476,700 Ordinary Shares held
by the EBT Trustee) to be admitted to the premium listing segment of the Official List and to the London Stock Exchange for the
Ordinary Shares to be admitted to trading on the London Stock Exchange’s market for listed securities (‘‘Admission’’), which
together will constitute official listing on a stock exchange under the Listing Rules. No application has been made or is currently
intended to be made for the Ordinary Shares to be admitted to listing or dealt on any other exchange. Conditional dealings in the
Ordinary Shares (on a ‘‘when issued’’ basis) are expected to commence on 21 July 2010. It is expected that Admission will become
effective and that unconditional dealings in the Ordinary Shares will commence at 8.00 a.m. (London time) on 26 July 2010
(International Security Identification Number: GB00B3MBS747). Dealings on the London Stock Exchange before Admission will
only be settled if Admission takes place. All dealings before the commencement of unconditional dealings will be of no
effect if Admission does not take place and such dealings will be at the sole risk of the parties concerned.
Applicants who purchase or subscribe for Ordinary Shares should note that dealings in the Ordinary Shares will commence prior to
their Share Account Statements being made available online. Applicants who purchase or subscribe for Ordinary Shares and who
deal prior to their Share Account Statements being made available online, do so at the risk of selling Ordinary Shares for which
they will not have received an allocation. Share Account Statements will be made available online to successful applicants by
4 August 2010.
Prospective investors should read the whole of this document, including the discussion of certain risks and other factors
that should be considered in connection with an investment in the Ordinary Shares as set out in the Risk Factors section.
Prospective investors should be aware that an investment in the Company involves a degree of risk and that, if certain of the risks
described in the Prospectus occur, investors may find their investment materially adversely affected. Accordingly, an investment in
the Ordinary Shares is only suitable for investors who are particularly knowledgeable in investment matters and who are able to
bear the loss of the whole or part of their investment.
15JUN201018262606
OCADO GROUP PLC
(incorporated and registered in England and Wales under the Companies Act 2006, registered number 7098618)
Offers of up to 257,666,236 Ordinary Shares of 2 pence each at a price expected to be
between 200p and 275p per Ordinary Share and admission to the premium listing segment of
the Official List and to trading on the London Stock Exchange
Joint Sponsor, Joint Global
Co-ordinator and Joint Bookrunner
Joint Sponsor, Joint Global
Co-ordinator and Joint Bookrunner
Joint Sponsor, Joint Global
Co-ordinator and Joint Bookrunner
Goldman Sachs International
J.P. Morgan Cazenove
UBS Investment Bank
Co-Bookrunner
Co-Bookrunner
Barclays Capital
HSBC Bank plc
Co-Lead Manager
Co-Lead Manager
Co-Lead Manager
Jefferies International Limited
Lloyds TSB Corporate Markets
Numis Securities Limited
EXPECTED ORDINARY SHARE CAPITAL IMMEDIATELY FOLLOWING ADMISSION
(ASSUMING THE OFFER PRICE IS SET AT THE BOTTOM OF THE PRICE RANGE)
Up to
(number)
546,129,814
Up to
(number)
513,653,114
Issued and fully paid
Ordinary Shares of 2 pence each
Issued and fully paid and excluding 32,476,700 Ordinary Shares held by the EBT Trustee
Ordinary Shares of 2 pence each
Up to
(amount)
£10,922,596
Up to
(amount)
£10,273,062
This document does not constitute an offer of, or the solicitation of an offer to buy or to subscribe for, Ordinary Shares to
any person in any jurisdiction to whom or in which jurisdiction such offer or solicitation is unlawful and, in particular, is
not for distribution in Australia, Canada or Japan. The offer, sale and/or issue of the Ordinary Shares has not been and
will not be registered under the US Securities Act of 1933, as amended (the ‘‘US Securities Act’’) or qualified for sale
under the laws of any state of the United States or under any applicable securities laws of Australia, Canada or Japan.
Subject to certain exceptions, the Ordinary Shares may not be offered, sold or delivered within Australia, Canada, Japan
or the United States or to, or for the benefit of, any national, resident or citizen of Australia, Canada or Japan. The
Ordinary Shares are being offered and sold within the United States only to ‘‘qualified institutional buyers’’ (‘‘QIBs’’) (as
defined in Rule 144A under the US Securities Act (‘‘Rule 144A’’)) and in reliance on Rule 144A or another exemption from,
or in a transaction not subject to, the registration requirements of the US Securities Act and outside the United States in
reliance on Regulation S under the US Securities Act (‘‘Regulation S’’).
The Price Range is indicative only, it may change during the course of the Offers and the Offer Price may be set within, above or
below the Price Range. A number of factors will be considered in determining the Offer Price and basis of allocation, including the
level and nature of demand for Offer Shares during the book building process, prevailing market conditions and the objective of
establishing an orderly after-market in the Ordinary Shares. If the Price Range does change during the course of the Offers the
Company would not envisage making an announcement until determination of the Offer Price, unless required to do so by law or
regulation. The Company expects to announce the Offer Price and publish the Pricing Statement on or about 21 July 2010. Further
details of how the Offer Price is to be determined are contained in Part IX (Information about the Offers).
The number of Ordinary Shares to be made available by the Selling Shareholders pursuant to the Offers is indicative only. Although
that number of Ordinary Shares cannot be increased it can decrease, including, in theory, to nil. The selling indications of Major
Selling Shareholders described in this document are non-binding. That means that although a Major Selling Shareholder may not
sell any more Existing Shares pursuant to the Offers than he or it has indicated he or it may sell, he or it may decide, at his or its
absolute discretion, to sell fewer or none at all. The Company has established a facility through which Minor Selling Shareholders
may sell some or all of their Existing Shares pursuant to the Offers. As at the date of this document, the Company does not know
with certainty whether any such persons will sell any or all such Existing Shares pursuant to the Offers, however, the Company has
received non-binding indications from Minor Selling Shareholders holding 28,861,700 Existing Shares, in aggregate, that they do
not intend to sell any Existing Shares pursuant to the Offers. The Company has also established a facility through which Selling
Optionholders may sell, pursuant to the Offers, some or all of the New Ordinary Shares which will be issued to them if they exercise
their exercisable options or warrants prior to Admission. Subject to the Offer Price being not less than £1.90, Ranelagh Nominees
Limited has irrevocably committed to exercise certain warrants held by it provided that it may sell the resulting 5,611,200 New
Ordinary Shares issued to it or its nominee pursuant to the Offers. As at the date of this document, the Company does not know
whether any other such persons will exercise any or all of their exercisable options, or, if they do so, whether such persons will sell,
pursuant to the Offers, any or all of the New Ordinary Shares issued as a result.
The Ordinary Shares to be made available pursuant to the Offers will, on Admission, rank pari passu in all respects with all other
Ordinary Shares, including for all dividends and other distributions declared, made or paid on the Ordinary Shares after Admission.
The distribution of this document and the offer, sale and/or issue of Ordinary Shares in certain jurisdictions may be restricted by law.
No action has been or will be taken by the Company, the Directors, or the Joint Global Co-ordinators, the Co-Bookrunners or the
Co-Lead Managers to permit a public offer of Ordinary Shares or possession or distribution of this document (or any other offering or
publicity material or application form relating to the Ordinary Shares) in any jurisdiction, other than in the United Kingdom. Persons
into whose possession this document comes are required by the Company, the Directors, the Joint Global Co-ordinators, the CoBookrunners or the Co-Lead Managers to inform themselves about and to observe any such restrictions. This document does not
constitute or form part of an offer to sell, or the solicitation of an offer to buy, Ordinary Shares to any person in any jurisdiction to
whom or in which such offer or solicitation is unlawful.
NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED STATES
The Ordinary Shares offered pursuant to the Offers have not been and will not be registered under the US Securities Act, and may
not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the
US Securities Act and in compliance with any applicable state securities laws. Prospective investors are hereby notified that sales of
Ordinary Shares may be made in reliance on an exemption from the provisions of Section 5 of the US Securities Act. The
Underwriters, through their respective selling agents, may arrange for the Offers and resale of the Ordinary Shares in the United
States only to persons reasonably believed to be QIBs in reliance on Rule 144A or another exemption from, or in a transaction not
subject to, the registration requirements of the US Securities Act and in offshore transactions outside the United States in reliance
on Regulation S. Any offer or sale of shares in reliance on Rule 144A will be made by broker-dealers who are registered as such
under the US Securities Exchange Act of 1934, as amended (the ‘‘US Exchange Act’’). For a description of these and certain further
restrictions on the offer, sale and transfer of the Ordinary Shares and distribution of this document, see section 28 of Part XIII
(Additional Information). Please note that by receiving this document, purchasers shall be deemed to have made certain
representations, acknowledgements and agreements set out herein including, without limitation, those set out in section 28.2 of
Part XIII (Additional Information).
THE ORDINARY SHARES OFFERED BY THIS DOCUMENT HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE US
SECURITIES AND EXCHANGE COMMISSION (THE ‘‘SEC’’), ANY STATE SECURITIES COMMISSION IN THE UNITED
STATES OR ANY OTHER US REGULATORY AUTHORITY, NOR HAVE SUCH AUTHORITIES PASSED UPON OR
ENDORSED THE MERITS OF THE OFFERING OF ORDINARY SHARES OR THE ACCURACY OR ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES.
NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENCE HAS BEEN FILED UNDER
CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (‘‘RSA 421-B’’) WITH THE STATE OF NEW HAMPSHIRE
NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE THAT ANY
DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE
FACT THAT ANY EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE
SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR
QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL, TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS
UNLAWFUL TO MAKE OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT, ANY
REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
AVAILABLE INFORMATION FOR INVESTORS IN THE UNITED STATES
Neither the Company nor any of its subsidiaries is required to file periodic reports under Section 13 or Section 15(d) of the US
Exchange Act. For so long as any Ordinary Shares are ‘‘restricted securities’’ within the meaning of Rule 144(a)(3) of the US
2
Securities Act, the Company will, during any period in which it is neither subject to Section 13 or 15(d) of the US Exchange Act nor
exempt from reporting pursuant to Rule 12g3-2(b) of the US Exchange Act, provide, upon written request, to holders of Ordinary
Shares, any owner of any beneficial interest in Ordinary Shares or to any prospective purchaser designated by such holder or
owner, the information required to be delivered pursuant to Rule 144A(d)(4) under the US Securities Act.
This document is being furnished by the Company in connection with an offering exempt from the registration requirements of the
US Securities Act, solely for the purpose of enabling a prospective investor to consider the subscription for or acquisition of Ordinary
Shares described herein. The information contained in this document has been provided by the Company and other sources
identified herein or therein. This document is being furnished on a confidential basis only to persons reasonably believed to be QIBs
in the United States. Any reproduction or distribution of this document, in whole or in part, in the United States and any disclosure of
their contents or use of any information herein or therein in the United States for any purpose, other than in considering an
investment by the recipient in the Ordinary Shares offered hereby or thereby, is prohibited. Each potential investor in the Ordinary
Shares, by accepting delivery of this document agrees to the foregoing.
DEFINED TERMS
Certain terms used in this document are defined in the ‘‘Definitions’’ section of this document.
The date of this document is 6 July 2010.
3
CONTENTS
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS . . . . . . . . .
32
EXPECTED TIMETABLE FOR THE OFFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34
OFFER STATISTICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35
PART I
INFORMATION ABOUT THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36
PART II
DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62
PART III
SELECTED HISTORICAL FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . .
64
PART IV
OPERATING AND FINANCIAL REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69
PART V
HISTORICAL FINANCIAL INFORMATION RELATING TO THE GROUP . . . . . . .
99
PART VI
UNAUDITED PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . .
158
PART VII
UNAUDITED INTERIM FINANCIAL INFORMATION RELATING TO THE GROUP
FOR THE 24 WEEKS ENDED 16 MAY 2010 . . . . . . . . . . . . . . . . . . . . . . . . . .
161
PART VIII
CAPITALISATION AND INDEBTEDNESS STATEMENT . . . . . . . . . . . . . . . . . . .
177
PART IX
INFORMATION ABOUT THE OFFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
178
PART X
TERMS AND CONDITIONS OF THE CUSTOMER AND EMPLOYEE OFFER . . .
187
PART XI
TERMS AND CONDITIONS OF THE OCADO SHARE ACCOUNT . . . . . . . . . . .
195
PART XII
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
214
PART XIII
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
220
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
275
4
SUMMARY
THE FOLLOWING INFORMATION SHOULD BE READ AS AN INTRODUCTION TO THIS
PROSPECTUS
Any decision as to whether to invest in Ordinary Shares should be based on consideration of this
document as a whole. Where a claim relating to the information contained in this document is brought
before a court, you might, under the national legislation of the European Economic Area member states,
have to bear the costs of translating the Prospectus before the legal proceedings are initiated. Civil
liability attaches to the Directors and the Company, who are responsible for this summary, but only if the
summary is misleading, inaccurate or inconsistent when read together with the other parts of this
document.
Unless stated otherwise, all financial information quoted in this summary has been audited save that none
of the financial information in this summary relating to the Group for P1-3 2009, P1-6 2009 or P1-6 2010
has been audited, nor has any financial information not relating to the Group (unless indicated otherwise).
Certain figures contained in this summary, including financial information, have been subject to rounding
adjustments. Accordingly, in certain instances (i) the sum or percentage change of such numbers may not
conform exactly with the total figure given; and (ii) the sum of the numbers in a column or a row in certain
tables may not conform exactly with the total figure given for that column or row.
1.
Information about the Company
1.1 Overview
Ocado is the only dedicated online supermarket in the UK and the largest dedicated online supermarket
by turnover in the world. Ocado:
•
provides a market leading customer offering;
•
offers delivery of grocery products to customers centrally picked from a single, state-of-the-art, highly
automated warehouse (the customer fulfilment centre or ‘‘CFC’’);
•
sells more than 20,000 different products, the vast majority of which are sourced through Waitrose, a
leading high quality UK supermarket. Approximately 4,300 of the products sold by Ocado are
Waitrose own-label products. Ocado’s product range includes a small but expanding range of Ocado
own-label products;
•
generated gross sales of £427 million in FYE 2009 and has delivered significant year-on-year growth
in gross sales since it started trading. Ocado’s gross sales have grown at a CAGR of 21 per cent.
between FYE 2007 and FYE 2009. Ocado’s gross sales in P1-6 2010 were £246 million (unaudited),
an increase of 30 per cent. from P1-6 2009;
•
has achieved positive and growing EBITDA since FYE 2008 and generated £9.2 million of EBITDA in
FYE 2009 and £8.0 million of EBITDA in P1-6 2010 (unaudited). The Directors believe that Ocado
has greater EBITDA margin potential than its store-based competitors; and
•
is well placed, the Directors believe, to benefit from the growing demand for ordering groceries
online.
2.
Strengths of the Ocado Business
2.1 Significant market opportunity
The UK grocery market is by far the largest of the UK retail segments, yet the Directors believe it has the
lowest online penetration of all the core UK consumer markets and online penetration is expected to grow
rapidly. The Directors believe that Ocado is well placed to take advantage of this growth, and to increase
its share of the UK online grocery market from its current estimated 14 per cent. market share.
2.2 Unique, attractive business model with structural advantages over traditional grocery
retailers
Ocado is the only UK online supermarket that provides all of its services from a dedicated warehouse, the
CFC. Ocado’s competitors’ supply chains operate through a network of regional distribution centres
which deliver produce to their stores, where the majority of online orders are then picked for customers.
5
Summary
The Directors believe that Ocado’s aggregation of scale, removal of a layer of the supply chain and
automation of the CFC provide clear service and cost benefits to the Business and its customers. The
customer benefits include greater availability, a wider range of products and improved freshness.
The cost benefits include the elimination of store staff costs, store property costs and regional distribution
centres costs as well as lower utility costs and reduced wastage.
2.3 Superior customer offer in online food retailing driving market share
Ocado prides itself on having developed and sustained a market-leading customer offering in online
grocery retailing, as shown by the consumer and industry awards it has received to date and continues to
receive. Ocado focuses on the following areas in achieving these high levels of satisfaction:
•
•
Product offering
•
Range: Ocado offers an extensive product range of more than 20,000 products.
•
Quality and freshness: Ocado is the only UK online grocer to state use-by dates for the majority
of its fresh produce on the Website and guarantees to match or better them.
•
Environmental credentials: Ocado prides itself on the environmental efficiency with which the
Business is run as recognised by the awards it has won such as Green Retailer of the Year 2009
at the Grocer Gold Awards.
Price
•
•
Ocado aims to price competitively in order to provide customers with value for money.
Customer service
•
Website: The Website is designed to be attractive and helpful for customers and includes
features such as displaying product use-by dates and nutritional information, generating instant
orders, prompting customers to see if they have forgotten to add items to their orders (based on
past orders), recommending items to customers and providing recipe suggestions.
•
Accuracy and Availability: Ocado’s availability system ensured that in FYE 2009 (and P1-3
2010), approximately 99 per cent. of items ordered were delivered as ordered.
•
Delivery service: Ocado strives to deliver to customers exactly what they have ordered, at the
time they have requested.
2.4 Proprietary intellectual property has created significant barriers to entry
Ocado’s current IT systems are predominantly bespoke (there often being no suitable alternatives
available commercially) and most have been developed in-house by Ocado’s IT team. Much of the
machinery employed in the CFC is also bespoke. Ocado’s proprietary intellectual property is integral to
the functionality of all aspects of its operations and, the Directors believe, has had a direct and positive
impact on the Business.
2.5 Strong track record of growth delivered by entrepreneurial Executive Directors
Ocado has generated strong revenue growth delivered by its experienced, stable team of entrepreneurial
Directors. Gross sales have consistently increased year on year, growing from £291 million in FYE 2007
to £427 million in FYE 2009, a CAGR of 21 per cent. Ocado’s consistent gross sales growth combined
with the operational leverage in the Business’s cost base has led to Ocado achieving significant
improvement in EBITDA.
2.6 Considerable operational leverage with margin potential
The Directors believe that Ocado can achieve higher sales volumes and that further increases in sales
should improve the EBITDA margin of the Business given the economies of scale within the CFC and
delivery structure. In addition, the Directors have identified opportunities to increase further the efficiency
and effectiveness of the CFC and delivery operations, without compromising Ocado’s customer offering
or its value proposition. In particular, these efficiencies are expected to be achieved through increased
6
Summary
CFC labour productivity as a result of an enhanced technology mix and increased automation, and
increased delivery productivity as a result of more efficient allocation of driver resources and optimised
delivery route planning. The Directors believe that as a result of these opportunities and efficiencies
Ocado can achieve a higher EBITDA margin than a typical store-based competitor.
2.7 Significant opportunity for continued expansion
Ocado’s business model presents it with growth opportunities outside its core business. These include
the possibility of further expansion into non-grocery products such as baby products, health and beauty
and kitchenware and replicating the Group’s business model overseas.
3.
Ocado’s strategy
Ocado intends to continue with the areas of strategic focus that have delivered strong revenue growth
and improving EBITDA margin to date, and investigate additional adjacent growth opportunities by:
•
Improving the customer offering continually through maintaining and improving the customer
experience; increasing its core product range; and continuing to offer value for money to customers.
•
Improving cost efficiency through continued innovation to maximise profitability without
compromising Ocado’s customer offering or value for money proposition.
•
Expanding CFC capacity (including building the second CFC) and the Spoke network.
•
Exploring further growth opportunities by, where appropriate, extending the product range further
into non-grocery products and exploring other opportunities including the possibility of replicating the
business model overseas.
4.
Information about the Offers
The Offers comprise:
•
the Institutional Offer to institutional investors in the UK, the United States, the EU and elsewhere;
and
•
the Customer and Employee Offer to Eligible Customers and Eligible Employees.
The Customer and Employee Offer will comprise approximately 15 per cent. of the total number of
Ordinary Shares comprised in the Offers, although the Company reserves the right to adjust the size
depending on demand.
The Ordinary Shares which are the subject of the Offers comprise:
•
approximately £205 million of New Ordinary Shares to be issued by the Company, raising primary
proceeds net of fees and expenses (but including cash received on the exercise of options and
warrants) of £200 million. If the Offer Price is set at the mid-point in the Price Range, this will result in
the issue of approximately 86,273,616 New Ordinary Shares pursuant to the Offers and up to a
further 10,134,074 New Ordinary Shares to Selling Optionholders pursuant to the exercise of options
or warrants; and
•
up to 155,216,316 Ordinary Shares that may be sold by the Selling Shareholders pursuant to the
Offers. This figure is based on the maximum number of Ordinary Shares that each Major Selling
Shareholder has indicated he or it may sell, the Minor Selling Shareholders potentially selling all of
their Ordinary Shares and the maximum number of Ordinary Shares which Selling Optionholders
may sell.
If, the Company is not able to agree pricing or if it is unable to raise net proceeds of £200 million,
Admission will not occur. The Underwriting and Selling Shareholders’ Agreements are conditional on
Admission.
The selling indications of Major Selling Shareholders are non-binding. That means that although a Major
Selling Shareholder may not sell any more Ordinary Shares pursuant to the Offers than he or it has
indicated, he or it may decide, at his or its absolute discretion, to sell fewer or none. The Company has
provided a facility through which Minor Selling Shareholders and Selling Optionholders may sell some or
7
Summary
all of their Ordinary Shares pursuant to the Offers. As at the date of this document, the Company does not
know with certainty whether any such persons will sell any or all such Ordinary Shares. However, the
Company has received non-binding indications from Minor Selling Shareholders holding
28,861,700 Ordinary Shares, in aggregate, that they do not intend to sell any Ordinary Shares pursuant to
the Offers.
The JGCs will solicit bids from prospective institutional investors to acquire Ordinary Shares in the
Institutional Offer.
The Company is offering Eligible Customers and Eligible Employees the opportunity to subscribe for or
purchase Ordinary Shares in the Customer and Employee Offer at the Offer Price.
5.
Reasons for the Offers and use of proceeds and other resources
The Directors believe that the Offers and Admission will assist in positioning the Company for its next
stage of development. The Company expects to receive primary proceeds net of fees and expenses (but
including cash received from the exercise of options and warrants) of £200 million from the issue of New
Ordinary Shares at the Offer Price pursuant to the Offers and from the issue of New Ordinary Shares to
Selling Optionholders. All of the funds received from the issue of New Ordinary Shares will initially be held
on deposit, with approximately £45 million expected to be used within six months of Admission to repay
some of the Group’s existing debt.
On Admission, the Company will have total credit facilities (including the New Facility) of approximately
£197 million, excluding the expected repayments of approximately £45 million. This includes £177 million
of committed credit facilities, of which the £100 million of debt funding available under the New Facility will
be undrawn and available for investment, and approximately £20 million of undrawn credit lines available
for asset financing.
In the medium term, the balance of the net proceeds of the Offers of approximately £155 million received
by the Company, together with the undrawn debt facilities and credit lines of approximately £120 million
and the cash flow generated by its operations will be used:
•
to invest approximately £80 million in the existing CFC in order to increase effective capacity from
approximately 105,000 to approximately 180,000 orders per week;
•
to develop existing Spokes and to invest between £2 million and £10 million per year in the medium
term to establish new ones;
•
to purchase a site and fund the estimated total construction cost and related fit-out and machinery
spend of approximately £210 million to build the second CFC (costed at a sterling : euro exchange
rate of £1 = e1.10). If required, the Company believes that it will be able to procure additional funding
for completion of the construction and fit-out of the second CFC through additional finance leases
and other forms of debt; and
•
for general corporate purposes.
6.
Summary of financial information
Summary consolidated income statement
FYE 2007
FYE 2008
£ million
£ million
£ million
P1-3 2009
(unaudited)
£ million
Revenue . . . . . . . . . . . . . . . . . .
272.9
321.3
402.0
84.6
110.2
Gross profit . . . . . . . . . . . . . . .
88.0
102.8
122.8
25.7
33.3
Operating profit/(loss) before
administrative expenses . . . .
(4.9)
3.5
15.1
1.6
6.2
Operating loss . . . . . . . . . . . . .
(30.1)
(21.6)
(14.4)
(4.6)
(1.9)
Loss before tax . . . . . . . . . . . . .
(40.2)
(33.3)
(25.5)
(7.2)
(4.0)
8
FYE 2009
P1-3 2010
£ million
Summary
In P1-6 2010, revenue was £230.3 million (P1-6 2009: £178.3 million) and gross profit was £70.7 million
(P1-6 2009: £54.6 million). Operating loss in P1-6 2010 was £(2.7) million (P1-6 2009: £(7.4) million).
Ocado has not made any corporation tax payments to date, reflecting the losses it has incurred. Ocado
had approximately £270 million of unutilised carried forward tax losses as at the end of FYE 2009 which
may be carried forward against future profits.
As at 16 May 2010, Ocado had net debt of approximately £110.2 million comprising £54.6 million of
borrowings, £65.6 million of finance leases and £10.0 million of cash and cash equivalents.
Other operating information
The table below sets out Ocado’s gross sales and EBITDA for P1-3 2010, P1-3 2009, FYE 2009, FYE
2008 and FYE 2007.(1)
FYE 2007
FYE 2008
£ million
Gross sales(1) . . . . . . . . . . . . . . .
EBITDA(2) . . . . . . . . . . . . . . . . . .
291.4
(9.5)
FYE 2009
£ million
£ million
P1-3 2009
(unaudited)
£ million
341.0
2.2
427.3
9.2
89.6
0.5
P1-3 2010
£ million
117.2
3.4
In P1-6 2010, gross sales were £245.6 million (P1-6 2009: £189.1 million) and EBITDA was £8.0 million
(P1-6 2009: £2.8 million).
(1)
The Group defines gross sales as sales (net of returns), including charges for delivery, before deducting relevant vouchers/
offers and value added tax. Gross sales is not a measure of operating performance under IFRS-EU and an investor should not
consider it as an alternative to any other measure of performance under generally accepted accounting principles.
(2)
The Group defines EBITDA as operating profit/(loss) before amortisation expenses, impairment of property, plant and
equipment, depreciation of property, plant and equipment, net finance cost and taxation. The Directors believe that EBITDA is
useful in evaluating its operating performance because a number of companies also publish these figures as key performance
indicators. EBITDA is not a measure of operating performance in accordance with IFRS-EU. EBITDA should not be
considered a substitute for gross profit/(loss), operating profit/(loss), profit/(loss) before tax, cash flow from operating activities
or other income or cash flow statement data as determined in accordance with IFRS-EU, or as a measure of profitability or
liquidity.
The following table sets out selected operating information for the Business.
Average order size (£)(1) . . . . . . .
Average orders per week . . . . . .
CFC efficiency (units per hour)(2) .
Average deliveries per van per
week . . . . . . . . . . . . . . . . . . .
Average number of operational
staff (full time equivalent) . . . . .
Average product wastage
(per cent. of gross sales)(3) . . . .
Items delivered exactly as ordered
(per cent.)(4) . . . . . . . . . . . . . .
FYE 2007
(unaudited)
FYE 2008
(unaudited)
FYE 2009
(unaudited)
P1-3 2009
(unaudited)
P1-3 2010
(unaudited)
112.17
49,968
95
116.30
56,384
114
115.94
70,873
124
122.81
60,769
114
119.38
81,823
124
99
106
121
107
126
2,033(5)
2,730
3,151
3,119
3,610
1.15
0.78
0.57
0.64
0.65
98.59
99.11
99.41
99.35
98.76
Source: The information in the table above is derived from information extracted from management accounts and internal financial
and operating reporting systems and is unaudited.
(1)
Average retail value of goods a customer receives (including VAT and delivery charge) per order.
(2)
Measured as units dispatched from the CFC per hour worked by CFC operational personnel.
(3)
Value of products purged for having passed Ocado’s ‘‘use by’’ life guarantee and stock adjustments (net of sales to the
company shop), divided by gross sales.
(4)
Percentage of all items delivered exactly as ordered, i.e. the percentage of items neither missing nor substituted.
(5)
Excludes, for the period prior to their transfer to Ocado, staff working for a third-party logistics contractor who transferred to
Ocado in April 2007.
9
Summary
Weekly orders exceeded 100,000 for the first time in the week commencing 10 May 2010 and the average
number of weekly orders in P1-6 2010 was 88,407 (P1-6 2009: 66,132). The average order size was
£115.77 (P1-6 2009: £119.15). During the same period, CFC efficiency was 123 and average deliveries
per van per week was 131.
7.
Summary of the Risk Factors
Prospective investors should consider carefully the risks that relate to the Group, its industry and an
investment in Ordinary Shares, which could adversely affect the Group’s business, results of operations,
financial condition and prospects and the value of the Ordinary Shares, included but not limited to the
risks summarised below.
•
The online grocery industry in the UK may not sustain or improve upon current levels of demand
•
Ocado has a relatively short operating history and operates in a new and evolving market
•
Ocado has incurred substantial net losses to date and anticipates possible future losses
•
The Group’s relationship with Waitrose exposes it to a number of risks:
•
The Group relies on the Waitrose brand and Waitrose own-label products
•
The arrangements contain provisions restricting the operation of WaitroseDeliver inside the M25
which will expire in June 2011
•
The 2010 Agreement contains minimum sourcing provisions which may restrict the Group’s
growth
•
The Sourcing Agreement and Branding Arrangements could be terminated early following a
UK competitor of Waitrose acquiring control of the Group
•
The Group is dependent on the existing single CFC in Hatfield
•
The Group may fail to compete effectively with traditional online retailers of groceries
•
The Group is dependent on its Executive Directors
•
The Group may not successfully replicate its business system to new CFCs on time and within
budget
•
The Group will be reliant on the New Facility
•
The Group may need to raise substantial additional funding from 2012 and a failure to do so may
restrict its development
•
The Group relies on its Spokes
•
There are limitations on the current CFC and Spokes
•
The Group may not have adequate protection for its intellectual property rights
•
Growth may place significant demands on the Group’s infrastructure and management
•
The Group may be affected by new entrants to the online market
•
The Group may face unexpected increases in operating and other expenses
•
The Group is dependent on UK and global economic conditions
•
The Group may face online security breaches including hacking and vandalism
•
The number of Ordinary Shares to be made available by the Selling Shareholders pursuant to the
Offers is indicative only
•
The price of the Ordinary Shares may fluctuate
•
The Company does not expect that dividends will be declared or paid in the foreseeable future
10
RISK FACTORS
In addition to all other information set out in this document, investors should carefully consider the risk
factors below. If any of the following risks were to materialise, the business, financial condition and future
prospects of the Group could be materially and adversely affected. In such circumstances, the price of the
Ordinary Shares could decline and investors could lose all or part of their investment.
If investors are in any doubt about the action they should take, they should consult a professional adviser
authorised under the FSMA if they are in the United Kingdom or, if not, another appropriately authorised
independent financial adviser.
The risks and uncertainties described below represent those known to the Directors at the date of this
document which the Directors consider to be material. However, these risks and uncertainties do not
necessarily comprise all of those associated with an investment in the Company and are not set out in any
order of priority. Additional risks and uncertainties currently unknown to the Directors and/or the Group, or
which the Directors and/or the Group currently believe are immaterial, may also have a material adverse
effect on its business, financial condition or future prospects or the trading price of the Ordinary Shares.
1.
Risks relating to the Group
1.1 The online grocery industry in the UK may not sustain or improve upon current levels of
demand and customer acceptance in line with the expectations of the Group
The Business has no physical locations at which customers can purchase goods. It relies solely on orders
received through the Website and, more recently, Ocado On the Go (an application for iPhones, iPads
and Android smart phones) for sales. Although the Directors expect the online grocery market to continue
to grow, the online grocery industry in the UK is nevertheless relatively new and rapidly evolving. It is still
uncertain whether the Business will sustain and improve on current levels of demand and customer
acceptance. The Group’s success will depend to a substantial extent on the willingness of consumers to
increase their use of online services as a method of buying groceries and other products and services. If
the online grocery industry in the UK does not improve upon current levels of demand and customer
acceptance does not increase in line with the expectations of the Directors, then this would have an
adverse effect on the Group’s business strategy, results of operations, financial condition and future
prospects.
1.2 Ocado has a relatively short operating history and operates in a new and evolving market
Ocado began commercial operations in 2000. The Group has a comparatively short operating history
which makes an evaluation of the Group’s business and prospects difficult. In addition, the UK online
grocery industry is new and rapidly evolving. The Group’s business and prospects must, therefore, be
considered in light of the risks and difficulties the Group encounters operating in the relatively new and
evolving online grocery industry. These risks and difficulties include:
•
difficulties in managing rapid growth in personnel and operations;
•
a complex business system unproven at the expected maximum capacity of the CFC;
•
lack of profitability to date; and
•
high capital expenditures associated with expanding the capacity of the Business particularly in
building and fitting-out the second CFC.
The Group cannot be certain that its business strategy will be successful or that it will successfully
address these risks. The Group’s failure to address any of the risks described above could have an
adverse effect on the Business.
In particular, Ocado has experienced significant revenue growth in recent periods. Such growth rates may
not be sustainable and may decrease in the future. In view of the rapidly evolving nature of the Business
and Ocado’s rate of growth in prior years, the Directors believe that period-to-period comparisons of its
operating results, including the Group’s EBITDA margin and cost of sales as a percentage of revenue, are
not necessarily meaningful and should not be relied upon as an indication of future performance.
11
Risk Factors
1.3 Ocado has incurred substantial net losses since inception to date and anticipates possible
future losses
Ocado has incurred substantial net losses since inception in 2000 which aggregated to approximately
£341 million (Group: £347 million) at the end of P1-3 2010. To date, Ocado has been financed by capital
contributions from its investors and debt financing. Ocado has not achieved a profit on its ordinary
activities before taxation in any financial year, and may continue to make losses on its ordinary activities
before taxation in the future while it pursues the Group’s growth strategy. The Group will continue to incur
significant capital and operating expenses in coming years in connection with its planned expansion.
Over the next few years such expenses will include investment in the existing CFC to increase
operational efficiency and capacity, the construction and related fit-out of the second CFC (assuming that
the Business grows at the rate the Directors expect it to and, to the extent necessary, appropriate
financing is obtained) at an estimated cost of approximately £210 million (costed at a sterling : euro
exchange rate of £1 = e1.10), to develop existing Spokes and establish new ones, together with brand
development and marketing activities, increases in personnel at the existing and proposed future CFC
and its head office and continued development of the Group’s IT systems (including the warehouse
management and order fulfilment systems) and delivery infrastructure. In order to become profitable, the
Business will need to increase its sales or reduce costs and expenses as a proportion of such sales.
There is no certainty that the Company will be able to achieve efficiency targets and reduce such costs
and expenses as a proportion of sales.
1.4 The Group’s relationship with Waitrose exposes it to a number of risks
Details of the arrangements under which Waitrose sources and supplies products for the Group are set
out in section 7.4 of Part I (Information about the Company) and section 17.1 of Part XIII (Additional
Information).
The Group relies on the Waitrose brand and Waitrose own-label products
Ocado’s reputation as a supplier of high quality products is based, at least in part, on its relationship with
Waitrose and its ability to supply Waitrose own-label products. If, for any reason, Waitrose ceased to
supply the Group with such products during the term of the Sourcing Agreement or the Sourcing
Agreement or Branding Arrangements were to terminate or expire, or if Waitrose were to suffer
reputational damage which impacted on the Waitrose brand, there could be an adverse effect on the
Group’s financial condition and future prospects.
In FYE 2009 46 per cent. of Ocado’s product sales constituted sales of Waitrose own-label products.
Ocado is precluded from selling the own-label products of any UK competitor of Waitrose for the duration
of the Sourcing Agreement. If the Sourcing Agreement were to end and Ocado wished to replace the
Waitrose own-label products in its range it would need to find or create a replacement range of own-label
products. Ocado currently stocks approximately 70 Ocado own-label products, and is in the process of
extending this range, but there is nevertheless no assurance that it will be able independently to develop a
sufficient Ocado own-label range or be able to obtain an alternative own-label range from another
supermarket or supplier.
Such a failure to develop a sufficient Ocado own-label range or to offer an alternative own-label range
could adversely affect the Group’s financial condition and future prospects.
The 2008 Agreement and the 2010 Agreement contain various exclusivity provisions which bind
Waitrose. These provisions will be progressively relaxed from 1 January 2011 and expire at the end of
June 2011, and in any event the Group is likely to face ongoing or increased competition from Waitrose’s
internet delivery arm WaitroseDeliver
Waitrose’s own online grocery business, WaitroseDeliver, competes directly with Ocado. The 2008
Agreement and the 2010 Agreement currently include certain exclusivity provisions which limit the extent
to which the WaitroseDeliver service may compete with the Group in the Greater London area (the area
bounded by the M25 motorway). Approximately 50 per cent. of Ocado’s gross sales in FYE 2009 were
derived from the area bounded by the M25.
If Waitrose expands the WaitroseDeliver service both within and outside the M25, there could be an
adverse impact on the ability of the Business to win new and retain existing customers.
12
Risk Factors
The success or otherwise of WaitroseDeliver may affect the willingness of Waitrose to extend or renew
the Sourcing Agreement and Branding Arrangements beyond their scheduled expiry. Moreover, such
success or otherwise may result in Waitrose being less willing to cooperate under the Sourcing
Agreement because it may consider that to do so will compromise its own business. While Waitrose
would remain subject to contractual obligations under the Sourcing Agreement, the failure of the Group’s
key supplier to cooperate fully in its relationship with the Group could have an adverse effect on the
Group’s financial condition and future operations.
The 2010 Agreement contains minimum sourcing provisions which may restrict the Group’s growth
The 2010 Agreement contains provisions which restrict the extent to which Ocado can source products
other than from Waitrose, and the extent to which Ocado’s range of Ocado own-label products may be
expanded. While the Directors do not believe that these restrictions will have a significant impact on the
growth of the Business or their intended expansion of the range of products stocked by Ocado, to the
extent that, in this respect, the Business develops in a way other than the Directors currently expect, the
minimum sourcing restrictions may have an adverse effect on the Group’s financial position
and prospects.
The Sourcing Agreement and Branding Arrangements could be terminated early by John Lewis following
a change of control of the Group after Admission (and in certain other circumstances)
The 2010 Agreement allows any of the parties to terminate the Sourcing Agreement and Branding
Arrangements by giving three months’ notice if certain competitors of Waitrose or John Lewis gain control
of the Ocado Board or acquire 50 per cent. or more of the issued share capital of the Company.
Following Admission, the Company will have no control over the acquisition and disposal of the Ordinary
Shares. Accordingly, a relevant competitor of Waitrose or John Lewis could acquire 50 per cent. or more
of the issued share capital of the Company, which could result in the early termination of the Sourcing
Agreement and Branding Arrangements by John Lewis or Waitrose. Following termination in these
circumstances, Ocado is obliged to pay Waitrose £40 million.
If Waitrose fails to source products for the Group, the Group may be unable to replace the Waitrose
Sourcing Agreement and Branding Arrangements on acceptable terms or at all
Under the Sourcing Agreement Waitrose negotiates terms of supply (primarily product specification and
cost prices) with various suppliers on behalf of both itself and Ocado. If the arrangements with Waitrose
come to an end, Ocado will have to agree new terms (for example, as to branding of products) with
existing suppliers or find appropriate suppliers itself, as well as negotiate prices itself. This will require it to
engage a substantial number of additional personnel in, at a minimum, its retail and buying teams and its
food technology team. While certain suppliers will continue to supply Ocado without Waitrose as an
intermediary, there can be no assurance that a sufficient number will agree to do so nor that Ocado will be
able to find an adequate number of alternative suppliers. In addition, Ocado may not be able to obtain
prices that are equivalent to the prices obtained by Waitrose.
Currently, approximately 15 per cent. by volume of the goods that Ocado sells were delivered to it via the
Waitrose logistics infrastructure. This is provided for in the Sourcing Agreement. The balance of products
are delivered directly to the CFC by the relevant supplier or manufacturer. If the Sourcing Agreement
were to end, or if Waitrose were unable or unwilling to source products for the Group during the course of
the current term of the Sourcing Agreement (if, for example, there were a failure in Waitrose’s logistical
infrastructure), the Group would have no immediately available infrastructure for sourcing directly those
products sourced via the Waitrose infrastructure.
Any disruption to the Waitrose supply system may disrupt the availability of the Group’s products to its
customers. This has happened infrequently in the past; for example the H5N1 bird flu epidemic in 2008
had little effect on the Group, doing little more than disrupting Waitrose’s supply of organic turkeys.
Nevertheless, it remains a risk to which the Group is exposed. Although the Sourcing Agreement provides
that on the occurrence of a failure in the Waitrose supply system those goods that are available must be
apportioned between Waitrose and Ocado pro rata to their ‘‘good faith requirements’’, there can be no
guarantee that any such supply will be sufficient to meet Ocado’s requirements or that such supply will
occur in a timely manner, on acceptable terms or at all.
13
Risk Factors
Therefore, any failure of Waitrose to supply goods to the Group could cause a temporary or, in the case of
certain products, permanent, inability for the Group to stock and sell those goods, which could have an
adverse effect on the Group’s financial condition, results of operations and future prospects.
The Sourcing Agreement may not be renewed following its ultimate expiry
The Sourcing Agreement will expire on 1 September 2020, although it may be terminated from 1 March
2017 onwards by either party giving the other requisite notice. Although the Group would have
considerable notice of Waitrose’s intention to cease sourcing products for it in these circumstances, and
would have the opportunity to develop its own relationships with suppliers (which to some extent it has
done already), the termination or the expiry of the Sourcing Agreement would, at the very least, result in
the Group ceasing to be able to supply Waitrose own-label products which, for the reasons described
above, could have an adverse effect on the Group’s financial condition and future prospects.
Even if the Sourcing Agreement were renewed or extended so that it did not expire on 1 September 2020,
the Group may not be able to agree terms with Waitrose which are as favourable to it as the terms on
which the current arrangements were concluded. Any deterioration in the terms on which the Group and
Waitrose contract could have an adverse effect on the Group’s financial condition and future prospects.
1.5 The Group’s Business currently depends entirely on a single CFC in Hatfield
The Business currently operates from a single CFC which is located in Hatfield (in South East England). It
is therefore entirely dependent on the continued efficient operation of the existing CFC, the ability to
increase the capacity of the existing CFC in order to continue to satisfy any increase in the number of
customer orders, and the ability to maintain a high level of accuracy in fulfilling these orders. Any
disruption to the efficient operation of the existing CFC may therefore have an adverse effect on the
Group’s financial condition and future prospects.
The CFC may suffer prolonged power or equipment failures, refrigeration failures, failures in its IT
systems or networks or damage from fires, floods, other disasters or other unforeseen events which may
not be covered by or may be in excess of its insurance coverage. Damage resulting from any of these
events may take considerable time to repair. The direct effect of the events described above and a
prolonged period before rectification could have an adverse effect on the Group’s financial condition and
future prospects. Moreover, the complete destruction of the CFC through a single catastrophic event
would have an adverse impact on the operation of the Business and the Group’s financial condition and
prospects for a significant period of time.
As described in more detail in section 7.5 of Part I (Information about the Company), a higher number of
orders are placed to arrive on Mondays, Fridays and Saturdays than on other days. In order to keep
effective capacity of the CFC as high as possible, steps are taken to ‘‘smooth’’ the delivery profile across
the week, such as offering cheaper (or free) deliveries at certain times. If the steps taken to prevent the
daily spikes in delivery numbers cease to have the effect on customer buying habits that the Directors
currently believe they do, the effective capacity of the CFC would be reduced, which would have a
material adverse effect on the Group’s financial condition and future prospects.
1.6 The Group is dependent on its Executive Directors
The future success of the Group is, to an extent, dependent upon the specialist skills of its Executive
Directors. The unexpected departure or loss of any of its Executive Directors could have an adverse
effect on the financial condition and results of operations of the Group, and there can be no assurance
that the Group will be able to attract or retain suitable replacements for such Executive Directors.
1.7 The Group may fail to compete effectively with traditional and online retailers of grocery
products
The Group competes primarily with traditional grocery retailers and with other online grocers. Its main
online competitors are Tesco.com, Sainsburys.co.uk, ASDA.com and WaitroseDeliver, each of whom
currently has financial resources substantially greater than those of the Group. The traditional grocery
retailers may also have brands that are more widely recognised by grocery shoppers throughout the UK
than the Ocado brand. The relative size and established nature of the Group’s competitors could mean
that the Business may lose its current market share if the online grocery market becomes increasingly
14
Risk Factors
important to the grocery industry and its competitors invest heavily in their online operations. In addition,
further operating losses may put the Group at a competitive disadvantage in what is a comparatively new
and evolving market.
The principal competitive factors that currently affect the Business are availability and breadth of product
range, geographic reach, product quality, order accuracy, service, price, promotional activities and
customer loyalty to traditional and other online grocery retailers. If the Group fails to compete effectively in
any one of these areas it may lose existing customers and fail to attract new customers, which may have
an adverse effect on the Group’s financial condition and future prospects.
1.8 The Group may not successfully replicate its business systems to new CFCs on time and
within budget
A critical part of the Group’s business strategy is to expand its operations by building at least one
additional CFC in the UK in the medium term to increase the capacity of the Business to service
customers.
The Group is yet to acquire a site for the second CFC and, even if the Group grows at the rate that the
Directors expect, the Group will not begin operating the second CFC until the end of 2012 at the earliest
(assuming that construction begins in the first quarter of 2011 and, to the extent necessary, appropriate
financing is obtained). Moreover, if the Group grows at a slower rate than the Directors expect, the Group
may not commence operating the second CFC until later, if at all.
While the Directors are confident that the business systems of the existing CFC can be replicated in the
second CFC (and in any further CFCs in the future), the Group’s ability to replicate its business model in
new CFCs generally (and the second CFC in particular), cost-effectively and in a timely fashion will
depend upon a variety of factors. These include:
•
fluctuations in the cost of particular commodities (in particular, steel) required to build a CFC and the
currency (principally euro) in which plant and machinery for a CFC would be purchased;
•
the availability of appropriate and affordable sites that can accommodate a CFC, which in turn
depends on a combination of physical and geographical factors;
•
the Group’s ability to obtain necessary planning consents;
•
the Group’s ability successfully and cost-effectively to hire and train employees to operate any new
CFC;
•
the Group’s ability to roll out the business systems in any new CFC;
•
finding suitable, reliable and trustworthy developers;
•
the availability of appropriate material handling equipment and the contractors to design and install
such equipment; and
•
management resources.
Significant overruns of the predicted budget of building and fitting-out the second CFC might make such
building and fit-out economically unviable. If the replication strategy fails, Ocado could be forced to delay
expansion.
If the Group successfully builds the second CFC, there is no guarantee that it or any other additional
CFCs will achieve a sufficient level of operational efficiency, market penetration or customer orders to
ensure that such CFC will become commercially viable. If the replication of the Group’s business systems
fails for any reason, or is more expensive or slower than planned, then this may have an adverse effect on
the Group’s financial condition and future prospects.
1.9 The Group will be reliant on the New Facility
The funds to be borrowed by the Group under the New Facility will be substantially relied upon by the
Group to fund its planned development of the Business in the medium term. The New Facility may be
terminated by the lenders in circumstances customary for such a facility. The New Facility may also be
terminated by the lenders if the Branding Arrangements and Sourcing Agreement with Waitrose and John
15
Risk Factors
Lewis are terminated for any reason or if notice of termination is served. However, with the exception of
the change of control termination right described in paragraph 1.4 above (which is customary for an
agreement of that type), the Company is in control of whether any such termination rights will arise.
In the unlikely event that the New Facility is terminated, the Group may not be able to obtain equivalent
financing on similar terms or at all. Termination of the New Facility may, therefore, adversely affect the
financial condition and future prospects of the Group.
1.10 The Group may need to raise substantial additional funding from 2012 and a failure to do so
may restrict its development
The Group’s growth and profitability from 2012 may depend on its ability to access funding for further
development. The Group’s funding requirements and ability to raise funding will depend on numerous
factors, including its profitability, cash generation and levels of investment and its ability to maintain and
expand its penetration of the markets in which it operates. The Group’s ability to raise funding will also be
dependent on the general availability of credit. The Group will continue to incur significant capital and
operating expenses in coming years in connection with its planned expansion. These expenses include:
•
costs of additional expansion (including plant and machinery) to increase capacity at the existing
CFC;
•
land acquisition costs for new CFCs and Spokes and the related site preparation and external works
costs;
•
all of the costs associated with developing new CFCs and Spokes, such as professional fees,
building and related fit-out costs, IT costs and the costs of plant and machinery;
•
increased vehicle costs as the delivery fleet is expanded; and
•
increased staff costs as the staff headcount grows to meet the demands of the expanded Business.
The Group’s longer term capital needs will be dependent on the actual cost of its expansion programme,
especially the second CFC and any additional CFCs the Group builds, the timing of the start of operations
at additional CFCs and their success. The Group may need to raise capital in addition to that currently
anticipated to fund its expansion. Any such required additional funding may not be available to the Group
on favourable terms when required, or at all.
If the Group is unable to obtain sufficient capital when needed, the Group may be forced to alter its
business strategy, or delay or abandon some or all of its planned expansion. Any of these events would
have an adverse effect on the Group’s development, growth, financial condition and prospects.
Furthermore, any additional equity fundraising in the capital markets may be dilutive for Shareholders and
additional debt-based funding may bind the Group to restrictive covenants and curb its operating activities
and ability to pay potential future dividends even when profitable.
1.11 The Group may suffer from exchange rate fluctuations
A significant amount of the machinery used at the CFC is sourced from suppliers located in countries that
have adopted the euro, and most of the competing suppliers that the Group has investigated are also in
countries that have adopted the euro. The Directors expect to contract with these suppliers for the supply
of machinery to develop the second CFC and expand the capacity of the current CFC. These suppliers
will generally be paid either in euro or at a spot sterling rate for euro, while the Group’s revenues are in
sterling. The total construction costs of the second CFC are currently estimated at approximately
£210 million. This figure was costed at a sterling : euro exchange rate of £1 = e1.10. Any depreciation of
sterling in relation to the euro will increase the sterling equivalent of the price paid for such imports and
may have an impact on the Group’s financial condition and future prospects.
1.12 The Group relies on its Spoke sites
The Group relies on Spoke sites to deliver orders to customers that cannot be efficiently fulfilled directly
from the existing CFC in Hatfield. Spokes are able, to some extent, to serve geographies of neighbouring
Spokes provided they have the vans available to do so; however, they are unlikely to be able to deliver to
these geographies as economically as they can deliver to their own. Therefore, any disruption to the
efficient operation of a Spoke may affect the ability of the Business to deliver products to certain
customers, or to do so economically, which may have an adverse effect on the Group’s financial condition
and future prospects.
16
Risk Factors
In addition, a Spoke may suffer prolonged power or equipment failures, refrigeration failures, or damage
from fires, floods, other natural disasters or other unforeseen events which may not be covered by
insurance coverage. Damage resulting from any of these events may also take considerable time to
repair.
A number of Spokes are leased by Ocado (as opposed to owned). Ocado could breach the terms of such
leases inadvertently through the day-to-day operation of the Business. Any breach of the terms of the
leases on which they are held could result, if not waived or deemed waived by the relevant landlord, in the
early termination of the lease.
The prolonged shutdown of a Spoke or the early termination of a lease on which a Spoke is held could
have an adverse effect on the Group’s financial condition and future prospects.
The Group is reliant on developing new Spokes in order to increase the breadth and depth of the
Business’ penetration. Developing new Spokes is considerably less complicated than developing new
CFCs. However, to the extent the Group is unable to develop new Spokes, for example, if it is unable to
find suitable sites in which to locate them, the Group’s expansion will be adversely affected.
1.13 There are limitations on the current CFC and Spokes
The current CFC and Spokes can together only provide Ocado’s service to approximately 66 per cent. of
UK households. Increasing the geographic reach of the Business would require the Group to establish
more Spokes and there is a limit to the number of additional Spokes that can be efficiently served from the
existing CFC.
The Directors believe that, with further capital investment, the existing CFC’s effective capacity could be
increased to approximately 180,000 orders per week from approximately 105,000 orders per week that it
is currently capable of processing. The second CFC is required to increase the capacity at which the
Business operates as well as to limit, in part, the effect of any catastrophic failure at the current CFC.
Failure to expand the capacity of the existing CFC or to develop new CFCs and Spokes may adversely
affect the future prospects and financial condition of the Group, in particular if customer demand for the
Group’s services is greater than the Group’s capacity to process such demand.
Without further capital expenditure, either to increase the capacity of existing Spokes or to develop new
ones, the Business will not be able to grow beyond a certain size, which may adversely affect the Group’s
financial position and future prospects.
1.14 The Business may not be able to deliver products to its customers
The Business is subject to the risks associated with its ability to provide delivery services. In particular, the
Business is entirely reliant on deliveries by road: from suppliers to the CFC, from the CFC to the Spokes
and from the Spokes or the CFC to customers. In addition the Business relies on the ability of employees
to be able to get to their place of work, either at the CFC or the Spokes. This leaves the Business exposed
to traffic congestion, road works, congestion charging and inclement weather, particularly snow, all of
which could render deliveries difficult or even impossible. For example, the unusually snowy periods in
December 2009 and January 2010 caused some deliveries during that period to be delayed, and some to
be cancelled.
The Business is also subject to regulations governing the number of hours that drivers can work on
consecutive days, and as a result, the Business may not have enough drivers available to work during
periods of very high demand or adverse weather conditions.
Regulations also govern the weight limits of the loads each van can take. For instance, other than the
electric van currently in testing, all of the Ocado delivery vans are limited to a loaded weight of 3.5 tonnes.
This affects the operational efficiency of the Group’s delivery infrastructure and any changes to these
regulations may have a negative effect on its financial prospects; further changes to the regulatory regime
may increase this adverse effect.
17
Risk Factors
1.15 The Group may be unable to develop and reinforce consumer trust in the Ocado brand, or
may attract negative publicity
Maintaining the reputation of, and value associated with, the Ocado brand is of central importance to the
success of the Group. Brand identity is a critical factor in retaining existing and attracting new customers.
Promotion and enhancement of the Ocado brand is expected to depend on Ocado’s success in providing
a high quality customer experience for buying groceries and other products. Brand loyalty will be
especially important if the Group’s branding arrangements with Waitrose end and/or competition from
Waitrose increases. Furthermore, the importance of brand loyalty may increase as new online grocery
retailers join the market.
From time to time the Group has received complaints about advertising campaigns it has run, including
complaints from the Advertising Standards Authority (the ‘‘ASA’’). For example, it was unsuccessful in
defending a complaint brought by the ASA regarding the advertising of its Tesco Price Match policy, and it
is currently providing information to the ASA regarding statements made regarding the Group’s
environmental credentials. A successful complaint against one of the Group’s advertising campaigns
could generate negative publicity or result in a cost to the Business were it required to change any of its
advertising.
Unfavourable publicity concerning the Group or the industry sector could damage the Group’s brand and
if future branding efforts are not successful, the Group’s sales and ability to attract customers will be
unfavourably impacted, which may have an adverse effect on the Group’s financial condition and future
prospects.
1.16 The Group is subject to payments-related risks
The Group accepts payments using credit, debit and John Lewis’s account cards. If the Group offers new
payment options to customers, it may be subject to additional regulations and compliance requirements
and may be increasingly exposed to fraud (although fraud is not currently a significant concern). The
Group pays interchange and other fees for these card payments, which may increase over time and raise
operating costs and lower margins. The Group relies on third parties to provide payment processing
services, and it could disrupt the Group’s operations if these companies become unwilling or unable to
provide these services. The Group is also subject to payment card association operating rules,
certification requirements, Payment Card Industry Data Security Standards (‘‘PCI-DSS’’) and rules
governing electronic funds transfers, which could change or be reinterpreted to make them difficult or
impossible to comply with. If the Group fails to comply with these rules or requirements, it may be subject
to fines and/or higher transactions fees and in extreme cases may lose its ability to accept credit, debit or
John Lewis’s account card payments from customers, process electronic funds transfers or facilitate
other types of online payments.
As part of its merchant obligations Ocado submitted a level 2 self assessment under the PCI-DSS in April
2009. Ocado did not fully comply with this standard and it is in the process of implementing a remediation
plan to ensure compliance before the end of 2010. The most significant part of that plan is to outsource
payment processing to a significant third party service provider. No guarantee can be given that such
plans to outsource payment processing will be successful or will complete on schedule. Compliance
difficulties with the PCI-DSS are common to a range of business sectors: analyst research published in
March 2010 indicated that 89 per cent. of businesses in retail, financial services and hospitality sectors
were not certified as compliant with the PCI-DSS. Non-compliance with these standards can lead to
increased customer payment processing fees or, should a security breach occur and customer data be
accessed or stolen, then Ocado could be liable for losses associated with the breach.
Any failure of the Group’s payment processing systems, whether caused by a systems failure or
otherwise, will adversely affect the Group’s income in the short term and may result in it losing customers
which may have an adverse effect on the Group’s financial condition and future prospects.
In addition, there can be no assurance that advances in computer capabilities, new discoveries in the field
of cryptography, or other events or developments will not result in a compromise or breach of the
processes used by the Group to protect customer transaction data. If any such compromise or breach
were to occur, it could have an adverse effect on the Group’s reputation, business, future prospects,
financial condition and results of operations.
18
Risk Factors
1.17 The Group may not have adequate protection for its intellectual property rights
The business and IT systems operating in the CFC and other key proprietary intellectual property are not
protected by patents or registered design rights which means that the Group cannot preclude or inhibit
competitors from entering the same market if they develop the same or similar technology independently.
The Group is therefore particularly reliant on copyright, trade secret protection and confidentiality and
license agreements with its employees, customers, suppliers, consultants and others to protect its
intellectual property rights. Although the Group has taken steps consistent with industry practice to
reduce these risks, such steps may be inadequate.
In addition, third parties may independently discover Ocado’s trade secrets and proprietary information or
systems, and, in such cases, Ocado may not be able to rely on any intellectual property rights to prevent
the use of such trade secrets, information or systems by such parties. Costly and time-consuming
litigation could be necessary to determine and enforce the scope of Ocado’s proprietary rights and the
outcome of such litigation could not be guaranteed. Failure to prevent the use of such secrets, information
or systems by such third parties could adversely affect Ocado’s competitive business position, financial
condition and future prospects.
1.18 The Group’s use of open source software may restrict its ability to exploit its proprietary
software and IT systems and exposes it to certain risks
The Group’s key proprietary software and critical IT systems incorporate significant elements of ‘‘open
source’’ software, the use of which by Ocado is subject to the terms of applicable licences. Open source
software is typically licensed for use at no initial charge on terms which allow modification and distribution
of the software by the licensee. However, licence terms may impose on the user compliance
requirements and obligations to disclose modifications Ocado has made to the software to third parties.
Ocado’s ability to realise fully the commercial benefits of any such software may be restricted because:
•
open source licences may be drafted in legally ambiguous language and may result in unanticipated
consequences or obligations regarding Ocado’s software;
•
due to the requirements to licence modified software, Ocado’s competitors or licensees may have
access to information which may help them to develop competitive products;
•
open source software is available to the public for anyone to access and utilise, including Ocado’s
competitors; and
•
it may be difficult for Ocado to identify accurately the developers of the open source code (who may
be licensors of the software) and whether the licensed software infringes third party intellectual
property rights.
Furthermore, to the extent Ocado uses open source software it faces certain more general risks which
apply to any organisation making use of such software. For example, the scope and requirements of the
most common open source software licence, the GNU General Public Licence (‘‘GPL’’) have not been
interpreted in a court of law. Use of GPL software could subject certain portions of Ocado’s proprietary
software to GPL requirements, including an obligation on Ocado to disclose that software to third parties
and to permit them to use the software free of charge. Finally, open source licences typically present
onerous compliance risks, and failure to observe these may result in litigation or the loss of the right to use
the software which may have an adverse effect on the Group’s financial condition and future prospects.
Ocado is not aware that it has breached any of these compliance requirements nor has any third party
claimed that software owned by Ocado should be made available on an open source basis.
Any of the risks or restrictions relating to open source software mentioned above could have an adverse
impact on the Group’s financial condition and future prospects.
1.19 The Group’s IT systems depend on each other and a failure in one may disrupt the efficiency
and functioning of the Group’s operations
The Group’s business model relies on the complex integration of the Website (through which all customer
orders (other than those placed via the Ocado on the Go applications) are placed), the highly automated
CFC and goods handling equipment and the order fulfilment and delivery operations. The Business is
therefore reliant on numerous systems to manage the entire process from the receipt and processing of
19
Risk Factors
goods at the CFC to the picking, packing and delivery of these goods to customers in one-hour delivery
slots. The different IT systems are dependent on each other to be able to complete their processes.
Therefore, a failure of any of the core IT systems may result in failures of other IT systems as well, which
in turn could result in customer orders being unable to be captured on the Website or processed through
the CFC.
The Group relies to a significant degree on the efficient and uninterrupted operation of its computer and
communications systems and those of third parties, including the internet. Customer access to the
Website and the speed with which a customer navigates and makes purchases on the Website affects the
sales of the Group and the attractiveness of its services. Any failure of the internet generally or any failure
of current or new computer and communication systems could impair the value of orders, the processing
and storage of data and the day-to-day management of the Group’s business. While the Group does have
normal disaster recovery and business continuity contingency plans, no assurance can be given that, if a
serious disaster affecting the Business, systems or operations occurred such plans would be sufficient to
enable the Group to recommence trading without loss of business.
Furthermore, the Group has, from time to time, experienced operational ‘‘bugs’’ in its systems and
technologies which have resulted in order errors such as missing items and delays in deliveries. The
Group expects operational bugs to continue to occur from time to time due to a combination of one or
more of the following: electro-mechanical equipment failures, computer server or system failures,
network outages, software performance problems or power failures.
The efficient operation of the Group’s business systems and IT is critical to attracting and retaining
customers. If the Group is unable to meet customer demand or service expectations due to one or more of
the aforementioned issues arising, a deterioration in the Group’s financial condition and future prospects
may occur.
1.20 The Group may not keep pace with new technological developments
The Group’s success depends in part upon its ability to store, retrieve, process and manage substantial
amounts of information. To achieve its strategic objectives and remain competitive, the Group must
continue to develop and enhance its information systems. This may require the acquisition of equipment
and software and the development, either internally or through independent consultants, of new
proprietary software. No assurance can be given that the Group will be able to continue to design,
develop, implement or utilise, in a cost-effective manner, information systems that provide the capabilities
necessary for the Group to compete effectively. Any failure to adapt to technological developments could
mean that the Group fails to capture what may become an increasingly important part of the online
grocery market and this may have an adverse effect on the Group’s financial condition and future
prospects.
1.21 The Group is dependent on relations with other third party suppliers
In addition to its relationship with Waitrose, the Group is dependent on relations with third party suppliers,
landlords and distributors.
Ocado is also dependent upon the manufacturers, suppliers and maintenance providers of its machinery,
including the machinery used within the CFC, its Spokes and its delivery vehicles. A reduction in
availability or level of service offered by these providers could restrict the ability of the Group to conduct its
business and thereby adversely impact its financial condition and future prospects.
For example, Ocado has formed a long term relationship with Mercedes and Paneltex for the
manufacture and customisation of its vans. Although Ocado would be able to source customised vans
elsewhere if either Mercedes or Paneltex ceased to be able to supply it, the end of the relationship with
either could adversely affect the Group’s operations or financial condition while a new solution was being
found, and there could be no guarantee that any new solution would be as satisfactory as the existing
arrangements.
1.22 Growth may place significant demands on the Group’s management and infrastructure
The growth of the Business to date, and its future growth (in particular through the development of the
second CFC), has placed and is expected to continue to place significant demands on the Group’s
20
Risk Factors
management and its operational and financial infrastructure. As the Group’s operations grow further, it
will need to continue to improve and upgrade its systems and infrastructure. This expansion will require
the Group to commit substantial financial, operational and technical resources in advance of an increase
in the size of the Business, with no assurance that the volume of business will increase.
Continued growth could also strain the Group’s ability to maintain reliable service levels for its customers,
develop and improve its operational, financial and management controls, enhance its reporting systems
and procedures and recruit, train and retain employees.
Managing growth will require significant expenditure and allocation of management resources, as well as
an expansion in headcount. If the Group fails to achieve the necessary level of efficiency as it grows, there
could be an adverse effect on the Business and its operating results and financial condition.
Ocado’s business systems may be unable to accommodate a significant increase in the number of
customers or orders as the existing CFC or any new CFC begin to operate at or near capacity. If Ocado is
unable to accommodate a substantial increase in customer orders, its growth strategy may be adversely
affected.
1.23 Any expansion by the Group through joint ventures or other collaborative activities may not
be successful
The Group may expand through joint ventures and other collaborative activities with third parties.
Participation in joint projects contains an inherent risk in their management and it can be difficult to
guarantee the achievement of joint goals. Similarly, cooperating in this way with third parties may require
the Group to rely on its partners to help achieve its aims and maintain the Group’s reputation.
Joint ventures, including the difficulties involved in integrating companies, businesses or assets, may
divert financial and management resources from the Group’s core business, which could have an
adverse effect on the Group’s financial condition and future prospects.
1.24 Any expansion by the Group through merger and acquisition activity may be unsuccessful
The Group may expand through mergers and acquisitions. In identifying potential merger and acquisition
targets, the Group would make every effort to ensure appropriate due diligence is carried out, but
acquisitions would necessarily leave the Group exposed, at least to some degree, to any operational
failings of the target company and potentially to overpaying for any such target. Any payment for such
target company with Ordinary Shares could dilute the interests of Shareholders.
Merger and acquisition activity, including the difficulties involved in integrating companies, businesses or
assets, may divert financial and management resources from the Group’s core business, which could
have an adverse effect on the Group’s financial condition and future prospects. In addition, there can
never be a guarantee that mergers or acquisitions will successfully achieve their aims.
1.25 The Group is reliant on its staff
The Group is reliant on its staff for the management, operation, creation, maintenance, repair and
upgrading of its business, operations and systems. The Group’s ability to recruit or adequately replace,
retain and motivate suitably qualified and experienced staff is important for the Group’s ongoing success.
An inability to recruit and retain sufficient personnel of the right calibre or the incurring of significant costs
in order to do so may have an adverse effect on the Group’s financial condition and future prospects.
The Business has had good relations with its workforce to date and a works council has recently been
established with a remit to discuss, amongst other things, the terms and conditions of employment for the
workforce. This may further improve the relationship between the Group and its workforce but could also
lead to disputes between the workforce and management and even strike action. This may be
exacerbated by the workforce, which is not currently unionised, becoming unionised. The Company is
currently in negotiations with Usdaw over its request for recognition as the trade union for all
non-managerial Ocado employees at the CFC. The Group is aware of other trade unions having
informally approached its employees at some of its Spoke sites, although has received no direct
communications from them.
21
Risk Factors
Any significant disagreements between the Group and its employees could have an adverse effect on the
Group’s financial condition and future prospects.
1.26 The Group’s entry into new business areas may not be successful
The Group may choose to expand its operations by offering different services to existing and new
customers, promoting new or complementary products or sales formats, expanding the breadth of
products offered or expanding its market presence through relationships with third parties (either in the
UK or overseas).
The Group may not be able to do this in a cost-effective or timely manner. Furthermore, any new business
or website launched by the Group that is not favourably received by consumers could damage the
Group’s reputation or brand.
Such expansion of the Group’s operations would also be likely to require significant additional investment,
together with operations and resources, which would strain the Group’s management, financial and
operational resources. The lack of market acceptance of such efforts or the Group’s inability to generate
satisfactory revenues from such expanded services or products to offset their costs could have an
adverse effect on the Group’s financial condition and future prospects.
1.27 The Group may suffer if taxation rates or law change
Changes in taxation rates or law, or misinterpretation of the law or any failure to manage tax risks
adequately could result in increased charges, financial loss, including penalties, and reputational
damage, which may have an adverse effect on the Group’s financial condition and future prospects.
Various products sold by the Group, including, in particular, alcohol and tobacco, are subject to varying
types of taxes including VAT and duty. The level of these taxes and duties can be changed by the
government at very short notice. A material change in the level of taxes and duties levied on these
products could have a significant adverse effect on the sales, profits and financial condition of the Group.
On 22 June 2010, the UK Government announced its intention to increase the standard rate of VAT from
17.5 per cent. to 20 per cent. for any supply made on or after 4 January 2011.
The Company agrees with HMRC, on an annual basis, a blended rate of VAT payable by it on its delivery
charges. Any failure to continue to make such an agreement with HMRC, or a failure to agree a rate that
meets the Group’s expectations, may have an adverse effect on the Group’s financial condition and future
prospects.
As described in more detail in section 7 of Part XIII (Additional Information) below, Ocado has granted its
wholly owned subsidiary, Ocado Information Technology Limited (which is incorporated in the Republic of
Ireland), the exclusive rights to use and sub-licence Ocado’s IT and IP to third parties for use outside the
UK. This licence was granted at what the Directors considered (based on an independent valuation) to be
a market rate and Ocado Information Technology Limited is yet to grant, and is not in discussions with any
person concerning the grant of, any such sub-licences. However, to the extent that HMRC (or any other
relevant tax authorities) do not consider that the licence was granted at a market rate, Ocado could be
subject to a tax charge. If significant, such tax charge may have an adverse impact on Ocado’s financial
condition.
1.28 Ocado has considerable carried forward tax losses which could be lost
Ocado had approximately £270 million of unutilised carried forward tax losses as at the end of FYE 2009.
Tax rules exist which prevent the use of such losses where there is a major change in the nature or
conduct of a trade carried on by a company in the three years before or after a change in ownership of the
company.
The recent reorganisation of the Group involved a change in ownership and the issue and sale of
Ordinary Shares pursuant to the Offers may constitute a change in ownership too. However, the Directors
do not consider that there has been a major change in the nature or conduct of Ocado’s trade since, or in
the three years before, the recent reorganisation.
To date Ocado has not paid corporation tax as it has not had taxable profits. The carried forward tax
losses may have a material effect on the future tax charge of Ocado by reducing the amount of tax
22
Risk Factors
payable. Therefore, if there were a major change in the nature or conduct of Ocado’s trade, there may be
an adverse impact on the future tax charge of Ocado.
2.
Risks relating to the industry
2.1 The Group may be affected by new entrants to the online grocery market
The Group may be adversely affected by the entrance of new competitors in the online grocery market. In
particular, Marks & Spencer, Morrisons, Somerfield and The Co-op have not yet entered this market. The
growth of the Business in recent years has shown that, despite grocery retail being a mature market, the
barriers to entry into the UK online grocery market are high but not insurmountable. The Group’s
competitors may also merge or form strategic partnerships, which could cause significant additional
competition for the Group. If the market becomes more competitive between similar products and
services, especially in the Group’s target areas, then the Group’s effectiveness in winning new and
retaining existing customers may be diminished, which may have an adverse effect on the Group’s
financial condition and future prospects.
2.2 The Group may face unexpected increases in operating and other expenses
The Group’s operating and other expenses could increase without a corresponding increase in revenue.
Factors which could increase operating and other expenses include unforeseen increases in:
•
interest rates affecting the cost of Ocado’s debt and equipment leases;
•
costs associated with the Company being listed;
•
rental costs;
•
business rates;
•
payroll expenses (for example, due to increases in the minimum wage or National Insurance);
•
the costs of energy;
•
food costs (and the costs of other products stocked by Ocado) which cannot be fully passed on to
customers;
•
fuel costs which will increase the costs of deliveries;
•
new vehicle costs relating to the delivery fleet;
•
property taxes and other statutory charges;
•
insurance premiums;
•
increased tax charges; and
•
the rate of general inflation,
together with changes in laws, regulations or government policies (including those relating to health and
safety, planning and environmental compliance) which increase the costs of compliance with such laws,
regulations or policies.
To the extent that such increases in operating and other expenses exceed or are not in line with increases
in the Group’s revenues, the Group’s profitability will be reduced further and any such reduction could
have an adverse effect on the Group’s financial condition and future prospects.
2.3 The Group is dependent on UK and global economic conditions
Adverse developments in the macro-economic situation, such as the on-going UK and global economic
slowdown, could adversely impact the Group’s business and operating results. The global economy has
recently been experiencing a period of significant turbulence and uncertainty. The Group’s performance
depends to a certain extent on a number of macro-economic factors outside the control of the Group
which impact on UK consumer spending, including political, financial and economic conditions. Factors
which impact on disposable consumer income and terms of trade include, among other things, gross
domestic product growth, unemployment rates, consumer confidence, social and industrial unrest, the
23
Risk Factors
availability and cost of credit, interest rates, taxation, regulatory changes, oil and utility prices and terrorist
attacks. Each of these factors could have an adverse effect on the Group’s financial condition and future
prospects.
The future and long-term impact that the UK and global financial slowdown will have on the Group is
difficult to predict. The recessionary conditions in the UK have led to a deterioration in consumer
confidence and commercial spending which could in the future reduce the level of demand for, and supply
of, the Group’s products and services. There can be no assurance as to levels of future economic growth
and further significant deterioration in the UK’s economy could have an adverse impact on the future
results of operations of the Group. Moreover, any future economic growth may be modest. The rate at
which deterioration of the global and UK economies has occurred has proven very difficult to predict and
this will apply to any further deterioration or any recovery. The exact nature of the risks faced by the Group
is difficult to predict and guard against in view of the severity of the global financial crisis and difficulties in
predicting the rate at which further economic deterioration may occur and the duration of any such
deterioration.
In addition, due to the current economic slowdown in both the UK and globally, there is an increased risk
that third parties may face financial difficulties, become insolvent and/or cease trading which may result in
disruption to the provision of products or services by them to the Group. Further, the slowdown has
severely impacted the availability of credit and the terms on which credit is available which may have the
same effect. If there is any interruption to the products or services provided by third parties, the Business
may be adversely affected and the Group may be unable to find adequate replacement products or
services acceptable to the Group or its customers on a timely basis, or at all. This could result in a loss of
customers, which may have an adverse effect on the Group’s financial condition and future prospects.
2.4 The Group may face product recalls and product liability claims
The sale of food or other products for human consumption involves the risk of injury to the Group’s
customers or others. While the Group is subject to inspection and regulations and the Directors believe
that the Group’s facilities and operations comply in all material respects with all applicable laws and
regulations, the actual or perceived sale of contaminated food or other products by the Group could result
in product recalls or product liability claims, the settlement or outcome of which could have an adverse
effect on the Group’s financial condition and future prospects.
Even if an event causing a product recall proves to be unfounded or if a product liability claim against the
Group is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that the
products supplied by the Group caused illness or injury, or any product recall, could adversely affect both
the Group’s reputation with existing and potential new customers and the Group’s corporate and brand
image. An additional risk is that the Group may incur liability for mislabelling products, even if the
mislabelled information was supplied by the product supplier. Any such event could, therefore, have an
adverse effect on the Group’s financial condition and future prospects.
2.5 The Group is required to comply with health and safety law and regulations
A violation of health and safety laws or regulations relating to the Group’s operations or a failure to comply
with the instructions of the relevant health and safety authorities could lead to, among other things,
negative publicity and reputational damage, fines, costly compliance procedures and, in extremis, a
temporary shutdown of all or part of the Business. Such violations could, therefore, have an adverse
effect on the Group’s financial condition and future prospects.
2.6 The Group may incur additional costs or delays in complying with new regulations applicable
to the sale of food products
The handling of raw food items in the CFC, such as meat and fish, is subject to strict regulations. There
are also regulations concerning the preparation and packaging of prepared meals and other food items.
Modification of existing legislation or regulation, or the introduction of new legislative or regulatory
initiatives may lead to increased compliance costs or delay the availability of a number of items and may
also affect the market for such products, the Group’s operations and the conduct of the Business.
24
Risk Factors
In addition, any inquiry or investigation from a food regulatory authority could have a negative impact on
the Group’s reputation. Any of these events may have an adverse effect on the Group’s financial
condition and future prospects.
2.7 The Group may face increased environmental costs
Environmental sustainability is likely to be of continuing importance to governments, regulators and other
interested or influential bodies. There may be changes to existing legislation or regulation or the
introduction of new legislation, regulation or government policies or practice, which could adversely affect
the Group’s operations and conduct of its business, particularly in relation to the packaging and labelling
of products, the use of energy, emission charges and the delivery of customers’ groceries in plastic bags.
If there is a change to environmental legislation there may be a decrease in demand for the Group’s
products and services, or an increase in the Group’s costs, which may adversely affect the Group’s
financial condition and future prospects.
2.8 The Group may face increased costs in relation to regulated or restricted products and the
regulation of its other activities
The sale of, and storage requirement for, certain products including tobacco, alcohol, medicines,
aerosols and razor blades is subject to extensive regulation, including in some instances the requirement
to obtain and comply with licences, restrictions on the quantity of items that can be sold at one time and
restrictions on the minimum age of customers. Further modification to existing legislation and/or
regulation or the introduction of new legislative or regulatory initiatives could have a significant adverse
effect on markets and demand for such products, the Group’s operations and the conduct of its business.
The cost and/or the effect of complying with such modified and/or new legislation or regulation may have
an adverse effect on the Group’s financial condition and future prospects.
2.9 There may be a decrease in demand for the Group’s products in the event of health concerns
and pandemics
In recent years there have been outbreaks of a number of diseases that have had the potential to spread
rapidly over very large geographic areas and/or other health-related concerns which have been, or have
been perceived to be, associated with food products (for example, Bovine Spongiform Encephalopathy
(‘‘BSE’’), ‘‘Foot and Mouth’’, ‘‘avian flu’’, ‘‘swine flu’’ and salmonella). Any outbreak of one or more of these
diseases and/or other widespread health-related food concerns could increase costs for the Group in
sourcing alternative suppliers and/or have an adverse impact on consumer preferences and spending. A
widespread outbreak of any such disease or concerns in the UK or elsewhere could have an adverse
effect on the Group’s suppliers and customers and on the economy in general, with a consequential
adverse effect on the demand for products sold by the Group, the Group’s financial condition and future
prospects.
2.10 The Group may face online security breaches including hacking and vandalism
The Group relies on encryption and authentication technology to provide the security necessary to effect
the secure transmission of information from its customers, such as credit or debit card numbers. The
Group cannot guarantee absolute protection against unauthorised attempts to access its IT systems,
including malicious third party applications that may interfere with or exploit security flaws in its products
and services. Viruses, worms and other malicious software programs could, among other things,
jeopardise the security of information stored in a user’s computer or in the Group’s computer systems or
attempt to change the internet experience of users by interfering with the Group’s ability to connect with its
users. If any compromise in the Group’s security measures were to occur and the Group’s efforts to
combat this breach are unsuccessful, the Group’s reputation may be harmed leading to an adverse effect
on the Group’s financial condition and future prospects.
The Group also processes personal data (some of which may be sensitive) as part of its business. There
is a risk that such data could become public if there were a security breach in respect of such data and, if
one were to occur, the Group could face liability under data protection laws and lose the goodwill of its
customers, which may have an adverse effect on the Group’s financial condition and future prospects.
25
Risk Factors
2.11 The Group may be affected by an increase in governmental regulation of the internet and/or
online retail
The application or modification of existing laws or regulations, or adoption of new laws and regulations
relating to the internet and online retail operations could adversely affect the manner in which the Group
currently conducts its business. The law of the internet remains largely unsettled, even in areas where
there has been some legislative action. In addition, the growth and development of the market for online
retail may lead to more stringent customer protection laws which may impose additional burdens on the
Group, all of which may have an adverse effect on the Group’s financial condition and future prospects.
3.
Risks relating to the Offers and the Ordinary Shares
3.1 A competitor of Waitrose or John Lewis acquiring 50 per cent. or more of the Ordinary Shares
could result in the termination of the Sourcing Agreement and Branding Arrangements
The 2010 Agreement allows any of the parties to it to terminate the Sourcing Agreement and Branding
Arrangements by giving three months’ notice if certain competitors of Waitrose or John Lewis acquire
50 per cent. or more of the issued share capital of the Company, in which case the Company will be
obliged to pay Waitrose £40 million. This may have an adverse effect on the value of the Ordinary Shares.
3.2 The Directors and other Major Shareholders will retain a significant interest in the Company.
Their interests may conflict with those of other Shareholders
Following Admission, the Directors and Major Shareholders and their related interests will collectively
own approximately half of the share capital of the Company (assuming the Offer Price is set at the midpoint of the Price Range). Accordingly, these Shareholders may (were they to act in concert with each
other) be in a position to exert significant influence over the outcome of matters relating to the Company,
including appointments to the Board and the approval of significant transactions, including change of
control transactions. The interests of these Shareholders may be different from the interests of the
Company or the other Shareholders. In particular, this control may have the effect of making certain
transactions more difficult without the support of the Directors and Major Shareholders and may have the
effect of delaying or preventing an acquisition or other change in control of the Company.
It is noted, however, that no one Major Shareholder currently acts in concert with any other Major
Shareholder. Full details of the Directors’ and Major Shareholders’ shareholdings are set out in sections 8
and 9.3 of Part XIII (Additional Information).
3.3 When the lock-up arrangements to which the Directors and certain Shareholders are subject,
and the undertakings to which the Company is subject, expire, more Ordinary Shares may
become available on the market
Subject to certain limited exceptions, the Directors and certain Shareholders will be prevented from
selling Ordinary Shares held by them for a period of 365 and 180 days, respectively, following Admission.
Similarly, the Company will be restricted, subject to certain limited exceptions, for six months from
Admission from issuing Ordinary Shares. On the expiry of these periods, the Company may issue
Ordinary Shares and the Directors and relevant Shareholders will be free (subject to applicable law) to
sell the Ordinary Shares held by them. The potentially increased supply of Ordinary Shares on the market
may have an adverse effect on the market price of the Ordinary Shares.
Similarly, Directors or significant Shareholders selling additional Ordinary Shares, or the Company
issuing additional Ordinary Shares, may affect the confidence of the market in the Ordinary Shares and
cause the market price of the Ordinary Shares to fall.
3.4 The number of Ordinary Shares to be made available by the Selling Shareholders pursuant to
the Offers is indicative only
The number of Ordinary Shares to be made available by the Selling Shareholders pursuant to the Offers
is indicative only. Although that number of Ordinary Shares cannot be increased it can decrease,
including, in theory, to nil. The selling indications of Major Selling Shareholders described in this
document are non-binding. That means that although a Major Selling Shareholder may not sell any more
Existing Shares pursuant to the Offers than he or it has indicated he or it may sell, he or it may decide, at
26
Risk Factors
his or its absolute discretion, to sell fewer or none at all. The Company has established a facility through
which Minor Selling Shareholders may sell some or all of their Existing Shares pursuant to the Offers. As
at the date of this document, the Company does not know with certainty whether any or all such persons
will sell any such Existing Shares pursuant to the Offers, however, the Company has received nonbinding indications from Minor Selling Shareholders holding 28,861,700 Existing Shares, in aggregate,
that they do not intend to sell any Existing Shares pursuant to the Offers. The Company has also
established a facility through which Selling Optionholders may sell, pursuant to the Offers, some or all of
the Ordinary Shares which will be issued to them if they exercise their exercisable options prior to
Admission. As at the date of this document, the Company does not know whether any such person will
exercise any or all of their exercisable options, or, if he does so, whether such person will sell, pursuant to
the Offers, any or all of the New Ordinary Shares issued as a result.
If the Major Selling Shareholders sell fewer Existing Shares than they have indicated they may do and, to
a lesser extent, the Minor Selling Shareholders and the Selling Optionholders sell fewer Existing Shares
or New Ordinary Shares (respectively) than set out in the Offer Statistics section (or, indeed, none at all),
the liquidity of the Ordinary Shares after Admission may be reduced and there may be increased selling
pressure on the Ordinary Shares, particularly after the expiry of the lock-up arrangements described in
section 10 of Part IX (Information about the Offers). This may have an adverse affect on the market value
of the Ordinary Shares.
3.5 There may be no active trading market for the Ordinary Shares
There has been no public market for the Ordinary Shares to date. After the Offers, there can be no
assurance that an active trading market for the Ordinary Shares will develop or, if developed, that it will be
maintained. Although investments in shares traded on the main market of the London Stock Exchange
are perceived to involve a lesser degree of risk and to be more liquid than investments in shares traded on
certain other exchanges, investors may have difficulty selling their Ordinary Shares.
3.6 The price of the Ordinary Shares may fluctuate
Following Admission, the trading price of the Ordinary Shares may be subject to wide fluctuations in
response to many factors, including those referred to in this section, as well as stock market fluctuations
and general economic conditions that may adversely affect the market price of the Ordinary Shares.
Publicly traded securities from time to time experience significant price and volume fluctuations that may
be unrelated to the operating performance of the companies that have issued them. In addition, the
market price of the Ordinary Shares may prove to be highly volatile. The market price of the Ordinary
Shares may fluctuate significantly in response to a number of factors, some of which are beyond the
Company’s control, including:
•
variations in operating results in the Group’s reporting periods;
•
any shortfall in revenue or net profit or any increase in losses from levels expected by market
commentators;
•
increases in capital expenditure compared to expectations;
•
failure to make efficiency improvements;
•
changes in financial estimates by securities analysts;
•
changes in market valuations of similar companies;
•
announcements by the Group of significant contract gains or losses, acquisitions, strategic alliances,
joint ventures, new initiatives, new products or new product ranges;
•
regulatory matters;
•
additions or departures of key personnel; and
•
future issues or sales of Ordinary Shares.
Any or all of these events could result in material fluctuations in the price of Ordinary Shares which could
lead to investors getting back less than they invested or a total loss of their investment.
27
Risk Factors
The Offer Price might not be indicative of prices that will prevail in the trading market and investors may
not be able to resell the Ordinary Shares at or above the price paid.
A public perception that the Company is an internet, e-commerce or technology company may result in
the price of the Ordinary Shares moving in line with other shares in companies of this nature. Traditionally,
the share prices of internet, e-commerce and technology companies have tended to be more volatile than
share prices of companies operating in other industries.
3.7 The Company does not expect that dividends will be declared or paid in the foreseeable
future
Neither Ocado nor the Company has ever declared or paid a dividend. The Business may continue to
make operating losses while it continues to make capital investments. In addition, the Company currently
intends to retain any future earnings of the Business to invest in the Business and fund its future growth.
The Directors do not, therefore, anticipate declaring or paying a dividend in the foreseeable future.
3.8 Future issues of Ordinary Shares may dilute the holdings of Shareholders
Other than the proposed offering of Ordinary Shares, the Company has no current plans for an offering of
Ordinary Shares and, as described above, will be unable to do so for a fixed period after Admission
(subject to certain limited exceptions). However, it is possible that the Company may decide to offer
additional Ordinary Shares in the future, either to raise capital or for other purposes. Subject to any
applicable statutory pre-emption rights, an additional offering may have a dilutive effect on the holdings of
Shareholders and could have an adverse effect on the market price of Ordinary Shares as a whole.
3.9 An investment in Ordinary Shares by an investor whose principal currency is not sterling may
be affected by exchange rate fluctuations
The Ordinary Shares are, and any dividends to be paid in respect of them will be, denominated in sterling.
An investment in Ordinary Shares by an investor whose principal currency is not sterling exposes the
investor to foreign currency exchange rate risk. Any depreciation of sterling in relation to such foreign
currency will reduce the value of the investment in the Ordinary Shares or any dividends in relation to
such foreign currency.
3.10 There may be an unavailability of pre-emption rights for US and other non-EU holders of
Ordinary Shares
In the case of certain increases in the Company’s share capital, existing holders of the Ordinary Shares
are generally entitled to pre-emption rights to subscribe for such shares, unless Shareholders waive such
rights by a resolution at a Shareholders’ meeting, or in certain other circumstances as stated in the Final
Articles. US and other non-EU holders of the Ordinary Shares are customarily excluded from exercising
any such pre-emption rights they may have, unless exemptions from any overseas securities law
requirements are available. The Company cannot assure prospective investors that any exemption from
such overseas securities law requirements would be available to enable US or other non-EU holders to
exercise such pre-emption rights or, if available, that the Company will utilise any such exemption.
28
STABILISATION
In connection with the Offers, the Stabilising Manager (or any of its agents), may (but will be under no obligation to), to
the extent permitted by law and for stabilisation purposes, effect transactions (on any securities market,
over-the-counter market, stock exchange or otherwise) with a view to supporting the market price of the Ordinary
Shares at a level higher than that which might otherwise prevail in the open market, including over-allotting Ordinary
Shares up to a maximum of approximately 18.1 million Ordinary Shares or 10 per cent. of the total number of Ordinary
Shares comprised in the Offers (assuming no exercise of the Over-allotment Option). The Stabilising Manager will
enter into the Stock Lending Agreement in order, amongst other things, to satisfy any such over-allotment of Ordinary
Shares.
The Stabilising Manager has entered into the Over-allotment Option with UBS Holdings Cayman Limited pursuant to
which it may purchase or nominate purchasers for Ordinary Shares (the ‘‘Over-allotment Shares’’) at the Offer Price
representing up to a maximum of approximately 18.1 million Ordinary Shares or 10 per cent. of the number of
Ordinary Shares comprised in the Offers (assuming there is no exercise of the Over-allotment Option), for the
purposes of redelivering equivalent securities under the Stock Lending Agreement, to the extent that it is unable to do
so using Ordinary Shares acquired by it for the purposes of stabilisation. The Over-allotment Option may be
exercised in whole or in part upon notice by the Stabilising Manager, at any time during the period beginning on the
commencement of conditional dealings and ending 30 days thereafter. The Over-allotment Shares made available
pursuant to the Over-allotment Option will be sold at the Offer Price on the same terms and conditions as, and will
rank pari passu with, the Ordinary Shares, including for all dividends and other distributions declared, made or paid
on the Ordinary Shares after Admission and will form a single class for all purposes with the Ordinary Shares.
In no event will measures be taken to stabilise the market price of the Ordinary Shares above the Offer Price. Save as
required by law or regulation, neither the Stabilising Manager nor any of its agents intends to disclose the extent of
any over-allotments and/or stabilisation transactions under the Offers.
THE JOINT GLOBAL CO-ORDINATORS, CO-BOOK-RUNNERS AND CO-LEAD MANAGERS
Each of Goldman Sachs International, J.P. Morgan Cazenove, Barclays Capital, HSBC Bank plc, Jefferies
International Limited, Lloyds TSB Corporate Markets and Numis Securities Limited is authorised and regulated in the
United Kingdom by the FSA, and together with UBS Limited (together the ‘‘Banks’’), are acting exclusively for the
Company and no one else in connection with the Offers and none of them will regard any other person (whether or not
a recipient of this document) as their respective clients in relation to the Offers and will not be responsible to anyone
other than the Company for providing the protections afforded to their respective clients nor for giving advice in
relation to the Offers or any transaction, arrangement or other matter referred to in this document.
The Banks and any of their respective affiliates may have engaged in transactions with, and provided various
investment banking, financial advisory and other services for, the Company and certain of the Selling Shareholders,
for which they would have received customary fees. The Banks and any of their respective affiliates may provide such
services to the Company and the Selling Shareholders and any of their respective affiliates in the future.
In connection with the Offers, each of the Banks and any of their respective affiliates acting as an investor for its or
their own account, may retain, purchase, sell, offer to sell or otherwise deal for its or their own account(s) in the
Ordinary Shares, any other securities of the Company or other related investments in connection with the Offers or
otherwise. Accordingly, references in this document to the Ordinary Shares being offered or otherwise dealt with
should be read as including any offer to, or dealing by the Banks and any of their respective affiliates acting as an
investor for its or their own account(s). The Banks do not intend to disclose the extent of any such investment or
transaction otherwise than in accordance with any legal or regulatory obligation to do so. In addition, in connection
with the Institutional Offer, certain of the Banks may enter into financing arrangements with investors, such as share
swap arrangements or lending arrangements where Ordinary Shares are used as collateral, that could result in such
Banks acquiring shareholdings in the Company.
Certain of the Banks have the following interests in the Company:
•
Goldman Sachs International holds 870,300 Ordinary Shares and 3,333,300 Preference Shares which it will not
sell pursuant to the Offers;
•
Michael Sherwood, who is Co-Chief Executive of Goldman Sachs International, holds 166,700 Preference
Shares which he will not sell pursuant to the Offers;
•
UBS Holdings Cayman Limited, an affiliate of UBS Limited holds 13,600 Ordinary Shares and 36,249,900
Preference Shares. UBS Holdings Cayman Limited has provided a non-binding indication that it may sell up to
its entire holding pursuant to the Offers and the Over-allotment Option (it being the provider of the
Over-allotment Option);
•
UBS AG, an affiliate of UBS Limited, holds 2,980,100 Preference Shares. Subject to the Offer Price being set
not lower than the bottom of the Price Range, UBS AG has committed to sell its entire holding pursuant to the
Offers;
•
Ranelagh Nominees Limited, an affiliate of Lloyds TSB Bank plc, holds warrants over 5,611,200 Ordinary
Shares which, subject to the Offer Price being no less than £1.90, it has irrevocably committed to exercise prior
to Admission provided that it may sell the resulting 5,611,200 Ordinary Shares that it or its nominee will be
issued pursuant to the Offers; and
•
Lloyds TSB Bank plc holds 17,800 Preference Shares which it may sell pursuant to the Offers.
All Preference Shares in existence will convert into Ordinary Shares immediately before Admission on a one for one
basis.
29
RELIANCE ON THIS DOCUMENT
Prospective investors should rely only on the information contained in this document. No person has been authorised
to give any information or make any representations other than those contained in this document and, if given or
made, such information or representations must not be relied on as having been so authorised by the Company, the
Directors, Goldman Sachs International, J. P. Morgan Cazenove or UBS Limited. In particular, the content of the
Website, the Offer Website and the Corporate Website do not form part of this document and prospective investors
should not rely on it.
Without prejudice to any legal or regulatory obligation on the Company to publish a supplementary prospectus
pursuant to section 87G of FSMA and Rule 3.4 of the Prospectus Rules, neither the delivery of this document nor any
sale made pursuant to it shall, under any circumstances, create any implication that there has been no change in the
affairs of the Company or the Group taken as a whole since the date of this document or that the information
contained herein is correct as of any time after the date of this document.
The contents of this document are not to be construed as legal, business or tax advice. Each prospective investor
should consult their own legal adviser, financial adviser or tax adviser for legal, financial or tax advice.
Information in this document will be updated in accordance with the Listing Rules, the Prospectus Rules and the
Disclosure and Transparency Rules as appropriate.
ENFORCEMENT OF JUDGMENTS
The Company is a public company incorporated under the laws of England and Wales. The vast majority of the assets
of the Company are located in England. None of the Directors or officers are citizens or residents of the United States.
As a result, it may not be possible for investors to effect service of process within the United States upon the
Company or such persons or to enforce outside the United States judgments obtained against the Company or such
persons in US courts, including, without limitation, judgments based upon the civil liability provisions of US federal
securities laws or the laws of any state or territory within the United States. In addition, awards of punitive damages in
actions brought in the United States or elsewhere may be unenforceable in the United Kingdom. Investors may also
have difficulties enforcing, in original actions brought in courts in jurisdictions outside the United States, liabilities
under US federal securities laws.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document, including those in the Risk Factors section, Part I (Information about
the Company) (and in particular the references in section 4.2 of that Part to the Directors’ long-term targets for CFC
efficiency and the drops per van per week and the references in section 7.5 to the expected relative EBITDA margin
of the second CFC), Part IV (Operating and Financial Review) (and in particular the references in section 1 of that part
to the Directors’ long-term targets for CFC efficiency and the drops per van per week) and Part IX (Information about
the Offers), constitute ‘‘forward-looking statements’’. In some cases, these forward-looking statements can be
identified by the use of forward-looking terminology, including the terms ‘‘believes’’, ‘‘estimates’’, ‘‘forecasts’’,
‘‘plans’’, ‘‘prepares’’, ‘‘anticipates’’, ‘‘expects’’, ‘‘intends’’, ‘‘may’’, ‘‘will’’ or ‘‘should’’ or, in each case, their negative or
other variations or comparable terminology. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors, which may cause the actual results, performance or achievements of the Company or
industry results, to be materially different from any future results, performance or achievements expressed or implied
by such forward-looking statements.
In particular, the following are forward-looking in nature: (i) certain statements in the Risk Factors section with regard
to risks relating to regulations that may be or become applicable to the Group, regulatory or legal actions which might
involve the Group, the Group’s competitive position and its management and information systems and targets;
(ii) certain statements in Part I (Information about the Company) with regard to strategy and management objectives,
trends in market shares, prices, market standing and product volumes and the effects of changes or prospective
changes in regulation; and (iii) certain statements in Part IV (Operating and Financial Review) with regard to trends in
targets, results, prices, volumes, operations, margins, overall market trends, risk management and exchange rates
and with regard to the effects of changes or prospective changes in regulation.
It is strongly recommended that investors read the Risk Factors section for a more complete discussion of the factors
that could affect the Group’s future performance and the industry in which it operates. In light of these risks,
uncertainties and assumptions, the forward-looking events described in this document may not occur. The forwardlooking statements referred to above speak only as at the date of this document. The Company will not undertake any
obligation to release publicly any revisions or updates to these forward-looking statements to reflect events,
circumstances or unanticipated events occurring after the date of this document, except as required by law or by any
appropriate regulatory authority.
30
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Unless otherwise indicated the financial information included into this document is based on International Financial
Reporting Standards as adopted by the European Union and International Financial Reporting Interpretations
Committee interpretations and those parts of the Companies Act applicable to companies reporting under
International Financial Reporting Standards (‘‘IFRS-EU’’). IFRS-EU differs in certain aspects from international
financial reporting standards, or IFRS, as published by the International Accounting Standards Board.
The preparation of financial information in conformity with IFRS-EU requires the use of certain critical accounting
estimates. Please refer to section 10, ‘‘Critical accounting policies and estimates’’ of Part IV (Operating and Financial
Review). It also requires management to exercise its judgment in the process of applying the Group’s accounting
policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates
are significant to the consolidated financial information are disclosed in the notes to the financial information set out in
Part V (Historical Financial Information relating to the Group).
Ocado prepared its financial statements in accordance with United Kingdom Generally Accepted Accounting
Principles (‘‘UK GAAP’’) through FYE 2008. The financial statements for FYE 2009 are Ocado’s first financial
statements prepared under IFRS-EU. Comparative information for FYE 2008 and FYE 2007, included in the financial
statements for FYE 2009, and from which certain information set-out in this document has been extracted, was also
prepared under IFRS-EU. Ocado’s unaudited financial information for P1-3 2009 and P1-6 2010 and its audited
financial information for P1-3 2010 have also been prepared in accordance with IFRS-EU applied consistently with
the FYE 2009 full-year financial statements. IFRS-EU differs in significant respects from UK GAAP.
The financial information presented in this document was not prepared in accordance with US Generally Accepted
Accounting Principles (‘‘US GAAP’’) or audited in accordance with US Generally Accepted Auditing Standards (‘‘US
GAAS’’) or the standards of the Public Company Accounting Oversight Board (‘‘PCAOB Standards’’). No opinion or
any other assurance with regard to any financial information was expressed under US GAAP, US GAAS or PCAOB
Standards and the financial information is not intended to comply with SEC reporting requirements. Compliance with
such requirements would require the modification, reformulation or exclusion of certain financial measures. In
addition, changes would be required in the presentation of certain other information. In particular, no reconciliation to
US GAAP is provided.
Certain non-IFRS-EU measures such as gross sales and EBITDA have been reported as the Directors believe that
these provide important alternative measures with which to assess the Group’s performance. You should not
consider gross sales or EBITDA as alternatives for Revenue and Operating Profit/(Loss) which are the IFRS-EU
measures. Additionally, the Company’s calculation of gross sales and EBITDA may be different from the calculation
used by other companies and therefore comparability may be limited.
The Group’s activities are not segmented and the Group does not report any geographic segments because all of the
Group’s operations are within the United Kingdom which is one economic environment in the context of the Group’s
activities.
ROUNDING OF FIGURES
Certain figures contained in this document, including financial information, have been subject to rounding
adjustments. Accordingly, in certain instances (i) the sum or percentage change of such numbers may not conform
exactly with the total figure given; and (ii) the sum of the numbers in a column or a row in certain tables may not
conform exactly with the total figure given for that column or row.
31
DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS
Directors
Michael Grade, Non-Executive Chairman
David Grigson, Non-Executive Director and
Senior Independent Director
Tim Steiner, Chief Executive Officer
Neill Abrams, Director of Legal and Business Affairs
Andrew Bracey, Chief Financial Officer
Jason Gissing, Director of People, Culture and Communications
Ruth Anderson, Non-Executive Director
Robert Gorrie, Non-Executive Director
Jörn Rausing, Non-Executive Director
David Young, Non-Executive Director
Patrick Lewis, Non-Executive Director
Michael Robarts, Non-Executive Director
Company secretary
Neill Abrams
Registered office
Titan Court, 3 Bishops Square, Hatfield Business Park, Hatfield,
Hertfordshire AL10 9NE
Telephone No: +44 (0)1707 228 000
Joint Global Co-ordinator,
Joint Sponsor and Joint
Bookrunner
Goldman Sachs International, Peterborough Court,
133 Fleet Street, London EC4A 2BB
Joint Global Co-ordinator,
Joint Sponsor and Joint
Bookrunner
J.P. Morgan Cazenove, 10 Aldermanbury, London EC2V 7RF
Joint Global Co-ordinator,
Joint Sponsor and Joint
Bookrunner
UBS Limited, 1 Finsbury Avenue, London EC2M 2PP
Co-Bookrunner
Barclays Capital, the investment banking division of Barclays
Bank PLC, 5 The North Colonnade, London E14 4BB
Co-Bookrunner
HSBC Bank plc, 8 Canada Square, London E14 5HQ
Co-Lead Manager
Jefferies International Limited, Vintners Place, 68 Upper Thames
Street, London EC4V 3BJ
Co-Lead Manager
Lloyds TSB Corporate Markets, 25 Gresham Street,
London EC2V 7HN
Co-Lead Manager
Numis Securities Limited, 10 Paternoster Square,
London EC4M 7LT
Stabilising Manager
Goldman Sachs International, Peterborough Court,
133 Fleet Street, London EC4A 2BB
Legal adviser to the Company
as to English law
Slaughter and May, One Bunhill Row, London EC1Y 8YY
Legal adviser to the Company
as to US law
Davis Polk & Wardwell LLP, 99 Gresham Street,
London EC2V 7NG
32
Directors, Company Secretary, Registered Office and Advisers
Legal adviser to the Joint
Sponsors, Joint Global
Co-ordinators, Joint
Bookrunners, Co-Bookrunners
and Co-Lead Managers as to
English and US law
Allen & Overy LLP, One Bishops Square, London E1 6AD
Auditors
PricewaterhouseCoopers LLP, 10 Bricket Road,
St. Albans AL1 3JX
Reporting Accountants
PricewaterhouseCoopers LLP, 1 Embankment Place,
London WC2N 6RH
Receiving Agent
Capita Registrars Limited, Corporate Actions, The Registry,
34 Beckenham Road, Beckenham, Kent BR3 4TU
Registrar
Capita Registrars Limited, The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4TU
Public relations advisers to
the Company
Brunswick Group LLP, 16 Lincoln’s Inn Fields,
London WC2A 3ED
33
EXPECTED TIMETABLE FOR THE OFFERS
2010
Commencement of the application period for the Customer and
Employee Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6 July
Latest date and time for Minor Selling Shareholders and Selling
Optionholders to confirm the number of Ordinary Shares they wish to sell
pursuant to the Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
noon on 13 July
Latest date and time for online receipt of completed Customer and
Employee Offer Application Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.59 p.m. on 18 July
Latest date for receipt of indications of interest in the Institutional Offer . . . .
20 July
(1)
Announcement of the Offer Price, publication of Pricing Statement and
notification of allocation of Ordinary Shares under the Customer and
Employee Offer and the Institutional Offer . . . . . . . . . . . . . . . . . . . . . . . .
21 July
Commencement of conditional dealings on the London Stock Exchange . . .
21 July
Admission and commencement of unconditional dealings on the London
Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26 July
Ordinary Shares credited to CREST accounts and the Ocado Share
Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26 July
(2)
Ocado Share Account Statements made available online
............
4 August
(1)
The Pricing Statement will not automatically be sent to persons who receive this document but it will be available on the
Offer Website.
(2)
Shareholders with Ordinary Shares in the Ocado Share Account will be able to buy and sell Ordinary Shares from Admission.
It should be noted that, if Admission does not occur, all conditional dealings will be of no effect
and any such dealings will be at the sole risk of the parties concerned.
All times are London times. Each of the times and dates in this table are indicative only and subject to
change without further notice.
34
OFFER STATISTICS
Price Range(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 pence to 275 pence
Total number of Ordinary Shares which may be comprised in the
Offers(2), (3), (4), (5), (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
up to 257,666,236
Number of Existing Shares comprised in the Offers which may be sold by
Major Selling Shareholders(2), (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
up to 82,377,000
Number of Existing Shares comprised in the Offers which may be sold by
Minor Selling Shareholders(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
up to 62,705,242
Number of potential New Ordinary Shares comprised in the Offers which
may be sold by Selling Optionholders(5) . . . . . . . . . . . . . . . . . . . . . . . . . .
up to 10,134,074
Number of New Ordinary Shares comprised in the Offers to be issued and
sold by the Company(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
up to 102,449,920
Ordinary Shares comprised in the Offers as a percentage of the Ordinary
Shares (excluding the 32,476,700 Ordinary Shares held by the
EBT Trustee) in issue on Admission(2), (3), (4), (5), (6) . . . . . . . . . . . . . . . . . . .
50%
(2)
Number of Ordinary Shares subject to the Over-allotment Arrangements .
18,131,750
Number of Ordinary Shares in issue on Admission (assuming the Offer
Price is set at the mid-point of the Price Range) (excluding the 32,476,700
Ordinary Shares held by the EBT Trustee)(5), (7), (8) . . . . . . . . . . . . . . . . . .
497,476,810
Market capitalisation at the mid-point of the Price Range excluding the
£1,182m
32,476,700 Ordinary Shares held by the EBT Trustee(1), (5), (7) (9) . . . . . . . . .
(10), (11)
Proceeds receivable by the Company after expenses
............
£200m
(1)
It is currently expected that the Offer Price will be within the Price Range; however, this range is indicative only and may
change during the course of the Offers. If the Price Range does change, the Company would not envisage making an
announcement until determination of the Offer Price, unless required to do so by law or regulation. The Company expects to
announce the Offer Price and publish the Pricing Statement on or about 21 July 2010.
(2) Based on the maximum number of Existing Shares each Major Selling Shareholder has indicated he or it may sell pursuant to
the Offers. The selling indications of Major Selling Shareholders are non-binding. That means that although a Major Selling
Shareholder may not sell any more Existing Shares pursuant to the Offers than he or it has indicated he or it may sell, he or it
may decide, at his or its absolute discretion, to sell fewer or none at all. This number excludes approximately 18.1 million
Existing Shares that UBS Holdings Cayman Limited has committed to provide pursuant to the Over-allotment Option, but
which may be sold pursuant to the Offers if and to the extent that the number of Ordinary Shares subject to the Over-allotment
Arrangements is reduced from the maximum number set out in the table above.
(3) Assumes that no Over-allotment Shares are sold pursuant to the Over-allotment Arrangements.
(4) Based on the total number of Ordinary Shares held by Minor Selling Shareholders. The Company has established a facility
through which Minor Selling Shareholders may sell some or all of their Existing Shares pursuant to the Offers. As at the date of
this document, the Company does not know with certainty whether any such person will sell any or all such Ordinary Shares
pursuant to the Offers, however, the Company has received non-binding indications from Minor Selling Shareholders holding
28,861,700 Existing Shares, in aggregate, that they do not intend to sell any Existing Shares pursuant to the Offers.
(5) Based on the total number of shares that may be issued to Selling Optionholders prior to Admission pursuant to the exercise of
options or warrants. The Company has established a facility through which Selling Optionholders may sell, pursuant to the
Offers, some or all of the New Ordinary Shares which will be issued to them if they exercise their exercisable options or
warrants prior to Admission. Subject to the Offer Price being not less than £1.90, Ranelagh Nominees Limited has irrevocably
committed to exercise certain warrants held by it provided that it may sell the resulting 5,611,200 New Ordinary Shares that
are issued to it or its nominee pursuant to the Offers. As at the date of this document, the Company does not know whether any
other Selling Optionholder will exercise any or all of his or its exercisable options, or, if he or it does so, whether such person
will sell, pursuant to the Offers, any or all of the Ordinary Shares issued as a result.
(6) This assumes that the Offer Price is set at the bottom of the Price Range. If the Offer Price is set at the mid-point in the Price
Range, the Company will issue 86,273,616 New Ordinary Shares and if the Offer Price is set at the top of the Price Range, the
Company will issue 74,509,032 New Ordinary Shares.
(7) This assumes that the Offer Price is set at the mid-point in the Price Range which would mean that the Company would issue
86,273,616 New Ordinary Shares. If the Offer Price is not set at the mid-point in the Price Range this figure will change.
(8) All Preference Shares in existence will convert into Ordinary Shares immediately before Admission on a one for one basis.
(9) The market capitalisation of the Company at any given time will depend on the market price of the Ordinary Shares at that
time. There can be no assurance that the market price of an Ordinary Share will be equal to or exceed the Offer Price.
(10) The estimated net proceeds receivable by the Company are stated after the deduction of underwriting commissions and other
estimated fees and expenses incurred in connection with the Offers of approximately £15 million (excluding any amounts in
respect of VAT) and includes cash of £10 million received pursuant to the exercise of warrants over 5,611,200 Ordinary
Shares at a subscription price of £1.80 per share by Ranelagh Nominees Limited prior to Admission.
(11) If the Company is not able to agree pricing or it is unable to raise net proceeds of £200 million (including amounts received by
the exercise of options and warrants by holders of options and warrants), Admission will not occur.
35
PART I
INFORMATION ABOUT THE COMPANY
Ocado is the operating company of the Group. The Company has, since 9 February 2010, been the
holding company of the Group and Ocado is a wholly owned indirect subsidiary of it. All descriptions in
this document of the Business and the financial performance of the Group will be by reference to the
historic performance of Ocado.
1.
Introduction
Ocado is the only dedicated online supermarket in the UK and the largest dedicated online supermarket
in the world by turnover. Ocado:
•
has, since inception, consistently sought to provide a market leading customer offering. Ocado has
over 240,000 active customers and can process over 100,000 orders per week. In FYE 2009,
99.4 per cent. of items were delivered exactly as ordered and 95 per cent. of products were available
for next day delivery. In P1-6 2010, 95 per cent. of deliveries were on time or early. This has been
widely recognised with Ocado having been awarded numerous awards for the quality of the services
it provides;
•
offers delivery of grocery products to customers centrally picked from a single, state-of-the-art,
highly-automated warehouse (the customer fulfilment centre or ‘‘CFC’’);
•
sells more than 20,000 different products, the majority of which are sourced through Waitrose under
the Sourcing Agreement. Approximately 4,300 of the products sold by Ocado are Waitrose own-label
products. Ocado’s product range also includes a small but expanding range of Ocado own-label
products;
•
has developed its own highly bespoke software systems which underpin its superior customer
offering and the operations of the CFC;
•
has generated significant year-on-year growth in gross sales since it started trading just over
eight years ago. Ocado generated gross sales of £427 million in FYE 2009 and gross sales have
grown at a CAGR of 21 per cent. between FYE 2007 and FYE 2009. Ocado’s gross sales in P1-6
2010 were £246 million (unaudited), an increase of 30 per cent from P1-6 2009;
•
has achieved positive and growing EBITDA since FYE 2008 and generated £9.2 million of EBITDA in
FYE 2009 and £8.0 million of EBITDA in P1-6 2010 (unaudited). The Directors believe that Ocado
has greater EBITDA margin potential than its store-based competitors;
•
approximately one million items are picked in the CFC every day, of which approximately 55 per cent.
are ambient products, 40 per cent. are chilled products and 5 per cent. are frozen products;
•
Ocado currently covers 66 per cent. of UK households, with half of all its customers living outside the
M25 region. 85 per cent. of Ocado’s customers have not previously used Waitrose for their regular
shop and the average household income of Ocado’s customers has lowered progressively;
•
will, following Admission, be the largest listed dedicated European online retailer (by turnover); and
•
is well placed, the Directors believe, to benefit from the growing demand for ordering groceries
online.
The Directors believe that consumers are increasingly seeking an online grocery shopping proposition
that allows them to save time and effort whilst still retaining the wide range, high quality and low cost that
they expect from a store-based supermarket.
Traditional supermarkets primarily satisfy this by providing online services out of their existing store
network. The Directors believe that Ocado’s highly automated and purpose-built distribution system
allows it to deliver a fresher and broader range of groceries in a more accurate and efficient manner than
its competitors.
Ocado’s mission statement is to revolutionise the way people shop, by giving them a uniquely innovative
and greener alternative to traditional grocery shopping. It aims to achieve this through four key values:
providing great value, great service, great choice and a more environmentally responsible way to shop.
36
Part I
2.
Information about the Company
Industry overview
General
Food retailing is the single largest category of retail spend in the UK and every other major European
market. In 2009, it represented approximately £146 billion in the UK (Source: The Institute of Grocery
Distributors (‘‘IGD’’) Research 2009). Unlike many other categories of consumer spending, groceries
comprise a necessary and regular retail spend rather than a discretionary item. For example, in 2008 and
2009, when the UK experienced negative real GDP growth, food sales in the UK continued to grow
positively.
Online food retailing
Estimates of the size of the UK online grocery market for 2009 vary considerably, with estimates ranging
from £2.8 billion to £5.3 billion. The Directors estimate the total market size to be closer to the lower end of
this range at approximately £3 billion, and have used this figure as the benchmark for key statistics about
the size of the UK online grocery market in this document.
The only supermarkets in the UK offering an online grocery retailing service are Tesco.com (a division of
Tesco plc), Sainsburys.co.uk (a division of J Sainsbury plc), ASDA.com (a division of ASDA Stores
Limited, a subsidiary of Wal-Mart Stores, Inc.) and WaitroseDeliver (owned and operated by Waitrose).
These are, with Ocado, also the only significant participants in the online grocery market. Iceland Foods
Limited offers a store-based delivery service, but Iceland’s customers cannot shop online at
Iceland.co.uk. Certain small specialists operate in sub-sections of the online market (such as Abel & Cole
Limited which, through its website AbelandCole.co.uk, sells a range of organic foods). A number of
supermarket chains in the UK do not currently run online grocery businesses. These include Marks &
Spencer plc, Wm Morrison Supermarkets plc and the two food divisions of The Co-operative Group, The
Co-op and Somerfield.
Tesco.com, which is the largest UK online grocer by sales, had online grocery sales in the year ended
February 2010 of approximately £1.7 billion. ASDA Stores Limited and J Sainsbury plc have reported
online sales of over £500 million, although it is not possible to state comparative figures accurately
because there is no consistent method by which supermarkets report online sales.
Ocado currently offers its services to approximately 66 per cent. of UK households compared with 99 per
cent. by Tesco.com, 90 per cent. by Sainsbury.co.uk, 97 per cent. by ASDA.com and 40 per cent. by
WaitroseDeliver (Source: Relevant companies’ statutory filings and websites, TNS analysis).
Growth of the UK online grocery market
The Directors believe that the UK online grocery market comprises approximately two per cent. of the
total UK grocery market. To the extent that UK grocery shoppers continue the trend of moving from the
traditional grocery market to the online market, there is significant scope for continued growth of the
online market, even if the traditional market does not grow (although Verdict expects total food and
grocery expenditure to grow at an average annual growth rate of 3.4 per cent. in the period 2009 to 2013
(Source: UK Retailing Forecasts 2013)), and the Directors believe that the online market will continue to
grow rapidly.
There are a number of factors which may encourage this shift to the online market to take place. Internet
usage generally is rising, with the percentage of the UK adult population shopping online also increasing.
According to Verdict, UK e-Retail 2009, 45 per cent. of UK adults shopped online in 2007, rising to an
estimated 59 per cent. in 2009.
Waitrose
Waitrose, through whom Ocado sources the vast majority of products it sells (and whose own-label
products it sells), is a UK supermarket chain and the food division of the privately owned retailer John
Lewis. It has over 220 branches across the UK. Waitrose sells high quality food and places an emphasis
on the provenance and traceability of the food that it sells. In its last financial year (ended 30 January
2010) it had gross sales of £4.5 billion and made an operating profit of £268.4 million (Source: John Lewis
Partnership plc unaudited results for the year ended 30 January 2010).
37
Part I
3.
Information about the Company
Strengths of the Ocado Business
3.1 Significant market opportunity
The UK grocery market is by far the largest of the UK retail segments, yet the Directors believe it has the
lowest percentage online of all the core UK consumer markets and online penetration is expected to grow
rapidly. The Directors believe that Ocado is well placed to take advantage of this growth, and to increase
its share of the UK online grocery market from its current estimated 14 per cent. as it continues to invest in
and improve its customer offering, and increase its penetration, the frequency with which customers place
orders, the amount that they spend and, to some extent, geographic reach.
By way of comparison, shifts in the UK retail market from conventional to online shopping have occurred
in other sectors. For example, in 2000, the online UK book, news and stationery market comprised 1.6 per
cent. of the total UK book, news and stationery market, rising to 6.4 per cent. in 2009 (Source: Verdict, UK
Retail 2013). Similarly, in 2003, the online UK electricals market comprised 5.5 per cent. of the total UK
electricals market, rising to 23.7 per cent. in 2009 (Source: Verdict, UK Retail 2013).
3.2 Unique, attractive business model with structural advantages over traditional grocery
retailers
Ocado’s business model has, since the Business’s inception, been predicated on delivering a superior
customer offering in terms of quality and freshness of produce and convenience, reliability and accuracy
of delivery.
Ocado is the only UK online supermarket that provides all its services from a dedicated warehouse where
all the picking and packing of products is performed centrally. The Directors believe that the automation of
equivalent store operations in the CFC, the aggregation of stock and demand in one building, real-time
control over stock, not having to rent or purchase sites in expensive locations, reduced staff costs and
being less constrained by space (allowing Ocado to take direct deliveries to the CFC and cutting out the
costs of regional distribution centres), all provide clear cost and service benefits to the Business.
The state-of-the-art, highly-automated CFC is currently capable of picking over one million items per day
and processing approximately 105,000 orders per week. These items are delivered to customers either
directly from the CFC or via the Spokes (the trans-shipment points for deliveries not made directly from
the CFC). The Directors believe that the maximum effective capacity of the CFC (after further capital
investment) will be approximately 180,000 orders per week.
Ocado had gross sales of £427 million in FYE 2009 (P1-6 2010: £246 million (unaudited)), all of which
were picked and packed at the CFC. The Directors estimate the CFC’s sales volumes to be equivalent to
approximately 25 average sized Waitrose supermarkets. This, they believe, has a number of material
scale and structural advantages compared to the model operated by its competitors (all of whom have
store networks and regional distribution centres and predominantly provide their online services out of
those stores), including the following:
Customer proposition
•
the eventual ability to stock a greater range of products (currently the CFC stocks in excess of
20,000), including a ‘‘long-tail’’ of slower moving products which a traditional supermarket might
struggle to stock efficiently;
•
greater availability and reduced product substitution (in FYE 2009, 99.4 per cent. of all items were
delivered by Ocado as ordered); and
•
improved product freshness for customers due to faster stock turn and reduced stockholding levels
while nevertheless maintaining reduced levels of wastage (only 0.57 per cent. of gross sales in
FYE 2009).
Cost efficiency
•
it results in Ocado achieving a higher sales growth as a multiple of its capital expenditure. From FYE
2007 to FYE 2009, Ocado’s sales grew by 1.8 times its capital expenditure. In the same period,
38
Part I
Information about the Company
Tesco plc’s sales grew at 1.0 times its capital expenditure, J Sainsbury plc’s at 0.7 times and
Wm Morrison Supermarkets plc’s at 1.2 times (Source: statutory accounts of the relevant
companies; this figure is calculated by dividing incremental sales for the period by capital
expenditure in the same period); and
•
it results in Ocado already achieving a higher revenue per employee. In FYE 2009, Ocado achieved
annual sales of £128,000 per employee. In the same year, Tesco plc achieved annual sales per
employee of £116,000, J Sainsbury plc achieved £127,000 and Wm Morrison Supermarkets plc
achieved £116,000 (Source: statutory accounts of the relevant companies; this figure is calculated
by dividing sales for the period by number of employees in the period).
The Directors believe that the structural advantages of Ocado’s business model become more apparent
the more orders it processes. Between FYE 2007 and FYE 2009, Ocado’s average number of orders per
week increased from 49,968 to 70,873, a CAGR of 19 per cent. Over the same period, CFC costs
increased by a significantly lower CAGR of 3.4 per cent. as a result of increasing efficiency in inbound
product receiving and decanting, picking of customer orders and outbound despatch of deliveries.
3.3 Superior customer offer in online food retailing driving market share
Ocado prides itself on having developed and sustained a market-leading customer offering in online
grocery retailing, as shown by the consumer and industry awards it has received and continues to
receive. Ocado focuses on the following areas in achieving these high levels of satisfaction:
•
•
Product offering:
•
Range: Ocado offers an extensive product range of more than 20,000 products, a range that
has increased by approximately 60 per cent. since the end of FYE 2007. The product range
includes the majority of Waitrose’s product range (including approximately 4,300 Waitrose
own-label products) as well as a small but growing range of Ocado own-label products.
Therefore, over three quarters of the products stocked are not own-label products. In 2009,
Ocado added an in-house butcher and fishmonger (called the ‘‘Service Counter’’) allowing
customers to select the size of meat and fish cuts and specify whether fish should be whole or
filleted. Ocado also offers a growing range of non-grocery products, such as magazines, toys,
flowers and homewares. The Directors believe that Ocado’s product range is larger than that
currently found in the largest Waitrose supermarket.
•
Quality and freshness: Product freshness, with a guarantee that use-by dates will match or
better those displayed to customers on the Website further enhances the customer experience.
No other UK online supermarket guarantees use-by dates in this way. The strict management of
stock levels and visibility over customer ordering, together with direct deliveries to the CFC,
ensure Ocado customers receive products which the Directors believe to be fresher than
customers could typically buy in a supermarket.
•
Environmental credentials: Ocado prides itself on the environmental efficiency with which the
Business is run. For example, streamlining the Business through a CFC rather than a chain of
physical stores saves on energy usage and associated costs. Equally, the route optimisation
software ensures that fuel is used efficiently and keeps journey times and distances to a
minimum. Ocado has extremely low wastage levels (which the Directors believe to be lower than
those of any other supermarket) and offers to collect its plastic bags from customers in order to
recycle them.
Price: Ocado aims to price competitively in order to provide customers with value for money. For
example, through its Tesco Price Match policy which started in 2008, each week Ocado checks the
prices on all identical branded products sold on the Tesco.com website and, if necessary, adjusts the
Ocado price to match the standard Tesco price (this excludes temporary promotions, in respect of
which Ocado typically follows the Waitrose promotional calendar). Ocado’s Tesco Price Match policy
currently covers approximately 7,000 products stocked by Ocado. Ocado also continues to develop
its own-brand range, which is tiered to the mainstream own-label brands of its competitors.
39
Part I
•
Information about the Company
Customer service
•
Website: On logging onto the Website, customers can create or edit an order. The Directors
believe that a number of features on the Website, such as displaying product use-by dates,
generating instant orders and prompting customers to see if they have forgotten to add items to
their orders (based on past orders), are unique to Ocado. The Directors further believe that
these features result in the Website being attractive and helpful for customers to use (as do
other features of the Website such as the display of nutritional information and recipe
suggestions). Recently Ocado has introduced the Ocado on the Go application (for iPhone, iPad
and Android smart phones) to increase further the ease with which customers are able to place
and edit orders, in particular, while they are away from their computers.
•
Accuracy and availability: Ocado’s availability system (referred to as ‘‘Availability to Promise’’ or
‘‘ATP’’) calculates the expected stock position for every product into the future, so that once a
customer has chosen their delivery slot the Website prevents them from ordering products
which will be out of stock when the order is due to be picked in the CFC. This feature reduces the
need to find substitutions for out-of-stock products at picking time and it is made possible by
Ocado’s warehouse model and sophisticated inventory management system and is not offered
by Ocado’s competitors. As a result, in FYE 2009 (and P1-3 2010), approximately 99 per cent. of
items ordered were delivered exactly as ordered.
•
Delivery service: Timely delivery within one-hour time slots (starting on the hour and half hour)
chosen by the customer and direct delivery to the customer’s kitchen make for an attractive
customer experience. In P1-6 2010, 95 per cent. of all deliveries were on time or early.
3.4 Proprietary intellectual property has created significant barriers to entry
Each year since operations began, Ocado has implemented new IT systems and highly automated, often
purpose-built, machinery which, together, reduce ongoing operating costs as a percentage of gross
sales. The Directors believe that, as Ocado’s IT systems and machinery become ever more efficient and
sophisticated, the barriers to entry for a potential competitor become greater.
The majority of Ocado’s current IT systems are bespoke (there often being no suitable alternatives
available commercially) and have predominantly been developed in-house by Ocado’s IT team. Ocado’s
proprietary intellectual property is integral to the functionality of all aspects of its operations, including the
Website, the stock management systems, the CFC, the customer delivery system and the van routing
system. The Directors believe that the implementation of many of these IT systems, coupled with the
plant and machinery at the CFC (much of which is also bespoke to the Business) together with the
expertise to manage these operational processes have had a direct and positive impact on the Business,
such as:
•
the bespoke stock ordering system has increased product availability by using replenishment
algorithms designed specifically for Ocado’s mix of SKUs and product categories while at the same
time increasing efficiency of stock control but without materially increasing waste. Thus, while
average orders per week grew by over 25 per cent. from FYE 2008 to FYE 2009, absolute stock
levels remained relatively constant during the same period;
•
the bespoke computer code that controls CFC machinery has increased the number of units
dispatched from the CFC per hour by increasing throughput above the machinery manufacturers’
expectations. Outbound units per hour worked have increased by a CAGR of 14 per cent. since FYE
2007; and
•
the bespoke route optimisation application, combined with increased customer density, has
increased deliveries per van per week by a CAGR of 11 per cent. since FYE 2007. This has reduced
delivery costs as a percentage of gross sales from 14.7 per cent. in FYE 2007 to 12.9 per cent. in
FYE 2009 while serving a larger delivery area.
This bespoke IT, plant and machinery has underpinned the sustained incremental evolution of the CFC,
the Website and distribution operations. The Directors believe that the systems required for such
operations and the management know-how required to operate such systems and machinery amount to a
significant barrier to entry. Accordingly, they believe that Ocado’s business model would be difficult to
40
Part I
Information about the Company
replicate to the same level of performance and specification without significant capital expenditure and
time, given the considerable amount of technical and logistical expertise inherent in it.
3.5 Strong track record of growth delivered by entrepreneurial Executive Directors
Ocado has generated strong revenue growth over each of the last three years. Gross sales have
consistently increased year on year, growing from £291 million in FYE 2007 to £427 million in FYE 2009,
a CAGR of 21 per cent. Gross sales in P1-3 2010 were £117 million, an increase of 31 per cent. over the
same period in the previous financial year, and gross sales in P1-6 2010 were £246 million (unaudited),
an increase of 30 per cent. over the same period in the previous financial year.
Ocado’s strong track record of revenue growth has been delivered by its experienced and stable team of
entrepreneurial Executive Directors, and demonstrates the success of its strategy of organic growth
through customer focus, process and technological innovation and expanding regional penetration.
Of the Company’s four Executive Directors, Tim Steiner and Jason Gissing founded Ocado in 2000. Neill
Abrams was an adviser to Ocado from the beginning and joined the founders later in 2000 (the same year
as Ocado became operational). Andrew Bracey joined the Board in 2009 having provided substantial
advice to Ocado in the preceding years. Andrew has considerable experience in the retail industry
generally, including having been on the board of the company that owned the UK supermarket chain
Somerfield. The Directors believe that the expertise and dedication of Ocado’s Executive Directors
provide the Group with a strong foundation to pursue its future strategy.
3.6 Considerable operational leverage with margin potential
The Directors believe that Ocado can achieve higher sales volumes and that further increases in sales
should improve the EBITDA margin of the Business given the economies of scale within the CFC and
delivery structure. In addition, the Directors have identified opportunities to increase further the efficiency
and effectiveness of the CFC and delivery operations, without compromising Ocado’s customer offering
or its value proposition. In particular, these efficiencies are expected to be achieved through increased
CFC labour productivity as a result of an enhanced technology mix and increased automation, and
increased delivery productivity as a result of more efficient allocation of driver resources and optimised
delivery route planning. The Directors believe that as a result of such opportunities and efficiencies
Ocado can achieve a higher EBITDA margin than a typical store-based competitor. In order to realise
some of these efficiencies Ocado will need to undertake additional capital expenditure.
This gross sales growth combined with the operational leverage in the cost base has led to Ocado
achieving EBITDA of £2.2 million in FYE 2008 and £9.2 million in FYE 2009. In FYE 2009, Ocado had a
positive cash inflow of £4.1 million at the operating cash flow level. EBITDA in P1-3 2010 was £3.4 million,
and EBITDA in P1-6 2010 was £8.0 million (unaudited).
As demonstrated by the key performance indicators below, as the scale of the Business has increased in
the last three financial years, so has its efficiency:
Average order size (£)(1) . . . . . . .
Average orders per week . . . . . .
CFC efficiency (units per hour)(2) .
Average deliveries per van per
week . . . . . . . . . . . . . . . . . . .
Average number of operational
staff (full time equivalent) . . . . .
Average product wastage
(per cent. of gross sales)(3). . . .
Items delivered exactly as ordered
(per cent.)(4) . . . . . . . . . . . . . .
FYE 2007
(unaudited)
FYE 2008
(unaudited)
FYE 2009
(unaudited)
P1-3 2009
(unaudited)
P1-3 2010
(unaudited)
112.17
49,968
95
116.30
56,384
114
115.94
70,873
124
122.81
60,769
114
119.38
81,823
124
99
106
121
107
126
2,033(5)
2,730
3,151
3,119
3,610
1.15
0.78
0.57
0.64
0.65
98.59
99.11
99.41
99.35
98.76
Source: The information in the table above is derived from information extracted from management accounts and internal financial
and operating reporting systems and is unaudited.
41
Part I
Information about the Company
(1)
Average retail value of goods a customer receives (including VAT and delivery charge) per order.
(2)
Measured as units dispatched from the CFC per hour worked by CFC operational personnel.
(3)
Value of products purged for having passed Ocado’s ‘‘use by’’ life guarantee and stock adjustments (net of sales to the
company shop), divided by gross sales.
(4)
Percentage of all items delivered exactly as ordered, i.e. the percentage of items neither missing nor substituted.
(5)
Excludes, for the period prior to their transfer to Ocado, staff working for third-party logistics contractor who transferred to
Ocado in April 2007.
3.7 Significant opportunity for continued expansion
Ocado’s business model presents it with growth opportunities outside its core business. The Directors
believe that Ocado’s brand recognition and superior delivery infrastructure provide opportunities for
further expansion into non-grocery products such as baby products, health and beauty and kitchenware.
In addition, the worldwide growth of online shopping provides possibilities for replicating the Group’s
business model overseas.
4.
Ocado’s strategy
Ocado intends to continue with the areas of strategic focus that have delivered strong revenue growth
and improving EBITDA margin to date, in particular through continued innovation of the customer offering
and operational cost efficiencies.
In order to successfully fulfil anticipated future demand, Ocado intends to continue to expand CFC
capacity (including building and fitting out the second CFC) and the Spoke network.
In addition, Ocado intends to investigate additional adjacent growth opportunities, leveraging its
knowledge of its existing customer base, its proprietary intellectual property and its overall business
model. This may be achieved through further expansion of its non-grocery range and/or international
expansion, as appropriate.
The four limbs of Ocado’s strategy are, therefore, to improve continually the customer offering driving
sales growth; to improve cost efficiency through continued innovation to maximise profitability; to expand
CFC capacity and the Spoke network; and to exploit further growth opportunities, including the possibility
of replicating the business model overseas.
4.1 Continually improve the customer offering
Ocado focuses on improving its customer offering in order to retain existing customers and encourage
them to make greater use of the Ocado service, as well as attracting new customers. The Directors seek
to achieve this through:
•
Customer Service: Maintaining and improving the customer experience. The Directors believe that
accuracy, product quality and freshness, product availability and convenient delivery service are
fundamental to Ocado’s customer proposition and intend to continue to improve these aspects to
provide superior customer service. Ocado also intends to continue to improve its customer interface,
for example by adding further functionality to the Website, facilitating easier order placing with Ocado
on the Go applications.
•
Product Range: Increasing the core product range. The Directors intend to expand the range of
SKUs sold by Ocado to approximately 23,000 products by the end of 2010 with eventual expansion
thereafter to over 30,000 products. This will partly be achieved through the addition of branded
products which are not currently stocked by Waitrose but are stocked by other major grocers. As a
result of its centralised and automated distribution centre, the Ocado model is well suited to stocking
a ‘‘long-tail’’ of slow moving grocery products. Ocado also plans to increase the range of Ocado ownlabel products, from the current range of approximately 70 products to approximately 250 to 300
products by the end of 2010 with further expansion thereafter. In this regard, Ocado has recently
recruited a head of own-label with extensive experience in the industry, and plans to have a broader
own-label range tiered in line with the mainstream own-label ranges of the major UK supermarkets.
•
Value for Money: Continuing to offer value for money to customers and making use of the fact that
online grocery shopping is attractive to a broad demographic of the population. This includes the use
of loyalty programmes such as the Ocado Delivery Pass service and price initiatives such as Tesco
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Price Match. The expansion of the Ocado own-label range, as detailed above, will allow Ocado to
increase the range of products in standard tier price points.
Ocado continually seeks to improve its customer offering through innovation of new products and
services. Since the beginning of 2008, Ocado has introduced a large number of innovations in all of the
above categories. For example in Customer Service, Ocado has introduced Ocado on the Go allowing
Ocado and its customers to interact directly through applications for the iPhone, iPad and Android smart
phones; in Product Range, Ocado has introduced an in-house butcher and fishmonger (called the
‘‘Service Counter’’) allowing customers to select the size of meat and fish cuts and specify whether fish
should be whole or filleted; and in Value for Money, Ocado has introduced the Ocado Delivery Pass and
Tesco Price Match. The Directors believe that all of these innovations promote customer satisfaction and
drive order growth, and Ocado intends to continue to roll out further innovations in the future.
4.2 Improve cost efficiency through continued innovation to maximise profitability
Without compromising Ocado’s customer offering or value for money proposition, the Directors strive
consistently to increase the efficiency and effectiveness of Ocado’s operations from the Website and the
CFC to customer delivery by continuing to improve its technology, systems and training.
CFC productivity is measured by average units processed per labour hour (‘‘UPH’’). Ocado is targeting a
long term increase in productivity at the existing CFC to 180 UPH, up from 124 in FYE 2009. This
long-term target assumes that the existing CFC has reached and is operating at its maximum effective
capacity of 180,000 orders per week. This will be influenced by a number of factors, including:
•
improvement in technology mix through upgrading the existing equipment at the CFC and increased
automation of the picking process; and
•
continued development of more intelligent IT algorithms and code to increase efficiency of existing
CFC operations.
Similarly, delivery productivity is measured by average drops per van per week (‘‘DVW’’). Ocado is
targeting a long term increase in delivery productivity to 175 DVW, up from 121 in FYE 2009. This will be
influenced by a number of factors, including:
•
increasing customer density, thereby reducing time spent driving between customers; and
•
continued development of more intelligent IT algorithms and code to allow efficient allocation of
driver resources and optimised route planning.
4.3 Expand CFC capacity (including building the second CFC) and the Spoke network
The Directors intend to increase the Business’s current capacity and geographic coverage by increasing
the capacity of the existing CFC, adding new Spokes and building the second CFC, in order to satisfy the
anticipated demand growth.
Ocado intends to expand the effective capacity of the existing CFC from processing 105,000 orders per
week to approximately 180,000 orders per week. Increases in the current capacity of the existing CFC will
take place on a phased basis. A significant proportion of existing warehouse operations already has the
capacity to process 150,000 orders per week, however, increasing capacity to 180,000 orders per week
will require more significant capital expenditure across the CFC to utilise free space, upgrade existing
machinery, purchase and install new machinery and improve the infrastructure of the site.
Ocado plans to develop the second CFC to increase both the capacity at which the Business can operate
and its geographic reach. The second CFC is expected ultimately to have an effective capacity to process
approximately 180,000 orders per week once fully operational, although in the short to medium term is
intended only to have an effective capacity of approximately 120,000 orders per week. Assuming the
construction of the second CFC begins in the first quarter of 2011, and, to the extent necessary,
appropriate financing is obtained, the Group would expect to begin operating the second CFC by the end
of 2012 at the earliest. Further details about the increasing capacity of the existing CFC and the planned
second CFC are set out in section 7.5 below.
Ocado intends to open an average of two new Spokes per year in the medium term. These Spokes are
primarily intended to increase delivery capacity and to improve the efficiency of deliveries in areas of high
customer density. New Spokes may also be used to increase Ocado’s geographic coverage. Ocado
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expects to open a new Spoke in South West England in early 2011, increasing coverage by
approximately 0.5 million households. There are no further plans for geographic expansion in the near
future.
4.4 Explore further growth opportunities
Ocado may, in the appropriate circumstances:
•
extend its product range further into non-grocery products. Ocado already has a non-food range but
typically focuses on general grocery merchandising and only a small percentage of the products sold
by Ocado are items which fall outside the core grocery range (such as a limited amount of toys and
cookware). The Directors recognise that many areas of non-grocery online retail are already well
served, and do not currently intend to enter many of these markets. Nevertheless, Ocado has the
distribution capacity and customer base to offer a more extensive range of non-grocery products
such as baby products, health and beauty and kitchenware; and
•
exploit and evaluate other opportunities including the possibility of replicating the Ocado business
model overseas.
5.
Reasons for the Offers and use of proceeds and other resources
The Directors believe that the Offers, and the admission of the Ordinary Shares to the premium listing
segment of the Official List, will assist in positioning the Group for its next stage of development. The
Company expects to receive primary proceeds net of fees and expenses (but including the cash received
from the exercise of warrants and options) of £200 million from the issue of the New Ordinary Shares at
the Offer Price pursuant to the Offers. All of the funds received from the issue of New Ordinary Shares will
initially be held on deposit, with approximately £45 million expected to be used within six months of
Admission to repay some of the Group’s existing debt.
On Admission, the Company will have total credit facilities (including the New Facility) of approximately
£197 million, excluding the expected repayments of approximately £45 million. This includes £177 million
of committed credit facilities, of which the £100 million of debt funding available under the New Facility will
be undrawn and available for investment, and approximately £20 million of undrawn credit lines available
for asset financing.
In the medium term, the balance of the net proceeds of the Offers of approximately £155 million received
by the Company, together with the undrawn debt facilities and credit lines of approximately £120 million
and the cash flow generated by its operations, will be used:
•
to invest approximately £80 million in the existing CFC in order to increase effective capacity from
approximately 105,000 to approximately 180,000 orders per week;
•
to develop existing Spokes and establish new ones. This is to increase Ocado’s capacity and,
depending on the relevant Spoke’s location, either increase geographic penetration or improve
delivery economics by increasing the number of deliveries per van per week. Based on CFC capacity
and customer demand, Ocado expects to establish an average of two new Spokes per year at an
average estimated cost of between £1 million and £5 million per Spoke per year in the medium term.
Therefore the Group expects to invest between £2 million and £10 million per year in the medium
term establishing new Spokes;
•
to purchase a site and fund the estimated total construction cost and related fit-out spend of
approximately £210 million to build the second CFC (costed at a sterling : euro exchange rate of
£1 = e1.10). If required, the Company believes that it will be able to procure additional funding for
completion of the construction and fit-out of the second CFC through additional finance leases and
other forms of debt; and
•
for general corporate purposes.
Furthermore, the Directors believe that Admission will:
•
enhance the profile of the Group with existing and potential suppliers and customers;
•
provide an additional incentivisation mechanism for retaining existing and attracting future
employees and promote co-ownership amongst them; and
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give the Selling Shareholders an opportunity to realise some of their investment in the Group and
provide all Shareholders with a market for their Ordinary Shares going forward.
If, the Company is not able to agree pricing or it is unable to raise net proceeds of £200 million, Admission
will not occur. The Underwriting and Selling Shareholders’ Agreements are conditional on Admission.
The auditor’s report on the Statutory Financial Statements of Ocado Limited for the 52 weeks ended
29 November 2009 was unqualified but included an emphasis of matter relating to going concern on the
basis of the uncertainty of the Group’s future funding, since the £200 million of net proceeds from the
offers of shares (the ‘‘Offers’’) and the ability of the Group to be able to draw down on the new bank facility
(the ‘‘New Facility’’) could not be taken into account when forming that opinion. That uncertainty will be
resolved on the receipt by the Company of £200 million of net proceeds from the Offers and the Group
being able to draw down on the New Facility and therefore there is no emphasis of matter contained in the
Accountant’s Report on the Historical Financial Information contained in Part V(A) of this document.
Financial impact of the Offers
A pro forma statement of net assets illustrating the hypothetical effect of the Offers on the Group’s net
assets as at 16 May 2010 as if the net proceeds of £200 million from the Offers had been received at that
date is set out in Part VI (A) (Unaudited Pro Forma Financial Information). This information is unaudited
and has been prepared for illustrative purposes only. It shows that net proceeds from the Offers of
£200 million would have led to a pro forma increase in net assets, from net liabilities of £36.9 million to net
assets of £164.2 million as at 16 May 2010.
Had the net proceeds of £200 million from the Offers been received on 30 November 2009, the resulting
impact on earnings would have been to reduce losses for the 24 weeks ended 16 May 2010 by the
amount the Group would have received as interest on the £200 million of net proceeds from the Offers.
6.
History and development
Ocado was founded by Tim Steiner, Jason Gissing and Jonathan Faiman as L.M. Solutions (UK) Limited
in January 2000 before changing its name to Ocado Limited in June 2001. In October 2000, Ocado
entered into its first branding and sourcing arrangements with Waitrose.
Ocado began to equip a temporary warehouse in May 2001, began pilot deliveries in October 2001 and
started its commercial delivery service in January 2002, operating initially in the small Hertfordshire area
of St. Albans and Hemel Hempstead. Ocado’s delivery area expanded rapidly, and by May 2002 Ocado
began to deliver in North London. Over its first 12 months Ocado’s delivery area increased from an initial
100,000 households to approximately 2,200,000 households, and gross sales rose to £440,000 per week
in December 2002.
In September 2002, Ocado opened its CFC in Hatfield, and in January 2003 it centralised all warehousing
operations within it. Ocado’s first Spoke was opened in Weybridge, Surrey in September 2002, followed
by further Spokes in Aylesford, Kent in August 2003 and Rugby, Warwickshire in October 2003. These
latter Spokes were subsequently replaced with Spokes in Dartford and Coventry respectively.
During the period 2004 to 2009, Ocado opened additional Spokes in Manchester, Southampton, Leeds
and White City (London).
Since inception, Ocado has invested significant management, operational and financial resources in
developing its business processes, infrastructure, brand and customer offering. Key recent
developments include:
•
increasing the available product range from approximately 8,500 SKUs in the financial year ended
1 December 2002 to over 20,000 currently;
•
introducing Tesco Price Match and the Ocado own-label grocery range in 2008;
•
introducing the Service Counter – an online butcher and fishmonger – in 2009;
•
improving the delivery options available to customers in 2008 and 2009 by introducing one-hour
delivery slots on the hour and half hour, the Ocado Delivery Pass, Ocado Reserved and Sunday
deliveries; and
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launching the Ocado on the Go iPhone application in July 2009, the equivalent Android application in
April 2010 and the iPad application in June 2010.
Investment to date has been financed through borrowings, equity investment and finance and operational
leases.
From FYE 2007 to FYE 2009, Ocado’s gross sales have grown at a CAGR of 21 per cent., to
£427 million†. As at March 2010, Ocado had a single CFC, seven Spokes, approximately 700 vans and
55 LGVs, and can provide its services to approximately 17.3 million households, being approximately
66 per cent. of UK households.
Historical investment
In 2000, in exchange for an investment of £35 million of capital, John Lewis acquired 40 per cent. of
Ocado’s share capital and became its largest shareholder. On 5 November 2008, John Lewis transferred
its shareholding in Ocado to the John Lewis Pension Fund. Responsibility for the shareholding now rests
with the trustees of the John Lewis Pension Fund rather than the management of John Lewis and
Waitrose.
Since 2000, Ocado has raised more than £230 million of additional equity capital from a number of
sources other than John Lewis. John Lewis participated in Ocado’s equity capital funding rounds between
2000 and 2004, and at one point held interests equivalent to approximately 45 per cent. of the capital of
Ocado. As a result of not participating in any further funding rounds until 2009, and by redeeming a
convertible instrument it held, the John Lewis Pension Fund currently holds a 26.5 per cent. shareholding
in the Company’s issued share capital as at 5 July 2010 (the latest practicable date prior to the publication
of this document). Neither John Lewis nor Waitrose has any other direct or indirect equity interest in
Ocado.
7.
Ocado’s current operations
7.1 Customer offering
Ocado’s customers
Ocado had over 1 million registered accounts as at 16 May 2010, of whom over 240,000 were active
customers (defined as having shopped within the previous 12 weeks). Over 134,000 of these customers
placed orders in the previous two weeks.
Ocado’s customers are independent of Waitrose, in that Waitrose has no access to Ocado’s customer
information, and Ocado markets to them using its own brand name. There is likely to be a large crossover
of customers who shop with both Ocado and Waitrose, however there is large crossover with other
supermarket operators as well. Over 85 per cent. of Ocado’s new customers, when surveyed from
1 January 2010, indicated that they had previously shopped predominantly with supermarkets other than
Waitrose.
Ocado gathers relatively little demographic information about its customers through their ordinary use of
Ocado’s service because it respects its customers’ privacy and to maintain as simple a customer
interface as possible. Nevertheless, through voluntary surveys of customers conducted in 2009, Ocado
has established that its typical customer is female, around 40 years old and has an above average
household income. A significant number of Ocado’s customers also have families with young children.
However, as Ocado’s product offering evolves and its geographic reach extends, these demographics
are broadening.
Ocado’s delivery footprint covers approximately 66 per cent. of UK households. Ocado started in the
South East of England and therefore has the highest penetration levels in this area. Within the South East
of England, some postcode sectors have penetration levels above seven per cent., which means that in
an average week, over seven per cent. of all households in that area receive a delivery from Ocado. For
example, in P1-6 2010, the average weekly penetration in the top five postcode sectors in which Ocado
had the deepest customer penetration ranged from 6 to 9 per cent. of households in those sectors.††
†
The Group defines gross sales as sales (net of returns), including charges for delivery, before deducting relevant vouchers/
offers and value added tax. Gross sales is not a measure of operating performance under IFRS-EU and an investor should not
consider it as an alternative to any other measure of performance under generally accepted accounting principles.
††
Ocado defines weekly penetration as the percentage of households in a given postcode sector who shopped with Ocado in a
given week. The range shown represents the weekly penetration, averaged over the 24 weeks to 16 May 2010, for each of the
households in the five postcode sectors.
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Moreover, Ocado has found that its sales in areas of high penetration continue to grow, notwithstanding
their levels of penetration, due, amongst other things, to the ever improving customer proposition, the
reinforcing effect of van presence, word-of-mouth and existing customers shopping more frequently. To
date, there has been no evidence of areas reaching a ceiling on penetration. For example, in the top five
postcode sectors, sales grew at between 22 and 27 per cent. during 2009.
Ocado has expanded from the South East of England with Spokes in Coventry, Manchester,
Southampton and Leeds. These Spokes have grown successfully and demonstrate strong demand
outside the South East of England. For example, the growth in the average number of orders per week
from FYE 2008 to FYE 2009 was 150 per cent. in a postcode sector in West Yorkshire and 284 per cent. in
a postcode sector in North Yorkshire in the same period. Approximately half of Ocado’s orders in FYE
2009 were delivered outside the M25.
From FYE 2007 to FYE 2009, the Directors estimate that Ocado’s delivery footprint (measured as
households in Ocado’s delivery footprint as a percentage of households in the UK) increased from 57 per
cent. to 66 per cent.
In FYE 2009, a customer’s average order was £115.94 (unaudited) (£119.38 in P1-3 2010 (unaudited))
and consisted of approximately 55 products. New customers typically have an average order size that is
below the average for all customers, increasing to the average order size over a number of orders. The
average order size varies across the Spokes, although the average order size delivered from any one
Spoke is typically no more than 10 per cent. lower or higher than the average across the Business.
Ocado prides itself on its customer service and has achieved high customer satisfaction levels. In recent
surveys by Which? Magazine, Ocado has been ranked consistently highly in terms of quality, accuracy
and delivery (Source: Which? Magazine June 2009 and February 2010). Ocado has received numerous
awards, including: Online Retailer of the Year (2005, 2007, 2009 and 2010 Grocer Gold Awards),
Customer Technology of the Year 2010 (BT Retail Week Technology Awards), Best Retail Website 2007
(Retail Systems Awards) and Company Driver Safety Award 2010 (Brake Road Safety Awards).
Website
The current version of the Website is its fourth iteration, with the fifth iteration currently under
construction. On logging onto the Website, customers can create or edit an order. All product lines are
easily searchable (with the Website displaying photographs of almost all products) and on searching for a
type of product, particular items that the customer has ordered before are clearly displayed.
A number of features on the Website make it an attractive and helpful website for customers to use.
These features include:
•
for almost every product, displaying back of packet details such as ingredients and allergy
information and, where relevant, a use-by date and nutritional information;
•
‘‘Your instant shop’’, is a list of grocery items generated automatically by the Website which a
customer (with a shopping history) can order with one click or edit before ordering. Instant orders are
an algorithm-generated prediction based on the customer’s historical ordering patterns;
•
displaying all items that a customer has ordered before that are currently on promotion;
•
‘‘Did you forget’’ prompts to customers, before checking out, to add products which they may have
neglected to order. These prompts are based on many of the same criteria on which instant shops
are based, in particular, referring to a customer’s historical ordering patterns to anticipate which
items a customer may be running or have run out of;
•
‘‘Recommended to you’’ are recommendations to customers based on (i) items ordered by other
customers that regularly order similar items to them or (ii) which are connected to items that they
have ordered before or which are in their current basket;
•
allowing customers to review and rate products and displaying those reviews and ratings to other
customers in the product information; and
•
providing recipe suggestions for particular products, along with the ability to order all of the other
ingredients required for that recipe with a single click.
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All of these features help to improve customer satisfaction (and increase sales). It is extremely important
for any internet retailer that its website be available as near to constantly as possible. Since FYE 2007,
the Website has had over 99 per cent. up-time.
Depending on the customer’s delivery address and time of intended delivery, a customer may amend an
order at any time up to nine hours before delivery.
In addition to placing orders through the Website, customers are also able to place and amend orders
through the Ocado on the Go application (using an iPhone (or an iPod Touch device), iPad or Android
smart phone). The iPhone application was launched in July 2009 and the Android application in April
2010. The Android mobile system supports the use of speech recognition and barcode scanning as
alternative ways for a customer to search for products. These applications represent the most consumerfacing software developments created by Ocado’s in-house team since the Website, and are
representative of Ocado’s efforts to improve and innovate customer service through the use of IT.
The iPhone application has been downloaded over 170,000 times. Approximately 6 per cent. of orders
during April 2010 were placed or amended using the Ocado on the Go application. No other UK online
grocery retailer sells its products through a dedicated iPhone, iPad or Android application.
In June 2010 Ocado won Customer Technology of the Year for Ocado on the Go at the BT Retail Week
Technology Awards 2010.
Delivery options
Approximately 15 per cent. of Ocado’s customers are able to request same day delivery provided that
their order is placed by approximately 10.30 a.m. that day; otherwise Ocado offers a next day delivery
service. Customers may also place orders for delivery up to 21 days in advance. Deliveries are made on
Mondays to Saturdays in the entire delivery area and, in respect of approximately 71 per cent. of the
households served by Ocado, Sundays as well. Ocado’s service is only unavailable on six Sundays and
three UK bank holidays (and occasional half days either side of certain UK bank holidays) each year
which are reserved for carrying out maintenance to the CFC. All deliveries are made in one-hour time
slots chosen by the customer: time slots are offered starting on the hour and on the half-hour. Deliveries
start at either 6.00 a.m. or 7.00 a.m. (depending on the areas being delivered to) and continue until
11.30 p.m. (that is, for 16 and a half or 17 and a half hours per day), except on Sundays when deliveries
are made between 6.00 a.m. and 3.00 p.m. (9 hours).
By comparison, a sample conducted in London on 8 May 2010 showed that Tesco.com and ASDA.com
only offered two hour time slots, in the case of Tesco.com from 9.00 a.m. until 11.00 pm (14 hours per
day) and in the case of ASDA.com from 10.00 a.m. until 10.00 p.m. (12 hours per day). Sainsburys.co.uk
did offer one-hour delivery slots, but delivered only from 10.00 a.m. until 10.00 p.m. (12 hours per day).
WaitroseDeliver, which currently operates predominantly outside the M25, offered some one hour and
some two hour delivery slots, from 9.00 a.m. until 10.00 p.m. (13 hours per day). This meant that Ocado
offered 27 daily slots (except on Sundays), double that of any of its competitors.
Ocado charges customers between nothing and £6.99 for deliveries (except in the week before
Christmas when delivery charges are higher to manage demand), and customers must place a minimum
order value of £40. In addition to placing orders on an ad hoc basis, customers are offered two options
(which may be used together or independently):
•
Ocado Delivery Pass, where instead of paying delivery fees on each order, customers can have all of
their deliveries for a fixed regular fee (currently £9.99 per month or £109.99 for the year). If used
regularly, Ocado Delivery Pass cuts the cost of deliveries for customers and encourages them to
shop more frequently. The Directors believe that the Ocado Delivery Pass improves customer
retention and has driven the frequency and total value of the orders of this customer set; and
•
Ocado Reserved, which is a free service allowing customers to reserve permanently the weekly
delivery slot of their choosing. The Directors believe that Ocado Reserved also improves customer
retention and order frequency. The Ocado Reserved service also incorporates the ‘‘instant order’’
function, so a customer can opt for an entirely automated weekly shop.
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Product freshness and stock control
Key to Ocado’s customer offering is the availability of the products offered and their freshness when
delivered to the customer. Customers’ receipts are arranged by use-by date to underpin the message of
the guaranteed freshness of the products ordered. As described below, these are achieved through the
aggregation of Ocado’s operations and its bespoke software operational systems.
Aggregation refers to the centralised volumes of products which are processed for delivery at the CFC. As
described above, the Directors believe that the CFC generates revenue equivalent to approximately 25
average sized Waitrose stores. Unlike 25 individual stores, however, the CFC operates a single stock
control system.
Ocado’s inventory system records all available stock in the CFC and the planned arrival times of future
ordered stock. Since Ocado has only online customers, it has a record of all the items ordered at any
given time, and is therefore able to indicate on the Website to other customers placing their orders which
items will be in stock and available for the delivery slot selected by the customer. Ocado calls this feature
‘‘Availability to Promise’’ or ‘‘ATP’’ and believes that it significantly reduces the amount of substitution and
non-availability of items ordered by customers.
Ocado’s inventory system (including ATP) is managed by the in-house developed ‘‘Utopia’’ software
system. Utopia generates sales forecasts for each product item and replenishment recommendations. It
actively measures the performance of its own forecasts, the fulfilment level of suppliers and the product
life received from suppliers, using these data to determine an optimum amount of contingency that should
be ordered for each item. The more accurate a forecast becomes the less contingency Utopia will
recommend; this increases product life for customers and the availability of products on the Website while
at the same time ensures low stock levels in the CFC. High selling items such as certain fruits are often
delivered to the CFC and on-delivered to customers on the same day. As described above, the efficiency
of this system resulted in flat stock levels in FYE 2009 as compared with FYE 2008, despite the increase
in order numbers from FYE 2008 and the increase in the range of SKUs stocked.
As described, the centralisation of all inbound and outbound activities in the CFC means that Ocado does
not need to receive interim deliveries to regional distribution centres before the on-delivery of products to
stores for sale to customers. This reduces the amount of time it takes for a product to reach a customer
from the supplier compared to a traditional supermarket and also goes, therefore, to improving product
freshness.
Combined, these factors allow Ocado to guarantee product freshness to its customers.
7.2 Product offering
Ocado sells Waitrose own-label, Ocado own-label, John Lewis own-label and third party-branded
products via the Website. Of the approximately 20,000 products sold by Ocado, over three-quarters are
not supermarket own-label products. Of the remainder, approximately 4,300 are Waitrose own-label, and
approximately 70 are Ocado own-label. The Sourcing Agreement with Waitrose allows Ocado to provide
substantially the same product range as a Waitrose store (in fact, the Directors believe that the Ocado
range is over 2,000 SKUs larger than the grocery offer in the largest Waitrose supermarket).
The Ocado own-label products are currently predominantly basic grocery items. However, the Directors
intend to expand this range considerably. The Ocado own-label range is priced around the level of the
mainstream own-label brands of Ocado’s competitors. 41 per cent. of all orders placed in 2010 contained
at least one Ocado own-label product, and this number increases to 61 per cent. for new customers
placing an order with Ocado for the first time.
Ocado introduced a new service called the Service Counter in 2009. The Service Counter is effectively an
online butcher and fishmonger, through which customers are able to specify the size and specific cuts of
meat and fish they would like to order.
The Directors intend to expand the range of SKUs sold by Ocado to approximately 23,000 by the end of
2010 with eventual expansion thereafter to over 30,000 products by both increasing Ocado’s range of
own-label core grocery products as well as its ranges of slower selling and specialist SKUs. Ocado’s
range already includes certain speciality products such as regional ales, artisan breads and fresh kosher
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meat, and the Directors intend to increase the range of slower selling and specialist SKUs to include
products such as a wider range of oriental and Asian foodstuffs and other speciality products. Although
these products may only comprise a small percentage of certain customers’ total orders, Ocado believes
that by stocking such products, customers who wish to buy them are more likely to buy the rest of their
groceries from Ocado as well.
Ocado’s business model enables it to stock this ‘‘long tail’’ of slower moving items more efficiently than its
competitors. Products tend to have to be stocked by supermarkets in minimum quantities because of the
inefficiencies of breaking up a tray of products prior to their delivery to the store. If a traditional
supermarket chain wants to stock a slow moving product in a store, it would have to stock that minimum
quantity in that store, even if that quantity of product was likely to take a long time to sell in that one store.
This often makes stocking slow moving items with a short shelf life (such as fresh kosher meat)
uneconomic for stores in many supermarket chains.
Ocado, on the other hand, needs to order that minimum quantity of slow moving product only once for the
CFC to service its entire delivery area. As described above, the Directors believe that the revenue
generated by the CFC is equivalent to approximately 25 average sized Waitrose stores. The effect of
aggregating sales in a single CFC therefore allows Ocado to stock slow moving products efficiently and
without the same risk of uneconomic wastage.
7.3 Marketing, promotion and pricing
Ocado’s marketing activities focus on rewarding and incentivising existing customers and attracting new
ones.
Ocado has a good understanding of its existing customers’ buying habits through its web-based customer
contact. This permits highly focused and cost-effective marketing, whilst respecting customers’ privacy.
Ocado uses predominantly targeted (and often personalised) direct marketing, such as emails to existing
and lapsed customers and vouchers to reward them. It also uses vouchers to entice new customers or
reward existing ones.
New customers are attracted through less targeted marketing, such as media advertising, although
Ocado uses comparatively little of this as the proliferation of Ocado’s vans creates a significant visual
presence. Ocado also attracts new customers by offering vouchers both to them and to existing
customers who have recommended them.
In FYE 2009, Ocado spent approximately 1 per cent. of gross sales on marketing (P1-3 2010:
1.1 per cent.).
Ocado aims to price its goods competitively. To this end, it established Tesco Price Match in 2008. Under
this policy, each week Ocado compares and price matches branded goods sold by Tesco plc on the
Tesco.com website. This price match applies to the standard retail price of identical products only and
excludes temporary promotions. Each price-matched product is flagged on the Website. These prices are
re-checked, usually weekly, and the date and time when the most recent price check was begun is
displayed. Data are collected for Ocado by an independent price comparison consultancy to produce a
list of Tesco.com products and prices.
As described above, the introduction of Ocado own-label groceries reflects Ocado’s aim of providing its
customers with value for money. The Directors believe that the Ocado brand has been positioned to
appeal to customers on a unified platform of quality, convenience, value, range and service.
7.4 Relationship with Waitrose and the sourcing of products
Ocado, Waitrose and John Lewis first entered into the Sourcing Agreement and the Branding Agreement
on 13 October 2000.
The key benefit to Ocado of the Sourcing Agreement and Branding Arrangements has always been that
they give Ocado access to Waitrose own-label and third party-branded products on the same terms
(including cost price) as Waitrose sources them. Ocado also benefits from the premium and quality
associations of the Waitrose brand. The arrangement allows Ocado to choose to participate in certain
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promotional activities arranged by Waitrose with suppliers (although the parties are free to arrange their
own promotional activities as well).
The relationship is, the Directors believe, beneficial for Waitrose as well. Aggregating Ocado’s sales with
its own gives Waitrose increased purchasing power and, as described below, Waitrose receives a
sourcing fee in respect of Ocado’s sales of products that it sources through Waitrose. Since Ocado
operates in a number of areas in which Waitrose has no stores, Ocado also extends the geographic reach
of the Waitrose brand.
In 2000, in exchange for these sourcing arrangements and an investment of capital, John Lewis acquired
40 per cent. of Ocado’s share capital and became its largest shareholder. Only Waitrose had the right to
terminate the arrangements.
The 2000 sourcing arrangements were subsequently renegotiated as follows:
•
negotiations took place in 2005, as a result of which Ocado agreed to pay Waitrose a sourcing fee on
the retail price (excluding VAT) of all products sourced through the Waitrose arrangements. Under
this renegotiation Waitrose undertook not to exercise its termination rights for so long as the sourcing
fee was being paid;
•
a significant renegotiation took place in 2008 as part of the transfer by John Lewis of its shareholding
to the John Lewis Pension Fund. Significant terms agreed in the 2008 Agreement included:
•
•
the extension of the agreement to September 2013;
•
the increase of the sourcing fee;
•
the variation of various provisions restricting the operation of the WaitroseDeliver service inside
the M25. These restrictions were varied from the terms previously contained in the
shareholders’ agreement between the parties; and
•
the ability for Ocado (but not for Waitrose) to terminate the sourcing arrangements early without
cause if it wished; and
further negotiations to extend the term of and make further changes to the arrangements took place
in May 2010 resulting in the 2010 Agreement. The current arrangements, resulting from these
changes, are described below (and set out in more detail in section 17.1 of Part XIII (Additional
Information)). Pursuant to the 2010 Agreement Ocado agreed to procure that the Company would
pay John Lewis a fee of £850,000 following Admission in recognition of the support provided to the
Business by John Lewis and in partial reimbursement for the costs incurred by the John Lewis
Pension Fund (of which John Lewis is sponsor) in respect of the Offers.
Terms of the Sourcing Agreement and Branding Arrangements
The Sourcing Agreement will expire on 1 September 2020, although either party may terminate the
agreement early by giving the requisite notice, the earliest termination can take place in these
circumstances is 1 March 2017. Under the Sourcing Agreement, Waitrose acts as Ocado’s sourcing
agent for the negotiation and entry into of Ocado’s supply requirements. Ocado is then able to place its
orders for goods with the relevant supplier on the terms obtained by Waitrose. In return, Ocado pays
Waitrose a sourcing fee.
Ocado has the right to stock and sell all goods and products in the assortment of grocery products
stocked by Waitrose supermarkets (subject to certain limited exceptions) (the ‘‘Waitrose assortment’’). If
Ocado wishes to introduce a new product not included in the Waitrose assortment then it may develop the
product itself or source it directly from a third party (provided that the product does not carry a brand of
certain Waitrose competitors). The exception to this is where the product Ocado wishes to stock is not
included in the Waitrose assortment but is a product in a range that is included, such as different flavours
or varieties of a product range already stocked by Waitrose. In these circumstances Ocado must offer
Waitrose a right of first refusal to source such products for it.
Ocado is under no obligation to offer Waitrose a right of first refusal to source products for the Ocado
own-label range. Ocado already stocks a number of Ocado own-label products which it sources directly
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from suppliers and is in discussions with other third party suppliers for the supply of further Ocado
own-label products.
The mutual obligations on Ocado to source through Waitrose and on Waitrose to source for Ocado mean
that approximately 98.5 per cent. of SKUs sold (by value) are currently sourced under the sourcing
arrangements. Of these, currently approximately 85 per cent. of goods by volume are delivered to the
CFC directly by the supplier, with whom Ocado agrees its own delivery and billing arrangements. This
85 per cent. comprises goods from approximately 350 different suppliers, of which 150 are suppliers of
Waitrose own-label products. Only the remaining 15 per cent. are delivered to the CFC directly by
Waitrose.
Of the goods sold by Ocado, 10 suppliers (excluding Waitrose) make up approximately 23 per cent. of the
goods sold by Ocado (by value) with 20 suppliers (excluding Waitrose) accounting for approximately
33 per cent.
For the reasons described above, the Directors believe that the sourcing relationship is mutually
beneficial for the parties. In addition, the Directors believe that the range of products sourced from
Waitrose contributes to an attractive customer offering.
If the relationship between the parties were to cease, through either the current agreements not being
renewed or an earlier termination, the Directors believe that Ocado now has sufficient scale to operate
autonomously, although clearly it would no longer be able to supply Waitrose own-label products. If this
were to occur, the Directors recognise that Ocado would need adequate time to prepare by increasing the
size of its current procurement team, approaching suppliers to build standalone relationships and
carrying out necessary marketing work with customers which would involve an additional expense for the
Business.
It should be noted that the termination or notice of termination of the Sourcing Agreement and Branding
Arrangements in any circumstances is an event of default under the New Facility. However, with the
exception of the change of control termination right described in paragraph 1.4 of the Risk Factors
section, which is customary for an agreement of that type, the Company is in control of whether any such
termination rights will arise.
7.5 The CFC
At present, Ocado has one CFC, based in Hatfield, which has a footprint of 295,000 square feet and an
internal 4-floor mezzanine across more than half of the building.
The CFC operations are divided between inbound and outbound activity.
Inbound
The inbound activities cover receiving goods from suppliers, checking volumes, weights, date-codes and
quantities and physically putting products away in the correct locations for picking. These activities are
the supermarket equivalent of delivering goods in bulk to a regional distribution centre, unpacking them
and then delivering them in smaller quantities to the store room of individual stores, then putting them on
to the supermarket shelves, and then replenishing the shelves from the back of the store whenever the
supplies run low.
A combination of barcode scanning and human input tells the warehouse management system (‘‘WMS’’)
about the quantity and expiry date of each product received. Groceries may be stored on the same pallets
on which they are received or decanted into smaller storage totes or trays. Except for a small minority of
items, once received the products are not manually handled as they move from the inbound area to their
final storage locations through a combination of automated conveyors and cranes. The precise location
for each product is determined by a bespoke product layout system, which uses a neural network to
predict picking speeds for individual products according to their location and physical characteristics, and
thereby optimises the throughput of each picking aisle.
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Outbound
Each customer’s order is allocated a number of plastic crates or ‘‘totes’’ into which plastic bags are placed
to receive the order. Each order comprises approximately four totes. The totes are transported through
the CFC using automated conveyors, some of which run at up to 7,200 totes per hour. The totes stop at
various points in the CFC for items to be placed in them to make up the order. Chilled and frozen goods
are packed in separate totes so that they remain at the correct temperature until delivered to the
customer. Each item is scanned before being put into a bag to ensure the accuracy of the order.
The WMS also instructs the picker to place items in a specific bag within the tote ensuring that products
likely to damage each other are separated and that Ocado complies with product segregation regulations.
This removes the requirement for bags to be arranged by pickers manually. Scanning also allows the
WMS to track which member of staff picked which items of a customer’s order, providing both a detailed
audit trail for each customer order and statistics to drive picking speed and accuracy. The final stage
within the CFC involves first buffering the totes so that all totes are lined up to be loaded onto the correct
van, then loading the totes into delivery frames which fit into the back of the delivery van or long goods
vehicle. Barcode scanning of each tote and delivery frame ensures that the correct orders are loaded into
the correct vehicle for each route, and are arranged in the van to ensure correct weight distribution over
the course of the delivery.
The WMS also controls the workload at each picking station, and regulates staff breaks to ensure staffing
optimisation.
Ocado has, since 2008, operated an Order Storage and Retrieval (‘‘OSR’’) machine, which stores
approximately 7,000 product lines in high racking that is not accessible to CFC staff, relying entirely on
automation both to put away and retrieve the products.
Further capacity
The Directors believe that the CFC currently has the effective capacity to process approximately 105,000
orders per week. In FYE 2009, Ocado processed an average of 70,873 orders per week (P1-3 2010:
81,823). In the week commencing 10 May 2010, the CFC processed more than 100,000 orders for the
first time in a single week. This requires the ability to pick over a million items at the CFC in a single day.
To ensure efficient allocation of capital resources, the order processing capacity of the CFC has never
been significantly higher than the maximum number of orders predicted in a given period.
The Directors believe that the CFC will ultimately have the effective capacity to process approximately
180,000 orders per week (assuming similar trading hours and weekly delivery profiles currently
experienced, and assuming also that the necessary capital expenditure can be made). The approximate
expenditure required to achieve this expansion is an additional £80 million of which £30 million is required
to reach a capacity of 150,000 orders per week.
The CFC’s capacity is described in terms of ‘‘effective’’ capacity. The CFC’s daily output capacity is
approximately 18,800 orders per day. Theoretically, therefore, the CFC has a current capacity in excess
of 130,000 orders per week. However, a disproportionately high percentage of customer orders are for
delivery on Mondays, Fridays and Saturdays. Therefore, the ‘‘effective’’ capacity of 105,000 assumes
near maximum delivery numbers on Mondays and Fridays, and fewer deliveries during the rest of the
week. To have an effective capacity of 130,000 orders per week, the CFC would in fact need to be able to
process significantly more than 18,800 orders per day on peak days. Ocado’s estimates of future CFC
capacity are based on the assumption that the ‘‘shape’’ of the distribution of customer orders across the
week remains approximately the same as currently.
The second CFC
Ocado is in negotiations to purchase the land for, commission, build and fit out the second CFC to
increase both the geographic reach of the Business and the capacity at which it operates. The Group
does not expect to begin operating the second CFC until the end of 2012 at the earliest (assuming
construction begins in the first quarter of 2011 and, to the extent necessary, appropriate financing is
obtained).
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The second CFC is expected to become fully operational over a number of years by gradually moving
some volume from the existing CFC and serving new customer growth. The Directors expect that on
becoming operational the second CFC will have an effective capacity of 120,000 orders per week
(although it will not process this number of orders from opening). Once fully operational, the second CFC
is expected to have an effective capacity of 180,000 orders per week, although moving from 120,000 to
180,000 orders will require further capital expenditure. The full cost of reaching effective capacity of
180,000 orders per week is currently estimated to be approximately £210 million (costed at a sterling :
euro exchange rate of £1 = e1.10). The second CFC will be funded by the net proceeds of the Offers and
the other resources available to the Company including the cash flow generated by its operations and the
New Facility. If required, the Company believes that it will be able to procure additional funding for
completion of the second CFC through finance leases and other forms of debt.
Once the second CFC is fully operational, the fulfilment of customer orders will be distributed between the
two CFCs. While Ocado’s overall capacity to fulfil customer orders will approximately double, each of the
CFCs is expected initially to operate below its effective capacity, but at a level which enables each site to
run efficiently.
The second CFC will use substantially the same technology and software as found in the existing CFC.
However, since this technology and software will represent the latest iterations of Ocado’s technology
and software, and will not have to undergo years of iterations as they did in the current CFC, the
development process is expected to be more efficient than developing the current CFC has been.
Subject to the second CFC opening in line with the Directors’ expectations, the Directors expect that, on
opening, orders delivered from the second CFC will have a two to three per cent. higher EBITDA margin
(pre-CFC fixed costs) than the existing CFC. This, they believe, will be due to reduced trunking costs,
minimal incremental administrative expenses and higher productivity (off-set by higher wastage). The
Directors expect this margin to increase further as the number of orders delivered from it increases.
The plans for the development of the second CFC are predicated on the Business growing at the rate that
the Directors expect. To the extent that it does not grow as quickly as expected, the second CFC may not
become operational until later than expected, or may never become operational.
For a more detailed description of the capital expenditure required in developing the second CFC and the
Directors’ expectations in respect of it, see section 6.3 of Part IV (Operating and Financial Review).
7.6 Spokes
Deliveries in much of Greater London, Hertfordshire, Bedfordshire, Essex, South Cambridgeshire,
Buckinghamshire, East Oxfordshire, East Berkshire, East Northamptonshire and a small section of North
Surrey are mostly made directly from the CFC and the orders for customers in these areas are loaded
directly onto delivery vans. Deliveries to these areas accounted for approximately 32 per cent. of all
deliveries in P1-6 2010. Deliveries to customers in other areas are made via the Spokes. These orders
are loaded from the CFC into LGVs. Each LGV carries either 7.5 or 12 vans’ worth of orders; they are
arranged in delivery frames in the LGV so that they can be easily trans-shipped at the Spokes into
delivery vans for the final delivery to the customer. This process is more efficient than individual delivery
vans delivering to customers throughout the country from Hatfield. The Group intends to move, over time,
from a fleet of predominantly single deck LGVs to one of double decks. This will allow for cost efficiency
savings in fuel and direct labour as well as reducing the number of LGVs required since the double deck
LGVs can hold more orders than single deck LGVs.
The Spokes increase both the geographic range of the Ocado service and the efficiency with which
deliveries can be made by allowing a single route driven by one van to encompass more deliveries.
The Spokes themselves are small warehouses used as transhipment facilities, where the delivery vans
for the local area are based. Each Spoke has refrigerated storage space so that arrival of the loaded LGV
does not have to coincide precisely with the totes being picked up by the delivery vans, allowing deliveries
to be made at the times requested by customers.
Each Spoke covers deliveries within a certain area. To some extent, the boundaries between these areas
can be adjusted to optimise the delivery loads on individual vans, to account for changes in demand and
to try to minimise the effect on customers of disruption at any Spoke.
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The CFC and the seven current Spokes (in Weybridge, Dartford, Coventry, Manchester, Leeds,
Southampton and White City) are capable of serving approximately 17.3 million UK households
(approximately 66 per cent. of UK households).
Ocado intends to open two additional Spokes each year on average in the medium term to increase the
capacity of the Business. This will be achieved either by building new Spokes in areas already served by
the Business, thus increasing the capacity of the Business in those areas, or by building in areas not
currently served by the Business. Typically, Ocado would expect each new Spoke to have the capacity for
between 10,000 and 25,000 incremental weekly deliveries and cost between £1 million and £5 million
depending, amongst other things, on its location, the infrastructure on the site and tenure.
A number of the Spokes are approaching their current maximum capacities. The Group is taking various
steps to address this to ensure that Spoke capacity grows with the Business and various development
opportunities at existing Spokes and potential new Spoke sites have been identified. The total capacity of
the existing Spoke network is approximately 130,000 orders per week. The Directors estimate that less
than £1 million capital expenditure would be required to increase this to approximately 150,000 orders per
week. The Group intends to open a new Spoke in South West England in early 2011, increasing coverage
by approximately 0.5 million households.
The map below illustrates the location of the CFC (Hatfield) and each of the Spokes, together with the
geographic coverage of the Business.
2JUN201021422256
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7.7 Delivery
Routing systems
Key to the efficiency of Ocado’s delivery solution is its in-house developed routing system. This software
calculates an optimised delivery route for each van for each journey it makes. Included in its calculations
are:
•
the location and timing of each delivery;
•
the weight and volume of each order being delivered;
•
expected traffic conditions (for example, the software will know which roads are typically busier
during the school run);
•
the typical parking time at each customer’s location;
•
the expected duration of the delivery itself;
•
road speed adjustments for extreme weather conditions;
•
the speed at which the vans can safely travel; and
•
the need for each driver to take a break over the course of their delivery run.
In order to produce an optimised route, the software is capable of iterating approximately 2.5 million
changes to the delivery schedule per second.
The routing software continues to be improved. Recent developments have delivered significant
improvements to the number of drops per route a driver can make, and reduced the time customers wait
to be advised of available delivery slots during the ordering process on the Website.
With Ocado’s vans travelling an average of over half a million miles each week, optimisation of the routing
software is a significant driver of the overall efficiency of the Business. Each incremental improvement in
routing has, therefore, the ability to drive considerable overall efficiencies. In the period from FYE 2007 to
FYE 2009, average deliveries per van per week increased from 99 to 121 due in part to improved routing
systems. This has meant that during that period, while the average number of weekly orders grew from
49,968 to 70,873, an increase of 42 per cent., the yearly average number of vans increased from 506 to
587, an increase of only 16 per cent.
The routing software works in tandem with the Website to ensure that customers are offered delivery slots
that ensure timely delivery and allow Ocado to make its deliveries as efficiently as possible. The routing
systems allow Ocado to offer customers considerable choice over delivery slots, especially in areas of
high penetration. In addition, customers will not be offered particular slots if the software calculates that it
would be unable to deliver to that location at that time reliably or efficiently, and customers are
encouraged to take particular slots through differential pricing. Customers are also offered ‘‘green’’ slots
to help reduce Ocado’s carbon footprint by optimising the delivery route.
Ocado’s Vans
The Ocado fleet of over 700 vans uses the Mercedes Sprinter model, with various modifications. These
modifications are unique to Ocado and have been developed by it in collaboration with a van customiser,
Paneltex Limited (‘‘Paneltex’’), and Mercedes-Benz, over the last nine years. The back section of each
van has two separate compartments, one of which is refrigerated, so that chilled, frozen and ambient food
can be carried to the customer at the right temperature. Ocado owns 25 per cent. of the share capital of
Paneltex and has the right to appoint (and has appointed) a director to its board. This enables the Group
to gain a better understanding of developments in the light vehicle market and, in the past, to ensure that
this key supplier is sufficiently funded.
Ocado spends considerable amounts of time with engineers from Paneltex and Mercedes-Benz working,
amongst other things, to improve the load-carrying capacity of its vans. Measures to improve the capacity
have included removing the passenger seat and various unnecessary internal panels. The maximum
weight that vans may carry is governed by law.
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Ocado leases all of its vans from either Mercedes-Benz Charterway or Lombard, other than a small
number that it owns outright and uses for training purposes. Van leases typically last for five or six years
and end on a staggered basis so that the van fleet is constantly being renewed. Newly leased vans (which
tend to have a higher load capacity than the older ones) are rolled out at the busiest Spokes, with each
Spoke’s vans then being sent down to the next busiest Spoke, the oldest vans being retired on reaching
the end of their leases. Thus the vans at each Spoke are on a rolling programme of renewal.
Separately, two electric vans are currently being trialled at the White City Spoke.
Last mile solution
All Ocado vans are equipped with a removable on-board computer (the Panasonic U1), referred to within
the Business as the ‘‘handheld device’’. The handheld device:
•
includes a satellite navigation system which allows drivers to pinpoint the exact address of and find
the quickest route to each customer on their route;
•
functions as a tracking system allowing the Ocado customer services team to locate each van on a
near real time basis;
•
directs drivers to the position of the relevant totes in the van at each delivery;
•
stores relevant customer and order details and provides bespoke functionality allowing the driver to
offer excellent customer service. For example, if a customer has any complaints about their order (for
instance, they are not happy with a substitution), the order can be edited and the total cost adjusted
immediately by the driver using the handheld device, rather than the customer having to apply for a
refund at a later date (Ocado does not charge customers until the drivers return to the Spoke, when
the final order details are uploaded from the handheld device); and
•
can be used to update a customer’s details (for example, with specific directions on finding a
customer’s address or how long it takes to park outside the customer’s house).
All of these functions of the handheld device improve the efficiency of the service offered, reduce the
scope for error and improve customer satisfaction.
A combination of the dedication of Ocado’s delivery personnel and the functionality of the handheld
device ensures that there is relatively little post-delivery adjustment to customers’ orders. According to
Ocado’s management information, items delivered exactly as ordered was approximately 99 per cent. in
each of FYE 2007, FYE 2008, FYE 2009 and P1-3 2010.
An IT project is currently underway to develop further the software for the handheld device to enable
dynamic tracking of the vans, provide advance warning of vans that are running behind schedule and
improve functionality for the drivers, such as displaying potential parking places as they approach a
customer location.
December 2009 and January 2010 saw periods of prolonged and settled snow in much of the UK. During
these periods, the Business coped well, with 98.7 per cent. of orders still being delivered on the day
intended (compared to an average week of 99.99 per cent.). Subsequently, winter tyres have been
acquired for the delivery fleet to try to ensure even better performance in future cold snaps.
8.
Intellectual Property and Information Technology
IT Systems and interaction with the Business
Ocado has a dedicated in-house software design and development team and uses increasingly less
software supplied by third parties. Many of the IT systems that Ocado has developed provide solutions to
problems for which off-the-shelf IT solutions either do not exist or are inadequate for the Business.
Ocado’s 160-strong in-house IT team has written entire software packages such as the slot booking and
delivery optimisation system, the package for the handheld device and the majority of the software for the
WMS and the Website (including the Ocado On the Go applications). For this reason, IT research and
development forms an important facet of Ocado’s strategy.
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Ocado’s in-house software development team continually improves Ocado’s software systems. One
advantage of having an in-house team is that it can communicate directly and regularly with the staff using
the software and tailor it precisely to the Business’s needs. In FYE 2009 there were almost daily new
software releases developed by the in-house team. Many developments related to further improving the
CFC control systems.
The intellectual property for some software used within the Business is held by third parties. This includes
commodity software, such as Oracle Financials and Microsoft Office, and software published under free
and open source software licences, such as the GNU Public Licence or the Apache Licence. The Group
also uses certain bespoke third party software, principally for historic reasons. This includes Dispatcher
(the underlying software in the WMS), and parts of the database schemas underlying the Website and
supply chain systems. Modifications made to the original Dispatcher source code by (i) Ocado; (ii) the
software provider at Ocado’s request; or (iii) Ocado and the software provider together, are jointly owned
by Ocado and the software provider.
Charges over the IT Systems
Ocado’s key IT Systems, including software and intellectual property, are subject to a charge in favour of
Lloyds TSB Bank plc pursuant to Ocado’s facility with Lloyds TSB Bank plc. When that facility is repaid,
those IT Systems will be subject to a charge in favour of Barclays Bank PLC as security trustee for the
New Facility. Both facilities are more fully described in section 17.3 of Part XIII (Additional Information).
Other intellectual property
Ocado’s key brand is the Ocado name itself, which is used both as a plain word and in its stylised form
together with the Ocado logo. Ocado’s portfolio of registered trade marks includes a series of UK and
European marks which protect both the Ocado name and the Ocado name and logo in addition to a
number of other trade marks. Ocado also owns a number of domain name registrations, including
www.ocado.com but does not own any other registered rights (for example, patents or trade mark
registrations outside the EU).
Ocado’s sub-brands and other branding material, such as slogans, logos, colours and designs are also
featured on the Website and in Ocado marketing. These materials are not protected by registered rights,
but some protection may be afforded by unregistered design rights, unregistered trade marks and
copyright.
The Waitrose brand and Waitrose trade marks also feature in Ocado marketing and on the Website and
are licensed by Waitrose under the Branding Arrangements, more fully described in section 17.1 of
Part XIII (Additional Information).
Charges over other intellectual property
Ocado’s registered trade marks and future registrations, unregistered brands and the domain name
www.ocado.com are subject to a mortgage under two separate security agreements both dated
11 September 2008, one in favour of Barclays Bank PLC and one in favour of Barclays Mercantile
Business Finance Ltd.
Data centre, resilience and disaster recovery
Ocado has invested in building a data centre with standardised and scalable hardware, which provides
onsite failover and an offsite disaster recovery facility located approximately 1 mile from the CFC.
Ocado historically hosted the Website and applications offsite in a commercial data centre. In 2007 and
2008 Ocado invested £1.1 million in a new primary data centre located next to the CFC. This facility hosts
all applications and the Website. The data centre is maintained by the in-house IT operations team.
This facility has been designed so that a hardware failure on a live operational application will failover to
either alternative hardware within the data centre or in the disaster recovery facility. Failover tests on the
majority of databases were successfully completed during the first quarter of 2010.
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Resiliency to power failure is provided by uninterrupted power supplies, the CFC’s diesel generators and
a dedicated data centre generator. This power failure equipment is tested monthly and should support
operations for at least two days.
In the event of a disaster, Ocado’s business continuity plans will be invoked and the data centre
applications can be hosted from an offsite IT room in the HQ building, which is approximately one mile
from the CFC. This facility currently supports standby database servers, storage and network links, and is
in the process of being expanded so that it can support all systems in the event of a disaster.
In addition, the IT department operates an on-call rota to ensure that IT operational issues can be dealt
with on a timely basis with minimal disruption to the Business.
Ocado’s wide area network has three major locations (the CFC, head office site and the data centre).
Each location has network connections to the other two, as a contingency against a failure in a single link
or site. Ocado has dual internet connections: one provided by BT into the headquarters building and the
other by NTL/Virgin into the CFC.
Ocado’s network security employs common enterprise level hardware. In addition, Ocado contracts a
third party to complete regular independent security testing on its network and systems.
9.
Ocado’s people
Ocado’s staff are key to its Business and are the most visible part of the Business to its customers. Ocado
aims, therefore, to achieve high levels of employee satisfaction in order to achieve high levels of
performance. Ocado aims to do this in the following ways:
•
Co-ownership: all of Ocado’s staff are granted share options in the Company (as described in
more detail in section 11.1 of Part XIII (Additional Information)). To this end it is hoped that the
Offers will prove attractive to employees, providing them with a liquid market for any Ordinary
Shares they hold (or will hold when they exercise their share options).
•
Empowerment: Ocado’s staff, in particular its van drivers (referred to as ‘‘customer services
team members’’ or ‘‘CSTMs’’) as the only face-to-face contact between customers and the
Business, are empowered to make decisions, such as amending customer orders and invoices
in the customer’s home, refunding damaged items and accepting rejections of substitutions.
•
Training: Ocado staff are well trained. Pickers (referred to as ‘‘personal shoppers’’), before
starting work in the CFC, undertake a one-week training course and receive periodic refresher
courses and training in new methods as necessary. CSTMs are fully trained by Ocado in-house
and work to make sure the delivery process works smoothly and efficiently. The CSTM training
is a customer-focused programme, which seeks to ensure that the face-to-face contact with
customers at their homes exceeds customers’ expectations and provides an additional selling
point for the Business. This includes factors such as delivering groceries into the customers’
kitchens, confirming whether the customer is satisfied with any substitutions and asking the
customers whether they have any plastic bags for recycling.
•
Incentivisation: In addition to co-ownership, personal shoppers are rewarded with higher pay
the more productive they are. Similarly, CSTMs are given bonuses based on various factors
including customer satisfaction. All weekly paid staff receive an increase in their hourly pay rate
on each anniversary of the start of their employment for the first five years of their employment,
which is aimed at encouraging staff loyalty.
•
Engagement: A national Ocado Council and four subsidiary constituency Councils have been
established to represent the views of Ocado’s staff to senior management. Ocado does not have
recognition agreements with any trade union, although Ocado is currently in negotiations with
Usdaw over its request for recognition as the trade union for all non-managerial Ocado
employees employed at the CFC. These negotiations are taking place under the Trade Union
and Labour Relations (Consolidation) Act 1992. The Group is aware of other trade unions
having informally approached its employees at some of its Spoke sites, although has received
no direct communications from them.
59
Part I
Information About the Company
The Directors would prefer the turnover of staff at Ocado to be lower, but do not consider staff turnover to
be a cause for concern. The measures described above are all aimed at keeping staff turnover at a
manageable level.
For a breakdown of the number of staff employed by the Group in FYE 2007, FYE 2008 and FYE 2009,
please see note 8 in Part V (Historical Financial Information relating to the Group). All of Ocado’s
employees are employed in the UK.
The average number of employees employed by Ocado during P1-6 2010 was 4,135.
Ocado is committed to the principle of equal opportunity in employment. No applicant or employee
receives less favourable treatment on the grounds of nationality, age, gender, religion, disability, race or
sexual orientation.
10. Environmental awareness
Ocado was voted Green Retailer of the Year 2009 in The Grocer Gold Awards, Large Retailer of the Year
2008 in the Online Green Awards and won Ethical/Green Practice 2009 at the IMRG E-Commerce
Awards for Excellence.
A traditional supermarket requires deliveries first to be made to a regional distribution centre and then to
the supermarket itself. Customers then often drive to the supermarket in order to shop, and the
supermarkets themselves require energy to be lit and heated and tend to have open fridges and freezers
in an otherwise ambient environment.
Ocado delivers straight from the CFC to a customer’s kitchen, which eliminates much of the carbon
emissions generated by traditional supermarkets and their stores, and also reduces the number of cars
on the road. Each Ocado delivery van replaces a significant number of car journeys every day.
Other measures taken by Ocado to lower its carbon footprint and reduce its environmental impact
include:
•
closed-loop grocery bag recycling, whereby when making a delivery, drivers offer to collect used
bags from customers which are recycled within the UK to make new Ocado grocery bags;
•
wasting, the Directors believe, significantly less food as a percentage of gross sales than any of its
competitors; and
•
signing up to the Climate Change Agreement (with the Carbon Trust), which places certain
obligations on management to monitor and lower carbon usage.
Ocado has co-developed two prototype electric powered vans, which are currently completing testing
before being introduced into Ocado’s delivery fleet.
11. Research and development
As described above, the Group’s research and development primarily focus on IT and improvements to
the CFC and the material handling equipment in it. In addition, the Company dedicates research and
development resources to the other elements of the Business. The research and development team
actively investigates ways of making the Business more efficient. The team regularly attends trade shows
and tours the warehouse facilities of existing and potential goods suppliers and those of non-competing
companies.
The team also ensures that it maintains a close relationship with its goods suppliers and its facilities and
technology suppliers, helping it to pick up on supplier innovations and, where relevant, carry out joint
research on areas of mutual interest. For example, Ocado has worked actively with one of the suppliers of
the conveyor systems used in the CFC to develop technology that allows tote traffic on two conveyors to
merge onto a single conveyor at a rate of 3,600 totes per hour, approximately 50 per cent. higher than the
industry standard.
60
Part I
Information About the Company
12. Regulation
Ocado’s obligations as an online grocer include the safe and careful handling of products from receipt at
the CFC through to delivery to the customer’s home. Ocado has a health and safety department with
managers dedicated to the CFC and the delivery operation, respectively.
Ocado also has a food hygiene department, and procedures are monitored closely to ensure the
protection of product safety, quality standards and compliance with all food law. Scheduled internal and
external audits are conducted by qualified food technologists to ensure procedural compliance and
adherence with Ocado’s Hazard Analysis Critical Control Point system. This is a system that identifies,
evaluates, and controls hazards that are significant for food safety, taking account of the Food Safety Act
1990, the Food Hygiene (General) Regulations 1995 and the Food Hygiene (Temperature Control)
Regulations 1995.
Ocado operates a fleet of 55 LGV tractors and approximately 90 LGV trailers under its Operator’s Licence
issued by the UK Vehicle and Operator Services Agency. Road Transport legislation and regulations
determine the maximum load that the LGVs and vans can carry, and the maximum number of hours a
driver can work in a 24 hour period.
61
PART II
DIRECTORS
The Directors of the Company are:
•
•
•
•
•
•
•
•
•
•
•
•
Michael Grade (Non-Executive Chairman)
David Grigson (Non-Executive Director and Senior Independent Director)
Tim Steiner (Chief Executive Officer)
Neill Abrams (Director of Legal and Business Affairs)
Andrew Bracey (Chief Financial Officer)
Jason Gissing (Director of People, Culture and Communications)
Ruth Anderson (Non-Executive Director)
Robert Gorrie (Non-Executive Director)
Jörn Rausing (Non-Executive Director)
David Young (Non-Executive Director)
Patrick Lewis (Non-Executive Director)
Michael Robarts (Non-Executive Director)
The business address of each Director is Titan Court, 3 Bishops Square, Hatfield Business Park, Hatfield,
Hertfordshire AL10 9NE.
Michael Grade is non-executive chairman and joined the Board in 2006. He has had a long and
distinguished career in broadcasting, encompassing ITV, BBC and 9 years as Chief Executive of
Channel 4 Television. He is currently non-executive chairman of Pinewood and Shepperton Film Studios.
Michael sits on the nomination committee.
David Grigson is a non-executive Director and joined the Board in March 2010. He was Chief Financial
Officer of Reuters Group PLC until May 2008. Prior to joining Reuters in 2000, he was group finance
director of Emap PLC and chairman of Emap Digital. His current non-executive directorships include
Standard Life PLC (which he joined in October 2009) and he is chairman of Creston PLC. Until March
2010 he was a non-executive director of Carphone Warehouse PLC. David is the Senior Independent
Director on the Board and sits on the audit committee and chairs the nomination committee.
Tim Steiner is the Chief Executive Officer and is a founding Director. As well as having general oversight
of the Business, the IT, logistics and engineering, warehousing, operations, business planning and retail
divisions of Ocado report directly to him. Prior to Ocado, Tim spent eight years as a banker at Goldman
Sachs. During his time there, he was based in London, Hong Kong and New York in the Fixed Income
division. Tim graduated from Manchester University with an honours degree in economics, finance and
accountancy in 1992.
Neill Abrams is Director of Legal and Business Affairs and has been a Director since September 2000.
He is responsible for Ocado’s business support, including legal, insurance, risk management, and service
delivery divisions. Prior to Ocado, Neill was a barrister in practice at One Essex Court and an executive
director and counsel at Goldman Sachs in London. Neill graduated from Sidney Sussex College,
Cambridge with a masters degree in law in 1989, having previously obtained BA and LLB degrees from
the University of the Witwatersrand in Johannesburg. He is also admitted as a member of the New York
Bar and as a South African Advocate.
Andrew Bracey joined the Ocado Board as Chief Financial Officer in November 2009 and previously had
an 18 year career in investment banking with a significant focus on the consumer and retail sector. Prior to
Ocado, he was Head of Consumer and Retail Investment Banking at Jefferies International. Andrew was
at Barclays Capital from 2003 as Managing Director, Principal Investments which undertook a number of
consumer and retail investments, including Somerfield and Alliance Boots. Between 2000 and 2003 he
was a Managing Director in the Investment Banking division of Credit Suisse. Andrew started his career
at UBS in 1991, where he ran the Retail team in Corporate Finance and advised a number of retail
companies including Kingfisher, Dairy Farm and Somerfield. He studied history of architecture at
Magdalene College, Cambridge, having previously obtained a BA from the University of East Anglia.
62
Part II
Directors
Jason Gissing is Director of People, Culture and Communications and is a founding Director. He has
board responsibility for Ocado’s people, culture and communications and is a co-founder of Ocado. He
leads customer and employee engagement, working on internal and external communication including
brand and people motivation, retention and development. In addition, Jason leads Ocado’s green
initiatives and some operational aspects of the business such as service delivery and product range. He
was previously Chief Financial Officer. Prior to Ocado, Jason spent eight years as a banker at Goldman
Sachs. He graduated from Worcester College, Oxford with an honours degree in jurisprudence in 1992.
Ruth Anderson is a non-executive Director and joined the Board in March 2010. Until April 2009 she was
a Vice-Chairman of KPMG in the UK. She joined KPMG in 1976 and became a partner in 1989. She has
worked extensively as an adviser with UK and international businesses and is a fellow of the Institute of
Chartered Accountants in England and Wales and a member of the Chartered Institute of Taxation. Ruth
is a non-executive director of The Royal Parks, an executive agency of the Department of Culture, Media
and Sport, a trustee of The Eve Appeal, a gynaecological cancer charity, and a trustee of the Duke of
Edinburgh’s Award. Ruth chairs the audit committee and sits on the remuneration and nomination
committees.
Robert Gorrie is a non-executive Director. From April 2000 until early 2005, Robert was Ocado’s
Logistics Director. He was previously Group Director of Information Technology at Transport
Development Group PLC (‘‘TDG’’), reporting directly to the Group Chief Executive. He has a wealth of
experience in IT and logistics services more generally. Robert spent 10 years with TDG, establishing
e-business as a strategic business priority. Prior to that he spent 10 years in North America with the
logistics service business Christian Salvesen PLC, where he reached the position of Director of Business
Development before moving to TDG. Robert graduated from Corpus Christi College, Oxford with an
honours degree in modern history and economics. Robert sits on the audit, remuneration and nomination
committees.
Jörn Rausing joined the Board in 2003 with the initial investment by Apple Trust (of which he is a
beneficiary) in Ocado. He is a non-executive member of the Tetra Laval Group board, and a member of
the boards of Alfa Laval AB and DeLaval Holdings AB. Jörn is also Tetra Laval Group’s Head of Mergers
and Acquisitions. He holds a degree in business administration from Lund University, Sweden. Jörn sits
on the nomination and remuneration committees.
David Young is a non-executive Director and joined the Ocado Board in 2000 with the initial investment
in Ocado by John Lewis. He retired from John Lewis in 2002 where he was deputy chairman. David
previously worked for the Ministry of Defence between 1963 and 1982 with a secondment to the Cabinet
Office from 1975 to 1977. David joined John Lewis in February 1982, where he became finance director
and a member of the board in 1987 and was appointed deputy chairman in February 1993. David served
as an independent member of the steering board of Companies House from 1988 to 1993. He was
treasurer of the Open University from 1997 until 2001, and a member of its council from 1996 until 2001.
He was a trustee of the Royal Air Force Museum from 1999 until 2005, a trustee of the Textile Industry
Children’s Trust from 2000 to 2008 and a member of the advisory panel of Greenwich Hospital from 2002
to 2007. David was the chairman of the Higher Education Funding Council for England from 2001 to 2007.
He is currently the treasurer of the Soil Association and a member of the council of Sheffield University.
David was appointed CBE in 2007. David chairs the remuneration committee and sits on the audit and
nomination committees.
Patrick Lewis is a non-executive Director and was appointed to the Board by the John Lewis Pension
Fund. Patrick joined the Board in October 2009. Having previously worked for Bain & Company and
Proctor & Gamble, Patrick joined the John Lewis Partnership in 1994. He has been Supply Chain Director
and Retail Operations Director for John Lewis and is now Partners’ Counsellor on the John Lewis
Partnership Board. Patrick sits on the nomination committee.
Michael Robarts is a non-executive Director and was appointed to the Board by the John Lewis Pension
Fund. Michael joined the Board in January 2010. Michael previously worked for Hewitt Associates,
advising major occupational pension schemes, including the John Lewis Pension Fund. He was
appointed a director of the John Lewis Pension Fund following his retirement from Hewitt in 2009. Prior to
joining Hewitt in 1999, he was employed by N M Rothschild & Sons (as a director from 1977) and
subsequently by Fleming Investment Management from 1989. He is a Chartered Accountant. Michael will
step down from the Board following Admission. Michael currently sits on the nomination committee.
Except as described in section 13.2 of Part XIII (Additional Information) all non-executive Directors are
deemed by the Company to be independent.
63
PART III
SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected historical consolidated financial information relating to the Group has been
extracted without material adjustment from the historical financial information included in Part V of this
Prospectus.
Also included below is certain unaudited operating information which has been derived from information
extracted from management accounts and internal financial and operating reporting systems and not
from the historical financial information included in Part V of this document for the periods described.
The selected financial and unaudited operating data set out below should also be read in conjunction with
Part IV (Operating and Financial Review) and Part V (Historical Financial Information Relating to the
Group) of this Prospectus.
In this Selected Historical Financial Information, references to ‘‘P1-3 2009’’ and ‘‘P1-3 2010’’ refer to the
12 weeks ended 22 February 2009 and 21 February 2010, respectively. References to ‘‘FYE 2007’’, ‘‘FYE
2008’’ and ‘‘FYE 2009’’ refer to the 52 weeks ended 2 December 2007, 30 November 2008 and
29 November 2009, respectively.
Certain figures contained in this document, including financial information, have been subject to rounding
adjustments. Accordingly, in certain instances (i) the sum or percentage change of such numbers may not
conform exactly with the total figure given; and (ii) the sum of the numbers in a column or a row in certain
tables may not conform exactly with the total figure given for that column or row.
1.
Consolidated income statement data of the Group
The table below sets out the consolidated income statement data of the Group for FYE 2007, FYE 2008,
FYE 2009, P1-3 2009 and P1-3 2010:
FYE 2007
FYE 2008
FYE 2009
P1-3 2009
(unaudited)
£ million
P1-3 2010
£ million
£ million
£ million
Continuing operations
Revenue . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . .
£ million
272.9
(184.9)
321.3
(218.5)
402.0
(279.2)
84.6
(58.9)
110.2
(76.9)
Gross profit . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . .
Distribution costs . . . . . . . . . . . . . .
88.0
0.6
(93.5)
102.8
1.8
(101.1)
122.8
2.6
(110.3)
25.7
0.5
(24.6)
33.3
1.2
(28.3)
Operating profit/(loss) before
administrative expenses . . . . . .
Administrative expenses . . . . . . . . .
(4.9)
(25.1)
3.5
(25.2)
15.1
(29.5)
1.6
(6.2)
6.2
(8.1)
Operating loss . . . . . . . . . . . . . . .
Finance income . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . .
(30.1)
0.8
(10.9)
(21.6)
0.1
(11.8)
(14.4)
—
(11.1)
(4.6)
—
(2.7)
(1.9)
—
(2.1)
Loss before tax . . . . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . .
(40.2)
—
(33.3)
—
(25.5)
2.3
(7.2)
—
(4.0)
—
Loss for the period attributable to
the owners of the Group . . . . . .
(40.2)
(33.3)
(23.2)
(7.2)
(4.0)
pence
pence
pence
pence
pence
(12.12)
(9.77)
(6.05)
(1.92)
(0.99)
(1)
Loss per share
Basic and diluted loss per share . . .
(1)
Loss per share is calculated by dividing the loss attributable to equity holders by the weighted average number of Ordinary
Shares and Preference Shares in issue during the period excluding 32,476,700 Ordinary Shares held by the EBT Trustee,
adjusted to reflect the conversion of Ocado Limited Ordinary Shares and Ocado Limited Preference Shares to Ordinary
Shares and Preference Shares on a 1:100 basis on 9 February 2010.
64
Part III
2.
Selected Historical Financial Information
Consolidated balance sheet data of the Group
The table below sets out the consolidated historical balance sheets of the Group as at the dates indicated.
2 December
2007
£ million
Non-current assets
Intangible assets . . . . . . . . . . . .
Property, plant and equipment . . .
Deferred tax asset . . . . . . . . . . .
Available-for-sale financial assets
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
As at
30 November
21 November
2008
2009
£ million
£ million
21 February
2010
£ million
6.8
89.9
—
0.4
7.0
90.5
—
0.4
6.7
90.3
2.3
0.4
6.9
90.1
2.3
0.4
97.1
98.0
99.6
99.8
8.3
9.2
10.9
9.1
12.0
5.9
9.2
14.7
13.0
9.5
15.5
10.4
28.4
27.0
36.9
35.4
Total Assets . . . . . . . . . . . . . . . . . . . . .
125.6
125.0
136.6
135.2
Current liabilities
Trade and other payables . . . . .
Borrowings . . . . . . . . . . . . . . .
Convertible loan stock . . . . . . .
Obligations under finance leases
(33.2)
(0.9)
—
(5.1)
(40.3)
(15.0)
(14.5)
(10.0)
(47.2)
(12.1)
—
(19.7)
(46.5)
(27.8)
—
(19.3)
(39.2)
(79.8)
(79.0)
(93.5)
Net current liabilities . . . . . . . . . . . . . .
(10.8)
(52.8)
(42.0)
(58.1)
Non-current liabilities
Borrowings . . . . . . . . . . . . . . .
Convertible loan stock . . . . . . .
Obligations under finance leases
Derivative liability . . . . . . . . . . .
Provisions . . . . . . . . . . . . . . . .
(46.3)
(33.1)
(49.7)
(1.0)
(0.2)
(28.4)
—
(53.7)
(1.1)
(0.2)
(42.7)
—
(45.7)
(1.1)
(0.4)
(28.2)
—
(46.3)
(1.1)
(0.4)
(130.3)
(83.4)
(89.8)
(76.0)
(43.9)
(38.2)
(32.2)
(34.4)
.
.
.
.
.
.
—
241.1
—
—
8.2
(293.2)
—
281.6
—
—
1.1
(321.0)
—
310.8
—
—
—
(343.0)
8.7
—
(47.7)
(116.2)
—
120.9
Deficit attributable to equity holders . . .
(43.9)
(38.2)
(32.2)
(34.4)
Current assets
Inventories . . . . . . . . . . . . . . . . . . . . . . .
Trade and other receivables . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Net liabilities . . . . . . . . . . . . . . . . . . . .
Equity
Share capital . . . . . . . . . . . . . .
Share premium account . . . . . .
Treasury reserve . . . . . . . . . . .
Reverse acquisition reserve . . .
Convertible loan interest reserve
Accumulative (deficit)/surplus . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
65
Part III
3.
Selected Historical Financial Information
Consolidated cash flow data of the Group
The table below sets out the consolidated cash flow statement data of the Group for FYE 2007, FYE
2008, FYE 2009, P1-3 2009 and P1-3 2010:
FYE 2007
FYE 2008
£ million
Cash flow from operating activities
Loss before income tax . . . . . . . . . .
Adjustments for:
Depreciation expense . . . . . . . . . .
Amortisation expense . . . . . . . . . .
Impairment of property, plant and
equipment . . . . . . . . . . . . . . . .
Provisions for dilapidations expense
Share-based payments charge . . . .
Finance costs . . . . . . . . . . . . . . .
Finance income . . . . . . . . . . . . . .
Changes in working capital:
(Increase)/decrease in inventories .
(Increase)/decrease in trade and
other receivables . . . . . . . . . . .
Increase/(decrease) in trade and
other payables . . . . . . . . . . . . .
£ million
FYE 2009
£ million
P1-3 2009
(unaudited)
£ million
P1-3 2010
£ million
(40.2)
(33.3)
(25.5)
(7.2)
(4.0)
17.6
2.4
19.8
3.9
17.9
4.7
4.0
1.0
4.3
1.0
0.6
—
0.2
10.9
(0.8)
0.1
—
0.1
11.8
(0.1)
1.0
0.2
0.1
11.1
—
—
—
—
2.7
—
—
—
—
2.1
—
(1.1)
(0.8)
(0.1)
0.9
(0.3)
1.9
(2.8)
(2.7)
(1.2)
(0.7)
(9.7)
6.6
10.1
(3.2)
(0.8)
Net cash inflow/(outflow) from
operations . . . . . . . . . . . . . . . . .
Finance costs paid . . . . . . . . . . . . .
(18.1)
(8.1)
5.3
(9.0)
16.8
(12.7)
(3.0)
(2.8)
1.7
(2.1)
Net cash inflow/(outflow) from
operating activities . . . . . . . . . . .
(26.2)
(3.7)
4.1
(5.8)
(0.4)
(19.6)
(15.7)
(15.2)
(5.5)
(1.6)
0.2
(3.4)
2.0
—
(4.1)
0.1
—
(4.4)
—
—
(0.9)
—
—
(1.2)
—
(20.7)
(19.8)
(19.6)
(6.3)
(2.8)
30.2
25.2
(10.6)
17.9
8.0
(11.1)
29.1
25.1
(28.4)
—
2.1
(0.6)
1.7
3.0
(1.8)
10.0
9.0
7.1
5.1
1.8
(7.9)
(5.3)
(10.3)
(1.6)
(4.1)
46.8
18.4
22.7
5.0
0.7
Cash flow from investing activities
Purchase of property, plant and
equipment . . . . . . . . . . . . . . . . .
Proceeds from sale of property, plant
and equipment . . . . . . . . . . . . . .
Purchase of intangible assets . . . . . .
Finance income received . . . . . . . . .
Net cash used in investing
activities . . . . . . . . . . . . . . . . . .
Cash flow from financing activities
Proceeds from the issue of ordinary
share capital . . . . . . . . . . . . . . . .
Proceeds from borrowings . . . . . . . .
Repayment of borrowings . . . . . . . .
Proceeds from asset based financing
arrangements . . . . . . . . . . . . . . .
Repayment of obligations under
finance leases . . . . . . . . . . . . . . .
Net cash from/(used in) financing
activities . . . . . . . . . . . . . . . . . .
Net increase/(decrease) in cash and
cash equivalents . . . . . . . . . . . .
Cash and cash equivalents at
beginning of period . . . . . . . . . . .
(0.1)
(5.0)
7.2
(7.2)
(2.6)
11.0
10.9
5.9
5.9
13.0
Cash and cash equivalents/(debt)
at end of period . . . . . . . . . . . . .
10.9
5.9
13.0
(1.3)
10.4
66
Part III
4.
Selected Historical Financial Information
Non-IFRS performance measures and other operating information
The table below sets out the Group’s gross sales and EBITDA for FYE 2007, FYE 2008, FYE 2009, P1-3
2009, P1-3 2010:
FYE 2007
FYE 2008
£ million
Gross sales(1) . . . . . . . . . . . . . . .
EBITDA(2) . . . . . . . . . . . . . . . . . .
(1)
291.4
(9.5)
£ million
£ million
P1-3 2009
(unaudited)
£ million
341.0
2.2
427.3
9.2
89.6
0.5
P1-3 2010
£ million
117.2
3.4
The Group defines gross sales as sales (net of returns), including charges for delivery, before deducting relevant vouchers/
offers and value added tax. Gross sales is not a measure of operating performance under IFRS-EU and an investor should not
consider it as an alternative to any other measure of performance under generally accepted accounting principles. Because
other companies may calculate gross sales differently from the way in which the Group does, gross sales may be of limited
usefulness as a comparative measure. The following table sets out the reconciliation of gross sales to revenue:
FYE 2007
(2)
FYE 2009
FYE 2008
FYE 2009
Revenue . . . . . . . . . . . . . . . . . .
VAT . . . . . . . . . . . . . . . . . . . . .
Marketing vouchers . . . . . . . . . . .
£ million
272.9
15.2
3.4
£ million
321.3
17.1
2.5
£ million
402.0
18.8
6.5
P1-3 2009
(unaudited)
£ million
84.6
3.9
1.0
Gross sales . . . . . . . . . . . . . . . .
291.4
341.0
427.3
89.6
P1-3 2010
£ million
110.2
5.6
1.4
117.2
The Group defines EBITDA as operating profit/(loss) before amortisation expenses, impairment of property, plant and
equipment, depreciation of property, plant and equipment, net finance cost and taxation. The Directors believe that EBITDA is
useful in evaluating its operating performance because a number of companies also publish these figures as key performance
indicators. EBITDA is not a measure of operating performance in accordance with IFRS-EU. EBITDA should not be
considered a substitute for gross profit/(loss), operating profit/(loss), profit/(loss) before tax, cash flow from operating activities
or other income or cash flow statement data as determined in accordance with IFRS-EU, or as a measure of profitability or
liquidity. EBITDA is included herein as a supplemental disclosure, because the Directors believe that this measure, when
considered in connection with cash flows from operating, investing and financing activities, provides useful comparative
information to an investor and helps investors evaluate the performance of the underlying business as it removes the impact of
(1) differences in capital structure, including the effects of finance income and expenses; (2) differences in tax regimes;
(3) differences in the method of acquisition and approach to impairment testing of productive assets; and (4) differences in the
historic timing of initial investments and the corresponding differences in depreciation and amortisation charges.
However, because other companies may calculate EBITDA differently from the way in which the Group does, EBITDA may be
of limited usefulness as a comparative measure. Other limitations are: (1) EBITDA does not reflect cash expenditures, or
future requirements for capital expenditures or contractual commitments; (2) EBITDA does not reflect changes in, or cash
requirements for, working capital needs for the Group; (3) EBITDA does not reflect the finance costs, or the cash requirements
necessary to service the principal payments on the Group’s debt; (4) EBITDA does not reflect taxation or the cash
requirements for any tax payments; and (5) although impairment is a non-cash charge, the assets being impaired will often
have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements.
The following table sets out the reconciliation of EBITDA to operating loss:
FYE 2007
Operating loss . . . . . . . . . . . .
Adjustments for:
Depreciation of property, plant and
equipment . . . . . . . . . . . . . .
Impairment of property, plant and
equipment . . . . . . . . . . . . . .
Amortisation expense . . . . . . . .
. .
FYE 2008
£ million
(30.1)
£ million
(21.6)
FYE 2009
£ million
(14.4)
P1-3 2009
(unaudited)
£ million
(4.6)
P1-3 2010
£ million
(1.9)
. .
17.6
19.8
17.9
4.0
4.3
. .
. .
0.6
2.4
0.1
3.9
1.0
4.7
—
1.0
—
1.0
(9.5)
2.2
9.2
0.5
3.4
EBITDA . . . . . . . . . . . . . . . . . . .
67
Part III
Selected Historical Financial Information
The following table sets out a summary of selected unaudited operating information for the Business for
FYE 2007, FYE 2008, FYE 2009, P1-3 2009 and P1-3 2010:
Average order size (£)(1) . . . . . . .
Average orders per week . . . . . .
CFC efficiency (units per hour)(2) .
Average deliveries per van per
week . . . . . . . . . . . . . . . . . . .
Average number of operational
staff (full time equivalent) . . . . .
Average product wastage (per
cent. of gross sales)(3) . . . . . . .
Items delivered exactly as ordered
(per cent.)(4) . . . . . . . . . . . . . .
FYE 2007
(unaudited)
FYE 2008
(unaudited)
FYE 2009
(unaudited)
P1-3 2009
(unaudited)
P1-3 2010
(unaudited)
112.17
49,968
95
116.30
56,384
114
115.94
70,873
124
122.81
60,769
114
119.38
81,823
124
99
106
121
107
126
2,033(5)
2,730
3,151
3,119
3,610
1.15
0.78
0.57
0.64
0.65
98.59
99.11
99.41
99.35
98.76
Source: The information in the table above is derived from information extracted from management accounts and internal financial
and operating reporting systems and is unaudited.
(1)
Average retail value of goods a customer receives (including VAT and delivery charge) per order.
(2)
Measured as units dispatched from the CFC per hour worked by CFC operational personnel.
(3)
Value of products purged for having passed Ocado’s ‘‘use by’’ life guarantee and stock adjustments (net of sales to the
company shop), divided by gross sales.
(4)
Percentage of all items delivered exactly as ordered, i.e. the percentage of items neither missing nor substituted.
(5)
Excludes, for the period prior to their transfer to Ocado, staff working for a third-party logistics contractor who transferred to
Ocado in April 2007.
68
PART IV
OPERATING AND FINANCIAL REVIEW
The following operating and financial review is intended to convey management’s perspective on the
operating performance and financial condition of the Group during the period under review, as measured
in accordance with IFRS-EU. This disclosure is intended to assist readers in understanding and
interpreting the consolidated financial information of the Group included elsewhere in this Prospectus.
The discussion should be read in conjunction with Part III (Selected Historical Financial Information) and
Part V (Historical Financial Information relating to the Group). The Group is required to comply with
IFRS-EU, and its accounting policies have been established accordingly.
The following discussion contains forward-looking statements. The Group has based these forwardlooking statements on its current projections and expectations which the Directors consider reasonable
about future events. The Group’s actual results may differ materially from those anticipated in
these forward-looking statements as a result of many important factors, including those set forth
in the Risk Factors section in this Prospectus. See ‘‘Forward-looking Statements’’.
In this Operating and Financial Review, references to ‘‘P1-3 2009’’ and ‘‘P1-3 2010’’ refer to the 12 weeks
ended 22 February 2009 and 21 February 2010, respectively, and references to ‘‘P1-6 2009’’ and ‘‘P1-6
2010’’ refer to the 24 weeks ended 17 May 2009 and 16 May 2010, respectively. References to ‘‘FYE
2007’’, ‘‘FYE 2008’’ and ‘‘FYE 2009’’ refer to the 52 weeks ended 2 December 2007, 30 November 2008
and 29 November 2009, respectively.
Certain figures contained in this Part IV, including financial information, have been subject to rounding
adjustments. Accordingly, in certain instances, (i) the sum or percentage change of the numbers may not
conform exactly with the total figure given; and (ii) the sum of the numbers in a column or row in certain
tables may not conform exactly with the total figure given for that column or row.
Unless stated otherwise, all financial information in Part IV that relates to the Group for FYE 2007, FYE
2008, FYE 2009 and P1-3 2010 has been audited. For the avoidance of doubt, such financial information
relating to the Group does not include operating information relating to the Group, even where such
operating information includes certain financial metrics. Such operating information which is not audited
includes, without limitation, average order size and average product wastage.
None of the financial information in this Part IV relating to the Group for P1-3 2009, P1-6 2009 or P1-6
2010 has been audited, nor has any financial information not relating to the Group.
1.
Background
Ocado is the only dedicated online supermarket in the UK. Ocado provides its service from a single
warehouse, the CFC, and seven Spokes, while its competitors provide online grocery services operating
primarily out of existing stores. The Directors believe that Ocado’s business model offers a cost
advantage compared to providing online grocery services out of existing stores due to savings generated
by the automation of equivalent store operations in the CFC, the absence of regional distribution centres,
direct delivery, real-time control over stock, higher stock turn, minimisation of wastage and greater
anticipation of supply and demand.
The Group’s gross sales(1) increased from £291.4 million in FYE 2007 to £427.3 million in FYE 2009 and
from £89.6 million in P1-3 2009 (unaudited) to £117.2 million in P1-3 2010. As the volume of gross sales
has increased, the Group has been able to deliver significant improvements in the performance of both
the CFC and the delivery operations. Although the Group is not profitable on an operating profit level, the
Group achieved positive EBITDA(2) of £2.2 million and £9.2 million in FYE 2008 and FYE 2009,
respectively (FYE 2007: £(9.5) million), and £3.4 million in P1-3 2010. These improvements were
delivered while managing the increasing complexity of the operation as a consequence of the extension
of the range and services offered. The Group may continue to make losses before taxation in the future
while it pursues its growth strategy.
Ocado has operated and continuously expanded and upgraded the CFC and its delivery operations since
September 2002. The Group’s prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in new and rapidly evolving markets such as online
commerce and in particular online grocery retail. In view of the rapidly evolving nature of the Business and
Ocado’s rate of growth in prior years, the Directors believe that period-to-period comparisons of its
operating results, including the Group’s operating profit margin and cost of sales as a percentage of
revenue, should not be relied upon as an indication of future performance.
69
Part IV
Operating and Financial Review
The following table sets out a summary of the Group’s gross sales, revenue, operating loss and EBITDA
for FYE 2007, FYE 2008, FYE 2009, P1-3 2009 and P1-3 2010:
FYE 2007
FYE 2008
£ million
Gross sales(1) .
Revenue . . . .
Operating loss
EBITDA(2) . . . .
(1)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
£ million
291.4
272.9
(30.1)
(9.5)
£ million
341.0
321.3
(21.6)
2.2
427.3
402.0
(14.4)
9.2
P1-3 2009
(unaudited)
£ million
89.6
84.6
(4.6)
0.5
P1-3 2010
£ million
117.2
110.2
(1.9)
3.4
The Group defines gross sales as sales (net of returns), including charges for delivery, before deducting relevant vouchers/
offers and value added tax. Gross sales is not a measure of operating performance under IFRS-EU and an investor should not
consider it as an alternative to any other measure of performance under generally accepted accounting principles. Because
other companies may calculate gross sales differently from the way in which the Group does, gross sales may be of limited
usefulness as a comparative measure. The following table sets out the reconciliation of gross sales to revenue:
FYE 2007
(2)
FYE 2009
FYE 2008
FYE 2009
P1-3 2009
P1-3 2010
£ million
£ million
£ million
(unaudited)
£ million
Revenue . . . . . . . . . . . . . . . .
VAT . . . . . . . . . . . . . . . . . . .
Marketing vouchers . . . . . . . . .
272.9
15.2
3.4
321.3
17.1
2.5
402.0
18.8
6.5
84.6
3.9
1.0
110.2
5.6
1.4
Gross sales . . . . . . . . . . . . . .
291.4
341.0
427.3
89.6
117.2
£ million
The Group defines EBITDA as operating profit/(loss) before amortisation expenses, impairment of property, plant and
equipment, depreciation of property, plant and equipment, net finance cost and taxation. The Directors believe that EBITDA is
useful in evaluating its operating performance because a number of companies also publish these figures as key performance
indicators. EBITDA is not a measure of operating performance in accordance with IFRS-EU. EBITDA should not be
considered a substitute for gross profit/(loss), operating profit/(loss), profit/(loss) before tax, cash flow from operating activities
or other income or cash flow statement data as determined in accordance with IFRS-EU, or as a measure of profitability or
liquidity. EBITDA is included herein as a supplemental disclosure, because the Directors believe that this measure, when
considered in connection with cash flows from operating, investing and financing activities, provides useful comparative
information to an investor and helps investors evaluate the performance of the underlying business as it removes the impact of
(1) differences in capital structure, including the effects of finance income and expenses; (2) differences in tax regimes;
(3) differences in the method of acquisition and approach to impairment testing of productive assets; and (4) differences in the
historic timing of initial investments and the corresponding differences in depreciation and amortisation charges.
However, because other companies may calculate EBITDA differently from the way in which the Group does, EBITDA may be
of limited usefulness as a comparative measure. Other limitations are: (1) EBITDA does not reflect cash expenditures, or
future requirements for capital expenditures or contractual commitments; (2) EBITDA does not reflect changes in, or cash
requirements for, working capital needs for the Group; (3) EBITDA does not reflect the finance costs, or the cash requirements
necessary to service the principal payments on the Group’s debt; (4) EBITDA does not reflect taxation or the cash
requirements for any tax payments; and (5) although impairment is a non-cash charge, the assets being impaired will often
have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements.
The following table sets out the reconciliation of EBITDA to operating loss:
FYE 2007
Operating loss . . . . . . . . . . . .
Adjustments for:
Depreciation of property, plant
and equipment . . . . . . . . . . .
Impairment of property, plant and
equipment . . . . . . . . . . . . . .
Amortisation expense . . . . . . . .
EBITDA . . . . . . . . . . . . . . . .
FYE 2008
£ million
(30.1)
£ million
(21.6)
FYE 2009
£ million
(14.4)
P1-3 2009
(unaudited)
£ million
(4.6)
P1-3 2010
£ million
(1.9)
17.6
19.8
17.9
4.0
4.3
0.6
2.4
0.1
3.9
1.0
4.7
—
1.0
—
1.0
(9.5)
2.2
9.2
0.5
3.4
70
Part IV
Operating and Financial Review
The following table sets out a summary of selected unaudited operating information for the Business for
FYE 2007, FYE 2008, FYE 2009, P1-3 2009 and P1-3 2010:
Average order size (£)(1) . . . . .
Average orders per week . . . . .
CFC efficiency (units per
hour)(2) . . . . . . . . . . . . . . . .
Average deliveries per van per
week . . . . . . . . . . . . . . . . .
Average number of operational
staff (full-time equivalent) . . .
Average product wastage
(per cent. of gross sales)(3). .
Items delivered exactly as
ordered (per cent.)(4) . . . . . .
FYE 2007
(unaudited)
FYE 2008
(unaudited)
FYE 2009
(unaudited)
P1-3 2009
(unaudited)
P1-3 2010
(unaudited)
112.17
49,968
116.30
56,384
115.94
70,873
122.81
60,769
119.38
81,823
95
114
124
114
124
99
106
121
107
126
2,033(5)
2,730
3,151
3,119
3,610
1.15
0.78
0.57
0.64
0.65
98.59
99.11
99.41
99.35
98.76
Source: The information in the table above is derived from information extracted from management accounts and internal financial
and operating reporting systems and is unaudited.
(1)
Average retail value of goods a customer receives (including VAT and delivery charge) per order.
(2)
Measured as units dispatched from the CFC per hour worked by CFC operational personnel.
(3)
Value of products purged for having passed Ocado’s ‘‘use by’’ life guarantee and stock adjustments (net of sales to the
company shop), divided by gross sales.
(4)
Percentage of all items delivered exactly as ordered, i.e. the percentage of items neither missing nor substituted.
(5)
Excludes, for the period prior to their transfer to Ocado, staff working for a third-party logistics contractor who transferred to
Ocado in April 2007.
The Directors use this unaudited information to provide insight into the underlying trends in the Business.
The Directors believe that trends in gross sales and revenue are explained by the size of customer
baskets (average order size) and the number of purchases in a given week (average orders per week).
The key operational trends are explained by examining productivity of the CFC staff (CFC efficiency) and
of the delivery vehicles (average deliveries per van per week). Changes in these operational metrics
reflect changes in operational efficiency due to both operational leverage and process improvements.
Both operational metrics have shown significant improvement in recent years.
The Directors have a long-term target for efficiency of the existing CFC of approximately 180 units per
hour (compared to 124 units per hour achieved in FYE 2009) and approximately 175 average deliveries
per van per week (compared to 121 deliveries per van per week achieved in FYE 2009). These long-term
targets assume that the existing CFC has reached and is operating at its maximum effective capacity of
180,000 orders per week. The targeted improvements in CFC efficiency are expected to be driven by
improvements in technology mix through upgrading the existing equipment at the CFC and increased
automation of the picking process and continued development of more intelligent IT algorithms to
increase the efficiency of existing CFC operations. Increases in deliveries per van per week are expected
to be driven primarily by increasing efficiency due to increasing customer density (the number of Ocado
customers in any given postcode), continued development of more intelligent IT algorithms to allow
efficient allocation of driver resources and optimised route planning. These forward-looking statements
may be affected by the factors set forth in ‘‘Risk Factors’’.
The Group’s activities consist solely of the retailing and distribution of groceries and related products
within the UK. Consequently all activities relate to this one segment.
2.
Principal factors affecting results of operations
The Group’s operating and financial results are affected by a number of factors. These factors have
materially influenced the Group’s financial condition and results of operations during the periods under
review and are expected to continue to influence the Group’s financial condition and results of operations.
71
Part IV
Operating and Financial Review
2.1 Growth of the online grocery market in the UK
Estimates of the size of the UK online grocery market for 2009 vary considerably, with estimates ranging
from £2.8 billion to £5.3 billion. The Directors estimate the total market size to be closer to the lower end of
this range at approximately £3 billion. The Directors believe that the UK online grocery market has grown
and will continue to grow substantially over the next five years, fuelled by a general trend of shoppers
spending more online. See section 2 of Part I (Information about the Company) for further detail.
2.2 Increasing capacity of the Business
Ocado has expanded the effective capacity of the CFC, from early FYE 2007, when Ocado was
processing fewer than 55,000 orders per week, to the current effective capacity of approximately 105,000
orders per week. The CFC’s effective capacity takes into account Ocado’s order profile, which varies on a
daily basis with delivery peaks typically occurring on Mondays, Fridays and Saturdays. The effective
capacity of the CFC is lower than its maximum capacity, which assumes full utilisation of the CFC
throughout the week.
Ocado is continuing to expand the capacity of the CFC and plans to further expand the effective capacity
to approximately 150,000 orders per week and further to approximately 180,000 orders per week, subject
to suitable growth in order volumes and incurring necessary additional capital expenditure.
Ocado also plans to develop a second CFC to increase both the geographic reach of the Business and
the overall capacity at which it operates. The second CFC is expected to have an effective capacity to
process approximately 180,000 orders per week once fully operational and in the short to medium term it
is intended to have an effective capacity of approximately 120,000 orders per week (although it will not
process this number of orders from opening). The Group does not expect to begin operating the second
CFC until the end of 2012 at the earliest (assuming construction begins in the first quarter of 2011 and, to
the extent necessary, appropriate financing is obtained).
The second CFC is expected to become fully operational over several months by gradually moving some
volume from the existing CFC and serving new customer growth, during which time Ocado’s distribution
costs as a percentage of gross sales are expected to increase. Once the second CFC is fully operational,
the fulfilment of customer orders will be distributed between the two CFCs. While Ocado’s overall
capacity to fulfil customer orders will approximately double, each of the CFCs is expected to initially
operate below its effective capacity, but at a level which enables each site to run efficiently in terms of the
distribution costs as a percentage of gross sales and allows the Group to benefit from lower trunking and
delivery costs as a percentage of gross sales as a result of the second CFC. In connection with the
second CFC, the Group’s distribution costs as a percentage of gross sales are therefore expected to
increase initially and subsequently decrease with further growth in gross sales enabled by increased
effective capacity.
Ocado expects to establish an average of two new Spokes per year in the medium term. Typically, Ocado
would expect each new Spoke to have the capacity for between 10,000 and 25,000 incremental weekly
deliveries. Depending on the relevant Spoke’s location, it is expected either to expand the geographic
reach of the Business or improve the efficiency of deliveries in areas of higher customer density by
increasing the number of drops per van per week.
The Group’s plans to increase the capacity of the Business, especially the building and fitting-out of the
second CFC, and the timing and cost of achieving planned increases in capacity face various
uncertainties. See section 2.6 and section 6.3 of this Part IV for additional detail regarding the Group’s
planned capital investment.
2.3 Increased number of customers, orders and order size leading to revenue growth
The Group has experienced significant revenue growth due to increases in the number of customers,
orders and order size. The Group’s gross sales increased from £291.4 million in FYE 2007 to
£427.3 million in FYE 2009 and from £89.6 million in P1-3 2009 (unaudited) to £117.2 million in P1-3 2010
as a result of competitive pricing initiatives, product range extension and improved product mix.
•
The average number of active customers, which Ocado defines as customers who have placed at
least one order in the preceding 12 weeks, increased by 5.8 per cent. in FYE 2008 and by 13.9 per
72
Part IV
Operating and Financial Review
cent. in FYE 2009. This was driven primarily by increased penetration in Ocado’s existing delivery
areas. As of 16 May 2010, Ocado had over 240,000 active customers. There is a substantial
long-term retention rate of the new customers who complete several orders with Ocado following
their initial order.
•
The average number of orders per week increased from 49,968 in FYE 2007 to 70,873 in FYE 2009,
and from 60,769 in P1-3 2009 to 81,823 in P1-3 2010, with the highest number in any one week
exceeding 100,000 in the week commencing 10 May 2010.
•
The average order size, which is measured as the average retail value of goods a customer receives
including the delivery charge and value added tax, increased from £112.17 in FYE 2007 to £116.30
in FYE 2008 and declined slightly to £115.94 in FYE 2009. The average order size decreased from
£122.81 in P1-3 2009 to £119.38 in P1-3 2010. These numbers are unaudited. The increase in FYE
2008 and first half of FYE 2009 was driven primarily by improved product mix and price inflation. The
average order size decreased in FYE 2009 and P1-3 2010 due primarily to the popularity of the
Ocado Delivery Pass, which enables customers to obtain deliveries without paying delivery charges
in exchange for either a fixed annual payment or monthly subscription payments, and which
encouraged customers to shop more frequently. Customer data collected by Ocado indicates that
the order size typically increases substantially between a customer’s first and tenth order, due to
several factors, including increased confidence in online grocery shopping with Ocado.
Ocado has implemented and will continue to implement a strategy of continually improving its offering to
customers to attract long-term customers and increase gross sales:
•
Ocado has initiated competitive pricing strategies, such as Tesco Price Match in March 2008, which
have had a positive effect on gross sales, but put downward pressure on gross margin.
•
Ocado has expanded its product range from approximately 12,500 products at the end of FYE 2007
to over 20,000 products at the end of FYE 2009. Approximately 4,300 products in Ocado’s range as
of the end of P1-3 2010 were Waitrose own-label products. Sales of Waitrose own-label products
represented approximately 46 per cent. of the Group’s product sales in FYE 2009.
•
In December 2008, Ocado launched Ocado own-label products. As of the end of P1-3 2010, Ocado
offered approximately 70 Ocado own-label products. Approximately 41 per cent. of all orders during
2010 contained at least one Ocado own-label product and approximately 61 per cent. of all first time
orders contained at least one Ocado own-label product. Ocado own-label products represented
3.4 per cent. of the value of first time orders.
2.4 Increased operational efficiency and scale leading to decreasing CFC and trunking and
delivery costs as percentage of gross sales
The Group currently provides its service from a single warehouse, the CFC, unlike its competitors, which
provide online grocery services primarily out of existing stores. The Directors believe that this business
model offers a significant cost advantage compared to online grocery services out of existing stores. The
Directors believe that the cost advantage of Ocado’s business model will, over time, more than offset the
higher warehouse and delivery costs, both of which have historically declined, and the Directors believe
will decline further, as a percentage of gross sales. The Directors also believe the business model
enables Ocado to operate with higher stock turnover than its competitors.
As the volume of gross sales has increased, Ocado has been able to significantly decrease costs,
including CFC and trunking and delivery costs, as a percentage of gross sales, whilst improving service
quality and inventory performance. The improvements cover primarily operational costs, such as labour
productivity, delivery efficiency and waste. The improvements have been delivered through a mixture of
capital expenditure projects, mainly aimed at:
•
reducing labour requirements and enabling more intensive use of the advanced technological
platform supporting the Business;
•
work process and staff rostering developments to enable more efficient use of staff; and
•
a series of IT system improvements, mainly developed in-house, that have supported the operational
improvements.
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Operating and Financial Review
Approximately 44 per cent. of CFC costs were variable employment costs in FYE 2009, with the balance
primarily representing depreciation and amortisation and other fixed costs. Excluding depreciation and
amortisation costs, approximately 58 per cent. of CFC costs were variable employment costs in FYE
2009. On a per order basis, CFC employment costs are a function of the number of units in an order and
have an inverse relationship with CFC efficiency. Delivery costs are mostly variable and are primarily a
function of the number of deliveries made and the efficiency with which these orders are delivered. On a
per order basis, delivery costs generally have an inverse relationship with the average deliveries per van
per week.
Ocado increased CFC efficiency from 95 units per hour in FYE 2007 to 124 units per hour in FYE 2009, an
increase of 30.5 per cent. The average number of deliveries per van per week increased from 99 in FYE
2007 to 121 in FYE 2009, an increase of 22.2 per cent. as a result of increases in drops per route and
routes per van per week. Distribution costs, which include costs relating to the CFC and the delivery
operations, as a percentage of gross sales decreased from 32.1 per cent. in FYE 2007 to 25.8 per cent. in
FYE 2009 primarily as a function of the benefits of scale; increasing customer density; the implementation
of more efficient routing software; and increasing the number of orders that can fit in a van. These
improvements were delivered while the complexity of Ocado’s operations increased as a consequence of
the extension of the range and services offered (such as the introduction of the Service Counter) as well
as the geographic reach of the Business.
2.5 Increased geographical penetration and coverage and broadening of customer base
Ocado has increased its geographical coverage from approximately 53 per cent. of households in the UK
at the beginning of FYE 2007 to approximately 65 per cent. of households in October 2008. In March
2010, Ocado further increased its geographical coverage by approximately 0.5 million households (to
approximately 17.3 million households).
Ocado has also increased customer penetration and ordering frequency in its existing delivery areas,
which were the main drivers of the recent growth in gross sales. Ocado’s penetration is highest in areas
where Ocado has operated the longest. To date, Ocado’s penetration has continued to grow both in areas
with low and with high penetration and there has been no evidence of areas reaching a ceiling on
penetration.
According to voluntary surveys of active customers conducted in 2009, Ocado has established that its
typical customer is female, has an average age of around 40 and has an above average household
income. A significant number of Ocado’s customers also have families with young children. However, as
Ocado’s product range increases and its geographic reach extends, these demographics are broadening.
Ocado’s price initiatives, targeted marketing and the introduction of Ocado’s own-label products
contributed to the broadening of Ocado’s customer demographics.
2.6 Significant and continuing capital expenditure and investment in the Business
From 2000 through to the end of FYE 2009, the Group has made investments totalling over £200 million
to develop and expand its Business to its current scale. Over the medium term, the Group anticipates
significant capital expenditure needs for the building and fitting-out of the second CFC; continued
investment in the existing CFC to expand its capacity and increase operational efficiency; development of
new Spokes; expansion of the vehicle fleet; continued development of IT systems; and maintenance and
capital expenditure. See section 6.3 of this Part IV for additional detail. In addition, Ocado continues to
invest in developing its brand and marketing to new customers.
The Group has historically funded, and expects to continue to fund capital expenditure using its cash flow
from operations, equity, debt and lease financing. See section 6.3 of this Part IV for additional detail.
As the Group incurs more debt in connection with financing its capital expenditure, its finance costs will
increase, which will be offset at least in part by the reduction in interest expense payable on the debt
repaid with the proceeds from the Offers.
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Part IV
Operating and Financial Review
2.7 Relationship with Waitrose
Ocado is party to Sourcing Agreement and Branding Arrangements with Waitrose and John Lewis. Under
these arrangements, Waitrose acts as Ocado’s sourcing agent for the negotiation and entry into of the
pricing terms of Ocado’s supply commitments. Waitrose is obliged to use its reasonable endeavours to
procure terms for Ocado which are comparable to those obtained by Waitrose itself, including volume
discounts and availability of support for promotions. Nearly all of the products Ocado currently offers to its
customers are sourced through Waitrose.
During the periods under review, the sourcing fee payable by Ocado to Waitrose, which is included in cost
of sales and therefore reduces the Group’s gross profit, was £1.3 million in FYE 2007, £1.1 million in
FYE 2008, £4.7 million in FYE 2009 and £1.4 million in P1-3 2010.
The parties agreed a new sourcing fee under the 2010 Agreement to take effect from 1 December 2010.
Unlike the fee currently paid, the new sourcing fee will vary according to whether the product sold is third
party-branded, Waitrose own-label, John Lewis own-label or sourced from John Lewis (the percentage
being higher in respect of the latter categories than the former). Accordingly, the new sourcing fee will rise
to the extent that Ocado sells a higher percentage of products that are Waitrose own-label, John Lewis
own-label or sourced from John Lewis, and (subject to the minimum sourcing fee described below) will fall
to the extent that Ocado sells a higher percentage of Ocado own-label, third party-branded products and
products not sourced through Waitrose.
The Directors estimate that the sourcing fee of £4.7 million paid by Ocado to Waitrose in FYE 2009 would
have increased to £6.4 million had the sourcing fee payable from 1 December 2010 been payable in FYE
2009.
From 1 December 2010, there will also be a minimum annual sourcing fee payable by Ocado to Waitrose.
The Directors expect that this minimum fee will be broadly equivalent, as a percentage of the Group’s
revenue (exclusive of delivery charges, certain refunds and VAT) generated from sales of grocery
products, to the fee paid in FYE 2009.
Ocado receives deliveries of approximately 15 per cent. of goods by volume from the Waitrose network
with the remaining 85 per cent. being delivered and invoiced directly from suppliers. With respect to
products delivered through Waitrose, Ocado pays an additional logistics fee, which varies by item and
averaged 0.6 per cent. of gross sales in FYE 2009.
The Sourcing Agreement will expire on 1 September 2020, unless terminated earlier by any party giving
written notice. The earliest the agreement may expire is 1 March 2017. To terminate by notice with effect
from 1 March 2017, at least 18 months’ written notice must be given; such notice period reduces on a
sliding scale so that to terminate by notice with effect from 1 September 2017 onwards, only 12 months’
notice need be given.
For a detailed description of the terms of the Branding Arrangements and Sourcing Agreement, the
termination and other provisions, see section 17.1 of Part XIII (Additional Information).
Termination or notice of termination of the Branding Arrangements and Sourcing Agreement would be an
event of default under the New Facility. However, with the exception of the change of control termination
right described in paragraph 1.4 of the Risk Factors, which is customary for an agreement of that type, the
Company is in control of whether any such termination rights will arise.
2.8 Seasonality
Family groups represent a significant proportion of Ocado’s customer base. As a result, the Group’s
revenue has historically been lower during UK summer and Easter school holidays with peaks during the
Christmas period. In addition, adverse weather conditions, such as snow or flooding, can increase
customer demand, although they can also adversely affect Ocado’s ability to deliver products to
customers. Ocado has implemented a series of operational steps (such as the scheduling of staff
vacation periods and setting the timing of delivery of new vans replacing old vans to take into account
seasonality), which have had the effect of lowering variable costs during seasonal periods with lower
demand. In addition, Ocado has undertaken steps to improve its ability to make deliveries in adverse
weather conditions (such as fitting its delivery vans with winter tyres).
75
Part IV
3.
Operating and Financial Review
Recent developments, current trading and prospects
In P1-6 2010, the Group has continued to grow at a strong rate in terms of orders, revenue and EBITDA.
In P1-6 2010, gross sales increased by 29.9 per cent. to £245.6 million (P1-6 2009: £189.1 million) and
revenue increased by 29.2 per cent. to £230.3 million (P1-6 2009: £178.3 million).
During the same period, gross profit increased by 29.5 per cent. to £70.7 million (P1-6 2009:
£54.6 million). Gross margin (gross profit as a percentage of gross sales) remained constant at 28.8 per
cent. Distribution costs increased by 18.7 per cent. to £58.7 million (P1-6 2009: £49.4 million), comprising
£26.5 million of CFC costs (P1-6 2009: £22.5 million), £29.9 million of trunking and delivery costs (P1-6
2009: £25.1 million) and £2.3 million of other costs (P1-6 2009: £1.8 million). EBITDA increased by
180.7 per cent. to £8.0 million (P1-6 2009: £2.8 million) and operating loss was reduced by 63.0 per cent.
to £(2.7) million (P1-6 2009: £(7.4) million). Loss before tax was reduced by 47.1 per cent. to £(6.7) million
(P1-6 2009: £(12.7) million).
Weekly orders exceeded 100,000 for the first time in the week commencing 10 May 2010 and the average
number of weekly orders in P1-6 2010 increased 33.7 per cent. to 88,407 (P1-6 2009: 66,132). Average
order size declined by 2.8 per cent. to £115.77 (P1-6 2009: £119.15). During the same period, CFC
efficiency, as measured by units per hour, increased by 3.3 per cent. from 119 to 123 and delivery
efficiency, as measured by average deliveries per van per week, also increased by 14.3 per cent. from
115 to 131. Average product wastage (as a percentage of gross sales) was 0.69 per cent. in P1-6 2010
(P1-6 2009: 0.63 per cent.). The number of items delivered exactly as ordered in P1-6 2010 was 99.07 per
cent. (P1-6 2009: 99.47 per cent.).
All financial and operational information for the periods P1-6 2009 and P1-6 2010 is unaudited.
On 25 May 2010, Ocado, Waitrose and John Lewis entered into the 2010 Agreement. Further information
about this agreement can be found in section 17.1 of Part XIII (Additional Information).
On 5 July 2010, Ocado (as original borrower) entered into a sterling term loan facility (the ‘‘New Facility’’)
between, among others, Barclays Bank PLC, HSBC Bank plc and Lloyds TSB Bank plc (as mandated
lead arrangers and lenders) and Barclays Bank PLC (as agent and security trustee). The lenders have
agreed to make available £100 million to the borrowers under the New Facility. The New Facility has an
accordion feature which allows for the amount available under the New Facility to be increased up to
£130 million, subject to lenders (existing or additional) agreeing to make the additional amount available.
The New Facility contains customary warranties, representations and covenants (including restrictions
on debt incurrence and financial covenants, as further described in Part XIII) and events of default
(including on a material adverse change).
In May and July 2010, Ocado also entered into arrangements for an additional £18.4 million for the
finance leasing of its future vehicle requirements.
On 26 May 2010, Ocado entered into with Lloyds TSB Bank plc as lender a new three year term loan in an
aggregate principal amount of £7.5 million and a revolving credit facility in an aggregate principal amount
of £7.5 million.
For additional information on these facilities, see section 6.2 of this Part IV.
On 23 June 2010, the Company re-registered as a public limited company.
† The following table sets out the reconciliation of EBITDA to operating loss for P1-6 2009 and P1-6 2010:
P1-6 2009
(unaudited)
£ million
P1-6 2010
(unaudited)
£ million
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment for:
Depreciation of property, plant and equipment . . . . . . . . . . . . . . . . . . . .
Amortisation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7.4)
(2.7)
8.1
2.1
8.7
2.0
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.8
8.0
76
Part IV
Operating and Financial Review
The Company does not intend to publish a financial report for P1-6 2010. However, financial information
for this period is included in Part VII (Unaudited Interim Financial Information relating to the Group for the
24 Weeks Ended 16 May 2010).
4.
Description of key income statement items
Revenue consists of online sales (net of returns) through the Website and mobile applications, including
charges for delivery, but excluding relevant vouchers/offers and value added tax. Relevant vouchers/
offers include money-off coupons, conditional spend vouchers and multi-buy offers, such as buy three for
the price of two.
Cost of sales consists of the cost of groceries and other products the Group sells, any associated license
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 the CFC.
Distribution costs include all costs to the point of sale, which is usually the customer’s home. There are
two main components, CFC costs and delivery costs:
•
CFC costs include employment and operating costs relating to the CFC (inbound product receiving
and decanting into the picking area or to storage, outbound product picking and packing for customer
orders and loading of orders for despatch) and all associated depreciation and amortisation.
•
Delivery costs include costs relating to the trunking of customer orders from the CFC to the Spokes,
where required, and van delivery to customers’ homes, including employment costs of LGV and
delivery van drivers and operational management, fuel, tolls, insurance and maintenance of vehicles,
the operating costs of the Spokes, including operating lease rentals and all associated depreciation,
amortisation, impairment and any losses on disposal of assets.
Distribution costs also include costs relating to the call centre and payment processing.
Other income consists primarily of advertising revenue for advertising services provided by Ocado to
suppliers and other third parties on the Website, commission income received and sublease payments
received. Other income is recognised in the period to which it relates on an accruals basis.
Administrative expenses consist of all IT costs, advertising and marketing expenditure, employment costs
of all head office 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 and the
depreciation, amortisation and impairment associated with head office IT equipment, software, fixtures
and fittings and expenses relating to the ESOS and the JSOS.
Net finance costs consist of finance income and finance costs. Finance income is comprised principally of
bank interest receivable and other interest. Finance costs are comprised of interest payable on bank
loans and overdrafts, interest on finance leases and interest on other financing arrangements.
5.
Results of operations
The financial information in this section relates to the Group’s results from continuing operations.
77
Part IV
Operating and Financial Review
5.1 Comparison of the financial results of the Group for P1-3 2009 (unaudited) and P1-3 2010
The following table sets out the Group’s consolidated statement of comprehensive income for P1-3 2009
(unaudited) and P1-3 2010:
P1-3 2009
(unaudited)
£ million
P1-3 2010
£ million
Change
%
Continuing operations
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84.6
(58.9)
110.2
(76.9)
30.3
30.5
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25.7
0.5
(24.6)
33.3
1.2
(28.3)
29.7
115.1
14.9
Operating profit before administrative expenses . . . . . . .
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
1.6
(6.2)
6.2
(8.1)
282.5
30.8
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4.6)
—
(2.7)
(1.9)
—
(2.1)
(58.9)
—
(21.7)
Loss before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7.2)
—
(4.0)
—
(45.2)
—
Loss for the period attributable to the owners of the
Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7.2)
(4.0)
(45.2)
The following table sets out selected unaudited operating information for the Business for P1-3 2009 and
P1-3 2010:
P1-3 2009
(unaudited)
P1-3 2010
(unaudited)
122.81
60,769
114
107
3,119
0.64
99.35
119.38
81,823
124
126
3,610
0.65
98.76
Change
%
Average order size (£)(1) . . . . . . . . . . . . . . . . . . . . . . .
Average orders per week . . . . . . . . . . . . . . . . . . . . . . .
CFC efficiency (units per hour)(2) . . . . . . . . . . . . . . . . .
Average deliveries per van per week . . . . . . . . . . . . . .
Average number of operational staff (full-time equivalent)
Average product wastage (per cent. of gross sales)(3) . . .
Items delivered exactly as ordered (per cent.)(4) . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(2.8)
34.6
8.0
18.0
15.7
1.5
0.6
Source: The information in the table is derived from and extracted from management accounts and internal financial and operating
reporting systems and is unaudited.
(1)
Average retail value of goods a customer receives (including VAT and delivery charge) per order.
(2)
Measured as units dispatched from the CFC per hour worked by CFC operational personnel.
(3)
Value of products purged because passed Ocado’s ‘‘use by’’ life guarantee and stock adjustments (net of sales to the
company shop), divided by gross sales.
(4)
Percentage of all items delivered exactly as ordered, i.e. the percentage of items ordered neither missing nor substituted.
(A) Gross sales and revenue
Gross sales increased from £89.6 million in P1-3 2009 (unaudited) to £117.2 million in P1-3 2010, an
increase of £27.7 million, or 30.9 per cent. Like-for-like gross sales, a non-IFRS measure used to remove
the impact of Ocado’s increase in geographic coverage, when compared with the previous period,
increased by the same amount, because the geographical reach of the Business was not extended during
the period. Revenue increased from £84.6 million in P1-3 2009 (unaudited) to £110.2 million in P1-3
2010, an increase of £25.6 million, or 30.3 per cent.
Gross sales and revenue increased primarily as a result of the increase in the number of customers and
the average number of orders per week from 60,769 in P1-3 2009 to 81,823 in P1-3 2010. The 34.6 per
78
Part IV
Operating and Financial Review
cent. increase in the average number of orders per week was due to increased frequency of ordering by
existing customers and new customer gains in existing delivery areas.
The average order size was £122.81 in P1-3 2009 (unaudited) and decreased by 2.8 per cent to £119.38 in
P1-3 2010 (unaudited). The change was due to the increase in the number of customers subscribing to the
Ocado Delivery Pass and placing a smaller weekly grocery order rather than a larger, less frequent shop.
The average basket size for customers not using the Ocado Delivery Pass increased in the same period.
Marketing vouchers, which are money-off coupons that reduce the amount a customer pays for their
order, increased from £1.0 million in P1-3 2009 (unaudited) to £1.4 million in P1-3 2010. This promotional
tool is used to acquire new customers and encourage existing customers to shop more frequently or on
days which have lower demand, thereby ensuring a more efficient asset utilisation for Ocado and reduced
pressure on the more popular shopping days. This promotional tool is also used to introduce customers to
and encourage uptake of the Ocado Delivery Pass. The increase in marketing vouchers in P1-3 2010
mainly reflected increased use of marketing vouchers during the period to promote deliveries on days
with lower demand, increasing Ocado’s operating efficiency on such days.
(B) Gross profit
Cost of sales increased from £58.9 million in P1-3 2009 (unaudited) to £76.9 million in P1-3 2010, an
increase of £18.0 million, or 30.5 per cent., broadly in line with overall growth in gross sales. Gross profit
increased from £25.7 million in P1-3 2009 (unaudited) to £33.3 million in P1-3 2010, an increase of
£7.6 million, or 29.7 per cent. Gross margin, expressed as gross profit as a percentage of gross sales,
remained relatively stable at 28.7 per cent. in P1-3 2009 and 28.4 per cent. in P1-3 2010 as a result of
positive changes in input prices, retail price inflation and changes in product mix, offset by the impact of
the ‘‘internet only’’ prices for most Waitrose own-label products introduced in May 2009 (and discontinued
in May 2010).
(C) Other income
Other income increased from £0.5 million in P1-3 2009 (unaudited) to £1.2 million in P1-3 2010. The
increase was primarily due to the increase in advertising revenue to £1.0 million in P1-3 2010 from
£0.5 million in P1-3 2009 (unaudited).
(D) Distribution costs
Distribution costs increased from £24.6 million in P1-3 2009 (unaudited) to £28.3 million in P1-3 2010, an
increase of £3.7 million, or 14.9 per cent. During the same period, the average number of orders per week
increased by 34.6 per cent., whilst CFC efficiency increased by 8.0 per cent. and average deliveries per
van per week increased by 18.0 per cent.
Distribution costs as a percentage of gross sales decreased from 27.5 per cent. in P1-3 2009 to 24.1 per
cent. in P1-3 2010 as a result of operational leverage, increasing efficiency in both inbound product
receiving and decanting and in outbound customer order picking and as a result of increasing drop
density and a range of further operational efficiency initiatives.
The following table sets out the Group’s distribution costs for P1-3 2009 and P1-3 2010:
P1-3 2009
(unaudited)
£ million
Employment costs . . . . . . . . . . . .
Depreciation of property, plant and
Operating lease rentals . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . .
........
equipment
........
........
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
£ million
Change
%
.
.
.
.
14.4
3.5
0.4
6.3
17.1
3.7
0.4
7.1
18.5
4.6
2.5
13.2
Total distribution costs . . . . . . . . . . . . . . . . . . . . . . . . . .
24.6
28.3
14.9
79
.
.
.
.
P1-3 2010
Part IV
Operating and Financial Review
Employment costs increased from £14.4 million in P1-3 2009 (unaudited) to £17.1 million in P1-3 2010,
an increase of £2.7 million or 18.5 per cent. The increase was primarily due to the increased number of
employees in the CFC and delivery operations required for the increased volume of orders. The rate of
increase of 18.5 per cent was less than the rate of growth in revenue, 30.3 per cent, due to the increased
efficiency in the CFC and trunking and delivery operations.
Depreciation of property, plant and equipment increased from £3.5 million in P1-3 2009 (unaudited) to
£3.7 million in P1-3 2010, an increase of £0.2 million, or 4.6 per cent. The increase was primarily due to the
additional depreciation charges on new capital investment to increase operational capacity and efficiency.
Other distribution costs (which include vehicle fuel and other vehicle operating costs, credit card
processing charges, order related costs and facility costs related to operational sites) increased from
£6.3 million in P1-3 2009 (unaudited) to £7.1 million in P1-3 2010. This increase was due to the higher
volume of orders, but partially offset by the impact of operational efficiencies achieved in each business
area.
The following table sets out the Group’s distribution costs for P1-3 2009 and P1-3 2010 as they relate to
CFC costs, trunking and delivery costs, and other costs:
P1-3 2009
(unaudited)
£ million
P1-3 2010
(unaudited)
£ million
Change
CFC costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trunking and delivery costs . . . . . . . . . . . . . . . . . . . . . . . .
Other costs (call centre and payment processing) . . . . . . . .
11.3
12.5
0.9
12.7
14.4
1.1
13.0
15.4
31.6
Total distribution costs . . . . . . . . . . . . . . . . . . . . . . . . . .
24.6
28.3
14.9
%
CFC costs increased from £11.3 million in P1-3 2009 (unaudited) to £12.7 million in P1-3 2010
(unaudited), an increase of 13.0 per cent. CFC costs as a percentage of gross sales decreased from
12.6 per cent. in P1-3 2009 to 10.9 per cent. in P1-3 2010. CFC efficiency (measured as units dispatched
from the CFC per hour worked by CFC operational personnel) increased by 8.0 per cent. due to the
benefits from higher volumes and a number of operational improvement projects. Employment costs
relating to CFC direct and indirect staff increased marginally while CFC throughput grew significantly.
Trunking and delivery costs increased from £12.5 million in P1-3 2009 (unaudited) to £14.4 million in P1-3
2010 (unaudited), an increase of 15.4 per cent. Trunking and delivery costs as a percentage of gross
sales decreased from 13.9 per cent. in P1-3 2009 to 12.3 per cent. in P1-3 2010. The improved efficiency
of the delivery operation is primarily due to the continued development of Ocado’s bespoke system for
route optimisation and increased customer density, as well as a number of other small improvement
projects. Each of these efficiency gains contributed to improvements in the average number of deliveries
per van per week from 107 in P1-3 2009 to 126 in P1-3 2010 and reduced the delivery cost per order.
(E) Operating profit before administrative expenses
As a result of the foregoing, operating profit before administrative expenses increased from £1.6 million in
P1-3 2009 (unaudited) to £6.2 million in P1-3 2010, an increase of £4.6 million.
(F) Administrative expenses
Administrative expenses increased from £6.2 million in P1-3 2009 (unaudited) to £8.1 million in P1-3
2010, an increase of £1.9 million, or 30.8 per cent.
80
Part IV
Operating and Financial Review
The following table sets out the Group’s administrative expenses for P1-3 2009 and P1-3 2010:
P1-3 2009
(unaudited)
£ million
Employment costs . . . . . . . . . . . . . . .
Marketing costs (excluding promotional
Depreciation and amortisation . . . . . .
Operating lease rentals . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . .
........
vouchers)
........
........
........
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
P1-3 2010
£ million
Change
%
.
.
.
.
.
3.7
0.6
1.6
—
0.3
4.3
1.3
1.6
0.2
0.6
18.1
120.7
3.1
N.M.
103.3
Total administrative expenses . . . . . . . . . . . . . . . . . . . . .
6.2
8.1
30.8
N.M.: Not meaningful.
Employment costs increased from £3.7 million (unaudited) to £4.3 million, or 18.1 per cent., due to an
increase in the average number of operational staff from 3,119 in P1-3 2009 to 3,610 in P1-3 2010 and an
increase in the average number of support staff from 336 in P1-3 2009 to 393 in P1-3 2010, which was
required to support the growth of revenue, product range and IT capability.
Marketing costs (excluding promotional vouchers) increased from £0.6 million in P1-3 2009 (unaudited)
to £1.3 million in P1-3 2010, an increase of £0.7 million. This increase included an increase of
approximately £0.5 million in direct mail spend mainly due to invoice timing and an increase of
approximately £0.3 million in spend on broadcast media. The spend on broadcast media related to brand
building activity on radio and a limited number of unsuccessful direct TV initiatives.
(G) Operating loss
Operating loss decreased from £(4.6) million in P1-3 2009 (unaudited) to £(1.9) million in P1-3 2010, a
decrease of £2.7 million, or 58.9 per cent. The decrease was primarily due to the growth in revenue
coupled with greater cost efficiencies within the Business.
(H) Net finance costs
Net finance costs decreased from £2.7 million in P1-3 2009 (unaudited) to £2.1 million in P1-3 2010, a
decrease of £0.6 million, or 21.7 per cent. There was no finance income in P1-3 2009 (unaudited) or P1-3
2010. The decrease in finance costs was primarily due to a decrease in interest related to finance leases
as interest is charged on a reducing balance basis as those leases age. The decrease also reflects a
decrease in interest on other loans due to refinancing of a convertible loan and a reduction in interest
rates.
(I)
Loss before tax
As a consequence of the above, loss before tax decreased from £(7.2) million in P1-3 2009 (unaudited) to
£(4.0) million in P1-3 2010, a decrease of £3.3 million, or 45.2 per cent.
(J) Taxation
The statutory rate of tax applicable was 28 per cent. in P1-3 2009 and P1-3 2010. No current or deferred
tax or charge credit was recognised in P1-3 2009 or P1-3 2010.
(K) Loss for the period attributable to the owners of the Group
The Group recorded a £(7.2) million loss in P1-3 2009 (unaudited) which decreased to a £(4.0) million
loss in P1-3 2010, a £3.3 million or 45.2 per cent. decrease.
81
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5.2 Comparison of the financial results of the Group for FYE 2007, FYE 2008 and FYE 2009
The following table sets out the Group’s consolidated statements of comprehensive income for FYE
2007, FYE 2008 and FYE 2009:
FYE 2007
FYE 2008
FYE 2009
Change
FYE 2007FYE 2008
%
Change
FYE 2008FYE 2009
%
£ million
£ million
£ million
Continuing operations
Revenue . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . .
272.9
(184.9)
321.3
(218.5)
402.0
(279.2)
17.8
18.2
25.1
27.8
Gross profit . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . .
Distribution costs . . . . . . . . . . . .
88.0
0.6
(93.5)
102.8
1.8
(101.1)
122.8
2.6
(110.3)
16.8
195.4
8.1
19.5
46.1
9.2
Operating profit/(loss) before
administrative expenses . . . .
Administrative expenses . . . . . . .
(4.9)
(25.1)
3.5
(25.2)
15.1
(29.5)
N.M.
0.0
327.9
17.5
Operating loss . . . . . . . . . . . . .
Finance income . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . .
(30.1)
0.8
(10.9)
(21.6)
0.1
(11.8)
(14.4)
—
(11.1)
(28.2)
(88.0)
8.2
(33.4)
(87.9)
(5.7)
Loss before tax . . . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . .
(40.2)
—
(33.3)
—
(25.5)
2.3
(17.1)
—
(23.4)
N.M.
Loss for the period attributable
to the owners of the
Company . . . . . . . . . . . . . . . .
(40.2)
(33.3)
(23.2)
(17.1)
(30.3)
N.M.: Not meaningful.
The following table sets out selected unaudited operating information for the Business for FYE 2007, FYE
2008 and FYE 2009:
Average order size (£)(1) . . . . . . .
Average orders per week . . . . . .
CFC efficiency (units per hour)(2) .
Average deliveries per van per
week . . . . . . . . . . . . . . . . . . .
Average number of operational
staff (full time equivalent) . . . . .
Average product wastage (per
cent. of gross sales)(3) . . . . . . .
Items delivered exactly as ordered
(per cent.)(4) . . . . . . . . . . . . . .
Change
FYE 2007FYE 2008
Change
FYE 2008FYE 2009
%
%
FYE 2007
FYE 2008
FYE 2009
(unaudited)
£ million
(unaudited)
£ million
(unaudited)
£ million
112.17
49,968
95
116.30
56,384
114
115.94
70,873
124
3.7
12.8
20.7
(0.3)
25.7
8.6
99
106
121
7.7
13.5
2,033(5)
2,730
3,151
34.3
15.4
1.15
0.78
0.57
(32.2)
(26.9)
98.59
99.11
99.41
0.5
0.3
Source: The information in the table above is derived from information extracted from management accounts and internal financial
and operating reporting systems and is unaudited.
(1)
Average retail value of goods a customer receives (including VAT and delivery charge) per order.
(2)
Measured as units dispatched from the CFC per hour worked by CFC operational personnel.
(3)
Value of products purged for having passed Ocado’s ‘‘use by’’ life guarantee and stock adjustments (net of sales to the
company shop), divided by the gross sales.
(4)
Percentage of all items delivered exactly as ordered, i.e. the percentage of items neither missing nor substituted.
(5)
Excludes, for the period prior to their transfer to Ocado, staff working for a third-party logistics contractor who transferred to
Ocado in April 2007.
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Operating and Financial Review
(A) Gross sales and revenue
Gross sales increased from £291.4 million in FYE 2007 to £341.0 million in FYE 2008, an increase of
£49.6 million, or 17.0 per cent and to £427.3 million in FYE 2009, an increase of £86.3 million, or 25.3 per
cent. Like-for-like gross sales increased by 15.3 per cent from FYE 2007 to FYE 2008 and by 22.3 per
cent from FYE 2008 to FYE 2009. Revenue for FYE 2007 was £272.9 million and increased to
£321.3 million in FYE 2008, an increase of £48.5 million, or 17.8 per cent and to £402.0 million in FYE
2009, an increase of £80.7 million, or 25.1 per cent.
The average number of orders per week increased from 49,968 in FYE 2007 to 56,384 in FYE 2008 and
to 70,873 in FYE 2009. The average order size was £112.17 in FYE 2007, £116.30 in FYE 2008 and
£115.94 in FYE 2009. These numbers are unaudited.
Revenue increased from FYE 2007 to FYE 2008 primarily as a result of increased frequency of ordering
by customers due to competitive pricing initiatives, product range extension from approximately 12,500 at
the end of FYE 2007 to 16,000 at the end of FYE 2008 and improved product mix. The average number of
active customers increased by 5.8 per cent. in FYE 2008 compared to FYE 2007. Ocado introduced the
Tesco Price Match scheme in March 2008, which made a significant contribution to revenue growth in the
second half of FYE 2008. Ocado also introduced same-day delivery in part of its delivery area starting in
July 2008, 30-minute intervals for the one hour delivery slots in August 2008, and individual product life
information on the Website. The effect of Tesco Price Match on an average item price was countered by
changes in product mix and general price inflation.
Revenue increased from FYE 2008 to FYE 2009 primarily as a result of increased spend and frequency of
ordering by existing customers and new customer gains in existing delivery areas (including the delivery
area served by the Leeds Spoke which became operational in October 2008 and increased the range of
areas in which its service is provided by approximately 1.8 million households to a total of approximately
16.8 million households). The average number of active customers increased by 13.9 per cent. in FYE
2009 compared to FYE 2008. This was also a result of competitive pricing initiatives including the launch
in December 2008 of Ocado’s own-label product range; increase in the number of products sold by
Ocado from approximately 16,000 as at the end of FYE 2008 to over 20,000 as at the end of FYE 2009;
improved product mix; the introduction of the Ocado Delivery Pass in November 2008; and to a lesser
extent as a result of price inflation.
Additional factors contributing to the increase in revenue included the continued increase in popularity of
internet grocery shopping, the launch of the Ocado iPhone application in April 2009 and the
commencement in September 2009 of Sunday deliveries in approximately 45 per cent. of the households
in the delivery area in which Ocado operated. Currently, approximately 70 per cent. of Ocado’s delivery
area has a Sunday delivery service, which is expected to be rolled out to the remainder of Ocado’s
delivery area in 2010.
Ocado did not expand its geographic reach in FYE 2009. However, in FYE 2009, Ocado opened two new
Spokes, one in Dartford (replacing the smaller Aylesford site) and one in White City, increasing the
capacity in the Group’s existing delivery area.
The average order size increased in FYE 2008 primarily due to increased product range, improved
product mix, price inflation and increased delivery income. The average order size declined slightly in
FYE 2009 as a result of the introduction of the Ocado Delivery Pass, which was largely offset by price
inflation and changes in product price. Although the introduction of the Ocado Delivery Pass encouraged
holders to shop more frequently, the average order size of these customers decreased, while the average
order size for customers without an Ocado Delivery Pass increased.
Delivery income increased in FYE 2008 due to the full-year effect of the introduction in the summer of
2007 of dynamic delivery charges to reflect customer demand and in FYE 2009 due to the introduction of
the Ocado Delivery Pass.
Marketing vouchers, which are money-off coupons that reduce the amount a customer pays for their
order, decreased from £3.4 million in FYE 2007 to £2.5 million in FYE 2008 and increased to £6.5 million
in FYE 2009. This promotional tool is used to acquire new customers, encourage customers to purchase
the Ocado Delivery Pass and to encourage customers to shop more frequently and on days with lower
demand, increasing Ocado’s operating efficiency on such days.
83
Part IV
Operating and Financial Review
(B) Gross profit
Cost of sales increased from £184.9 million in FYE 2007 to £218.5 million in FYE 2008, an increase of
£33.6 million, or 18.2 per cent. and to £279.2 million in FYE 2009, an increase of £60.7 million, or 27.8 per
cent, in each case broadly in line with the overall growth in gross sales. Gross profit increased from
£88.0 million in FYE 2007 to £102.8 million in FYE 2008, an increase of £14.8 million or 16.8 per cent. and
increased to £122.8 million in FYE 2009, an increase of £20.0 million, or 19.5 per cent. Gross margin
(gross profit as percentage of gross sales) decreased slightly from 30.2 per cent. in FYE 2007 to 30.1 per
cent. in FYE 2008 and decreased further to 28.7 per cent. for FYE 2009.
Gross margin decreased in FYE 2008 as a result of input cost inflation and product mix changes, partially
offset by a lower branding and sourcing fee paid during the period. The reduction in gross margin in FYE
2009 was predominantly due to the full year effect of the increased branding and sourcing fee on sales of
goods sourced by Waitrose from September 2008 and the ‘‘internet only’’ prices for most Waitrose ownlabel products introduced in May 2009. The branding and sourcing fee decreased from £1.3 million in
FYE 2007 to £1.1 million in FYE 2008 and increased to £4.7 million in FYE 2009.
(C) Other income
Other income increased from £0.6 million in FYE 2007 to £1.8 million in FYE 2008, an increase of
£1.2 million, and to £2.6 million in FYE 2009, an increase of £0.8 million. The increase was primarily due
to the increase in advertising revenue from zero in FYE 2007 to £1.0 million in FYE 2008 and £2.0 million
in FYE 2009.
(D) Distribution costs
Distribution costs increased from £93.5 million in FYE 2007 to £101.1 million in FYE 2008, an increase of
£7.5 million, or 8.1 per cent., and to £110.3 million in FYE 2009, an increase of £9.3 million, or 9.2 per
cent. From FYE 2007 to FYE 2008 to FYE 2009 the average number of orders per week increased by
12.8 per cent. and 25.7 per cent., respectively, CFC efficiency increased by 20.7 and 8.6 per cent.,
respectively, and average deliveries per van per week increased by 7.7 per cent. and 13.5 per cent.,
respectively.
Distribution costs as a percentage of gross sales decreased from 32.1 per cent. in FYE 2007 to 29.6 per
cent. in FYE 2008 and to 25.8 per cent. in FYE 2009 as a result of operational leverage, increasing
efficiency in both inbound product receiving and decanting and in outbound customer order picking as
well as a result of increasing drop density, routing improvements stemming from the implementation of
new routing software, and a range of operational efficiency initiatives.
The following table sets out the Group’s distribution costs for FYE 2007, FYE 2008 and FYE 2009:
FYE 2007
FYE 2008
FYE 2009
Change
FYE 2007FYE 2008
%
Change
FYE 2008FYE 2009
%
£ million
£ million
£ million
.
46.6
56.5
65.3
21.1
15.5
.
16.2
17.8
15.3
10.0
(14.1)
.
.
.
0.6
1.5
28.5
0.1
1.8
24.9
1.0
1.7
27.0
(89.2)
15.3
(12.7)
N.M.
(2.0)
8.3
Total distribution costs . . . . . . .
93.5
101.1
110.3
8.1
9.2
Employment costs . . . . . . . . . .
Depreciation of property, plant
and equipment . . . . . . . . . . .
Impairment of property, plant and
equipment . . . . . . . . . . . . . . .
Operating lease rentals . . . . . . .
Other . . . . . . . . . . . . . . . . . . . .
N.M.: Not meaningful.
Employment costs increased from £46.6 million in FYE 2007 to £56.5 million in FYE 2008, an increase of
£9.9 million, or 21.1 per cent. and to £65.3 million in FYE 2009, an increase of £8.8 million, or 15.5 per
cent. The increase was primarily due to the increase in wages and salaries and related costs relating to an
additional 697 operational FTE staff in FYE 2008, an increase of 34.3 per cent., and a further 421
additional FTE staff in FYE 2009, an increase of 15.4 per cent. raising the total operational FTE staff to
84
Part IV
Operating and Financial Review
3,151 at the end of FYE 2009. During FYE 2007, a third-party logistics contract for workers in the CFC
ended at which point each worker joined Ocado and became an Ocado employee. The costs relating to
this contract for the part year in FYE 2007 prior to the termination of the contract were £7.3 million
(unaudited) and were categorised under other costs. Subsequently, these costs were categorised as
employment costs. Excluding this change, the increase in employment costs in FYE 2008 was an
increase of £2.6 million (unaudited), or 4.8 per cent., which primarily reflected additional personnel hired
to support the increased volume of orders. The relative increase in the number of staff hired has been
lower than the relative growth in gross sales due to increased productivity of the CFC and delivery
operations.
Depreciation of property, plant and equipment increased from £16.2 million in FYE 2007 to £17.8 million
in FYE 2008, an increase of £1.6 million, or 10.0 per cent., and decreased to £15.3 million in FYE 2009, a
decrease of £2.5 million, or 14.1 per cent. The majority of depreciation is attributable to the CFC with
approximately £4 million (unaudited) in each year being due to the trunking and delivery operations. The
increase from FYE 2007 to FYE 2008 was primarily due to higher charges arising from continued
investment in the CFC offset in part by the increase in the estimated useful life of certain assets resulting
in a reduction of the depreciation charge by £0.9 million. In October 2008, the Group revised the
estimated useful life of certain assets, due to the increased resilience of the CFC and greater certainty of
the long-term picking solutions. The change was only applied from October 2008, and saw a decrease of
the depreciation charge for FYE 2008 of £0.9 million. If the change had been applied from the beginning
of FYE 2008, depreciation would have fallen by a further £2.4 million. For the majority of assets revised,
this doubled the estimated useful life from 5 to 10 years, although a small number of higher value assets
had their life halved from 20 years. If the useful lives of the assets had not been revised, the depreciation
charge in FYE 2009 would have been £4.9 million higher.
Other distribution costs (which include vehicle fuel and other vehicle operating costs, credit card
processing charges, order related costs and facility costs related to operational sites) decreased from
£28.5 million in FYE 2007 to £24.9 million in FYE 2008, a 12.7 per cent. decrease, and increased to
£27.0 million in FYE 2009, an 8.3 per cent. increase. The decrease from FYE 2007 to FYE 2008 was
primarily the result of the termination of the third-party logistics contract described above. Excluding this
change, other distribution costs for FYE 2007 would have been £21.3 million (unaudited) and would have
increased by £3.6 million to £24.9 million in FYE 2008, an increase of 17.1 per cent, primarily due to the
growth in the volume of orders. The increase from FYE 2008 to FYE 2009 was primarily the result of the
growth in the volume of orders.
The following table sets out the Group’s distribution costs for FYE 2007, FYE 2008 and FYE 2009 as they
relate to CFC costs, trunking and delivery and other costs:
Change
FYE 2007FYE 2008
Change
FYE 2008FYE 2009
%
%
FYE 2007
FYE 2008
FYE 2009
(unaudited)
£ million
(unaudited)
£ million
(unaudited)
£ million
CFC costs . . . . . . . . . . . . . . . . .
Trunking and delivery costs . . . . .
Other costs (call centre and
payment processing) . . . . . . . .
47.5
42.9
49.5
48.3
50.8
55.3
4.1
12.6
2.7
14.4
3.1
3.3
4.2
5.6
29.2
Total distribution costs . . . . . . .
93.5
101.1
110.3
8.1
9.2
Costs relating to the CFC increased from £47.5 million in FYE 2007 (unaudited) to £49.5 million in FYE
2008 (unaudited), an increase of 4.1 per cent., and to £50.8 million in FYE 2009 (unaudited), an increase
of 2.7 per cent. Costs relating to the CFC as a percentage of gross sales decreased from 16.3 per cent. in
FYE 2007 to 14.5 per cent. in FYE 2008 and to 11.9 per cent. in FYE 2009. CFC efficiency increased from
95 units per hour in FYE 2007 to 114 in FYE 2008 and to 124 in FYE 2009. These increases were due to
the benefits from higher volumes and a number of improvement projects. These overall efficiency gains
were offset in part by other business initiatives, such as the introduction of the Service Counter in
September 2009. In FYE 2009, variable employment costs were the largest component of CFC costs,
representing approximately 44 per cent. of the total CFC costs (or 58 per cent. of total CFC costs
excluding depreciation and amortisation), with the balance of CFC costs being primarily fixed.
85
Part IV
Operating and Financial Review
Trunking and delivery costs increased from £42.9 million in FYE 2007 to £48.3 million in FYE 2008, an
increase of 12.6 per cent., and to £55.3 million in FYE 2009, an increase of 14.4 per cent. Trunking and
delivery costs as a percentage of gross sales decreased from 14.7 per cent. in FYE 2007 to 14.2 per cent.
in FYE 2008 and to 12.9 per cent. in FYE 2009. The improved efficiency of the delivery operation was
primarily due to the continued development of Ocado’s bespoke system for route optimisation and
increased customer density, as well as a number of other small improvement projects, which contributed
to improvements in the number of deliveries per van per week from 99 in FYE 2007 to 106 in FYE 2008 to
121 in FYE 2009, reducing the delivery cost per order.
(E) Operating profit/(loss) before administrative expenses
As a result of the foregoing, operating profit/(loss) before administrative expenses moved from an
operating loss of £(4.9) million in FYE 2007 to an operating profit of £3.5 million in FYE 2008, an
improvement of £8.5 million and to an operating profit of £15.1 million in FYE 2009, an increase of
£11.6 million.
(F) Administrative expenses
Administrative expenses were £25.1 million in FYE 2007, £25.2 million in FYE 2008 and increased to
£29.5 million in FYE 2009, an increase of £4.4 million, or 17.5 per cent., as the Group invested in
additional central costs to serve the higher demand.
The following table sets out the Group’s administrative expenses for FYE 2007, FYE 2008 and FYE 2009:
FYE 2007
FYE 2008
FYE 2009
Change
FYE 2007FYE 2008
%
Change
FYE 2008FYE 2009
%
£ million
£ million
£ million
11.8
14.0
17.0
18.4
21.5
.
.
.
.
6.8
3.8
0.2
2.5
3.6
5.9
0.2
1.5
4.3
7.3
0.1
0.8
(47.1)
55.3
(3.9)
(41.8)
21.4
23.5
(23.5)
(47.9)
Total administrative expenses . .
25.1
25.2
29.5
Employment costs . . . . . . . .
Marketing costs (excluding
promotional vouchers) . . . .
Depreciation and amortisation
Operating lease rentals . . . . .
Other . . . . . . . . . . . . . . . . . .
...
.
.
.
.
.
.
.
.
—
17.5
Employment costs increased from £11.8 million in FYE 2007 to £14.0 million in FYE 2008 to £17.0 million
in FYE 2009, resulting from an increase in the average number of IT and head office staff from 256 in FYE
2007 to 293 in FYE 2008 and to 343 in FYE 2009. The increase also reflected an increase in remuneration
of the board of directors from £0.7 million in FYE 2008 to £1.7 million in FYE 2009.
Marketing costs (excluding promotional vouchers) decreased from £6.8 million in FYE 2007 to
£3.6 million in FYE 2008, a £3.2 million or 47.1 per cent. decrease, and increased to £4.3 million in FYE
2009, a £0.8 million or 21.4 per cent. increase. The decrease from FYE 2007 to FYE 2008 was primarily
due to the change in marketing strategy away from TV and radio advertising to focus on e-mail marketing
activities, including vouchers, to existing and lapsed customers and to invest in reducing retail prices
rather than generic marketing activities designed to attract new customers. The increase from FYE 2008
to FYE 2009 reflected increased direct mail and other promotional activities.
Depreciation and amortisation increased from £3.8 million in FYE 2007 to £5.9 million in FYE 2008, a
£2.1 million or 55.3 per cent increase, and to £7.3 million in FYE 2009, a £1.4 million or 23.5 per cent.
increase due to an increase in the value of IT asset purchases and the value of internal IT development
costs that have been capitalised.
(G) Operating loss
Operating loss decreased from £(30.1) million in FYE 2007 to £(21.6) million in FYE 2008, a decrease of
£8.5 million, or 28.2 per cent. and to £(14.4) million in FYE 2009, a decrease of £7.2 million, or 33.4 per
cent. The decrease was primarily due to the growth in revenue which enabled greater operating
efficiencies within the Business, as described above.
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Part IV
Operating and Financial Review
(H) Net finance costs
Net finance costs increased from £10.1 million in FYE 2007 to £11.7 million in FYE 2008, an increase of
£1.6 million, or 16.1 per cent., and decreased to £11.1 million in FYE 2009, a decrease of £0.6 million, or
5.0 per cent. Finance income decreased from £0.8 million in FYE 2007 to £0.1 million in FYE 2008 to £nil
in FYE 2009 primarily due to lower average cash balances. Within finance costs, interest on finance
leases increased from £3.3 million in FYE 2007 to £3.8 million in FYE 2008 to £5.0 million in FYE 2009
due to an increase in the level of borrowing through finance leases. Interest on convertible loans
increased from £2.0 million in FYE 2007 to £2.4 million in FYE 2008 but decreased to £0.3 million in FYE
2009 due to repayment of certain convertible loan notes in FYE 2008 and FYE 2009.
(I)
Loss before tax
As a consequence of the above, the Group recorded a loss before tax of £(40.2) million in FYE 2007
which decreased to a loss before tax of £(33.3) million for FYE 2008, a decrease of £6.9 million or 17.1 per
cent., and further decreased to a loss before tax of £(25.5) million in FYE 2009, a decrease of £7.8 million,
or 23.4 per cent. The decrease was primarily due to the improved operating result year on year.
(J) Taxation
The statutory rate of tax applicable was 30 per cent. in FYE 2007, 28.71 per cent. in FYE 2008 and 28 per
cent. in FYE 2009. No current or deferred tax charges were recognised in FYE 2007 or FYE 2008. A
deferred tax credit of £2.3 million was recognised in FYE 2009. Ocado had approximately £270 million of
unutilised carried forward tax losses as at the end of FYE 2009.
(K) Loss for the period attributable to the owners of the Group
The Group recorded a loss of £(40.2) million in FYE 2007 which decreased to a loss of £(33.3) million in
FYE 2008, a £6.9 million decrease, and further decreased to a loss of £(23.2) million in FYE 2009, a
£10.1 million or 30.3 per cent. decrease.
6.
Liquidity and capital resources
Since inception, the Group has financed its operations primarily through private placements of loan notes
convertible into preference shares and private placements of ordinary and preference shares as well as
secured and unsecured bank and other loans and finance leases. The Group’s principal uses of cash
have been for capital expenditure, operating expenses, working capital requirements as well as the
payment of interest and repayment of principal on borrowings.
6.1 Cash flow analysis for FYE 2007, FYE 2008, FYE 2009, P1-3 2009, and P1-3 2010
The following table sets out selected cash flow information for the Group for FYE 2007, FYE 2008, FYE
2009, P1-3 2009 (unaudited) and P1-3 2010:
FYE 2007
FYE 2008
£ million
Net cash inflow/(outflow) from
operating activities . . . . . . . . . .
Net cash used in investing
activities . . . . . . . . . . . . . . . . .
Net cash from financing activities .
Net (decrease)/increase in cash
and cash equivalents . . . . . . .
£ million
FYE 2009
£ million
P1-3 2009
(unaudited)
£ million
P1-3 2010
£ million
(26.2)
(3.7)
4.1
(5.8)
(0.4)
(20.7)
46.8
(19.8)
18.4
(19.6)
22.7
(6.3)
5.0
(2.8)
0.7
(0.1)
(5.0)
7.2
(7.2)
(2.6)
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(A) Operating activities
FYE 2007
FYE 2008
£ million
Loss before income tax . . . . . . .
Adjustments for:
Depreciation expense . . . . . . . .
Amortisation expense . . . . . . . .
Impairment of property, plant and
equipment . . . . . . . . . . . . . . .
Provision for dilapidations
expense . . . . . . . . . . . . . . . .
Share based payments charge . .
Finance costs . . . . . . . . . . . . . .
Finance income . . . . . . . . . . . .
Changes in working capital:
(Increase)/decrease in
inventories . . . . . . . . . . . . .
(Increase)/decrease in trade
and other receivables . . . . .
Increase/(decrease) in trade
and other payables . . . . . . .
£ million
FYE 2009
£ million
P1-3 2009
(unaudited)
£ million
P1-3 2010
£ million
.
(40.2)
(33.3)
(25.5)
(7.2)
(4.0)
.
.
17.6
2.4
19.8
3.9
17.9
4.7
4.0
1.0
4.3
1.0
.
0.6
0.1
1.0
—
—
.
.
.
.
—
0.2
10.9
(0.8)
—
0.1
11.8
(0.1)
0.2
0.1
11.0
—
—
—
2.7
—
—
—
2.1
—
.
(1.1)
(0.8)
(0.1)
0.9
(0.3)
.
1.9
(2.8)
(2.7)
(1.2)
(0.7)
.
(9.7)
6.6
10.1
(3.2)
(0.8)
Net cash inflow/(outflow) from
operations . . . . . . . . . . . . . . .
Finance costs paid . . . . . . . . . . .
(18.1)
(8.0)
5.3
(9.0)
16.8
(12.7)
(3.0)
(2.8)
1.7
(2.1)
Net cash inflow/(outflow) from
operating activities . . . . . . . .
(26.2)
(3.7)
4.1
(5.8)
(0.4)
The Group’s net cash flow from operating activities decreased to an outflow of £0.4 million in P1-3 2010
from an outflow of £5.8 million in P1-3 2009 (unaudited). The movement is primarily the result of a
decrease in the operating loss from £4.6 million in P1-3 2009 (unaudited) to £1.9 million in P1-3 2010 and
an improvement in changes to working capital, which comprise movements in inventories, trade and other
receivables, and trade and other payables. Trade and other receivables comprise mainly monies due
from suppliers. Trade receivables in respect of consumer sales are low due to the nature of the Group’s
business. Trade and other payables includes balances due to suppliers of products sold by Ocado,
balances due to non-trading creditors (such as fuel, insurance and marketing costs) and other accruals,
including CFC costs.
The Group’s net cash outflow from operating activities decreased from an outflow of £26.2 million in FYE
2007 to an outflow of £3.7 million in FYE 2008 and moved to an inflow of £4.1 million in FYE 2009. The
decrease from FYE 2007 to FYE 2008 primarily reflects a decrease in operating loss of £8.5 million and
movement in working capital of £3.0 million. The decrease in trade and other payables in FYE 2007
reflects primarily the termination of the third-party logistics contract for workers in the CFC, following
which those workers became Ocado employees. These movements were offset in part by an increase in
finance costs paid of £0.9 million.
The movement from FYE 2008 to FYE 2009 is primarily the result of the decrease in operating loss of
£7.2 million and positive movement in working capital of £7.3 million. These movements were offset in
part by a decrease of finance costs paid of £3.7 million and a decrease in depreciation of property, plant
and equipment of £2.0 million primarily due to the increase in the estimated useful life of certain assets
adopted in October 2008.
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(B) Investing activities
FYE 2007
£ million
FYE 2008
£ million
FYE 2009
£ million
P1-3 2009
(unaudited)
£ million
P1-3 2010
£ million
Purchase of property, plant and equipment .
Proceeds from sale of property, plant and
equipment . . . . . . . . . . . . . . . . . . . . . .
Purchase of intangible assets . . . . . . . . . .
Finance income received . . . . . . . . . . . . .
(19.6)
(15.7)
(15.2)
(5.5)
(1.6)
0.2
(3.4)
2.0
—
(4.1)
0.1
—
(4.4)
—
—
(0.9)
—
—
(1.2)
—
Net cash used in investing activities . . .
(20.7)
(19.8)
(19.6)
(6.3)
(2.8)
The Group’s net cash used in investing activities decreased from £6.3 million in P1-3 2009 (unaudited) to
£2.8 million in P1-3 2010. The movement is primarily a result of lower capital expenditure on property,
plant and equipment and offset in part by increased expenditure on intangible assets.
The Group’s net cash used in investing activities was £20.7 million in FYE 2007, £19.8 million in FYE
2008 and £19.6 million in FYE 2009. The difference between the capital expenditure set out in section 6.3
of this Part IV and cash used in investing activities set out in the table above is due to the accounting
treatment of assets being financed by financing leases and the timing of the payment of invoices received
but unpaid at the end of the financial year. Net cash used for investing activities is a cash flow measure
and excludes any assets which are lease financed in the relevant financial year or invoices related to
capital expenditure which are unpaid at the end of the financial year.
(C) Financing activities
FYE 2007
£ million
Proceeds from the issue of ordinary share
capital . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from borrowings . . . . . . . . . . .
Repayment of borrowings . . . . . . . . . . . .
Proceeds from asset-based financing
arrangements . . . . . . . . . . . . . . . . . . .
Repayment of obligations under finance
leases . . . . . . . . . . . . . . . . . . . . . . . .
FYE 2008
£ million
FYE 2009
£ million
P1-3 2009
(unaudited)
£ million
P1-3 2010
£ million
.
.
.
30.2
25.2
(10.6)
17.9
8.0
(11.1)
29.1
25.1
(28.4)
—
2.1
(0.6)
1.7
3.0
(1.8)
.
10.0
9.0
7.1
5.1
1.8
.
(7.9)
(5.3)
(10.3)
(1.6)
(4.1)
46.8
18.4
22.7
5.0
0.7
Net cash from financing activities . . . . .
Financing activities represent the net proceeds from loan advances, loan repayments (including new
finance leases) and equity injections.
The Group’s net cash from financing activities decreased from an inflow of £5.0 million in P1-3 2009
(unaudited) to an inflow of £0.7 million in P1-3 2010. The movement is primarily a result of the increase in
the repayment of obligations under finance leases and other borrowings and a reduction in the level of
new finance lease income offset in part by an increase in new borrowings and the receipt of equity
proceeds following the setting up of the employee benefit trust which was established for the purposes of
the JSOS.
During FYE 2007, the Group raised £30.2 million in equity from new and existing investors and
£35.1 million new borrowings and proceeds from asset based financing. The repayment of existing leases
and borrowings was £18.5 million.
During FYE 2008, the Group raised £17.9 million in equity from new and existing investors, and
£17.0 million in new borrowings and proceeds from asset based financing. The repayment of existing
leases and borrowings was £16.5 million.
During FYE 2009, the Group raised £29.1 million in new equity from existing and new investors and
£32.2 million in new borrowings and proceeds from asset based financing. The repayment of existing
leases and borrowings was £38.7 million.
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As a result, the Group’s net cash from financing activities decreased from £46.8 million in FYE 2007 to
£18.4 million in FYE 2008 and increased to £22.7 million in FYE 2009.
6.2 External sources of funding, financing and indebtedness
Ocado closely manages its trading capital, which it defines as its net assets plus net debt. Net debt is
calculated as total debt (finance leases, convertible loan stock and borrowings as shown in the balance
sheet), less cash and cash equivalents.
The main areas of capital management revolve around the management of the components of working
capital, including monitoring stock turn, age of stock, age of debtors, debtor days, creditor days, balance
sheet re-forecasting, period projected loss, weekly cash flow forecasts, and daily cash balances. The
Business typically has a negative working capital position (in line with other food retailers) as a result of
low inventory days and minimal debtors. In periods of growth the Business benefits from cash inflows as a
result of creditors days being longer than those of inventory and receivables. Major investment decisions
are based on reviewing the expected future cash flows and all major capital expenditure requires
approval from the Board.
The Group’s net debt decreased from £124.2 million at the end of FYE 2007 to £115.7 million at the end of
FYE 2008 and to £107.0 million at the end of FYE 2009. The Group’s net debt was £111.1 million as at the
end of P1-3 2010, £110.2 million as at the end of P1-6 2010 (unaudited) and £113.7 million as at 13 June
2010 (unaudited). Since the end of P1-6 2010, the Group repaid a £5 million loan from Barclays Bank PLC
and incurred additional £7.5 million in debt under a new revolving credit facility from Lloyds TSB Bank plc,
as described below. The borrowing requirements of the Group are not subject to seasonality.
Headroom available (defined as aggregate funds available to be borrowed under the Group’s existing
facilities available minus net debt) was £30.9 million, £16.3 million and £30.9 million at the end of FYE
2007, FYE 2008 and FYE 2009, respectively. Headroom available was £30.4 million as at the end of P1-3
2010 and £27.7 million as at 13 June 2010 (unaudited). The Group had cash and cash equivalents of
£10.9 million, £5.9 million and £13.0 million as at the end of FYE 2007, FYE 2008 and FYE 2009,
respectively. The Group had cash and cash equivalents of £10.4 million, £10.0 million and £8.2 million as
at the end of P1-3 2010, P1-6 2010 (unaudited) and as of 13 June 2010 (unaudited), respectively.
Original
facility
amount
Lender
Principal amount outstanding
Maturity
Interest rate
£ million
Secured loans
Barclays Bank PLC(4) . . . . .
Barclays Bank PLC(5) . . . . .
Barclays Bank PLC(6) . . . . .
Barclays Bank PLC(6) . . . . .
Barclays Bank PLC(6) . . . . .
Lloyds TSB Bank plc(4) . . . .
Lloyds TSB Bank plc(4) . . . .
Unsecured loans
Arlington Property
Developments Ltd . . . . .
Bank of London and the
Middle East plc . . . . . . .
Premium credit . . . . . . . . .
Obligations under finance
leases
Material handling equipment
Vehicle leases . . . . . . . . .
Capitalised element of CFC
lease for IFRS . . . . . . . .
LIBOR(2) + 2.75%
BOEBR(1) + 3.0%
BOEBR(1) + 1.5%
LIBOR(2) + 2.25%
LIBOR(2) + 3.5%
LIBOR(2) + 6%
LIBOR(2) + 5%
As at
13 June 2010
(unaudited)
£ million
(unaudited)
£ million
5.0
7.5
1.0
1.3
2.7
27.1
—
—
7.5
1.0
1.3
2.7
27.1
7.4
.
.
.
.
.
.
.
5.0
8.0
1.5
1.5
2.9
35.0
7.5
.
6.8
Mar 2012
14.2%
1.7
1.7
.
.
10.0
1.9
Jul 2012
Sep 2010
8% equivalent
7.4%
7.7
0.5
7.7
0.5
40.6
13.0
39.1
13.8
.
12.0
12.0
Total borrowings and leases .
120.2
121.9
.
.
On demand
Feb 2015
Dec 2011
Feb 2012
Dec 2012
Dec 2010/Dec 2011(3)
May 2013
As at end of
P1-6 2010
5 year leases
5 year leases
Various
Various
(1)
Bank of England Base Rate.
(2)
London Inter-Bank Offer Rate.
(3)
Of the principal amount outstanding, £15.6 million is due in December 2010 and the balance is due in December 2011.
(4)
Secured over warehouse assets and intellectual property.
(5)
Secured over warehouse assets.
(6)
Secured over freehold property.
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Part IV
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Ocado is also party to a standby overdraft facility with Barclays Bank PLC of up to £5.0 million.
Some of Ocado’s loan agreements contain restrictions on the payment of dividends and redemption of
shares and change of control provisions providing for full payment of all monies owed upon change of
control as defined by the individual agreement. Under the £35 million and the new £7.5 million term loan
and £7.5 million revolving credit facilities with Lloyds TSB Bank plc, Ocado is not permitted to declare,
make or pay any dividend or other distribution on or in respect of its share capital, repay or distribute any
dividend or share premium reserve or redeem, repurchase, retire or repay any of its share capital or
resolve to do so. Ocado also may not enter into any demerger, merger or corporate reconstruction. Under
the same agreement, Ocado will owe all monies drawn if control over more than 50 per cent. of voting
power at a general meeting, the power to appoint or remove all or the majority of directors or equivalent
officers of Ocado or the beneficial holding of more than 50 per cent. of Ocado passes to a party, other than
John Lewis, without the prior written consent of the lending bank. The £10 million loan agreement with
Bank of London and the Middle East plc restricts the distribution of dividends unless the Group is current
with all payments under the agreement and provided that such distribution does not exceed 50 per cent.
of Ocado’s net profit for the period on which the distribution is being made. Under the £6.8 million
Arlington Properties Development Ltd loan, Ocado will owe all monies drawn if control of Ocado passes to
a party, other than John Lewis, without the prior written consent of the lending bank. In addition, certain of
the loan agreements with Barclays Bank PLC contain change of control provisions. For more information
on the £35 million Lloyds TSB Bank plc facility and the Bank of London and the Middle East plc facility,
see section 17.3 of Part XIII (Additional Information)
On 5 July 2010 Ocado, (as original borrower) entered into a sterling term loan facility (the ‘‘New Facility’’)
between, among others, Barclays Bank PLC, HSBC Bank plc and Lloyds TSB Bank plc (as mandated
lead arrangers and lenders), and Barclays Bank PLC (as agent and security trustee). The lenders have
agreed to make available £100 million to the borrowers under the New Facility. All amounts borrowed
under the New Facility shall be applied towards: (i) the acquisition of land located in England and Wales;
(ii) the acquisition of building materials, fixtures and buildings attached to land located in England and
Wales; and/or (iii) the acquisition of plant, machinery, equipment, fittings and/or any other tangible
movable property to be located at the existing CFC, the second CFC and the Spokes located in England
and Wales. The New Facility has an accordion feature which allows for the amount available under it to be
increased up to £130 million, subject to the lenders (existing or additional) agreeing to make the additional
amount available.
The borrowers may only draw down under the New Facility if certain customary conditions precedent are
satisfied and Admission takes place. The New Facility is secured against the LOKI/Fenrir software
program and the assets financed by the New Facility. The New Facility is guaranteed by the Company
and Ocado Holdings Limited and Ocado in the event of an additional borrower drawing down under it. Any
of the Company’s subsidiaries whose EBITDA, gross assets or turnover account for 5 per cent. or more of
the Group’s EBITDA, gross assets or turnover (calculated on a consolidated basis) shall become
additional guarantors, and the guarantors (taken together) must account for at least 90 per cent. of the
Group’s EBITDA, gross assets and turnover. The agreement also contains customary warranties,
representations, financial and other covenants and events of default.
Loans drawn under the New Facility bear interest at the London Inter-Bank Offer Rate (‘‘LIBOR’’) plus a
margin of 3.5 per cent. per year together with a sum for certain mandatory costs (if any). Repayment is
due on the termination date of the New Facility, 6 January 2014.
The New Facility may be terminated if the Sourcing Agreement and Branding Arrangements are
terminated in any circumstances. However, with the exception of the change of control termination right
described in paragraph 1.4 of the Risk Factors, which is customary for an agreement of that type, the
Company is in control of whether any such termination rights will arise.
For a detailed description of the New Facility, see section 17.3 of Part XIII (Additional Information).
On 20 May 2010, Ocado received an additional £3.4 million of finance leasing for vans from
Mercedes-Benz Charterway. On 2 July 2010, Ocado entered into arrangements with Santander UK plc
for the extension of credit lines for finance leasing of future delivery vans up to the amount of £15 million.
Together, this provides Ocado with a credit line of £18.4 million for the finance leasing of its future vehicle
requirements.
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On 26 May 2010, Ocado entered into with Lloyds TSB Bank plc as lender a new three year term loan in an
aggregate principal amount of £7.5 million and a revolving credit facility in an aggregate principal amount
of £7.5 million. The term loan is repayable in three equal instalments, the payments being due on 26 May
2011, 2012 and 2013. Both facilities will mature in May 2013. Borrowings under the term loan and
revolving credit facility bear an interest rate of LIBOR plus a margin of 5 per cent. per year and LIBOR plus
a margin of 7 per cent. per year, respectively, and are secured against certain of Ocado’s intellectual
property. The term loan was fully drawn at 28 May 2010. The term loan and revolving credit facility are
otherwise entered into on the same terms as Ocado’s £35 million loan with Lloyds TSB Bank plc.
Approximately £45 million of the net proceeds from the Offers received by the Company is expected to be
used within six months of Admission to repay amounts drawn by the Group under certain of the existing
borrowing facilities.
6.3 Capital expenditure
The Group’s capital expenditure has focused on four main areas supporting the Group’s long-term
growth, which included increasing the capacity and operating efficiency of the CFC, increasing the
capacity of the distribution network, growing the van fleet and replacing vehicles as they age and ongoing
development of IT capabilities and infrastructure.
The amount of capital expenditure has remained relatively stable over the period FYE 2007 to FYE 2009
and declined as a percentage of gross sales, however the focus of the expenditure has changed. In FYE
2007 and FYE 2008, the Group focused its capital expenditure on projects to increase capacity and
efficiency in the CFC with the focus moving to the development of the Spoke network and delivery fleet
and continued investment in IT capability in FYE 2009. Ocado achieved an increase of effective capacity
of the CFC from fewer than 55,000 orders per week in early 2007 to the current effective capacity of
approximately 105,000 orders per week with capital expenditure of £31.3 million over the period
FYE 2007-FYE 2009.
The following table sets out the Group’s capital expenditure (unaudited) for FYE 2007, FYE 2008, FYE
2009, P1-3 2009, and P1-3 2010:
FYE 2007
(unaudited)
£ million
FYE 2008
(unaudited)
£ million
FYE 2009
(unaudited)
£ million
P1-3 2009
(unaudited)
£ million
P1-3 2010
(unaudited)
£ million
.
.
.
.
.
16.3
3.2
0.1
5.4
1.0
10.1
3.4
3.6
6.6
1.0
4.9
4.7
5.4
7.5
0.5
1.2
1.0
2.9
1.7
0.1
1.3
2.5
0.1
1.4
0.1
Total . . . . . . . . . . . . . . . . . . .
26.0
24.7
23.0
6.9
5.4
CFC . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . .
Distribution sites (Spokes)
IT Hardware & Software .
Other . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
The above table includes amounts invoiced in respect of capital expenditure which were unpaid at the
period end and assets financed using finance leases.
Over the medium term, the Group anticipates significant capital expenditure for the building and fitting out
of the second CFC; continued investment in the existing CFC to expand its capacity and increase its
operational efficiency; development of new Spokes; expansion of the vehicle fleet; continued
development of IT systems; and maintenance capital expenditure. The timing and amount of these
planned capital expenditures are subject to ongoing review by the Directors and may be affected by
various factors, including the level of demand for Ocado’s services, opportunities for additional
improvements of the capacity and efficiency of the operations, and the availability of required financing on
terms acceptable to Ocado.
The total construction costs of the second CFC are currently estimated at approximately £210 million
(costed at a sterling : euro exchange rate of £1 = e1.10). This includes costs of site acquisition and
preparation, construction of the external building and internal fit-out (approximately £90 million) and the
acquisition and installation of material handling equipment (approximately £120 million). The Directors
believe that Ocado has a degree of flexibility to adjust the timing of the fit-out of the second CFC and the
installation of the material handling equipment to match customer demand and required capacity. While
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Part IV
Operating and Financial Review
site acquisition costs are expected to be committed at the time of the acquisition and the building costs
are expected to be committed at the point of the commencement of construction, the costs relating to
material handling equipment are expected to be committed at the time of the order of the equipment, with
the full cost being paid in stages up to the full installation of the equipment. The Directors expect that the
expenditure on material handling equipment, and therefore expansion of effective capacity, will be
staged, with an initial estimated effective capacity of the second CFC of approximately 120,000 orders
per week, with subsequent expansion to approximately 180,000 orders per week. The total actual spend
on the second CFC will be subject to several factors and uncertainties outside of Ocado’s control. These
include the market price of steel (due to approximately one-third of the cost of material handling
equipment being linked to steel prices) and changes in the euro/sterling exchange rate (as the material
handling equipment is expected to be priced in euro).
In addition to the construction and related fit-out of the second CFC, the planned capital expenditure over
the medium term comprises:
•
Continued investment in the existing CFC. Ocado plans to continue investing in the existing
CFC to expand its capacity from approximately 105,000 orders per week to approximately
150,000 orders per week (estimated capital expenditure of approximately £30 million) and
subsequently to approximately 180,000 orders per week (estimated capital expenditure of
approximately £50 million). As the majority of the existing material handling equipment in the
CFC is already capable of a throughput of approximately 150,000 orders per week, the capital
expenditure required to achieve this level for the existing CFC is relatively small compared to the
capital expenditure required to further increase the effective capacity of the CFC to
approximately 180,000 orders per week. The increase of effective capacity from 150,000 to
180,000 orders per week will require additional capital expenditure across the CFC to upgrade
existing machinery and install new machinery.
•
Development of new Spokes. Ocado expects to establish an average of two new Spokes per
year in the medium term at an estimated cost ranging from £1 million to £5 million (expected to
be £2.5 million on average) per Spoke. The cost of developing a new Spoke depends on its
location, the condition of the existing site and whether Ocado acquires a freehold or leasehold
for the Spoke.
•
Expansion of the delivery vehicle fleet. Ocado expects to increase its delivery vehicle fleet in
line with the number of orders per week and deliveries per van per week achieved by the
Business.
•
Continued development of IT systems.
Ocado expects to fund the planned capital expenditure with the balance of the net proceeds of the Offers
of approximately £155 million, together with the undrawn debt facilities of approximately £100 million,
credit lines available for asset financing of approximately £20 million and the cash flow generated by its
operations. Ocado expects to fund the majority of the investment in the second CFC and the existing CFC
through borrowings under the New Facility, finance leases and other forms of debt.
Ocado’s financing needs will be highly dependent on the actual cost of the second CFC and other capital
expenditure, the timing of the start of operations at the second CFC and the success of the second CFC in
operating at designed or planned capacity. Ocado may need to raise additional capital from 2012 to that
currently anticipated to fund its planned capital expenditure. Any such required additional funding may not
be available to the Group on favourable terms when required, or at all.
These forward-looking statements may be affected by the factors set forth in ‘‘Risk Factors’’.
7.
Contingencies and commitments
The following table sets out an analysis of the Group’s contractual obligations as at the end of P1-3 2010
into their relevant maturity groups based on the remaining period at the end date of the financial period to
the contractual maturity date. The amounts reflect the carrying value and undiscounted contractual cash
flows.
93
Part IV
Operating and Financial Review
Secured loans . . . . . . . .
Unsecured loans . . . . . .
Trade and other
payables(1) . . . . . . . .
Operating lease
obligations(2) . . . . . . .
Financial lease obligations
Derivative financial
instruments . . . . . . . .
Capital commitments(3) . .
Total . . . . . . . . . . . . .
As at end of P1-3 2010
Less than
Between 1
1 year
and 2 years
(unaudited)
(unaudited)
(£ million)
(£ million)
(24.4)
(16.0)
(6.3)
(4.8)
Carrying
value
(unaudited)
(£ million)
(44.3)
(11.7)
Contractual
cash flows
(unaudited)
(£ million)
(47.8)
(13.0)
(42.3)
(42.3)
(42.3)
(46.8)
(65.6)
(46.8)
(77.4)
(2.6)
(23.3)
(2.3)
(21.3)
(1.1)
(11.1)
(1.1)
(11.1)
—
(11.1)
(1.1)
—
(222.9)
(239.4)
(110.0)
(45.5)
—
(1)
Does not include other taxation and deferred income.
(2)
Minimum lease payments under non-cancellable operating leases.
(3)
Contracts placed for future capital expenditure not provided in the financial statements.
8.
Off balance sheet arrangements and contingent liabilities
Between 2
and 5 years
(unaudited)
(£ million)
(7.4)
(1.9)
More than
5 years
(unaudited)
(£ million)
—
—
—
(5.9)
(22.3)
—
—
(37.5)
—
(36.0)
(10.4)
—
—
(46.5)
The Group has no off balance sheet arrangements, as determined for purposes of IFRS-EU.
As part of its financing arrangements, Ocado granted Lloyds TSB Bank plc and Ranelagh Nominees
Limited (an affiliate of Lloyds TSB Bank plc) warrants to subscribe for 56,112 shares in Ocado. Lloyds
TSB Bank plc subsequently transferred all of its warrants to Ranelagh Nominees Limited. Following the
reorganisation that resulted in the Company becoming the holding company of the Group, the warrants
are now warrants to subscribe for 5,611,200 Ordinary Shares in the Company at a price of £1.80 per
Ordinary Share. Subject to the Offer Price being not less than £1.90, Ranelagh Nominees Limited has
irrevocably committed to exercise its remaining warrants in full on Admission provided that it may sell the
resulting 5,611,200 Ordinary Shares pursuant to the Offers.
9.
Quantitative and qualitative disclosure on market risk
The Group’s operations and financing arrangements expose it to a variety of financial risks that include
the effects of changes in debt market prices, credit risks, liquidity risks and interest rates.
9.1 Liquidity
To manage the working capital needs, the Group maintains a mixture of short- and medium-term debt,
including a revolving credit facility, and finance lease arrangements that are designed to ensure it has
sufficient available funds for operations. In addition, the Group maintains a committed standby bank
overdraft facility of £5.0 million with Barclays Bank PLC. The Group monitors cash flow as part of its
day-to-day control procedures and the Executive Board receives cash flow projections on a monthly basis
indicating the facilities available to be drawn upon as necessary.
Additional information on the Group’s contractual obligations analysed into their relevant maturity groups
is provided in section 7 of this Part IV.
9.2 Credit risk
The Group’s exposures to credit risk arise from holdings of cash and cash equivalents, trade and other
receivables (excluding prepayments) and available for sale financial assets.
94
Part IV
Operating and Financial Review
(A) Cash and cash equivalents
The Group’s exposure to credit risk in cash and cash equivalents is managed by dealing only with banks
and financial institutions which carry Moody’s ratings of Aa3/P1 for long-term and short-term deposits.
The Group therefore regards the risk around cash and cash equivalents as minimal.
(B) Trade and other receivables
Trade and other receivables are, due to the nature of Ocado’s business, managed by spreading the risk
over a large number of individuals with relatively small balances. Payments from customers are collected
upon delivery of an order to the customer. Payments are collected by charging the customer’s credit or
banking card on file, which is checked by the Group upon initial submission, and the funds are typically
received within 7 days. A small number of card payments fail each week (less than 0.2 per cent. in P1-3
2010) and are followed up by the finance department.
9.3 Market risk
(A) Currency risk
The Group is exposed to currency risk in connection with its trade payables, principally arising on
purchases of plant and equipment. The Group had exposure of less than £0.1 million in respect of foreign
currency assets and liabilities at the end of P1-3 2010. The Group expects to enter into significant
purchase commitments relating to equipment for the second CFC, among others, denominated in euro,
which will increase its currency risk exposure. The Company expects to reduce this currency exposure by
entering into forward currency contracts for these purchases.
(B) Interest rate risk
The Group is exposed to interest rate risk on its interest bearing borrowings. The Group’s interest rate
policy seeks to minimise interest expense and volatility by structuring the interest rate profile into a
diversified portfolio of fixed rate and floating rate liabilities.
An increase of 100 basis points (1.0 per cent.) in interest rates at the balance sheet date would have
decreased equity and profit or loss by the amounts shown below. This calculation assumes that the
change occurred at the balance sheet date and had been applied to risk exposures existing at that date.
This analysis assumes that all other variables remain constant and considers the effect on financial
instruments with variable interest rates and financial instruments at fair value through profit or loss. The
analysis is performed on the same basis for each period.
FYE 2007
FYE 2008
£ million
Equity
Gain/(loss) . . . . . . . . . . . . . . . . .
Income
Gain/(loss) . . . . . . . . . . . . . . . . .
£ million
As at end of
FYE 2009
£ million
P1-3 2009
(unaudited)
£ million
P1-3 2010
£ million
(0.5)
(0.5)
(0.5)
(0.2)
(0.2)
(0.5)
(0.5)
(0.5)
(0.2)
(0.2)
10. Critical accounting policies and estimates
The preparation of the Group’s historical financial information requires estimates and assumptions that
affect the application of policies and reported amounts. Estimates and assumptions are based on
historical experience and other factors including expectations of future events that are believed to be
reasonable under the circumstances. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that
period or in the period of the revision and future periods if the revision affects both current and future
periods.
95
Part IV
Operating and Financial Review
Critical accounting policies are those accounting estimates that require management to make
assumptions about matters that are uncertain at the time the estimates are made and would have
resulted in material changes to the historical financial information if different estimates, which
management reasonably could have used, were made. The Group’s critical accounting policies are
discussed below. For a full discussion of the Group’s accounting policies, see Note 2 (Accounting
policies) in the Historical Financial Information in Part V (Historical Financial Information Relating to the
Group).
10.1 Revenue recognition
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 and the driver of the delivery van has returned to the Spoke. Income from Ocado
Delivery Pass, which enables customers to obtain virtually unlimited deliveries without paying any
delivery charges in exchange for either a fixed annual payment or monthly subscription payments, is
recognised in the period to which it relates on an accruals basis.
10.2 Intangible assets—capitalised software
Computer software is carried at cost less accumulated amortisation and any impairment loss. Externally
acquired computer software and software licences are capitalised and amortised on a straight-line basis
over their useful economic lives of three to five years. Costs relating to development of computer software
for internal use are capitalised once all development phase recognition criteria of IAS 38 ‘‘Intangible
Assets’’ are met. When the software is available for its intended use, these costs are amortised in equal
annual amounts over the estimated useful life of the software. Any impairment of computer software or
licenses is charged to operating profit in the period in which it arises.
Capitalised cost includes the labour costs associated with the Group’s own employees, based on time
recorded, to the extent that they are directly attributable to development construction costs, or where they
comprise a proportion of an IT team directly engaged in the development and installation of a software
application. Management judgement is involved in determining the appropriate internal costs to capitalise
and the amounts involved.
For P1-3 2010, internal development costs capitalised were £0.9 million (FYE 2009: £4.1 million; FYE
2008: £3.9 million; FYE 2007: £2.7 million) and represented approximately 71 per cent. (FYE 2009: 93
per cent.; FYE 2008: 95 per cent.; FYE 2007: 81 per cent.) of expenditure on intangible assets and 16 per
cent. (FYE 2009: 18 per cent.; FYE 2008: 16 per cent.; FYE 2007: 10 per cent.) of total capital spend
including property, plant and equipment.
The useful life of internally developed software is three years, based on historical experience with similar
products as well as anticipation of future events, which may impact their life, such as changes in
technology. Historically, changes in useful lives of software have not resulted in material changes to the
amortisation charge.
10.3 Depreciation of property, plant, and equipment
Property, plant and equipment represent a significant proportion of the asset base of the Group,
representing 66 per cent., 72 per cent. and 72 per cent. of the total assets in FYE 2009, FYE 2008 and
FYE 2007, respectively. Therefore, the estimates and assumptions made to determine their carrying
value and related depreciation are critical to the Group’s financial position and performance. In
accounting for property, plant and equipment, the Group must make estimates about the expected useful
lives of the assets, the expected residual values of the assets and the potential for impairment based on
the fair value of the assets and the cash flows they generate.
The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s
expected useful life and the expected residual value at the end of its life. Increasing an asset’s expected
life or its residual value would result in a reduced depreciation charge in the statement of comprehensive
income.
96
Part IV
Operating and Financial Review
The useful lives of the Group’s assets are determined by management at the time the asset is acquired
and reviewed at least annually for appropriateness. The lives are based on historical experience with
similar assets as well as anticipation of future events, which may impact their life, such as changes in
technology.
10.4 Impairment testing
The Group does not have any assets that have an indefinite useful life and are not subject to an annual
amortisation or depreciation charge. All non-financial assets are tested annually for impairment in respect
of changes in residual value or remaining life. Factors that would indicate potential impairment of
property, plant and equipment would include, but are not limited to, significant decreases in the market
value of property, plant and equipment, a significant change in property, plant and equipment’s physical
condition, a change in the operating procedures that alters the purpose for which the asset was brought
into use, and operating or cash-flow losses associated with the use of property, plant and equipment.
The Group is required to undergo an assessment of the future viability of assets grouped at the lowest
levels for which there are separately identifiable cash flows (cash generating units). Given the Group’s
current operating structure, the lowest level at which cash flows can reasonably be assessed is for the
Group as a whole. The Group is continuing to invest in future growth and has not yet reached a stage
where it delivers positive post-tax earnings.
10.5 Going concern basis for the preparation of the financial information
The historical financial information has been prepared on the going concern basis, which assumes that
the Group will continue to be able to meet its liabilities as they fall due for the foreseeable future. The
going concern basis relies on the receipt of £200 million of net proceeds from the Offers and the New
Facility being available to the Group. See Note 2(b) in Part V (Historical Financial Information relating to
the Group) for additional detail.
The Group maintains a mixture of long-term and short-term debt finance that is designed to ensure it has
sufficient available funds for operations and its planned expansions. The Group monitors cash flow as
part of its day-to-day control procedures and management consider cash flow projections on a monthly
basis ensuring that appropriate facilities are available to be drawn upon as necessary. The Group also
prepares detailed forward projections for future periods which are constantly updated and refined. As a
consequence, the Group is satisfied that it is able to obtain sufficient resources to continue in operation for
the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing
the financial statements.
This assumption has a significant effect on the Group and affects the way assets and liabilities are valued.
If management were unable to justify accounting on a going concern basis, the valuation of the Group’s
assets and liabilities would be affected. An impairment review would be required to be conducted and it is
likely that assets would have to be measured at their net realisable value based on the sale of assets on
an asset by asset basis. Liabilities would also have to be increased to take account of future
non-cancellable operating lease commitments.
10.6 Recognition of deferred tax assets
The Group’s tax charge on ordinary activities is the sum of the total current and deferred tax charges. The
calculation of the total tax charge necessarily involves a degree of estimation and judgement in respect of
certain items. The final outcome of some of these items may give rise to material profit and loss and/or
cash flow variances.
A deferred tax asset is recognised when it has become probable that future taxable profit will allow the
deferred tax asset to be recovered. Recognition, therefore, involves judgement regarding the prudent
forecasting of future taxable profits of the business and in applying an appropriate risk adjustment factor.
10.7 Classification of leases (including sale and leaseback transactions)
The Group has a number of complex high-value lease arrangements. The Group follows the guidance of
IAS 17 to determine the classification of leases as operating or finance leases. The classification of a
97
Part IV
Operating and Financial Review
lease as a finance lease, as opposed to an operating lease, will change EBITDA and operating profit/
(loss) as the charge made by the lessor will pass through finance charges and depreciation. Retained
earnings may also be temporarily affected depending on the relative size of the amounts apportioned to
capital repayments and depreciation. IAS 17 requires the Group to consider property leases split into their
component parts (i.e., land and building elements) separately. As only the buildings elements could be
considered as a finance lease management must make a judgment, based on advice from suitable
experts, as to the relative value of the land and buildings.
Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and
rewards of ownership to the Group or where the substance of the transaction does not meet the criteria of
a sale and leaseback. All other leases are classified as operating leases. For property leases, the land
and building elements are treated separately to determine the appropriate lease classification.
Finance leases
Assets funded through finance leases are capitalised either as property, plant and equipment, or
intangible assets as appropriate and depreciated/amortised over their estimated useful lives or the lease
term, whichever is shorter. The amount capitalised is the lower of the fair value of the asset or the present
value of the minimum lease payments during the lease term at the inception of the lease. The resulting
lease obligations are included in liabilities net of finance charges. Finance costs on finance leases are
charged directly to the statement of comprehensive income on an effective interest rate basis.
Operating leases
Assets leased under operating leases are not recorded on the balance sheet. Rental payments are
charged directly to the income statement.
Lease incentives
Lease incentives primarily include up-front cash payments or rent-free periods. Lease incentives are
capitalised and spread over the period of the lease term.
98
PART V
HISTORICAL FINANCIAL INFORMATION RELATING TO THE GROUP
(A) Accountants’ report on the historical financial information relating to the Group
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
7DEC200517132980
The Directors
Ocado Group plc
Titan Court
3 Bishops Square
Hatfield Business Park
Hatfield
AL10 9NE
Goldman Sachs International
Peterborough Court
133 Fleet Street
London
EC4A 2BB
J.P. Morgan Securities Ltd.
125 London Wall
London
EC2Y 5AJ
UBS Limited
1 Finsbury Avenue
London
EC2M 2PP
6 July 2010
Dear Sirs
Ocado Group plc
We report on the financial information set out in Part (B) of this Part V (the ‘‘Historical Financial
Information relating to the Group’’). The Historical Financial Information relating to the Group has been
prepared for inclusion in the prospectus dated 6 July 2010 (the ‘‘Prospectus’’) of Ocado Group plc (the
‘‘Company’’) on the basis of the accounting policies set out in paragraph 2. This report is required by
item 20.1 of Annex I to the PD Regulation and is given for the purpose of complying with that item and for
no other purpose.
We have not audited the financial information for the 12 weeks ended 22 February 2009 and accordingly
do not express an opinion thereon.
Responsibilities
The Directors of the Company are responsible for preparing the Historical Financial Information relating to
the Group in accordance with International Financial Reporting Standards as adopted by the
European Union.
PricewaterhouseCoopers LLP is a limited liability partnership registered in England with registered number OC303525. The registered office of PricewaterhouseCoopers LLP is
1 Embankment Place, London WC2N 6RH. PricewaterhouseCoopers LLP is authorised and regulated by the Financial Services Authority for designated investment business.
99
Part V
Historical Financial Information relating to the Group
It is our responsibility to form an opinion on the Historical Financial Information relating to the Group and
to report our opinion to you.
Save for any responsibility which we may have to those persons to whom this report is expressly
addressed and for any responsibility arising under item 5.5.3R(2)(f) of the Prospectus Rules to any
person as and to the extent there provided, to the fullest extent permitted by law we do not assume any
responsibility and will not accept any liability to any other person for any loss suffered by any such other
person as a result of, arising out of, or in connection with this report or our statement, required by and
given solely for the purposes of complying with item 23.1 of Annex I to the PD Regulation, consenting to
its inclusion in the Prospectus.
Basis of opinion
We conducted our work in accordance with the Standards for Investment Reporting issued by the
Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant
to the amounts and disclosures in the Historical Financial Information relating to the Group. It also
included an assessment of significant estimates and judgments made by those responsible for the
preparation of the Historical Financial Information relating to the Group and whether the accounting
policies are appropriate to the Company’s circumstances, consistently applied and adequately disclosed.
We planned and performed our work so as to obtain all the information and explanations which we
considered necessary in order to provide us with sufficient evidence to give reasonable assurance that
the Historical Financial Information relating to the Group is free from material misstatement whether
caused by fraud or other irregularity or error.
Our work has not been carried out in accordance with auditing standards generally accepted in the United
States of America or auditing standards of the Public Company Accounting Oversight Board (United
States) and accordingly should not be relied upon as if it had been carried out in accordance with
those standards.
Opinion
In our opinion, the Historical Financial Information relating to the Group gives, for the purposes of the
Prospectus dated 6 July 2010, a true and fair view of the state of affairs of the Company as at the dates
stated and of its losses, cash flows and changes in equity for the periods then ended in accordance with
International Financial Reporting Standards as adopted by the European Union.
Declaration
For the purposes of Prospectus Rule 5.5.3R(2)(f) we are responsible for this report as part of the
Prospectus and declare that we have taken all reasonable care to ensure that the information contained
in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely
to affect its import. This declaration is included in the Prospectus in compliance with item 1.2 of Annex I to
the PD Regulation.
Yours faithfully
PricewaterhouseCoopers LLP
Chartered Accountants
100
Part V
Historical Financial Information relating to the Group
(B) Historical financial information relating to the Group
Consolidated statements of comprehensive income
Continuing operations
Notes
For the
52 weeks
ended
2 December
2007
For the
52 weeks
ended
30 November
2008
£’000
£’000
For the
52 weeks
ended
29 November
2009
£’000
For the
12 weeks
ended
22 February
2009
(unaudited)
£’000
For the
12 weeks
ended
21 February
2010
£’000
Revenue . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . .
2
2
272,856
(184,874)
321,314
(218,515)
401,997
(279,168)
84,622
(58,942)
110,238
(76,927)
Gross profit . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . .
Distribution costs . . . . . . . . . . .
6
2
87,982
612
(93,536)
102,799
1,808
(101,069)
122,829
2,641
(110,331)
25,680
542
(24,594)
33,311
1,166
(28,250)
(4,942)
(25,148)
3,538
(25,151)
15,139
(29,542)
1,628
(6,200)
6,227
(8,107)
Operating profit/(loss) before
administrative expenses . . . . .
Administrative expenses . . . . . .
Operating loss . . . . . . . . . . . .
Finance income . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . .
7
9
9
(30,090)
824
(10,888)
(21,613)
99
(11,784)
(14,403)
12
(11,118)
(4,572)
—
(2,663)
(1,880)
2
(2,085)
Loss before tax . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . .
10
(40,154)
—
(33,298)
—
(25,509)
2,300
(7,235)
—
(3,963)
—
Loss for the period
attributable to the owners of
the Group . . . . . . . . . . . . . .
(40,154)
(33,298)
(23,209)
(7,235)
(3,963)
Total comprehensive income
for the period attributable to
the owners of the Group . . .
(40,154)
(33,298)
(23,209)
(7,235)
(3,963)
pence
(12.12)
pence
(9.77)
pence
(6.05)
pence
(1.92)
pence
(0.99)
Loss per share . . . . . . . . . . .
Basic and diluted loss per share
28
Non-GAAP measure: Earnings/(loss) before interest, taxation, depreciation, amortisation and
impairment (‘‘EBITDA’’)
Notes
Loss for the period attributable to
the owners of the Group . . . .
Adjustments for:
Finance income . . . . . . . . . .
Finance costs . . . . . . . . . . .
Depreciation of property, plant
and equipment . . . . . . . . .
Impairment of property, plant
and equipment . . . . . . . . .
Amortisation expense . . . . . .
Taxation . . . . . . . . . . . . . . .
For the
52 weeks
ended
2 December
2007
For the
52 weeks
ended
30 November
2008
For the
52 weeks
ended
29 November
2009
£’000
£’000
£’000
For the
12 weeks
ended
22 February
2009
(unaudited)
£’000
For the
12 weeks
ended
21 February
2010
£’000
(40,154)
(33,298)
(23,209)
(7,235)
(3,963)
..
..
9
9
(824)
10,888
(99)
11,784
(12)
11,118
—
2,663
(2)
2,085
..
12
17,621
19,820
17,865
4,048
4,301
..
..
..
12
11
10
612
2,395
—
66
3,917
—
1,023
4,743
(2,300)
—
1,025
—
—
979
—
(9,462)
2,190
9,228
501
3,400
Earnings/(loss) before interest,
taxation, depreciation,
amortisation and impairment
‘‘EBITDA’’ . . . . . . . . . . . . . .
101
Part V
Historical Financial Information relating to the Group
Consolidated balance sheets
Non-current assets
Intangible assets . . . . . . . . . . .
Property, plant and equipment . .
Deferred tax asset . . . . . . . . . .
Available-for-sale financial asset
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Current assets
Inventories . . . . . . . . . . . . . . . . . . . . .
Trade and other receivables . . . . . . . .
Cash and cash equivalents . . . . . . . . .
Notes
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
11
12
10
13
6,818
89,931
—
395
7,038
90,531
—
395
6,684
90,252
2,300
395
6,941
90,126
2,300
395
97,144
97,964
99,631
99,762
8,300
9,222
10,891
9,107
12,033
5,857
9,213
14,740
13,017
9,494
15,468
10,445
28,413
26,997
36,970
35,407
125,557
124,961
136,601
135,169
(33,232)
(876)
—
(5,066)
(40,303)
(15,016)
(14,506)
(9,989)
(47,237)
(12,087)
—
(19,669)
(46,462)
(27,773)
—
(19,314)
(39,174)
(79,814)
(78,993)
(93,549)
(10,761)
(52,817)
(42,023)
(58,142)
(46,345)
(33,101)
(49,688)
(967)
(175)
(28,429)
—
(53,650)
(1,079)
(197)
(42,658)
—
(45,651)
(1,083)
(366)
(28,218)
—
(46,266)
(1,126)
(384)
(130,276)
(83,355)
(89,758)
(75,994)
(43,893)
(38,208)
(32,150)
(34,374)
34
241,109
—
—
8,150
(293,186)
38
281,649
—
—
1,139
(321,034)
40
310,836
—
—
—
(343,026)
8,663
—
(47,741)
(116,230)
—
120,934
(43,893)
(38,208)
(32,150)
(34,374)
14
15
16
Total assets . . . . . . . . . . . . . . . . . . .
Current liabilities
Trade and other payables . . . . .
Borrowings . . . . . . . . . . . . . . .
Convertible loan stock . . . . . . . .
Obligations under finance leases
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
17
18
18
18
Net current liabilities . . . . . . . . . . . .
Non-current liabilities
Borrowings . . . . . . . . . . . . . . .
Convertible loan stock . . . . . . . .
Obligations under finance leases
Derivative liability . . . . . . . . . . .
Provisions . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
18
18
18
23
22
Net liabilities . . . . . . . . . . . . . . . . . . .
Equity
Share capital . . . . . . . . . . . . . .
Share premium account . . . . . .
Treasury reserve . . . . . . . . . . .
Reverse acquisition reserve . . . .
Convertible loan interest reserve
Accumulated (deficit)/surplus . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
24
24
24
24
20
Deficit attributable to equity holders .
102
Part V
Historical Financial Information relating to the Group
Consolidated statements of changes in equity
Notes
Share
capital
Share
premium
Treasury
Reserve
Reverse
Acquisition
Reserve
Convertible Accumulated
loan interest
(deficit)/
reserves
surplus
£’000
£’000
£’000
£’000
£’000
Balance at 4 December 2006 . . . . . . . .
Loss for the period . . . . . . . . . . . . . .
32
—
210,897
—
—
—
—
—
6,882
—
(253,213)
(40,154)
(35,402)
(40,154)
Total comprehensive income for the
period . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
(40,154)
(40,154)
—
2
—
—
30,212
—
—
—
—
—
—
—
1,268
—
—
Transactions with owners:
Equity component on convertible loan . . . .
Issue of Ordinary shares . . . . . . . . . . .
Share-based payments charge . . . . . . . .
20
24
£’000
Deficit
attributable
to equity
holders
—
—
181
1,268
30,214
181
Total transactions with owners . . . . . .
2
30,212
—
—
1,268
Balance at 2 December 2007 . . . . . . . .
34
241,109
—
—
8,150
(293,186)
(43,893)
Balance at 3 December 2007 . . . . . . . .
Loss for the period . . . . . . . . . . . . . .
34
—
241,109
—
—
—
—
—
8,150
—
(293,186)
(33,298)
(43,893)
(33,298)
Total comprehensive income for the
period . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
(33,298)
(33,298)
—
—
Transactions with owners:
Issue of Ordinary shares . . . . . . . . .
Issue of Convertible preference shares .
Transfer of equity on conversion of loan
stocks . . . . . . . . . . . . . . . . . .
Share-based payments charge . . . . . .
. .
. .
24
24
1
3
17,910
22,630
—
—
—
—
. .
. .
20
—
—
—
—
—
—
—
—
(7,011)
—
Total transactions with owners
181
£’000
—
—
5,389
61
17,911
22,633
(1,622)
61
4
40,540
—
—
(7,011)
Balance at 30 November 2008 . . . . . . .
38
281,649
—
—
1,139
(321,034)
(38,208)
Balance at 1 December 2008 . . . . . . . .
Loss for the period . . . . . . . . . . . . . .
38
—
281,649
—
—
—
—
—
1,139
—
(321,034)
(23,209)
(38,208)
(23,209)
Total comprehensive income for the
period . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
(23,209)
(23,209)
30,072
—
—
—
—
—
—
—
—
—
—
—
—
Transactions with owners:
Issue of Ordinary shares . . . . . . . . .
Transaction costs on issue of Ordinary
shares . . . . . . . . . . . . . . . . . .
Issue of Convertible preference shares .
Transfer of equity on conversion of loan
stock . . . . . . . . . . . . . . . . . . .
Transfer of equity on repayment of loan
stock . . . . . . . . . . . . . . . . . . .
Share-based payments charge . . . . . .
5,450
31,663
38,983
. .
24
2
. .
. .
24
24
—
—
. .
20
—
—
—
—
(5)
5
—
. .
. .
20
—
—
—
—
—
—
—
—
(1,134)
—
1,134
78
—
78
(1,139)
(945)
60
(945)
60
Total transactions with owners . . . . . .
2
29,187
—
—
Balance at 29 November 2009 . . . . . . .
40
310,836
—
—
—
(343,026)
(32,150)
Balance at 30 November 2009 . . . . . . .
Loss for the period . . . . . . . . . . . . . .
40
—
310,836
—
—
—
—
—
—
—
(343,026)
(3,963)
(32,150)
(3,963)
Total comprehensive income for the
period . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
(3,963)
(3,963)
—
—
—
—
—
43
1,705
—
Transactions with owners:
Issue of Ordinary shares in Ocado Limited
Cancellation of shares in Ocado Limited .
Issue of ordinary and convertible
preference shares by Ocado Group plc
Ocado Group plc capital reduction . . . . .
Reverse acquisition of Ocado Limited by
Ocado Group plc . . . . . . . . . . . . .
Share-based payments charge . . . . . . .
.
.
24
24
3
(43)
49,443
—
.
.
24
24
476,509
(467,846)
—
—
.
.
24
—
—
(360,279)
—
Total transactions with owners . . . . . .
8,623
(310,836)
Balance at 21 February 2010 . . . . . . . .
8,663
—
103
(47,741)
—
1,217
30,074
29,267
—
—
(476,509)
—
—
—
—
467,846
—
—
—
—
360,279
—
—
—
—
34
—
34
(47,741)
(116,230)
—
467,923
1,739
(47,741)
(116,230)
—
120,934
(34,374)
Part V
Historical Financial Information relating to the Group
Consolidated statement of cash flows
Notes
Cash flow from operating
activities
Loss before income tax . . . . . .
Adjustments for:
—Depreciation expense . . . . . .
—Amortisation expense . . . . . .
—Impairment of property, plant
and equipment . . . . . . . . . .
—Loss on disposal of property,
plant and equipment . . . . . . .
—Provision for dilapidations
expense . . . . . . . . . . . . . .
—Share-based payments charge
—Finance costs . . . . . . . . . . .
—Finance income . . . . . . . . .
For the
52 weeks
ended
2 December
2007
For the
52 weeks
ended
30 November
2008
For the
52 weeks
ended
29 November
2009
For the
12 weeks
ended
22 February
2009
For the
12 weeks
ended
21 February
2010
£’000
£’000
£’000
(unaudited)
£’000
£’000
(40,154)
(33,298)
(25,509)
(7,235)
(3,963)
12
11
17,621
2,395
19,820
3,917
17,865
4,743
4,048
1,025
4,301
979
12
612
66
1,023
—
—
7
—
31
33
—
—
22
8
9
9
Changes in working capital:
—(Increase)/decrease in
inventories . . . . . . . . . . . . .
—(Increase)/decrease in trade
and other receivables . . . . . .
—Increase/(decrease) in trade
and other payables . . . . . . .
43
181
10,888
(824)
22
61
11,784
(99)
169
78
11,118
(12)
18
18
2,663
—
18
34
2,085
(2)
(1,122)
(807)
(106)
861
(281)
1,868
(2,811)
(2,707)
(1,188)
(728)
(9,655)
6,637
10,135
(3,227)
(765)
Net cash inflow/(outflow) from
operations . . . . . . . . . . . .
Finance costs paid . . . . . . . . .
(18,147)
(8,063)
5,323
(8,994)
16,830
(12,740)
(3,017)
(2,793)
1,678
(2,104)
Net cash inflow/(outflow) from
operating activities . . . . . . .
(26,210)
(3,671)
4,090
(5,810)
(426)
.
(19,558)
(15,744)
(15,215)
(5,471)
(1,593)
.
.
.
214
(3,366)
1,970
4
(4,137)
99
—
(4,389)
12
—
(875)
—
—
(1,220)
2
Net cash used in investing
activities . . . . . . . . . . . . .
(20,740)
(19,778)
(19,592)
(6,346)
(2,811)
30,214
25,153
(10,555)
17,911
8,022
(11,120)
29,129
25,052
(28,374)
12
2,054
(602)
1,705
3,009
(1,763)
9,950
8,950
7,135
5,124
1,812
(7,926)
(5,348)
(10,280)
(1,612)
(4,098)
46,836
18,415
22,662
4,976
(5,034)
7,160
(7,180)
(2,572)
11,005
10,891
5,857
5,857
13,017
10,891
5,857
13,017
(1,323)
10,445
Cash flows from investing
activities
Purchase of property, plant and
equipment . . . . . . . . . . . .
Proceeds from sale of property,
plant and equipment . . . . . .
Purchase of intangible assets .
Finance income received . . . .
Cash flows from financing
activities
Proceeds from the issue of
Ordinary share capital . . . . .
Proceeds from borrowings . . . .
Repayment of borrowings . . . . .
Proceeds from asset based
financing arrangements . . . . .
Repayments of obligations under
finance leases . . . . . . . . . .
24
Net cash from financing
activities . . . . . . . . . . . . .
Net increase/(decrease) in
cash and cash equivalents .
Cash and cash equivalents at
beginning of period . . . . . . .
Cash and cash/(debt)
equivalents at end of period
(114)
16
104
665
Part V
1.
Historical Financial Information relating to the Group
General Information
The principal activity of Ocado Group plc (the ‘‘Company’’) and its subsidiaries (together, the ‘‘Group’’ or
the ‘‘Ocado Group’’) is that of retailing and distribution of groceries and consumer goods.
The financial information presented is as at and for the 52 weeks to 2 December 2007, the 52 weeks to
30 November 2008, the 52 weeks to 29 November 2009, the 12 weeks to 21 February 2010 and the
12 weeks to 22 February 2009 which is unaudited.
2.
Accounting policies
(a) Statement of compliance
The Ocado Group historical financial information has been prepared in accordance with International
Financial Reporting Standards as adopted by the European Union (‘‘IFRS-EU’’) and International
Financial Reporting Interpretations Committee (‘‘IFRIC’’) interpretations and with those parts of the
Companies Act 2006 as applicable to companies reporting under IFRS-EU.
(b) Basis of preparation and development of the Ocado Group
The Company was incorporated on 8 December 2009 and on 9 February 2010 acquired the entire share
capital of Ocado Limited. As a result of this transaction, the ultimate shareholders in Ocado Limited
received shares in the Company in direct proportion to their original shareholdings in Ocado Limited. On
23 June 2010 the Company re-registered as a public limited company and changed its name to Ocado
Group plc.
Under IFRS 3 Revised ‘‘Business Combinations’’, the acquisition of Ocado Limited by the Company has
been accounted for as a reverse acquisition and the consolidated IFRS-EU financial Information of the
Company is therefore a continuation of the financial information of Ocado Limited.
As a result any financial information after 9 February 2010 represents consolidated financial information
of the Ocado Group. Prior to this date the historical financial information represents the financial
information of the Company’s only operating subsidiary, Ocado Limited (see Note 24).
The financial information is presented in sterling, rounded to the nearest thousand (£’000) unless
otherwise stated. It has been prepared under the historical cost convention, except for financial
instruments which have been measured at fair value.
This Historical Financial Information relating to the Group set out in this Part V (B) has been prepared on
the going concern basis, which assumes that the Group will continue to be able to meet its liabilities as
they fall due for the foreseeable future. The use of the going concern basis relies on the receipt of the
£200 million of net proceeds from the offers of shares (the ‘‘Offers’’) and the new bank facility (the ‘‘New
Facility’’), as discussed in Note 33, being available to the Group. The auditor’s report on the Statutory
Financial Statements of Ocado Limited for the 52 weeks ended 29 November 2009 was unqualified but
included an emphasis of matter relating to going concern on the basis of the uncertainty of the Group’s
future funding, since the £200 million of net proceeds from the Offers and the ability of the Group to be
able to draw down on the New Facility could not be taken into account when forming that opinion. That
uncertainty will be resolved on the receipt by the Company of £200 million of net proceeds from the Offers
and the Group being able to draw down on the New Facility.
Use of assumptions and estimates
The preparation of historical financial information in conformity with IFRS-EU requires the use of
judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the
date of the historical financial information and the reported amounts of revenues and expenses during the
reporting period. The estimates and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the circumstances, the results of which
form the basis of making the judgements about carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates.
These estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that
105
Part V
Historical Financial Information relating to the Group
period or in the period of the revision and future periods if the revision affects both current and future
periods. Please see note 3 for further details.
Standards, amendments and interpretations effective for 2009/10 or issued and early adopted:
Certain new and revised standards and interpretations have been published that are mandatory for the
Group’s accounting periods beginning on or after 1 January 2009 and which the Group has adopted.
•
Amendments to IFRS 1 ‘First-time Adoption of IFRSs’ and IAS 27 ‘Consolidated and Separate
Historical financial information’—Cost of an Investment of a Subsidiary, Jointly Controlled Entity or
Associate, effective for annual periods beginning on or after 1 July 2009. The revised standard
requires the effects of all transactions with non-controlling interests to be recorded in equity if there is
no change in control and these transactions will no longer result in goodwill or gains and losses. The
standard also specifies the accounting when control is lost. Any remaining interest in the entity is
re-measured to fair value, and a gain or loss is recognised in profit or loss.
•
Amendments to IFRS 1 ‘First-time Adoption of IFRSs’ and IAS 27 ‘Consolidated and Separate
Historical financial information’—Cost of an Investment of a Subsidiary, Jointly Controlled Entity or
Associated, effective for annual reporting periods beginning on or after 1 January 2009.
•
Amendment to IFRS 2 ‘Share-Based Payment’—Vesting Conditions and Cancellations, effective for
annual periods beginning on or after 1 January 2009 deals with vesting conditions and cancellations.
It clarifies that vesting conditions are service conditions and performance conditions only. Other
features of share based payments would have to be included in the fair value at the grant date.
•
IFRS 8 ‘Operating Segments’, effective for annual periods beginning on or after 1 January 2009. This
new standard replaces IAS 14 ‘Segment Reporting’ and requires segmental information to be
presented on the same basis that management uses to evaluate performance of its reporting
segments in its management reporting. The Group only uses one segment to assess performance
and so there is no effect on the Group.
•
IFRIC 13 ‘Customer Loyalty Programmes’, effective for annual periods beginning on or after 1 July
2008. This interpretation requires customer loyalty award credits to be accounted for as a separate
component of the sales transaction in which they are granted and therefore part of the fair value of
the consideration received is allocated to the award credits and deferred over the period that the
award credits are fulfilled. The Group does not currently operate such a scheme and hence the
adoption of IFRIC 13 has had no impact on the results or net assets of the Group.
•
IFRIC 17 ‘Distribution of non-cash assets to owners’ effective for annual periods beginning on or after
1 July 2009. This interpretation provides guidance on accounting for arrangements whereby an entity
distributes non-cash assets to shareholders either as a distribution of reserves or as dividends.
IFRS 5 has also been amended to require that assets are classified as held for distribution only when
they are available for distribution in their present condition and the distribution is highly probable. The
Group currently has no such arrangements.
•
IFRIC 18 ‘Transfers of Assets from Customers’, effective for transfers of assets from customers
received on or after 1 July 2009.
•
IFRIC 19 ‘Extinguishing Financial Liabilities with Equity Instruments’, effective for annual periods
beginning on or after 1 July 2010. This standard clarifies the requirements of accounting for debt for
equity swaps.
•
Amendments to IAS 1 ‘Presentation of Historical financial information’, effective for annual periods
beginning on or after 1 January 2009. This revised standard requires ‘‘non-owner changes in equity’’
to be presented separately from ‘‘owner changes in equity’’ in the statement of comprehensive
income.
•
Amendments to IAS 1 ‘Presentation of Historical financial information’, effective for annual periods
beginning on or after 1 January 2010. This amendment provides clarification that the potential
settlement of a liability by the issue of equity is not relevant to its classification as current or
non-current.
106
Part V
Historical Financial Information relating to the Group
•
Amendment to IAS 23 ‘Borrowing Costs’, effective for annual periods beginning on or after 1 January
2009. The standard has been revised and now requires an entity to capitalise borrowing costs
directly attributable to an acquisition, construction or production of a qualifying asset (one that takes
a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of
immediately expensing those borrowing costs has been removed.
•
Amendments to IAS 39 ‘Financial Instruments’: Recognition and Measurement’ and IFRS 7
‘Financial Instruments: Disclosures’, effective for annual periods beginning on or after 1 July 2008.
These amendments permit the reclassification of financial assets in particular circumstances.
The accounting policies have been applied consistently by the Group to all periods presented in the
historical financial information.
(c) Consolidation
The financial information comprises a consolidation of the financial information of Ocado Group plc and
all its subsidiaries. The financial year ends of all entities in the Group are coterminus.
The financial information of subsidiaries are included in the consolidated financial information from the
date on which control over the operating and financial decisions is obtained and cease to be consolidated
from the date on which control is transferred out of the Group. Control exists when the Company has the
power, directly, or indirectly, to govern the financial and operating policies of an entity so as to obtain
economic benefits from its activities.
On 9 February 2010, the Group, previously headed by Ocado Limited, underwent a reorganisation by
virtue of which Ocado Limited’s shareholders in their entirety exchanged their shares for shares in Ocado
Group plc, a newly formed company, which then became the ultimate parent company of the Group.
Notwithstanding the change in the legal parent of the Group, this transaction has been accounted for as a
reverse acquisition and the consolidated financial information has been prepared on the basis of the new
legal parent having been acquired by the existing Group.
All inter-company balances and transactions, including recognised gains arising from inter-group
transaction, have been eliminated in full. Unrealised losses are eliminated in the same manner as
recognised gains except to the extent that they provide evidence of impairment.
(d) Revenue
Revenue consists of income generated from online sales through the Webshop and includes charges for
delivery.
Online sales 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.
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 discounted pre-pay delivery scheme, is
recognised in the period to which it relates on an accruals basis.
(e) Cost of sales
Costs of sales represent the cost to the Group of the product sold. It consists of all external costs incurred
in procuring goods for resale and delivering them to the Customer Fulfilment Centre as well any
adjustments to inventories.
(f)
Distribution costs
Distribution costs consist of all the costs incurred, excluding product costs, to the point of sale, usually the
customers’ 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.
107
Part V
Historical Financial Information relating to the Group
(g) Administrative expenses
Administrative expenses consist of all advertising and marketing expenditure, the payroll-related
expenses of all marketing, IT and other Head Office functions, costs of annual software maintenance
contracts, property-related costs for the Head Office, all fees for professional services and depreciation,
amortisation and impairment of IT equipment and fixtures and fittings.
(h) Other income
Advertising revenue, commission income received, income from other services to suppliers and
sub-lease payments received are recognised in the period to which they relate on an accruals basis.
(i)
Property, plant and equipment
Property, plant and equipment excluding land are stated at cost less accumulated depreciation and any
recognised impairment loss.
Depreciation is provided at rates estimated to write off the cost of the relevant assets less their estimated
residual values by equal annual amounts over their expected useful economic lives. Residual values and
expected useful economic lives are reviewed and adjusted if appropriate at the end of each reporting
period.
Land is not depreciated. Depreciation on other fixed assets is calculated based on the useful economic
life indicated below:
Freehold buildings and leasehold properties
25 years, or the lease term if shorter
Fixtures and fittings
5-10 years
Plant and machinery
3-20 years
(97% between 5 and 10 years)
Computer hardware
2-5 years
Motor vehicles
2-5 years
Capital work-in-progress is not depreciated until it is available for use.
Gains and losses on disposal are determined by comparing proceeds with the asset’s carrying amount
and are recognised within operating profit.
(j)
Intangible assets—Computer software
Computer software is carried at cost less accumulated amortisation and any recognised impairment loss.
Externally acquired computer software and software licences are capitalised and amortised on a
straight-line basis over their useful economic lives of three to five years. Costs relating to the development
of computer software for internal use are capitalised once all the development phase recognition criteria
of IAS 38 ‘Intangible Assets’ are met. When the software is available for its intended use, these costs are
amortised in equal annual amounts over the estimated useful life of the software. Any impairment of
computer software or licenses is charged to operating profit in the period in which it arises.
(k) Impairment of non-financial assets
The Group does not have any assets that have an indefinite useful life and so are not subject to an annual
amortisation or depreciation charge. Assets that are subject to an annual amortisation or depreciation
charge are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair
value less cost to sell and value in use. For the purpose of assessing impairment, assets are grouped at
the lowest level for which there are separately identifiable cash flows (cash generating units).
Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at
each reporting date.
Given the Group’s current operating structure the lowest level at which cash flows can reasonably be
assessed is for the Group as a whole. The Group is still investing in its future growth and so has not yet
108
Part V
Historical Financial Information relating to the Group
reached a stage where it delivers positive post tax earnings. The Group prepares detailed forward
projections which are constantly updated and refined. Based on these projections the Board does not
consider that any further impairment of assets is required.
(l)
Borrowing costs
Borrowing costs which are directly attributable to the acquisition or construction of qualifying assets are
capitalised. They are defined as the borrowing costs that would have been avoided if the expenditure on
the qualifying asset had not been made. All other borrowing costs are charged to finance costs, using the
effective interest rate method.
(m) Leased Assets
Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and
rewards of ownership to the Group. All other leases are classified as operating leases. For property
leases, the land and building elements are treated separately to determine the appropriate lease
classification.
•
Finance leases
Assets funded through finance leases are capitalised either as property, plant and equipment, or
intangible assets, as appropriate, and are depreciated/amortised over their estimated useful lives or the
lease term, whichever is shorter. The amount capitalised is the lower of the fair value of the asset or the
present value of the minimum lease payments during the lease term at the inception of the lease. The
resulting lease obligations are included in liabilities net of finance charges. Finance costs on finance
leases are charged directly to the statement of comprehensive income on an effective interest rate basis.
•
Operating leases
Assets leased under operating leases are not recorded on the balance sheet. Rental payments are
charged directly to the statement of comprehensive income on a straight line basis.
•
Lease incentives
Lease incentives primarily include up-front cash payments or rent-free periods. Lease incentives are
capitalised and spread over the period of the lease term.
(n) Inventories
Inventories comprise goods held for resale, fuel and other consumable goods made up principally of
spares. Inventories are valued at the lower of cost and net realisable value. Goods held for resale and
consumables are initially valued on a current cost basis and adjustments are made at the financial period
end to bring this to an average cost basis. Fuel stocks are valued at calculated average cost. Costs
include all direct expenditure and other appropriate attributable costs incurred in bringing inventories to
their present location and condition.
(o) Taxation
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income
statement, except to the extent that it relates to items recognised in other comprehensive income or
directly in equity. In this case the tax is also recognised in other comprehensive income or directly in
equity respectively.
•
Current taxation
Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or
substantively enacted by the balance sheet date. Management periodically evaluates positions taken in
tax returns with respect to situations in which applicable tax regulation is subject to interpretation.
It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax
authorities.
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Part V
•
Historical Financial Information relating to the Group
Deferred taxation
Deferred tax is recognised using the balance sheet liability method, on temporary differences arising
between the tax base of assets and liabilities and their carrying amount in the historical financial
information. Deferred tax is calculated at the tax rates that have been enacted or substantively enacted by
the balance sheet date and are expected to apply when the related deferred tax asset is realised or the
deferred tax liability is settled.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be
available against which the temporary differences can be utilised. The carrying amount of deferred tax
assets is reviewed at each balance sheet date.
Deferred tax assets and liabilities are offset against each other when there is a legally enforceable right to
set-off current taxation assets against current taxation liabilities and it is the intention to settle these on a
net basis.
Deferred tax is charged or credited in the statement of comprehensive income, except when it relates to
items charged or credited directly to equity, in which case the deferred tax is also recognised in equity.
(p) Provisions
Provisions are recognised when: the Group has a present legal or constructive obligation as a result of a
past event; it is probable that an outflow of resources will be required to settle the obligation; and the
amount can be reliably estimated.
•
Dilapidations
Provisions for dilapidations are recognised on a lease by lease basis and are measured at the present
value of the expenditure expected to be required to settle the obligation using a pre-tax rate that reflects
current market assessments of the time value of money and risks specific to the obligation. The increase
in the provision due to passage of time is recognised as a finance cost.
•
Onerous leases
Provisions for onerous leases are recognised if the Group believes that the unavoidable costs of meeting
the lease obligations exceed the economic benefits expected to be received under the lease.
(q) Employee benefits
•
Pensions
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 service. Contributions are charged to the
statement of comprehensive income in the period in which they arise.
•
Share-based payments
Employees (including Directors) of the Group receive remuneration in the form of share-based payment
transactions, whereby employees render services in exchange for rights over shares (‘equity-settled
transactions’).The cost of equity settled transactions with employees is measured by reference to the fair
value at the date at which they are granted. Fair value is measured by use of the Black-Scholes pricing
model. The expected life used in the model has been adjusted, based on management’s best estimate,
for the effects of non-transferability, exercise restrictions and behavioural considerations. In valuing
equity-settled transactions, no account is taken of any performance conditions.
The Group operates an equity settled Executive Share Option Scheme (‘‘ESOS’’) and a Joint Share
Ownership Scheme (‘‘JSOS’’).
110
Part V
Historical Financial Information relating to the Group
Equity settled share-based transactions:
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity,
over the years in which the performance conditions are fulfilled, ending on the date on which the relevant
employees become fully entitled to the award (‘vesting date’). The vesting period for the ESOS is
three years. If the options remain unexercised after a period of 10 years from the date of grant or the
employee leaves the Company, the options expire (subject to a limited number of exceptions). The
shares in the JSOS vest in four annual tranches with the first tranche vesting on the first anniversary of the
date of grant.
The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting
date reflects the extent to which both the vesting period has expired and the number of awards, in the
opinion of the directors of the Company based on the best available estimate at that date, that will
ultimately vest.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is
conditional upon a market condition, which are treated as vesting irrespective of whether or not the
market condition is satisfied, provided that all other performance conditions are satisfied.
Cash settled share-based transactions:
The Group has exposure in respect of cash-settled share-based payment transactions and share-based
payment transactions with cash alternatives as defined by IFRS 2 Share-based payment only in respect
of bad leaver provisions in the JSOS.
For details of the share options see Note 25.
(r) Foreign currency translation
•
Functional and presentation currency
Items included in the historical financial information of each of the Group’s entities are measured using
the currency of the primary economic environment in which the entity operates (‘the functional currency’).
The consolidated financial information is presented in sterling, rounded to the nearest thousand (£’000)
unless otherwise stated, which is the company’s functional and the Group’s presentation currency.
•
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange
gains or losses resulting from the settlement of such transactions and from the translation at year end
exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the
income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net
investment hedges.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are
presented in the statement of comprehensive income within ‘finance income’ or ‘finance costs’. All other
foreign exchange gains and losses are presented in the statement of comprehensive income within
‘Operating loss’.
Changes in the fair value of monetary securities denominated in foreign currency classified as
available-for-sale are analysed between translation differences resulting from changes in the amortised
cost of the security and other changes in the carrying amount of the security. Translation differences
related to changes in amortised cost are recognised in profit or loss, and other changes in carrying
amount are recognised in equity.
Translation differences on non-monetary financial assets and liabilities such as equities held at fair value
through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation
differences on non-monetary financial assets such as equities classified as available-for-sale are
included in the available-for-sale reserve in equity.
111
Part V
Historical Financial Information relating to the Group
Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are
translated into the presentation currency as follows:
•
assets and liabilities for each balance sheet presented are translated at the closing rate at the date of
that balance sheet;
•
income and expenses for each income statement are translated at average exchange rates (unless
average is not a reasonable approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at the rate on the dates of the
transactions); and
•
all resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign
operations, and of borrowings and other currency instruments designated as hedges of such
investments, are taken to shareholders’ equity. When a foreign operation is partially disposed of or sold,
exchange differences that were recorded in equity are recognised in the income statement as part of the
gain or loss on sale.
(s) Financial instruments
Financial assets and financial liabilities are recognised on the balance sheet when the Company
becomes a party to the contractual provisions of the instrument.
The Group classifies its financial instruments in the following categories:
•
Available-for-sale;
•
Loans and receivables;
•
Other financial liabilities at amortised costs;
•
Liabilities at fair value through the profit and loss.
The classification depends on the purpose for which the financial assets and liabilities were acquired.
Management determines the classification of its financial instruments at initial recognition or in certain
circumstances on modification.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not
classified in any of the other categories. They are included in non-current assets unless the investment
matures or management intends to dispose of it within 12 months of the end of the reporting period.
Management considers that the Group’s investments fall within this category as explain below.
Investments:
Investments are classified as either held for trading or available-for-sale. There are currently no
investments classified as held for trading.
Available-for-sale investments are held at fair value if this can be reliably measured. If the equity
instruments are not quoted in an active market and their fair value cannot be reliably measured the
available-for-sale investment is carried at cost, less impairment.
Unless the valuation falls below its original cost, gains and losses arising from changes in fair value of
available-for-sale assets are recognised directly in equity. On disposal the cumulative net gain or loss is
transferred to the statement of comprehensive income. Impairments and valuations below costs are also
transferred to the statement of comprehensive income. Dividends are recognised in the statement of
comprehensive income when the right to receive payment is established.
112
Part V
•
Historical Financial Information relating to the Group
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. They are included in current assets, except for maturities greater than
12 months after the end of the reporting period. These are classified as non-current assets. The Group’s
loans and receivables comprise ‘Trade and other receivables’ and ‘Cash and cash equivalents’ in the
balance sheet.
Trade and other receivables:
Trade receivables are non-interest bearing and are recognised initially at fair value, and subsequently at
amortised cost, reduced by appropriate allowances for estimated irrecoverable amounts.
Cash and cash equivalents:
Cash and cash equivalents comprise cash in hand and bank overdrafts. Bank overdrafts are repayable on
demand and form an integral part of the Group’s cash management. They are therefore included as a
component of cash and cash equivalents.
•
Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that gives a residual interest in the assets
of the Group after deducting all of its liabilities.
Trade and other payables:
Trade and other payables are non-interest bearing and are stated at amortised cost.
Interest-bearing borrowings:
Interest-bearing bank loans and overdrafts are initially recorded at fair value, net of attributable
transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised
cost with any difference between cost and redemption value being recognised in the statement of
comprehensive income over the period of the borrowings on an effective interest basis. On the balance
sheet, interest bearing borrowings have been subcategorised as: borrowings, convertible loan stock and
obligations under finance leases.
Compound instruments:
Compound financial instruments issued by the Group comprise convertible loan stock that can be
converted to convertible preference shares at the option of the holder.
The liability component of the compound financial instrument is recognised on the date or inception or
modification at the fair value of a similar liability that does not have an equity conversion option. The
equity element is recognised as the difference between the fair value of the compound financial
instrument as a whole and the fair value of the liability component. Any directly attributable transaction
costs are allocated to the equity and liability components in proportion to their initial carrying amounts.
Subsequently, the liability component of a compound financial instrument is measured at amortised cost
using the effective interest rate method.
Derivative financial instruments:
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
subsequently re-measured at their fair value.
Cash flow hedging:
The Group does not hold and has not held derivative instruments that qualifying for cash flow hedging and
so all gains or losses are recognised immediately within the statement of comprehensive income.
113
Part V
Historical Financial Information relating to the Group
Equity instruments:
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
(t)
Impairment of financial assets
•
Assets carried at amortised cost
The Group assesses whether there is objective evidence that a financial asset is impaired at the end of
each reporting period. A financial asset is impaired and an impairment loss recognised if there is objective
evidence of impairment as a result of a loss event that occurred after the initial recognition of the asset
and the loss event has an impact on the estimated future cash flows of the financial assets that can be
reliably estimated.
The criterion that the Group uses to determine that there is objective evidence of an impairment loss
includes but is not limited to:
•
Financial difficulty indicators;
•
Breach of contract such as missed payments;
•
Fraud;
•
Bankruptcy;
•
Disappearance of an active market.
The amount of the loss is measured as the difference between the assets carrying amount and the
present value of estimated future cash flows discounted at the financial assets original effective interest
rate. The assets carrying value is reduced and the loss recognised in the statement of comprehensive
income.
If, in a subsequent period, the impairment loss decreases and the decrease can be related objectively to
an event occurring after the impairment was recognised the reversal of the previously recognised
impairment loss is recognised in the statement of comprehensive income.
•
Available-for-sale financial assets
Equity investments classified as available-for-sale and held at cost are reviewed annually to indentify if an
impairment loss has occurred. The amount of the impairment loss is measured as the difference between
the carrying amount of the financial asset and the present value of estimated future cash flows discounted
at the current market rate of return for a similar financial asset. Impairment losses recognised in the
statement of comprehensive income on equity investments are not reversed.
3.
Critical accounting estimates and assumptions
Estimates and judgments are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates
will, by definition, seldom equal the related actual results. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial period are addressed below:
(a) Intangible assets—capitalised software
•
Cost capitalisation
Amounts capitalised include the total cost of any external products of services and labour costs directly
attributable to development. Management judgement is involved in determining the appropriate internal
costs to capitalise and the amounts involved.
114
Part V
•
Historical Financial Information relating to the Group
Useful life
The useful life is determined by management at the time the software is acquired and brought into use
and is regularly reviewed for appropriateness. For computer software licences, the useful life represents
management’s view of the expected period over which the Group will receive benefits from the software,
but not exceeding the licence term. For unique software products controlled and developed by the Group,
the life is based on historical experience with similar products as well as anticipation of future events,
which may impact their useful economic life, such as changes in technology.
(b) Property, plant and equipment
Property, plant and equipment represents a significant proportion of the asset base of the Group being
66 per cent. as at 21 February 2010 (2009: 66 per cent.) (2008: 72 per cent.) (2007: 72 per cent.) of the
Company’s total assets. Therefore, the estimates and assumptions made to determine their carrying
value and related depreciation are critical to the Group’s financial position and performance.
•
Estimation of useful life
The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s
expected useful life and the expected residual value at the end of its life. Increasing an asset’s expected
life or its residual value would result in a reduced depreciation charge in the statement of comprehensive
income.
The useful lives of the Group’s assets are determined by management at the time the asset is acquired
and reviewed at least annually for appropriateness. The lives are based on historical experience with
similar assets as well as anticipation of future events, which may impact their life, such as changes
in technology.
During the 2008 financial period the Group revised the life of certain plant and machinery, due to the
increased resilience of the CFC and greater certainty of the long-term picking solutions. For the majority
of assets revised this doubled the estimated useful life from 5 to 10 years, although a small number of
higher value assets had their life halved from 20 years. The change was only applied from the date the
decision was ratified, and saw a decrease in the depreciation charge for the 2008 period of £852,000. If
the change had been backdated to the beginning of the financial period depreciation would have fallen by
a further £2,389,000. If the useful lives of the assets had not been revised the depreciation charge in 2009
would have been £4,914,000 (27.5 per cent.) higher.
(c) Going concern basis including its effect on the impairment of assets
The financial information has been prepared on the going concern basis, which assumes that the Group
will continue to be able to meet its liabilities as they fall due for the foreseeable future. The going concern
basis relies on the receipt of £200 million of net proceeds from the Offers and the New Facility being
available to the Group.
The Group maintains a mixture of long-term and short-term debt finance that is designed to ensure the
Group has sufficient available funds for its operations and its planned expansion. The Group monitors
cash flow as part of its day to day control procedures and management consider cash flow projections on
a monthly basis ensuring that appropriate facilities are available to be drawn upon as necessary. The
Group also prepares detailed forward projections for future periods which are constantly updated and
refined. As a consequence the Directors are satisfied that the Group is able to obtain sufficient resources
to continue in operation for the foreseeable future. Accordingly, they have adopted the going concern
basis in preparing the historical financial information.
The above assumption has a profound effect on the Group as it greatly affects the way it must value its
assets and liabilities. If management were unable to justify accounting on a going concern basis, the
Group would have to completely revisit the valuation of assets and liabilities on the balance sheet. An
additional impairment review would be required and it is likely that assets would have to be measured at
their net realisable value base on the sale of assets on an asset by asset basis. Liabilities would also have
to be increased to take account of future non-cancellable operating lease commitments, all employee
redundancies and other similar costs.
115
Part V
Historical Financial Information relating to the Group
Impairment of assets based on the separation of the business into cash generating units
The Group is required to undergo an assessment of the future viability of assets grouped at the lowest
levels for which there are separately identifiable cash flows (cash generating units). Given the Group’s
current operating structure, the lowest level at which cash flows can reasonably be assessed is for the
Group as a whole. The Group is still investing in its future growth and so has not yet reached a stage
where it delivers positive post tax earnings. Based on the future projections referred to above, the Board
do not consider that any further impairment of assets is required.
There are a large number of assumptions and estimates involved in calculating these future projections,
including management’s expectations of:
•
Increase in the number of customers, and frequency of service;
•
Growth of gross margin percentages;
•
Growth in EBITDA;
•
Timing and quantum of future capital expenditure;
•
The estimation of future funding and the cost of such funding.
(d) Leases
The Group has a number of complex high value lease arrangements. The Group follows the guidance of
IAS 17 to determine the classification of leases as operating leases versus finance leases. The
classification of a lease as a finance lease as opposed to an operating lease will change EBITDA and
operating profit/(loss) as the charge made by the lessor will pass through finance charges and
depreciation will be charged on the capitalised asset. Retained earnings may also be temporarily affected
depending on the relative size of the amounts apportioned to capital repayments and depreciation. IAS 17
requires the Group to consider property leases split into their component parts (i.e. land and building
elements) separately. As only the buildings elements could be considered as a finance lease
management must make a judgement, based on advice from suitable experts, as to the relative value of
the land and buildings.
(e) Recognition of deferred tax assets
The Group’s tax charge on ordinary activities is the sum of the total current and deferred tax charges. The
calculation of the total tax charge necessarily involves a degree of estimation and judgement in respect of
certain items. The final outcome of some of these items may give rise to material profit and loss and/or
cash flow variances.
A deferred tax asset is recognised when it has become probable that future taxable profit will allow the
deferred tax asset to be recovered. Recognition, therefore, involves judgement regarding the prudent
forecasting of future taxable profits of the business and in applying an appropriate risk adjustment factor.
At the balance sheet date management has forecast that the Group would generate future taxable profits
against which existing tax losses and accelerated capital allowance could be relieved. As a result the
Group has recognised a deferred tax asset for 2.4 per cent. of its available tax losses and accelerated
capital allowance at the period end.
4.
Segmental reporting
The Group’s activities consist solely of the retailing of food and groceries within the United Kingdom. It is
managed as one entity and 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 Company is domiciled in the UK. All of the result of its revenue is from UK external customers. All
non-current assets other than financial instruments and deferred tax assets are located in the UK.
116
Part V
5.
Historical Financial Information relating to the Group
Gross sales
For the
52 weeks
ended
2 December
2007
£’000
£’000
£’000
For the
12 weeks
ended
22 February
2009
(unaudited)
£’000
Revenue . . . . . . . . . . . . . . . . . .
VAT . . . . . . . . . . . . . . . . . . . . . .
Marketing vouchers . . . . . . . . . . .
272,856
15,240
3,350
321,314
17,136
2,547
401,997
18,788
6,493
84,622
3,937
995
110,238
5,607
1,375
Gross sales . . . . . . . . . . . . . . .
291,446
340,997
427,278
89,554
117,220
For the
52 weeks
ended
2 December
2007
For the
52 weeks
ended
30 November
2008
For the
52 weeks
ended
29 November
2009
For the
12 weeks
ended
21 February
2010
6.
For the
52 weeks
ended
30 November
2008
For the
52 weeks
ended
29 November
2009
For the
12 weeks
ended
21 February
2010
£’000
Other income
Other income is made up as follows:
£’000
£’000
£’000
For the
12 weeks
ended
22 February
2009
(unaudited)
£’000
...
...
—
185
994
226
2,038
233
466
54
997
24
...
...
340
87
584
4
370
—
22
—
145
—
Other income . . . . . . . . . . . . . .
612
1,808
2,641
542
1,166
For the
52 weeks
ended
2 December
2007
For the
52 weeks
ended
30 November
2008
For the
52 weeks
ended
29 November
2009
For the
12 weeks
ended
21 February
2010
£’000
£’000
£’000
For the
12 weeks
ended
22 February
2009
(unaudited)
£’000
8
11
181,889
55,739
2,395
215,575
66,567
3,917
271,613
78,181
4,743
57,405
17,174
1,025
74,759
20,529
979
12
17,621
19,820
17,865
4,048
4,301
12
612
66
1,023
—
—
—
31
33
—
—
198
(30)
40
40
473
48
(43)
533
86
38
Advertising revenue . . . . . . .
Commission income received .
Other services provided to
suppliers . . . . . . . . . . . . . .
Sublease payments received .
7.
£’000
Operating loss
Notes
Operating loss is stated after
charging/(crediting) the
following:
Cost of inventories
recognised as an expense
Employment costs . . . . . . .
Amortisation expense . . . . .
Depreciation of property,
plant and equipment . . . .
Impairment of property, plant
and equipment . . . . . . . .
Loss on disposal of property,
plant and equipment . . . .
(Credit)/charges relating to
the impairment of
receivables . . . . . . . . . . .
Operating lease rentals
—land and buildings . . . . . .
—other leases . . . . . . . . . .
Net foreign exchange losses .
26
(228)
1,746
5
126
1,946
70
56
117
1,815
191
72
£’000
Part V
Historical Financial Information relating to the Group
During the period, the Group obtained the following services from its auditors:
Audit services
Fees payable to Group’s auditor for
the statutory audit of the financial
statements . . . . . . . . . . . . . . . . .
Non-audit services
Fees payable to the Group’s auditor
and its associate for other services
as detailed below:
Taxation services . . . . . . . . . . . . . .
Other services pursuant to legislation
and compliance . . . . . . . . . . . . . .
8.
For the
52 weeks
ended
2 December
2007
For the
52 weeks
ended
30 November
2008
For the
52 weeks
ended
29 November
2009
For the
12 weeks
ended
21 February
2010
£’000
For the
12 weeks
ended
22 February
2009
(unaudited)
£’000
£’000
£’000
65
65
90
18
32
15
—
—
—
—
20
—
7
—
276
100
65
97
18
308
For the
12 Weeks
ended
21 February
2010
£’000
Employee information
Employment costs during the financial period were as follows:
For the
52 weeks
ended
2 December
2007
For the
52 Weeks
ended
30 November
2008
For the
52 Weeks
ended
29 November
2009
£’000
£’000
£’000
For the
12 Weeks
ended
22 February
2009
(unaudited)
£’000
....
....
52,528
4,989
63,466
6,072
74,116
7,015
16,212
1,600
19,231
1,880
....
755
884
1,067
245
259
....
181
61
78
18
34
Notes
Staff costs during the
period:
Wages and salaries . .
Social security costs . .
Pension costs—defined
contribution plans . .
Share-based payments
expense . . . . . . . . .
Total employment costs . . . .
Staff costs capitalised . . . . .
£’000
58,453
(2,714)
70,483
(3,916)
82,276
(4,095)
18,075
(901)
21,404
(875)
Total employment cost
expense . . . . . . . . . . . .
55,739
66,567
78,181
17,174
20,529
Average number of
employees (including
Executive Directors) by
role:
Operational staff . . . . . . . . .
Support staff . . . . . . . . . . .
Number
2,033
256
Number
2,730
293
Number
3,151
343
Number
(unaudited)
3,119
336
Number
3,610
393
2,289
3,023
3,494
3,455
4,003
11
At the end of March 2007 a five year contract for the provision of third party logistics services ended. The
1,214 people employed under this contract became employees of the Group under the Transfer of
Undertakings (Protection of Employment) Regulations.
The costs recognised above for the share option scheme relate to equity settled schemes only
(see Note 25).
118
Part V
Historical Financial Information relating to the Group
The key management comprises the Executive and Non Executive Directors. The key management
personal compensation is as follows:
For the
52 weeks
ended
2 December
2007
For the
52 Weeks
ended
30 November
2008
For the
52 Weeks
ended
29 November
2009
£’000
£’000
686
Salaries, fees and other short-term
employee benefits . . . . . . . . . . . .
Pension costs—defined contribution
plans . . . . . . . . . . . . . . . . . . . . .
Equity settled share-based payments
granted under the JSOS . . . . . . . .
For the
12 Weeks
ended
21 February
2010
£’000
For the
12 Weeks
ended
22 February
2009
(unaudited)
£’000
672
1,640
471
315
28
28
75
30
15
—
—
—
—
6
714
700
1,715
501
336
£’000
Directors’ personal compensation increased significantly in the period due to performance criteria
dependent remuneration being achieved.
The table below gives the number of share options issued under the executive share option scheme to the
Directors during the period. During the period a Director exercised 2,750 (2009: nil), (2008: nil), (2007:
nil), of share options in Ocado Limited which were issued under the executive share option scheme. The
exercise prices were between £90 and £100. No other Directors have exercised any option during the
periods presented nor have there been any lapses.
For the
52 weeks
ended
2 December
2007
For the
52 Weeks
ended
30 November
2008
For the
52 Weeks
ended
29 November
2009
For the
12 Weeks
ended
22 February
2009
(unaudited)
For the
12 Weeks
ended
21 February
2010
—
—
—
—
463
135
—
—
—
—
Number of share options issued in the
financial period . . . . . . . . . . . . . .
Exercise price (£) . . . . . . . . . . . . . .
The highest paid Director is as follows:
The table below gives the number of equity instruments issued under the joint share ownership scheme to
the Directors during the period.
Number of jointly held shares
issued in the financial period . . .
Hurdle price (£) . . . . . . . . . . . . .
For the
52 weeks
ended
2 December
2007
For the
52 Weeks
ended
30 November
2008
For the
52 Weeks
ended
29 November
2009
For the
12 Weeks
ended
22 February
2009
(unaudited)
For the
12 Weeks ended
21 February
2010
—
—
—
—
—
—
—
—
27,524,000
1.73 to 2.28
119
Part V
Historical Financial Information relating to the Group
The highest paid Director’s compensation is as follows:
For the
52 weeks
ended
2 December
2007
For the
52 Weeks
ended
30 November
2008
For the
52 Weeks
ended
29 November
2009
£’000
£’000
171
Salaries, fees and other short-term
employee benefits . . . . . . . . . . . .
Pension costs—defined contribution
plans . . . . . . . . . . . . . . . . . . . . .
Equity settled share-based payments
granted under the JSOS . . . . . . . .
For the
12 Weeks
ended
21 February
2010
£’000
For the
12 Weeks
ended
22 February
2009
(unaudited)
£’000
178
618
207
91
12
12
34
15
6
—
—
—
—
2
183
190
652
222
99
£’000
Service contracts
The four Executive Directors, Tim Steiner, Neill Abrams, Andrew Bracey and Jason Gissing have service
contracts which can be terminated by giving Ocado Limited 12 months’ written notice or can be
terminated by the Director by giving 6 months’ written notice.
If their service contracts are terminated without cause, Ocado Limited can request that they work their
notice period, take a period of garden leave or can pay an amount in lieu of notice equal to one times basic
salary for the remainder of the notice period. These payments would be subject to deductions for tax and
national insurance. The contracts contain restrictive covenants, which continue for 12 months after
termination. The contracts do not contain any specific provisions relating to a change of control of the
business.
The Executive Directors’ current service contracts became effective on the following dates:
Tim Steiner . . .
Jason Gissing .
Neill Abrams . .
Andrew Bracey
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22
22
22
22
June
June
June
June
2010
2010
2010
2010
Directors’ remuneration
Summary of Directors’ remuneration for the 52 weeks ended 2 December 2007
Salaries
and fees
£
Benefits
in kind
£
Annual
Bonus
£
Personal
Pension
Contributions
£
Total
for 2007
£
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.
.
.
.
.
.
.
168,289
24,321
116,079
—
112,696
32,568
112,131
—
—
—
—
112,696
—
2,311
—
1,379
—
1,771
—
—
—
—
—
—
1,771
—
—
—
—
—
—
—
—
—
—
—
—
—
—
12,000
—
—
—
8,040
—
—
—
—
—
—
8,040
—
182,600
24,321
117,458
—
122,507
32,568
112,131
—
—
—
—
122,507
—
Total for 2007 . . . . . . . . . . . . .
678,780
7,232
—
28,080
714,092
Neill Abrams . . . .
Tom Clayton . . . .
Jonathan Faiman
Jeremy Frampton
Jason Gissing . . .
Robert Gorrie . . .
Michael Grade . .
Patrick Lewis . . .
Brian Lynas . . . .
Alistair McKay . . .
Jörn Rausing . . .
Tim Steiner . . . .
David Young . . .
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120
Part V
Historical Financial Information relating to the Group
Summary of Directors’ remuneration for the 52 weeks ended 30 November 2008
Salaries
and fees
£
Benefits
in kind
£
Annual
Bonus
£
Personal
Pension
Contributions
£
Total
for 2008
£
.
.
.
.
.
.
.
.
.
.
.
.
.
176,512
17,567
86,866
—
120,709
33,650
112,104
—
—
—
—
120,709
—
1,031
—
529
—
898
—
—
—
—
—
—
898
—
—
—
—
—
—
—
—
—
—
—
—
—
—
12,000
—
—
—
8,040
—
—
—
—
—
—
8,040
—
189,543
17,567
87,395
—
129,647
33,650
112,104
—
—
—
—
129,647
—
Total for 2008 . . . . . . . . . . . . .
668,117
3,356
—
28,080
699,553
Neill Abrams . . . . .
Tom Clayton . . . . .
Jonathan Faiman(1)
Jeremy Frampton .
Jason Gissing . . . .
Robert Gorrie . . . .
Michael Grade . . .
Patrick Lewis . . . .
Brian Lynas . . . . .
Alistair McKay(2) . .
Jörn Rausing . . . .
Tim Steiner . . . . .
David Young . . . .
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.
(1)
Non-Executive director from 1 September 2008.
(2)
Resigned 11 November 2008.
Summary of Directors’ remuneration for the 52 weeks ended 29 November 2009
Salaries
and fees
£
Benefits
in kind
£
Annual
Bonus
£
Personal
Pension
Contributions
£
Total
2009
£
.
.
.
.
.
.
.
.
.
.
.
.
.
216,913
23,439
14,267
—
—
268,144
33,950
111,764
—
19,978
—
352,411
27,539
2,313
246
—
—
—
2,634
—
—
—
—
—
3,275
—
110,416
—
—
—
—
191,208
—
—
—
—
—
262,040
—
16,500
—
—
—
—
24,630
—
—
—
—
—
33,630
—
346,142
23,685
14,267
—
—
486,616
33,950
111,764
—
19,978
—
651,356
27,539
Total for 2009 . . . . . . . . . . . . .
1,068,405
8,468
563,664
74,760
1,715,297
Neill Abrams . . . .
Andrew Bracey(1) .
Tom Clayton . . . .
Jonathan Faiman
Jeremy Frampton
Jason Gissing . . .
Robert Gorrie . . .
Michael Grade . .
Patrick Lewis(2) . .
Brian Lynas(3) . . .
Jörn Rausing . . .
Tim Steiner . . . .
David Young . . .
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(1)
Appointed 3 November 2009.
(2)
Appointed 21 October 2009 as non-executive Director.
(3)
Resigned 10 August 2009.
The Apple Trust (of which Jörn Rausing is a beneficiary) underwrote Ocado’s last funding round in
September 2009 for which it was paid a fee of e387,500 under the terms of an agreement dated 1 July
2009 and a variation letter dated 20 August 2009.
121
Part V
Historical Financial Information relating to the Group
Summary of Directors’ remuneration for the 12 weeks ending 21 February 2010
Salaries
and fees
Benefits
in kind
Annual
Bonus
Total for
Total for
Personal 12 weeks to 12 weeks to
Pension 21 February 22 February
Contributions
2010
2009
(unaudited)
£
£
£
£
£
£
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.
.
.
.
.
.
.
.
.
.
51,614
64,458
—
—
—
64,625
9,825
25,683
—
—
—
—
90,475
6,295
568
678
—
—
—
678
—
—
—
—
—
—
898
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,667
—
—
—
—
4,583
—
—
—
—
—
—
6,417
—
55,849
65,136
—
—
—
69,886
9,825
25,683
—
—
—
—
97,790
6,295
Total for 12 weeks to
21 February 2010 . . . .
312,975
2,822
—
14,667
330,464
Total for 12 weeks to
22 February 2009
(unaudited) . . . . . . . . .
238,566
1,759
230,237
29,877
Neill Abrams . . . . .
Andrew Bracey . . .
Tom Clayton(1) . . .
Jonathan Faiman(1)
Jeremy Frampton(1)
Jason Gissing . . . .
Robert Gorrie . . . .
Michael Grade . . .
Patrick Lewis . . . .
Brian Lynas . . . . .
Jörn Rausing . . . .
Michael Robarts(2) .
Tim Steiner . . . . . .
David Young . . . . .
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(1)
Tom Clayton, Jonathan Faiman and Jeremy Frampton resigned on 9 March 2010.
(2)
Appointed 19 January 2010 as a non-executive Director.
73,581
—
2,329
—
—
156,932
7,450
25,850
—
6,303
—
—
221,638
6,356
500,439
In addition to his role as a Non-Executive Director, Robert Gorrie provides consultancy services to the
Group and chairs the meetings of the Ocado employee council. Robert Gorrie provides these services
through Robert Gorrie Limited (of which Robert Gorrie is the sole shareholder) and it is paid a per diem fee
for these services (see Note 31). These fees are included in salaries and fees above.
In addition to his role as a non-executive Director, Tom Clayton provides consultancy services to the
Group. Tom Clayton is paid a per diem fee for these services (see Note 31). These fees are included in
salaries and fees above.
122
Part V
Historical Financial Information relating to the Group
Directors’ interests
The Directors’ beneficial interests in the Ordinary Shares and Preference Shares of the Company at the
beginning and end of the financial year or date of appointment are as stated below:
Directors’ shareholdings
Number of
Ordinary Shares of 1p each in
Ocado Limited
As at
As at
As at
2 December 30 November 29 November
2007
2008
2009
Neill Abrams . . .
Andrew Bracey .
Jonathan Faiman
Jeremy Frampton
Jason Gissing . .
Robert Gorrie . . .
Michael Grade . .
Tim Steiner . . . .
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.
4,356
—
304,376
2,522
96,576
13,529
667
143,964
4,356
—
304,376
2,522
96,576
13,529
667
143,964
4,356
7,500
30,000
2,522
96,576
13,529
780
143,964
Number of
Ordinary
Shares of
2p each in
Ocado Group
Limited as at
21 February
2010
435,600
750,000
3,000,000
252,200
9,657,600
1,627,900
78,000
14,396,400
On 9 February 2010 the ordinary shares in Ocado Limited were exchanged for Ordinary Shares in the
Company on a 1:100 basis with a par value of 2p per Ordinary Share.
Jeremy Frampton held 5,000 Preference Shares in the Company as at 21 February 2010 (2009: 50
shares in Ocado Limited), (2008: 50 in Ocado Limited), (2007: 50 in Ocado Limited). No other past or
current director has a direct interest in the Ordinary or Preference shares of the Company.
In addition to the above holdings:
Neill Abrams is a discretionary beneficiary of Neill Abrams 2000 Life Interest Trust which holds 1,200,800
ordinary shares in the Company (2009: 12,008 ordinary shares in Ocado Limited) (2008: 12,008 ordinary
shares in Ocado Limited) (2007: 12,008 ordinary shares in Ocado Limited).
Jason Gissing is a discretionary beneficiary of The Jason Gissing Life Settlement II Trust which holds
9,583,400 Ordinary Shares in the Company (2009: 95,834 ordinary shares in Ocado Limited) (2008:
106,946 ordinary shares in Ocado Limited) (2007: 106,946 ordinary shares in Ocado Limited).
Tim Steiner is a discretionary beneficiary of Steiner 2008 Millennium Trust which holds 15,291,200
ordinary shares in the Company (2009: 152,912 ordinary shares in Ocado Limited) (2008: 160,412
ordinary shares in Ocado Limited) (2007: 160,412 ordinary shares in Ocado Limited).
Jörn Rausing is a discretionary beneficiary of the Apple Trust which holds 26,207,700 ordinary shares in
the Company (2009: 262,077 ordinary shares in Ocado Limited) (2008: 219,845 ordinary shares in Ocado
Limited) (2007: 136,512 ordinary shares in Ocado Limited) and 32,872,400 preference shares in the
Company (2009: 328,724 preference shares in Ocado Limited) (2008: 328,724 preference shares in
Ocado Limited) (2007: 328,724 preference shares in Ocado Limited).
Caryn Abrams (wife of Neill Abrams) is a discretionary beneficiary of a trust holding 74,100 ordinary
shares in the Company (2009: 741 ordinary shares in Ocado Limited) (2008: nil ordinary shares in Ocado
Limited) (2007: nil ordinary shares in Ocado Limited).
Kira Faiman (wife of Jonathan Faiman) holds 24,437,400 ordinary shares in the Company (2009: 244,374
ordinary shares in Ocado Limited) (2008: nil ordinary shares in Ocado Limited) (2007: nil ordinary shares
in Ocado Limited).
Share options
On 9 February 2010 the ordinary shares and convertible preference shares in Ocado Limited were
exchanged for Ordinary Shares and Preference Shares in the Company on a 1:100 basis with a par value
of 2 pence per share.
123
Part V
Historical Financial Information relating to the Group
The Directors have the following options over Ordinary Shares in Ocado the Company (as at 21 February
2010) and over Ordinary Shares in Ocado Limited (2007, 2008 and 2009) pursuant to the Ocado 2001
Executive Share Option Scheme:
2009
Exercise
Price (£)
As at
21 February
2010
Exercise
Price (£)
Exercise Period
1,750
1,750
1,000
1,000
1,750
1,750
1,000
1,000
100
150
90
115
175,000
175,000
100,000
100,000
1.00
1.50
0.90
1.15
07/02/05-06/02/12
07/02/05-06/02/12
30/11/06-29/11/13
16/05/08-15/05/15
—
—
463
135
46,296
1.35
16/11/12-15/11/19
May-05
2,000
2,000
2,000
115
200,000
1.15
16/05/08-15/05/15
Jason Gissing . . . . . .
May-05
2,000
2,000
2,000
115
200,000
1.15
16/05/08-15/05/15
Robert Gorrie . . . . . .
May-02
May-02
Nov-03
1,750
1,750
1,000
1,750
1,750
1,000
1,750
1,750
1,000
100
150
90
—
175,000
—
1.00
1.50
0.90
07/02/05-06/02/12
07/02/05-06/02/12
30/11/06-29/11/13
Tim Steiner . . . . . . .
May-05
2,000
2,000
2,000
115
200,000
1.15
16/05/08-15/05/15
16,000
16,000
16,463
Date of
Issue
2007
2008
Neill Abrams . . . . . .
May-02
May-02
Nov-03
May-05
1,750
1,750
1,000
1,000
Andrew Bracey . . . . .
Nov-09
Jonathan Faiman . . . .
Total share options of
Directors . . . . . . .
1,371,296
Additionally in February 2002 Tom Clayton was issued 943 options over ordinary shares at an exercise
price of £53 outside of the Ocado 2001 Executive Share Option Scheme. These were converted into
options over ordinary shares in the Company on 9 February 2010 on a 1:100 basis such that as at
21 February 2010 he held 94,300 options with an exercise price of £0.53 (2009: 943, 2008: 943,
2007: 943). These options are exercisable from 7 February 2002 to 6 February 2012. Jonathan Faiman’s
options granted under the ESOS lapsed when he retired from the Board.
In addition to the options over Ordinary Shares pursuant to the Ocado 2001 Executive Share Option
Scheme detailed above, Andrew Bracey has the following options in the Company as at 21 February
2010 and options in Ocado Limited as at 29 November 2009 over Preference Shares.
Andrew Bracey . . . . .
Date of
Issue
2007
2008
2009
Exercise
Price (£)
As at
21 February
2010
Exercise
Price (£)
Exercise Period
Feb-02
Jan-04
8,867
4,353
8,867
4,353
8,867
4,353
90
103
886,700
435,300
0.90
1.03
04/02/02-04/02/17
03/01/04-03/01/18
No other directors have options over the share capital of the Company. There are no performance criteria
attached to these options. The number and exercise price for any options granted to directors is set by the
remuneration committee.
Interests in Ordinary Shares under the JSOS
Each of Neill Abrams, Andrew Bracey, Jason Gissing and Tim Steiner has the following interests in
Ordinary Shares in the Company pursuant to the Joint Share Ownership Scheme. See note 25(b) for
more details.
124
Part V
Historical Financial Information relating to the Group
Date of Issue
as at
21 February
2010
Hurdle
Price (£)
Vesting Period
Neill Abrams . . . . . . . . . . . . . . . .
03/02/2010
03/02/2010
03/02/2010
03/02/2010
1,017,200
1,017,200
1,017,200
1,017,100
1.73
1.91
2.08
2.28
01/01/2011-01/01/2019
01/01/2012-01/01/2019
01/01/2013-01/01/2019
01/01/2014-01/01/2019
Andrew Bracey . . . . . . . . . . . . . . .
03/02/2010
03/02/2010
03/02/2010
03/02/2010
1,675,400
1,675,400
1,675,400
1,675,300
1.73
1.91
2.08
2.28
01/01/2011-01/01/2019
01/01/2012-01/01/2019
01/01/2013-01/01/2019
01/01/2014-01/01/2019
Jason Gissing . . . . . . . . . . . . . . .
03/02/2010
03/02/2010
03/02/2010
03/02/2010
1,675,400
1,675,400
1,675,400
1,675,300
1.73
1.91
2.08
2.28
01/01/2011-01/01/2019
01/01/2012-01/01/2019
01/01/2013-01/01/2019
01/01/2014-01/01/2019
Tim Steiner . . . . . . . . . . . . . . . . .
03/02/2010
03/02/2010
03/02/2010
03/02/2010
2,513,100
2,513,100
2,513,100
2,513,000
1.73
1.91
2.08
2.28
01/01/2011-01/01/2019
01/01/2012-01/01/2019
01/01/2013-01/01/2019
01/01/2014-01/01/2019
9.
Finance income and costs
£’000
£’000
£’000
For the
12 Weeks
ended
22 February
2009
(unaudited)
£’000
Bank interest receivable . . . .
Other interest . . . . . . . . . . .
824
—
99
—
5
7
—
—
2
—
Finance income . . . . . . . .
824
99
12
—
2
Notes
Interest payable on bank
loans and overdrafts . . .
Interest on finance leases .
Interest on borrowings . . . .
Capitalised borrowing costs
Interest on convertible loan
Fair value movement in
derivative liability . . . . . .
.
.
.
.
.
12
20
For the
52 weeks
ended
2 December
2007
For the
52 Weeks
ended
30 November
2008
For the
52 Weeks
ended
29 November
2009
(64)
(3,287)
(5,327)
—
(2,048)
(158)
(3,770)
(5,507)
147
(2,384)
(41)
(5,009)
(5,717)
—
(347)
(15)
(1,345)
(1,027)
—
(275)
For the
12 Weeks
ended
21 February
2010
£’000
—
(1,047)
(995)
—
—
.
(162)
(112)
(4)
(1)
(43)
Finance costs . . . . . . . . . .
(10,888)
(11,784)
(11,118)
(2,663)
(2,085)
Net finance costs . . . . . . .
(10,064)
(11,685)
(11,106)
(2,663)
(2,083)
125
Part V
Historical Financial Information relating to the Group
10. Tax on loss on ordinary activities
For the
52 weeks
ended
2 December
2007
For the
52 Weeks
ended
30 November
2008
For the
52 Weeks
ended
29 November
2009
For the
12 Weeks
ended
21 February
2010
£’000
For the
12 Weeks
ended
22 February
2009
(unaudited)
£’000
£’000
£’000
Current tax:
UK corporate tax on profits of the
period . . . . . . . . . . . . . . . . . . . .
Adjustments in respect of prior
periods . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
Total current tax . . . . . . . . . . . . . .
—
—
—
—
—
Deferred tax:
Origination and reversal of temporary
differences . . . . . . . . . . . . . . . . .
Recognition of tax losses . . . . . . . . .
—
—
—
—
—
(2,300)
—
—
—
—
Total deferred tax . . . . . . . . . . . . .
—
—
(2,300)
—
—
Income tax credit . . . . . . . . . . . . .
—
—
(2,300)
—
—
For the
52 weeks
ended
2 December
2007
For the
52 Weeks
ended
30 November
2008
For the
12 Weeks
ended
22 February
2009
(unaudited)
£’000
For the
12 Weeks
ended
21 February
2010
£’000
Recognised in the statement of
comprehensive income
Reconciliation of effective tax charge
£’000
Loss before tax . . . . . . . . . . . . . . .
Effective tax charge at the UK rate of
28% (2009: 28%) (2008: 28.71%)
(2007: 30%) . . . . . . . . . . . . . . . .
Effect of:
Permanent differences . . . . . . . . . . .
Tax losses for which no deferred tax
asset recognised . . . . . . . . . . . . .
Temporary differences on which no
deferred tax recognised . . . . . . . .
Income tax credit for the period . . .
£’000
For the
52 Weeks
ended
29 November
2009
£’000
£’000
(40,154)
(33,298)
(25,509)
(7,235)
(3,963)
(12,046)
(9,560)
(7,143)
(2,026)
(1,110)
(49)
(44)
521
1,034
332
8,672
5,799
1,793
1,453
588
2,853
2,727
2,718
622
566
—
—
—
—
(2,300)
Movement in deferred tax assets
Tax losses
carryforwards
£’000
Accelerated
capital
allowances
£’000
Share
based
payments
£’000
Total
£’000
At 1 December 2008 . . . . . . . . . . . . . . . . . . . . . .
Tax losses recognised in period through the
statement of comprehensive income . . . . . . . . . .
—
—
—
—
2,300
—
—
2,300
As at 29 November 2009 . . . . . . . . . . . . . . . . . .
2,300
—
—
2,300
Tax losses recognised in period through the
statement of comprehensive income . . . . . . . . . .
—
—
—
—
As at 21 February 2010 . . . . . . . . . . . . . . . . . . .
2,300
—
—
2,300
126
Part V
Historical Financial Information relating to the Group
The unrecognised deferred tax asset available at the period end is analysed below:
Tax losses
carryforwards
£’000
Accelerated
capital
allowances
£’000
Share based
payments
£’000
Total
£’000
As at 3 December 2006 . . . . . . . . . . . . . . . .
Potential movement in the period unrecognised
through the Statement of Comprehensive
Income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential movement in the period unrecognised
through equity . . . . . . . . . . . . . . . . . . . . . .
65,752
9,765
523
76,040
8,672
2,879
(26)
11,525
—
—
107
107
As at 2 December 2007 . . . . . . . . . . . . . . . .
Potential movement in the period unrecognised
through the Statement of Comprehensive
Income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential movement in the period unrecognised
through equity . . . . . . . . . . . . . . . . . . . . . .
Tax rate adjustment . . . . . . . . . . . . . . . . . . . .
74,424
12,644
604
87,672
5,799
2,736
As at 30 November 2008 . . . . . . . . . . . . . . .
Potential movement in the period unrecognised
through the Statement of Comprehensive
Income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential movement in the period unrecognised
through equity . . . . . . . . . . . . . . . . . . . . . .
75,117
14,609
1,793
2,725
—
—
177
177
As at 29 November 2009 . . . . . . . . . . . . . . .
Potential movement in the period unrecognised
through the Statement of Comprehensive
Income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential movement in the period unrecognised
through equity . . . . . . . . . . . . . . . . . . . . . .
76,910
17,334
781
95,025
588
652
(86)
1,154
—
—
(11)
As at 21 February 2010 . . . . . . . . . . . . . . . .
77,498
17,986
684
96,168
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
Cost or valuation
At beginning of period . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Internal development costs . . . . . . . . . . . . . . .
16,611
652
2,714
19,977
221
3,916
24,114
294
4,095
28,503
361
875
At end of period . . . . . . . . . . . . . . . . . . . . . . .
19,977
24,114
28,503
29,739
Accumulated amortisation
At beginning of period . . . . . . . . . . . . . . . . . .
Charge for the period . . . . . . . . . . . . . . . . . . .
(10,764)
(2,395)
(13,159)
(3,917)
(17,076)
(4,743)
(21,819)
(979)
At end of period . . . . . . . . . . . . . . . . . . . . . . .
(13,159)
(17,076)
(21,819)
(22,798)
Net book value
At end of period . . . . . . . . . . . . . . . . . . . . . . .
6,818
7,038
6,684
6,941
—
(5,106)
—
(771)
(9)
8,526
58
(42)
58
(5,919)
611
90,337
(7)
4,511
(11)
11. Intangible assets—Computer software
127
Part V
Historical Financial Information relating to the Group
Net book value of computer software held under finance leases is analysed below:
As at
2 December
2007
£’000
Cost or valuation . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortisation . . . . . . . . . . . . . . . .
2,205
(1,019)
Net book value . . . . . . . . . . . . . . . . . . . . . . .
1,186
As at
30 November
2008
£’000
2,205
(1,435)
770
As at
29 November
2009
£’000
2,470
(2,113)
357
As at
21 February
2010
£’000
2,470
(2,203)
267
The movement in cost or valuation includes assets of £nil (2009: £265,000) (2008: £nil) (2007: £nil)
reclassified from owned assets to assets held under finance leases following asset based financing
arrangements.
For the 12 week period ended 21 February 2010, internal development costs capitalised were £875,000
(52 week period ended 29 November 2009: £4,095,000) (52 week period ended 30 November
2008: £3,916,000) (52 week period ended 2 December 2007: £2,714,000) and represented
approximately 71% (2009: 93%) (2008: 95%) (2007: 81%) of expenditure on intangible assets and 16%
(2009: 18%) (2008: 16%) (2007: 10%) of total capital spend including property, plant and equipment.
128
Part V
Historical Financial Information relating to the Group
12. Property, plant and equipment
Land and
buildings
£’000
Fixtures,
fittings, plant
and
machinery
£’000
Motor
vehicles
£’000
Total
£’000
Cost or valuation
At 4 December 2006 . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,404
—
—
74,266
19,608
(6)
21,483
3,003
(2,219)
123,153
22,611
(2,225)
At 2 December 2007 . . . . . . . . . . . . . . . . . . . . . .
27,404
93,868
22,267
143,539
At 3 December 2007 . . . . . . . . . . . . . . . . . . . . . .
Additions† . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,404
3,053
—
93,868
14,165
(50)
22,267
3,303
(1,448)
143,539
20,521
(1,498)
At 30 November 2008 . . . . . . . . . . . . . . . . . . . . .
30,457
107,983
24,122
162,562
At 1 December 2008 . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,457
4,944
(66)
107,983
8,896
(4,401)
24,122
4,802
(6,286)
162,562
18,642
(10,753)
At 29 November 2009 . . . . . . . . . . . . . . . . . . . . .
35,335
112,478
22,638
170,451
At 30 November 2009 . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35,335
—
—
112,478
1,625
—
22,638
2,550
(1,372)
170,451
4,175
(1,372)
At 21 February 2010 . . . . . . . . . . . . . . . . . . . . . .
35,335
114,103
23,816
173,254
Accumulated depreciation and
At 4 December 2006 . . . . . . . .
Charge for the period . . . . . . .
Impairment . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . .
.
.
.
.
(5,598)
(1,337)
—
—
(22,229)
(11,902)
(590)
—
(9,559)
(4,382)
(22)
2,011
(37,386)
(17,621)
(612)
2,011
At 2 December 2007 . . . . . . . . . . . . . . . . . . . . . .
(6,935)
(34,721)
(11,952)
(53,608)
At 3 December 2007 .
Charge for the period
Impairment . . . . . . .
Disposals . . . . . . . .
.
.
.
.
(6,935)
(1,274)
—
—
(34,721)
(14,399)
(66)
16
(11,952)
(4,147)
—
1,447
(53,608)
(19,820)
(66)
1,463
At 30 November 2008 . . . . . . . . . . . . . . . . . . . . .
(8,209)
(49,170)
(14,652)
(72,031)
At 1 December 2008 .
Charge for the period
Impairment . . . . . . .
Disposals . . . . . . . .
.
.
.
.
(8,209)
(1,511)
(92)
66
(49,170)
(12,227)
(931)
4,401
(14,652)
(4,127)
—
6,253
(72,031)
(17,865)
(1,023)
10,720
At 29 November 2009 . . . . . . . . . . . . . . . . . . . . .
(9,746)
(57,927)
(12,526)
(80,199)
At 30 November 2009
Charge for the period
Impairment . . . . . . .
Disposals . . . . . . . .
.
.
.
.
(9,746)
(345)
—
—
(57,927)
(2,992)
—
—
(12,526)
(964)
—
1,372
(80,199)
(4,301)
—
1,372
At 21 February 2010 . . . . . . . . . . . . . . . . . . . . . .
(10,091)
(60,919)
(12,118)
(83,128)
Net book value‡
At 2 December 2007 . . . . . . . . . . . . . . . . . . . . .
20,469
59,147
10,315
89,931
At 30 November 2008 . . . . . . . . . . . . . . . . . . . .
22,248
58,813
9,470
90,531
At 29 November 2009 . . . . . . . . . . . . . . . . . . . .
25,589
54,551
10,112
90,252
At 21 February 2010 . . . . . . . . . . . . . . . . . . . . .
25,244
53,184
11,698
90,126
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
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.
.
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.
.
.
.
.
.
impairment
.........
.........
.........
.........
.
.
.
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.
.
.
†
Additions include interest capitalised at £nil in the period to 21 February 2010 (2009: £nil) (2008: £147,000) (2007: £nil),
relating to plant and machinery. The capitalisation rate used to determine the amount of finance costs capitalised during the
period was nil as at 21 February 2010 (2009: nil) (2008: 6.8 per cent) (2007: nil).
‡
Net book value includes capitalised interest of £147,000 as at 21 February 2010 (2009: £147,000) (2008: £147,000)
(2007: £nil).
129
Part V
Historical Financial Information relating to the Group
The net carrying value of land and buildings comprises:
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
1,863
18,606
4,872
17,376
9,645
15,944
9,593
15,651
20,469
22,248
25,589
25,244
Freehold . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short leasehold—less than 50 years . . . . . . . .
The net book value of property, plant and equipment held under finance leases are analysed below:
Land and
buildings
£’000
Fixtures,
fittings, plant
and
machinery
£’000
Motor
vehicles
£’000
Total
£’000
At 2 December 2007
Cost or valuation . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and impairment . . . .
25,485
(6,879)
38,420
(14,635)
21,112
(11,098)
85,017
(32,612)
Net book value . . . . . . . . . . . . . . . . . . . . . . .
18,606
23,785
10,014
52,405
At 30 November 2008
Cost or valuation . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and impairment . . . .
25,525
(8,149)
49,658
(21,361)
22,758
(13,646)
97,941
(43,156)
Net book value . . . . . . . . . . . . . . . . . . . . . . .
17,376
28,297
9,112
54,785
At 29 November 2009
Cost or valuation . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and impairment . . . .
25,459
(9,515)
55,869
(26,332)
20,872
(11,247)
102,200
(47,094)
Net book value . . . . . . . . . . . . . . . . . . . . . . .
15,944
29,537
9,625
55,106
At 21 February 2010
Cost or valuation . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and impairment . . . .
25,459
(9,808)
57,687
(27,754)
22,040
(10,795)
105,186
(48,357)
Net book value . . . . . . . . . . . . . . . . . . . . . . .
15,651
29,933
11,245
56,829
The movement in cost or valuation includes assets of £1,812,000 (2009: £6,870,000) (2008: £8,950,000)
(2007: £9,950,000) reclassified from owned assets to assets held under finance leases following asset
based financing arrangements.
During the 2008 financial period the Group revised the life of certain plant and machinery, due to the
increased resilience of the CFC and greater certainty of the long-term picking solutions. For the majority
of assets impacted by this change this doubled the estimated useful life from 5 to 10 years, although a
small number of higher value assets had their life halved from 20 years. The change was only applied
from the date the decision was ratified, and saw a decrease of the depreciation charge for the 2008 period
of £852,000. If the change had been backdated to the beginning of the 2008 financial period depreciation
would have fallen by a further £2,389,000. If the useful lives of the assets had not been revised in 2008 the
depreciation charge in 2009 would have increased by £4,914,000.
The impairment charge for fixtures, fittings, plant and machinery in all financial periods is in respect of
superseded assets written off during the period. The charge against land and buildings in 2009 was in
respect of Portacabins written off as they were no longer fit for use.
Included within tangible fixed assets is capital work-in-progress for fixtures, fittings, plant and machinery
of £125,000 as at 21 February 2010 (2009: £39,000) (2008: £269,000) (2007: £9,390,000).
130
Part V
Historical Financial Information relating to the Group
13. Available-for-sale financial asset
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
395
395
395
395
Non-current
Unlisted equity investment . . . . . . . . . . . . . . .
The unlisted equity investment comprises a 25% interest in Paneltex Limited whose registered office is at
Paneltex House, Somerden Road, Hull. This stake was acquired in June 2001 at a cost of £395,000.
Payment for the shares was partly in cash (£237,000) and partly in equity (1,975 Convertible preference
shares). The Group’s 25% interest in Paneltex Limited has not been treated as an associated undertaking
as the Group does not have significant influence over Paneltex. In arriving at this decision the Board has
reviewed the conditions set out in IAS 28 (‘‘Investments in Associates’’) and concluded that despite the
size of its holding the Group is unable to participate in the financial and operating policy decisions of
Paneltex due to the position of the majority shareholder as executive managing director and the
insignificant size and arm’s length nature of the relationship between the two companies.
The shares of Paneltex Limited are not quoted in an active market and their fair value cannot be reliably
measured. As such the Group has measured its investment in Paneltex Limited at cost less impairment.
The Group does not intend to dispose of this investment in the foreseeable future. If the Group did intend
to dispose of this investment then the anticipated exit route would be the sale of shares to the existing
shareholder or another connected party of Paneltex Limited.
Further details of the relationship with Paneltex Limited are included in Note 31.
14. Inventories
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
7,735
565
8,187
920
8,270
943
8,196
1,298
8,300
9,107
9,213
9,494
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
1,094
3,223
5,896
5,236
Goods for resale . . . . . . . . . . . . . . . . . . . . . .
Consumables . . . . . . . . . . . . . . . . . . . . . . . .
No security has been granted over inventories.
15. Trade and other receivables
Notes
Current
Trade receivables . . . . . . . . . . . . . . . .
Less: provision for impairment of trade
receivables . . . . . . . . . . . . . . . . . . .
Net trade receivables
Other receivables . . .
Prepayments . . . . . .
Accrued income . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
26
(21)
.
.
.
.
(219)
(189)
(229)
1,073
5,349
2,325
475
3,004
5,159
3,453
417
5,707
4,072
4,411
550
5,007
6,374
3,499
588
9,222
12,033
14,740
15,468
No security has been granted over trade and other receivables.
Other receivables include £5,216,000 as at 21 February 2010 (2009: £3,058,000) (2008: £4,021,000)
(2007: £3,465,000) due from suppliers in relation to supplier funded promotional activity.
131
Part V
Historical Financial Information relating to the Group
16. Cash and cash equivalents
As at
2 December
2007
£’000
Cash at bank and in hand . . . . . . . . . . . . . . .
Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . .
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
11,286
(395)
6,163
(306)
13,157
(140)
14,218
(3,773)
10,891
5,857
13,017
10,445
The bank overdraft is repayable on demand and forms an integral part of the Group’s cash management
so is included as a component of cash and cash equivalents.
The Group renewed its bank overdraft facility of £5m with Barclays Bank PLC in January 2010. The
current facility is due for renewal in November 2010.
17. Current liabilities—Trade and other payables
Trade payables . .
Other taxation and
Accruals . . . . . . .
Deferred income .
...........
social security
...........
...........
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
20,142
2,681
10,409
—
25,900
4,563
9,840
—
33,839
3,130
9,519
749
28,127
3,300
14,151
884
33,232
40,303
47,237
46,462
.
.
.
.
Deferred income represents the value of delivery income received under the ‘‘Ocado Delivery Pass’’
scheme allocated to future periods.
18. Loan stock, leases and borrowings
Current liabilities
Borrowings . . . . . . . . . . . . . . . . . . . .
Convertible loan stock . . . . . . . . . . . . .
Obligations under finance leases . . . . .
Non-current liabilities
Borrowings . . . . . . . . . . . . . . . . . . . .
Convertible loan stock . . . . . . . . . . . . .
Obligations under finance leases . . . . .
Notes
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
19
20
21
876
—
5,066
15,016
14,506
9,989
12,087
—
19,669
27,773
—
19,314
5,942
39,511
31,756
47,087
46,345
33,101
49,688
28,429
—
53,650
42,658
—
45,651
28,218
—
46,266
129,134
82,079
88,309
74,484
135,076
121,590
120,065
121,571
19
20
21
Total loan stock, leases and
borrowings . . . . . . . . . . . . . . . . . .
132
Part V
Historical Financial Information relating to the Group
19. Borrowings
Total
£’000
Less than
one year
£’000
Between one
year and two
years
£’000
Between two
years and
five years
£’000
Over five
years
£’000
As at 2 December 2007
Secured loans . . . . . . . . . . . . . .
Unsecured loans . . . . . . . . . . . . .
43,330
3,891
97
779
5,596
896
35,644
2,216
1,993
—
Total borrowings . . . . . . . . . . . . .
47,221
876
6,492
37,860
1,993
As at 30 November 2008
Secured loans . . . . . . . . . . . . . .
Unsecured loans . . . . . . . . . . . . .
39,157
4,288
12,944
2,072
10,402
1,031
15,411
1,185
400
—
Total borrowings . . . . . . . . . . . . .
43,445
15,016
11,433
16,596
400
As at 29 November 2009
Secured loans . . . . . . . . . . . . . .
Unsecured loans . . . . . . . . . . . . .
41,350
13,395
5,998
6,089
17,463
4,579
17,489
2,727
400
—
Total borrowings . . . . . . . . . . . . .
54,745
12,087
22,042
20,216
400
As at 21 February 2010
Secured loans . . . . . . . . . . . . . .
Unsecured loans . . . . . . . . . . . . .
44,311
11,680
22,295
5,478
14,969
4,366
7,047
1,836
—
—
Total borrowings . . . . . . . . . . . . .
55,991
27,773
19,335
8,883
—
Secured Loans
(i)
The Group entered into a loan of £5m in September 2008 secured over certain warehouse assets,
software and intellectual property, initially repayable in instalments or in full on or before September
2009. Interest is charged at LIBOR plus 2.8%. The loan was extended until January 2010 on the
same terms after which date it is reviewed on a month by month basis.
(ii) The Group entered into a loan of £8m in May 2007 of which £5.6m was used to repay an existing
loan. The loan is secured over certain warehouse assets. Interest was charged at Barclays Base
Rate plus 2.5% and was repayable in equal quarterly instalments each quarter commencing in
May 2009 and ending in May 2014. In May 2009, after the first capital instalment was paid, the
remaining capital instalments were deferred. Repayments will commence in August 2010, with equal
instalments paid quarterly ending in February 2015. The interest rate was reset to Barclays Base
Rate plus 3.0%.
(iii) The Group entered into a loan of £1.5m in December 2006 which is secured on a freehold property.
Interest is charged at Barclays Base Rate plus 1.5%. It is repayable in fixed quarterly instalments
from March 2007 with a final payment in December 2011.
(iv) The Group entered into a loan of £1.5m in February 2009 which is secured on a freehold property.
Interest is charged at LIBOR plus 2.3%. It is repayable in fixed quarterly instalments from May 2009
with a final payment in February 2012.
(v) The Group entered into a loan of £20.0m in December 2004 which was extended by a further £15.0m
in February 2007. The loan is secured over certain warehouse assets, software and intellectual
property. It is repayable in instalments from November 2007 to December 2011. Interest is charged
at LIBOR plus 6.0% of which 2.0% is due biannually and 4.0% is capitalised into the loan and paid at
the end of the loan term. A repayment of £10.0m was made in November 2008.
(vi) The Group entered into a loan of £2.9m in December 2009 which is secured on a freehold property.
Interest is charged at LIBOR plus 3.5%. It is repayable in fixed quarterly instalments from April 2010
with a final bullet payment in December 2012.
133
Part V
Historical Financial Information relating to the Group
Unsecured loans
(vii) The Group entered into a loan of £6.8m in April 2002, with the then landlord of the customer fulfilment
centre. It is repayable in fixed quarterly instalments with a final payment in March 2012. Interest is
charged at 14.2% and the Group has a right to repay the loan without penalty at any time on six
months’ notice.
(viii) The Group entered into a Murabaha facility agreement in July 2009 to raise funds of £10.0m. It is
repayable in quarterly instalments from October 2009 to July 2012 totalling £11.3m. It has been
estimated that this will supply the bank with an overall yield of 8.0%.
(ix) In both 2009 and 2008 the Group entered into an agreement to defer the payment of its insurance
premium over 10 months. Interest was charged at 7.2%. They are repayable in fixed monthly
instalments with final payments in July 2010 and July 2009 respectively.
20. Convertible loan stock
Total
£’000
Less than
one year
£’000
Between
one year
and two
years
£’000
As at 2 December 2007
Convertible loan stock . . . . . . . . . . .
33,101
—
14,874
18,227
—
Total convertible loan stock . . . . . . .
33,101
—
14,874
18,227
—
As at 30 November 2008
Convertible loan stock . . . . . . . . . . .
14,506
14,506
—
—
—
Total convertible loan stock . . . . . . .
14,506
14,506
—
—
—
As at 29 November 2009
Convertible loan stock . . . . . . . . . . .
—
—
—
—
—
Total convertible loan stock . . . . . . .
—
—
—
—
—
As at 21 February 2010
Convertible loan stock . . . . . . . . . . .
—
—
—
—
—
Total convertible loan stock . . . . . . .
—
—
—
—
—
(i)
Between
two years
and five
years
£’000
Over five
years
£’000
The Group issued £12.5m in ‘A’ convertible loan stock to Goldman Sachs International in March
2004 which was repayable in full in March 2009 after having been extended at the option of the loan
stock holder in March 2007 on payment of a premium by the loan stock holder of £8.34 per share.
This entitled the loan stock holder to convert the loan stock (including capitalised interest) and
accrued interest into 132,244 Convertible preference shares at a price of £115 per share any time up
to March 2009. The loan interest rate was 4% p.a. and was capitalised annually. The loan matured on
17 March 2009 and Goldman Sachs International chose not to convert the loan stock to Convertible
preference shares. The loan principal and the accrued interest outstanding were rolled up into a short
term loan. The loan was paid off in agreed instalments between June 2009 and September 2009.
(ii) The Group issued £12.3m in ‘B’ convertible loan stock to John Lewis in January 2003 which was
repayable in full in January 2010. The ‘B’ convertible loan stock was not interest bearing but
conferred the right to subscribe for up to 145,271 Convertible preference shares at a price of £84.70
per share on the occurrence of certain trigger events (including, amongst other things, an issue of
new shares in the Group). In November 2008 the loan stock holder exercised their right to subscribe
for the 145,271 Convertible preference shares.
(iii) The Group issued £8.6m in ‘C’ convertible loan stock to John Lewis in February 2004 which was
repayable in full in February 2011. The ‘C’ convertible loan stock was not interest bearing but
conferred the right to subscribe for up to 91,143 Convertible preference shares at a price of £94.49
per share on the occurrence of certain trigger events (including, amongst other things, an issue of
new shares in the Group). In November 2008 the loan stock holder exercised their right to subscribe
for the 91,143 Convertible preference shares.
134
Part V
Historical Financial Information relating to the Group
(iv) The Group issued £1.5m in ‘A’ convertible loan stock to John Lewis in July 2005 which was repayable
in full in March 2009 after having been extended at the option of the loan stock holder in March 2007
on payment of a premium by the loan stock holder of £8.87 per share. This entitled the loan stock
holder to convert the loan stock (including capitalised interest) and accrued interest into 14,919
Convertible preference shares at a price of £115 per share any time up to March 2009. The loan
interest rate was 4% p.a. and was capitalised annually. In November 2008 the loan stock holder
exercised their right to convert the loan stock and accrued interest into 14,919 Convertible
preference shares.
(v) The Group issued £50,000 in ‘A’ convertible loan stock to a private investor in March 2004 which was
repayable in full in March 2009 after having been extended at the option of the loan stock holder in
March 2007 on payment of a premium by the loan stock holder of £8.34 per share. This entitled the
loan stock holder to convert the loan stock (including capitalised interest) and accrued interest into
529 Convertible preference shares at a price of £115 per share any time up to March 2009, The loan
interest rate was 4% p.a. and was capitalised annually. In March 2009 the loan stock holder
exercised their right to convert the loan stock and accrued interest into 529 Convertible preference
shares.
In accordance with IAS 32 the principal values of the convertible loan stock were bifurcated into their
liability and equity components. For the John Lewis ‘B’ and ‘C’ convertible loan stock this was performed
at initial inception. The convertible loan stock as described in notes (i), (iv) and (v) which had extension
options were also bifurcated on the date of the extension, when the criteria for bifurcating the components
into liability and equity component parts were met.
In November 2008 John Lewis exercised their right to convert loan stock held in Convertible preference
shares. This resulted in the transfer of the £7.0m equity component previously recognised in the
compound financial instruments reserve in respect of these being transferred into the accumulated deficit
reserve. An adjustment of £1.6m was made, at the time, in respect of the unrecognised interest charge
due to these options being exercised before the maturity date.
In March 2009 on expiry of the Goldman Sachs International and the individual investor’s convertible loan
stock financial instruments £1.1m previously recognised in the compound financial instrument reserve, in
respect of these, was transferred to the accumulated deficit reserve.
135
Part V
Historical Financial Information relating to the Group
The total convertible loan stock liability and equity components recognised in the balance sheet are as
follows:
Face value
at inception/
Notes modification
£’000
At 4 December 2006 .
Interest charge in the
period . . . . . . . . .
Interest capitalised into
the face value on
modification . . . . . .
Equity component
recognised on
modification . . . . . .
.
.
34,967
9
Fair value
adjustment
charged/
(credited)
as interest
Carrying
value of
liability
component
Loan Rate
interest due
to holder
Total
liability and
interest due
Equity
component
Interest
capitalised
£’000
£’000
£’000
£’000
£’000
£’000
—
3,183
31,268
1,500
32,768
617
2,048
(6,882)
—
—
—
1,431
1,431
.
1,670
—
—
—
1,670
.
—
(1,268)
—
—
(1,268)
At 2 December 2007 . .
36,637
(8,150)
—
4,614
33,101
447
33.548
At 3 December 2007 . .
Interest charge in the
period . . . . . . . . . .
Interest capitalised into
the liability component
Conversion of
convertible loan stock:
—derecognition of
liability component .
—equity component
release to retained
earnings . . . . . . .
—unrecognised
interest charge on
early conversion . .
36,637
(8,150)
—
4,614
33,101
447
33,548
646
2,384
9
24
—
—
—
1,738
1,738
—
—
631
—
631
—
(64)
—
(22,522)
—
5,389
—
—
1,622
—
(5,389)
—
(22,586)
(1,670)
—
(631)
(47)
—
(1,268)
—
(22,633)
—
—
—
1,622
—
1,622
At 30 November 2008 .
14,115
(1,139)
567
963
14,506
415
14,921
At 1 December 2008 . .
Interest charge in the
period . . . . . . . . . .
Interest capitalised into
the liability component
Conversion of
convertible loan stock:
—derecognition of
liability component .
—equity component
release to retained
earnings . . . . . . .
Repayment of
convertible loan stock:
—derecognition of
liability component .
—equity component
release to retained
earnings . . . . . . .
14,115
(1,139)
567
963
14,506
415
14,921
347
As at 29 November
2009 . . . . . . . . . . .
9
24
—
—
—
176
176
171
—
—
586
—
586
(586)
(55)
—
(5)
—
(60)
—
(60)
—
5
—
(5)
—
—
—
(14,060)
—
(1,148)
—
1,134
—
—
—
—
—
(1,134)
—
(15,208)
—
—
(15,208)
—
—
—
—
—
—
The interest charge for the financial period is calculated by applying an effective interest rate of 6.0% for
John Lewis ‘B’ and John Lewis ‘C’ convertible loan stock and 9.3% for remaining convertible loans stocks
to their respective liability components for the period since the convertible loans were bifurcated. The
liability component is measured at amortised cost. The difference between the carrying amount of the
liability at the date of inception/modification and the amount reported in the balance sheet at the period
end represents the effective interest rate less interest accrued (un-capitalised at the period end) to that
date.
136
Part V
Historical Financial Information relating to the Group
21. Finance leases
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
.
.
.
.
5,066
7,953
31,315
10,420
9,989
16,738
27,419
9,493
19,669
16,392
20,698
8,561
19,314
18,609
19,385
8,272
Total obligations under finance leases . . . . .
54,754
63,639
65,320
65,580
Notes
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
8,448
11,041
36,391
13,832
13,957
20,021
31,707
12,275
23,705
19,180
23,779
10,773
23,287
21,314
22,332
10,418
Less: future finance charges . . . . . . . .
69,712
(14,958)
77,960
(14,321)
77,437
(12,117)
77,351
(11,771)
Present value of finance lease
liabilities . . . . . . . . . . . . . . . . . . . .
54,754
63,639
65,320
65,580
5,066
49,688
9,989
53,650
19,669
45,651
19,314
46,266
54,754
63,639
65,320
65,580
Obligations under finance leases
Within one year . . . . . . . . . . . .
Between one and two years . . .
Between two and five years . . .
After five years . . . . . . . . . . . .
Minimum lease payments due:
Within one year . . . . . . . . . . .
Between one and two years . .
Between two and five years . . .
After five years . . . . . . . . . . . .
.
.
.
.
due:
....
....
....
....
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Disclosed as:
Current . . . . . . . . . . . . . . . . . . . . . . .
Non-current . . . . . . . . . . . . . . . . . . . .
18
18
137
Part V
Historical Financial Information relating to the Group
22. Provisions
Dilapidations
£’000
Total
£’000
175
175
—additional provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
104
104
—unused amounts reversed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15)
(15)
—used during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(67)
(67)
197
197
212
212
As at 3 December 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charged/(credited) to statement of comprehensive income
As at 30 November 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charged/(credited) to statement of comprehensive income
—additional provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—unused amounts reversed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3)
(3)
—used during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(40)
(40)
366
366
—additional provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44
44
—unused amounts reversed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—used during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(26)
(26)
384
384
As at 29 November 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charged/(credited) to statement of comprehensive income
As at 21 February 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The dilapidations provision is based on the future expected repair costs required to restore the leased
assets to their fair condition at the end of the lease term.
23. Derivative liability
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
967
1,079
1,083
1,126
Derivative liability designated as fair value
through the profit or loss
—Warrant agreements . . . . . . . . . . . . . . . .
The Group issued to Ranelagh Nominees Limited (an affiliate of Lloyds TSB Bank plc) and to Lloyds
TSB Bank plc warrants to subscribe for up to 5,611,200 Ordinary shares at £1.80 per share. Lloyds
TSB Bank plc subsequently transferred its warrants to Ranelagh Nominees Limited. The warrants
provide Ranelagh Nominees Limited with the opportunity to benefit in the equity upside of the Group. The
fair value of the warrants has been determined using the Black-Scholes Option Pricing Model.
Further details of the derivative financial instrument are provided in note 26.
138
Part V
Historical Financial Information relating to the Group
24. Share capital and reserves
Movements in called up share capital are set out below:
As at 2 December
2007
Number of
shares
Authorised
Ordinary shares of 1p each . . . . . . . . . . . . . . . . .
Convertible preference shares of 1p each . . . . . . . .
Allotted, called up and fully paid
Ordinary shares of 1p each . . . . . . . . . . . . . . . . .
Convertible preference shares of 1p each . . . . . . . .
£’000
Ocado Limited
As at 30 November
2008
Number of
shares
£’000
As at 29 November
2009
Number of
shares
£’000
3,000,000
3,000,000
30 3,000,000
30 3,000,000
30 3,000,000
30 3,000,000
30
30
6,000,000
60 6,000,000
60 6,000,000
60
1,153,186
2,222,887
12 1,302,690
22 2,474,220
13 1,525,757
25 2,474,749
15
25
3,376,073
34 3,776,910
38 4,000,506
40
Ocado Group plc
As at 21 February
2010
Number of
shares
£’000
3,000,000
3,000,000
6,000
6,000
6,000,000
12,000
Allotted, called up and fully paid
Ordinary shares of 2p each . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible preference shares of 2p each . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
185,715,900
247,474,900
3,714
4,949
Allotted, called-up, and fully paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
433,190,800
8,663
Less: Ordinary shares held by the Group’s employee benefit trust . . . . . . . . . . . . . . . . .
(32,476,700)
Allotted, called-up, and fully paid excluding Ordinary Shares held by the EBT Trustee . . . . .
400,714,100
Authorised
Ordinary shares of 2p each . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible preference shares of 2p each . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
On 9 February 2010 the Company acquired the entire share capital of Ocado Limited. As a result of this
transaction, the ultimate shareholders in Ocado Limited received shares in the Company in direct
proportion to their original shareholdings in Ocado Limited. Shareholders were issued 100 shares in the
Company for every 1 share in Ocado Limited. The shares in Ocado Group plc have a par value of 2 pence
each. Therefore as at 21 February 2010 share capital represents that of Ocado Group plc. Prior periods
presented represent that of Ocado Limited.
Convertible preference shares are only convertible in to the same number of Ordinary shares either at the
option of the holder or on the occurrence of certain trigger events including a public listing. The
Convertible preference shares rank pari passu with Ordinary shares with the exception that on return of
assets on a liquidation, reduction of capital or otherwise, the holders of the Convertible preference shares
shall be entitled in respect of their preference shares (in proportion to the number of such shares held by
each of them) in priority to all other shareholders, to be paid out of the surplus assets of the Group
remaining after payment of its liabilities, the subscription price for their preference shares together with a
sum equal to any arrear of dividends calculated down to the date of the return of assets.
The Ordinary Shares held by the EBT Trustee pursuant to the Joint Share Ownership Scheme are treated
as treasury shares in the Group’s consolidated balance sheet in accordance with IAS 32 ‘‘Financial
instruments: Presentation’’. These Ordinary Shares have voting rights but these have been waived by the
EBT Trustee. Further details of the Joint Share Ownership Scheme are provided in Note 25.
The number of allotted, called up and fully paid shares, excluding treasury shares, at the end of each
period differs from that used in the loss per share calculation in Note 28 as loss per share is calculated
using the weighted average number of ordinary shares and convertible preference shares in issue during
the period, excluding treasury shares.
139
Part V
Historical Financial Information relating to the Group
Movements in called up share capital and reserves are set out below:
Ordinary
shares
(number)
951,171
200,667
Convertible
preference
shares
(number)
2,222,887
—
Ordinary
shares
£’000
10
2
Convertible
preference
shares
£’000
22
—
Share
premium
£’000
210,897
30,098
1,348
—
—
—
114
—
—
At 2 December 2007 . .
1,153,186
2,222,887
12
22
241,109
—
—
At 3 December 2007 . .
Issue of Ordinary shares
Allotted in respect of
executive share
option scheme . . . . .
Issue of Convertible
preference shares . . .
1,153,186
148,693
2,222,887
—
12
1
22
—
241,109
17,842
—
—
—
—
25
811
—
—
—
68
—
—
20
—
251,333
—
3
22,630
—
—
Notes
At 4 December 2006 . .
Issue of Ordinary shares
Allotted in respect of
executive share
option scheme . . . . .
25
Reverse
Treasury acquisition
reserve
reserve
£’000
£’000
—
—
—
—
At 30 November 2008 .
1,302,690
2,474,220
13
25
281,649
—
—
At 1 December 2008 . .
Issue of Ordinary shares
Ordinary shares issue
costs . . . . . . . . . . .
Allotted in respect of
executive share
option scheme . . . . .
Issue of Convertible
preference shares . . .
1,302,690
222,281
2,474,220
—
13
2
25
—
281,649
30,005
—
—
—
—
—
—
—
—
(945)
—
—
25
786
—
—
—
67
—
—
20
—
529
—
—
60
—
—
At 29 November 2009 .
1,525,757
2,474,749
15
25
310,836
—
—
At 30 November 2009 .
Allotted in respect of
executive share
option scheme . . . . .
Allotted in respect of
joint share ownership
scheme . . . . . . . . .
Cancellation of Ocado
Limited’s shares . . . .
Issue of Ordinary and
Convertible
preference shares by
Ocado Group plc . . .
Ocado Group plc capital
reduction . . . . . . . .
Reverse acquisition of
Ocado Limited by
Ocado Group plc . . .
1,525,757
2,474,749
15
25
310,836
—
—
6,635
—
—
731
—
—
324,767
—
3
—
48,712
(18)
(25)
At 21 February 2010 . .
25
24(a)
24(b)
(1,857,159)
(2,474,749)
24(b) 185,715,900 247,474,900
(47,741)
—
—
—
—
204,287
272,222
—
—
(200,573)
(267,273)
—
—
—
—
360,279
24(b)
—
—
24(c)
—
—
—
—
185,715,900 247,474,900
3,714
4,949
(360,279)
—
(47,741)
(476,509)
(116,230)
(a) Treasury reserve
This reserve arose when the Group issued equity share capital under its Joint Share Ownership Scheme,
which is held in trust by the Group’s employee benefit trust, the consideration paid is deducted from total
shareholders’ equity and classified as treasury shares on consolidation. Further details of the Joint
Ownership Scheme are provided in Note 25.
(b) Scheme of Arrangement and Capital Reduction
On 9 February 2010, pursuant to a Scheme of Arrangement, all of Ocado Limited’s Ordinary and
Preference Shares were cancelled. Subsequently, Ocado Limited issued 100 ordinary shares to the
Company for £1 and in consideration of the cancellation of Ocado Limited’s Ordinary and Preference
Shares, the Company issued 185,715,900 Ordinary Shares and 247,474,900 Preference Shares on the
basis of 1:100 Ordinary and Preference Shares for each Ocado Limited Share held. The effect of the
140
Part V
Historical Financial Information relating to the Group
Scheme of Arrangement was to replicate the shareholders’ register of Ocado Limited at the Company
level.
On 16 February 2010, pursuant to an order of the Court confirming the reduction of capital of the
Company, the Company’s share capital was reduced by decreasing the nominal value of each Ordinary
and Preference Share issued pursuant to the Scheme of Arrangement from 110 pence to 2 pence. This
created distributable reserves of £467.8 million.
(c) Reverse acquisition reserve
As detailed in Notes 2(a) and 2(b), the acquisition by the Company of the entire issued share capital of
Ocado Limited has been accounted for as a reverse acquisition under IFRS3R. Consequently the
previously recognised book values and assets and liabilities have been retained and the consolidated
historical financial information has been presented as if the Company had always been the parent
company of the Group.
The share capital for the period covered by the historical financial information and the comparative
periods is stated at the nominal value of the shares issued pursuant to the share swap arrangement. Any
differences between the nominal value of these shares and previously reported nominal values of shares
and applicable share premium issued by Ocado Limited has been transferred to the ‘reverse acquisition
reserve’.
25. Share options and other equity instruments
(a) Employee share options
On 9 February 2010 the Ordinary Shares and Convertible Preference Shares in Ocado Limited were
converted into Ordinary Shares and Convertible Preference Shares in the Company on a 1:100 basis with
a par value of 2 pence per share.
Options to subscribe for Ordinary shares have been granted, pursuant to the Group’s approved and
unapproved employee share option schemes. At each respective balance sheet date the outstanding
options were as follows:
Year of
Issue
Ocado Limited 2001 Inland Revenue .
Approved Employee . . . . . . . . . . .
Share Ownership Scheme . . . . . . .
2001
2001
2002
2003
2004
2005
2005
2006
2006
2007
2008
2008
2009
2009
Total approved options . . . . . . . . .
Ocado Limited 2001 Inland Revenue .
Non-Approved . . . . . . . . . . . . . .
Employee Share Ownership Scheme .
Total unapproved
2001
2001
2002
2002
2002
2003
2005
2005
2007
2009
2009
As at
2 December
2007
As at
30 November
2008
As at
29 November
2009
Number
Number
Number
14,920
268
4,252
2,705
3,803
7,978
944
2,420
2,402
9,721
—
—
—
—
14,393
268
4,118
2,289
3,328
6,977
944
2,088
1,830
7,595
3,341
7,428
—
—
13,940
268
4,104
2,127
3,147
6,599
944
1,918
1,627
6,768
2,721
5,661
3,519
18,100
49,413
54,599
71,443
1,188
872
1,243
3,500
3,500
2,000
20
12,492
508
—
—
1,188
872
1,243
3,500
3,500
2,000
20
12,492
508
—
—
1,094
777
1,243
3,500
3,500
2,000
19
12,242
508
9,369
241
Exercise
Price
(£)
As at
21 February
2010
Exercise Period
0.80
0.90
0.90
0.90
0.90
1.00
1.15
1.40
1.50
1.50
1.35
1.20
1.20
1.35
24/02/03-29/11/11
30/11/04-29/11/11
31/05/05-29/11/12
31/05/06-29/11/13
31/05/07-29/11/14
31/05/08-29/11/15
31/05/08-29/11/15
31/05/09-30/05/16
30/11/09-29/11/16
31/05/10-29/11/17
31/05/11-29/05/18
30/11/11-29/11/18
31/05/12-30/05/19
02/11/12-29/11/19
0.80
0.90
0.90
1.00
1.50
0.90
1.00
1.15
1.50
1.20
1.35
01/08/03-29/11/11
30/11/04-29/11/11
31/05/05-29/11/12
07/02/05-06/02/12
07/02/05-06/02/12
31/05/06-29/11/13
31/05/08-29/11/15
16/05/08-29/11/15
31/05/10-30/05/17
31/05/12-30/05/19
16/11/12-15/11/19
Number
80
90
90
90
90
100
115
140
150
150
135
120
120
135
875,607
23,044
314,436
164,927
259,904
513,229
94,424
172,078
145,140
629,863
251,010
493,531
284,357
1,623,229
5,844,779
80
90
90
100
150
90
100
115
150
120
135
70,626
35,856
94,533
175,000
350,000
100,000
1,900
1,206,050
50,833
267,500
24,074
. . . . . . . . . . . .
25,323
25,323
34,493
2,376,372
Total employee options . . . . . . . . .
74,736
79,922
105,936
8,221,151
141
Exercise
Price
(£)
Part V
Historical Financial Information relating to the Group
Of the total employee share options above, the following options were subject to performance criteria in
relation to the average contribution by basket and EBITDA:
Year of
Issue
As at
2 December
2007
As at
30 November
2008
As at
29 November
2009
Number
Number
Number
2,913
—
2,913
—
2,913
9,550
2,913
2,913
12,463
2005
2009
Total options subject to performance
criteria . . . . . . . . . . . . . . . . . . .
Exercise
Price
(£)
As at
21 February
2010
Exercise
Price
(£)
Exercise Period
1.15
1.20
31/05/08-29/11/15
31/05/12-30/05/19
Number
115
120
276,017
254,000
530,017
Details of the share options outstanding during each financial period are as follows.
As at 2 December
2007
Outstanding at beginning
of period . . . . . . . . .
Granted during the
period . . . . . . . . . . .
Forfeited—granted in the
period . . . . . . . . . . .
Forfeited—granted in
prior periods . . . . . . .
Exercised during the
period . . . . . . . . . . .
Expired during the
period . . . . . . . . . . .
As at 30 November
2008
Number of
Share
Options
Weighted
average
price (£)
Number of
Share
Options
71,658
103
74,736
108
10,928
150
11,649
As at 29 November
2009
Weighted Number of
average
Share
price (£)
Options
Weighted
average
price (£)
As at 21 February
2010
Number of
Share
Options
Weighted
average
price (£)
79,922
110 10,593,611
1.15
125
33,164
129
—
—
—
—
(699)
150
(880)
135
(1,935)
124
(5,803)
121
(4,772)
129
(4,429)
126
(1,708,960)
1.04
(1,348)
85
(811)
84
(786)
85
(663,500)
1.10
—
—
—
—
—
—
—
—
Outstanding during the
period . . . . . . . . . . .
74,736
108
79,922
110
105,936
115
8,221,151
1.17
Exercisable at the end of
the period . . . . . . . . .
38,251
92
57,132
99
57,422
100
4,596,754
1.05
The market value of the Group’s shares was derived based on the market value of similar companies and
by taking into account transactions conducted with shareholders during the period. The Share Valuation
Office of the Inland Revenue has confirmed in correspondence dated November 2009 that in respect of
2009 grants £135 per share was not less than the market value of the Group’s shares. Similar
confirmation has been obtained for the share valuations at each option grant date.
In determining the fair value of the share options, the Black-Scholes Option Pricing Model was used with
the following inputs:
2007
Weighted average share price . .
Weighted average exercise price
Expected volatility . . . . . . . . . .
Weighted expected life . . . . . . .
Risk-free interest rate . . . . . . . .
Expected dividend yield . . . . . .
.
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£150.00
£108.45
0.50
5.28
5.0%
0.0%
2008
£143.40
£109.63
0.50
5.18
5.0%
0.0%
2009
£126.60
£114.78
0.50
4.19
5.0%
0.0%
2010
£1.27
£1.17
0.50
4.19
5.0%
0.0%
Expected volatility was determined by comparing the Group to others of a similar size or which operate in
similar markets, and adjusted to reflect the private company status. The expected life used in the model
has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise
restrictions, and behavioural considerations. All share awards are equity settled. The charge to the
statement of comprehensive income is detailed in Note 8.
142
Part V
Historical Financial Information relating to the Group
(b) Joint Share Ownership Scheme
The set up of the Joint Share Ownership Scheme (‘‘JSOS’’) was approved by resolution of the board of
directors on 13 January 2010 following recommendations made by the Group’s remuneration committee
that a new executive incentivisation scheme be established to incentivise and retain its four Executive
Directors and select members of senior management of the Group (the ‘‘Participants’’). The scheme was
approved by shareholders by written resolution on 18 February 2010. The terms of the JSOS have been
approved by the Group’s remuneration committee who will supervise the operation of the scheme.
Participants
Following consultation with the Group’s lawyers, financial advisers and independent executive
remuneration consultants and the board of directors’ approval, awards were granted to the Executive
Board and a select group of senior management. In total they acquired interests in 32.5m Ordinary shares
with an issue price of £1.50 per share (historically the maximum share price recorded for the Group’s
shares).
Nature of interests
Interests will take the form of a restricted interest in Ordinary shares in the Company (‘‘Interest’’). An
Interest permits a participant to benefit from the increase (if any) in the value of a number of Ordinary
shares in the Company (‘‘Shares’’) over which the Interest is acquired. In order to acquire an Interest, a
participant must enter into a joint ownership agreement with the trustees of an employee benefit trust
under which the participant and the trustee jointly acquire the Shares and agree that when the Shares are
sold the participant has a right to receive a proportion of the sale proceeds in so far as the value of the
Shares exceeds a threshold amount. For the initial Interests acquired by the Participants, there are four
tranches each with their own threshold or Hurdle Value as follows:
Hurdle
Value
Tranche
1
2
3
4
(2011)
(2012)
(2013)
(2014)
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£1.7250
£1.9075
£2.0829
£2.2813
% above
issue price
15
27
39
52
A participant is required to provide up front funding to the employee benefit trust equal to 2% of the issue
price on the acquisition of their interests, amounting to £0.03 per share (the ‘‘Entry Price’’).
When an Interest vests, the trustees will on request transfer shares to the participant of equal value to the
participant’s Interest or the Shares will be sold and the trustee will account to the participant for the
balance i.e. the difference between the sale proceeds (less expenses) and the Hurdle Value.
Vesting conditions
The vesting of Interests granted to Participants are subject to a time vesting condition with one-quarter of
the Interest in the Shares vesting on the first anniversary of acquisition, one-quarter on the second
anniversary, one-quarter on the third anniversary and the final one-quarter on the fourth anniversary. The
fair value of interests awarded under the Joint Share Ownership Scheme was determined using the
Black-Scholes Option Pricing Model. As per IFRS 2 ‘Share-based Payment’ market based vesting
conditions and the share price target conditions in the Joint Share Ownership Scheme have been taken in
to account in establishing the fair value of the equity instruments granted. Other non-market or
performance related conditions were not taken into account in establishing the fair value of equity
instruments granted, instead these non-market vesting conditions are taken into account by adjusting the
number of equity instruments included in the measurement of the transaction amount so that, ultimately
the amount recognised for services received as consideration for the equity instruments granted is based
143
Part V
Historical Financial Information relating to the Group
on the number of equity instruments that eventually vest. The following inputs were used in the BlackScholes Option Pricing Model:
Tranche 1
Weighted average share price . . .
Weighted average exercise price .
Expected volatility . . . . . . . . . . .
Weighted Expected life . . . . . . . .
Risk-free interest rate . . . . . . . . .
Expected dividend yield . . . . . . .
.
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.
Tranche 2
£1.35
£1.73
0.25
0.91
3.5%
0.0%
£1.35
£1.90
0.25
1.91
3.5%
0.0%
Tranche 3
Tranche 4
£1.35
£2.08
0.25
2.91
3.5%
0.0%
£1.35
£2.28
0.25
3.91
3.5%
0.0%
(c) Non-employee share options
On 9 February 2010 the ordinary shares and convertible preference shares in Ocado Limited were
converted into Ordinary Shares and Preference Shares in the Company on a 1:100 basis with a par value
of 2 pence per share.
Options to subscribe for ordinary shares and convertible preference shares have been granted by the
Company to non-employees. At each respective balance sheet date the options granted to non
employees at the date of their grant were as follows.
Date of
Issue
Non-employee
share options . . .
As at
As at
As at
2 December 30 November 29 November Exercise
2007
2008
2009 Price (£)
Feb-02
Feb-02
Feb-02
Jan-04
Apr-04
Number
Number
Number
943
74
8,867
4,353
477
943
74
8,867
4,353
477
943
74
8,867
4,353
477
14,714
14,714
14,714
As at
21 February Exercise
2010 Price (£)
Exercise Period
Number
53
90
90
103
103
94,300
7,400
886,700
435,300
47,700
0.53
0.90
0.90
1.03
1.03
07/02/02-06/02/12
04/02/04-03/02/14
04/02/04-04/02/17
03/01/04-03/01/18
30/04/04-29/05/14
1,471,400
26. Financial instruments
The fair value of financial instruments is measured by using the following fair value hierarchy:
•
Quoted priced (unadjusted) in active markets for identical assets or liabilities (level 1)
•
Inputs other than quoted prices included within level 1 that are observable for the asset and liability,
either directly or indirectly (level 2)
•
Inputs for the assets or liability that are not based on observable market data (that is unobservable
inputs) (level 3)
The Group recognises a derivative liability in respect of warrants issued. The fair values of which are
determined using the Black-Scholes Option Pricing Model. This is categorised as level 3.
The measurement of fair values of other financial instruments is detailed in the note below.
(a) Fair value of financial instruments
Set out below is a comparison by category of carrying amounts and fair values of all financial instruments
that are carried in the historical financial information. The fair value of financial assets and liabilities are
based on prices available from the market on which the instruments are traded where available. The fair
values of short-term deposits, receivables, overdrafts, payables and loans of a maturity of less than one
financial period are assumed to approximate to their carrying values but for completeness are included in
the analysis below. The fair value of all other financial assets and liabilities have been calculated by
discounting expected future cash flows at prevailing market interest rates. The interest rate used to
discount borrowings is based on a LIBOR plus margin measure blended for the type of security offered
and were calculated as 5.6% as at 21 February 2010 (2009: 6.4%) (2008: 8.5%) (2007: 10.3%).
144
Part V
Historical Financial Information relating to the Group
The carrying value of financial assets and liabilities at the end of the period:
As at 2 December
2007
As at 21 February
2010
Fair Value
Carrying
value
Fair Value
Carrying
value
Fair Value
Carrying
value
Fair Value
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
16
15
10,891
1,073
10,891
1,073
5,857
3,004
5,857
3,004
13,017
5,707
13,017
5,707
10,445
5,007
10,445
5,007
15
5,824
5,824
5,576
5,576
4,622
4,622
6,962
6,962
17,788
17,788
14,437
14,437
23,346
23,346
22,414
22,414
Total financial assets .
Liabilities
Trade payables .
Accruals . . . . . .
Borrowings . . . .
Convertible loan
notes . . . . . . .
Finance lease
obligations . . .
Derivative liability
As at 29 November
2009
Carrying
value
Notes
Assets
Cash and cash
equivalents . . . . . .
Trade receivables . . .
Other receivables
(incl. accrued
income) . . . . . . . .
As at 30 November
2008
...
...
...
17
17
19
(20,142) (20,142) (25,900) (25,900) (33,839) (33,839)
(10,409) (10,409)
(9,840)
(9,840)
(9,519)
(9,519)
(47,221) (47,857) (43,445) (43,797) (54,745) (55,075)
...
20
(33,101) (33,453) (14,506) (15,269)
...
...
21
23
(54,754) (54,754) (63,639) (63,639) (65,320) (65,320)
(967)
(967)
(1,079)
(1,079)
(1,083)
(1,083)
Total financial
liabilities . . . . . . . .
—
—
(28,127) (28,127)
(14,151) (14,151)
(55,991) (56,159)
—
—
(65,580) (65,580)
(1,126)
(1,126)
(166,594) (167,582) (158,409) (159,524) (164,506) (164,836) (164,975) (165,143)
(b) Credit risk
The Group’s exposures to credit risk arise from holdings of cash and cash equivalents and trade and
other receivables (excluding prepayments).
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. This is shown in the
table in Note 26(a) above.
Cash and cash equivalents
The Group’s exposure to credit risk on cash and cash equivalents is managed by cash deposits only
being placed with banks and financial institutions which carry Moody’s ratings of Aa3/P1 for long term and
short term deposits.
Trade and other receivables
Trade and other receivables at the period end comprise mainly monies due from suppliers. Trade
receivables in respect of consumer sales are low due to the nature of the Group’s business and its
effective controls over this area. The Group has provided for doubtful receivables in respect of consumer
sales by reviewing the aging profile and, based on period experience, assessing the recoverability of over
due balances. The Group also provides for receivables in respect of monies due from suppliers.
Management provide when there are indicators that a balance may not be recoverable.
145
Part V
Historical Financial Information relating to the Group
The aging of trade and other receivables (excluding prepayments) at the balance sheet date was:
As at 2 December
2007
Notes
Not past due .
Past due
0-3 months .
Past due
3-6 months .
Past due over
6 months . .
As at 30 November
2008
As at 29 November
2009
As at 21 February
2010
Gross
Impairment
Gross
Impairment
Gross
Impairment
Gross
Impairment
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
...
6,359
—
7,634
—
7,807
—
9,156
—
...
365
(8)
773
(46)
2,395
(47)
2,165
(53)
...
145
(8)
207
(50)
115
(26)
663
(34)
...
15
49
(5)
185
(123)
201
(116)
214
(142)
6,918
(21)
8,799
(219)
10,518
(189)
12,198
(229)
There were no unimpaired balances at the period end where the Group had renegotiated the terms of the
trade receivables (2009: £nil) (2008: £nil) (2007: £nil).
Movements in the provision for impairment of trade and other receivables are as follows:
Notes
At the beginning of the period . . . . .
Provision for receivables impairment
Uncollectible amounts written off . . .
Recoveries of amounts previously
provided . . . . . . . . . . . . . . . . . . .
As at
2 December
2007
£’000
.
.
.
(249)
(20)
83
.
165
At the end of the period . . . . . . . . . .
15
(21)
As at
30 November
2008
£’000
(21)
(199)
1
—
(219)
As at
29 November
2009
£’000
As at
21 February
2010
£’000
(219)
(115)
114
(189)
(59)
—
31
19
(189)
(229)
The provisions account for trade receivables is used to record impairment losses unless the Group is
satisfied that no recovery of the amount owing is possible; at that point the amounts considered
irrecoverable are written off against the trade receivables directly.
(c) Liquidity risk
The Group maintains a mixture of short and medium term debt and lease finance arrangements that are
designed to ensure the Group has sufficient available funds to finance its operations. In addition the
Group maintains a committed standby bank overdraft facility of £5m as at 21 February 2010 (2009: £5m)
(2008: £5m) (2007: £5m). The Group monitors cash flow as part of its day to day control procedures and
the Board considers cash flow projections on a monthly basis ensuring that appropriate facilities are
available to be drawn upon as necessary. For further details see Note 27.
146
Part V
Historical Financial Information relating to the Group
The table below analysis the Group’s non-derivative financial liabilities into their relevant maturity groups
based on the remaining period at the financial period end dates to the contractual maturity date. The
amounts disclosed in the table are the carry value and undiscounted contractual cash flows.
2 December 2007
Non-derivative financial
liabilities
Trade payables . . . . . . .
Accruals . . . . . . . . . . . .
Secured loans . . . . . . . .
Unsecured loans . . . . . .
Convertible loan notes . .
Finance lease
obligations . . . . . . . . .
30 November 2008
Non-derivative financial
liabilities
Trade payables . . . . . . .
Accruals . . . . . . . . . . . .
Secured loans . . . . . . . .
Unsecured loans . . . . . .
Convertible loan notes . .
Finance lease
obligations . . . . . . . . .
29 November 2009
Non-derivative financial
liabilities
Trade payables . . . . . . .
Accruals . . . . . . . . . . . .
Secured loans . . . . . . . .
Unsecured loans . . . . . .
Finance lease
obligations . . . . . . . . .
21 February 2010
Non-derivative financial
liabilities
Trade payables . . . . . . .
Accruals . . . . . . . . . . . .
Secured loans . . . . . . . .
Unsecured loans . . . . . . .
Finance lease obligations
Notes
Carrying
value
£’000
Contractual
cash flows
£’000
1 year or
less
£’000
1-2 years
£’000
2-5 years
£’000
More
than
5 years
£’000
17
17
19
19
20
(20,142)
(10,409)
(43,330)
(3,891)
(33,101)
(20,142)
(10,409)
(60,301)
(5,169)
(35,230)
(20,142)
(10,409)
(4,595)
(1,292)
—
—
—
(9,022)
(1,292)
(17,003)
—
—
(44,564)
(2,585)
(18,227)
—
—
(2,120)
—
—
21
(54,754)
(69,712)
(8,448)
(11,041)
(36,391)
(13,832)
(165,627)
(200,963)
(44,886)
(38,358)
(101,767)
(15,952)
2-5 years
£’000
More
than
5 years
£’000
Notes
Carrying
value
£’000
Contractual
cash flows
£’000
1 year or
less
£’000
1-2 years
£’000
17
17
19
19
20
(25,900)
(9,840)
(39,157)
(4,288)
(14,506)
(25,900)
(9,840)
(48,722)
(5,053)
(15,269)
(25,900)
(9,840)
(17,123)
(2,468)
(15,269)
—
—
(12,173)
(1,293)
—
—
—
(19,022)
(1,292)
—
—
—
(404)
—
—
21
(63,639)
(77,960)
(13,957)
(20,021)
(31,707)
(12,275)
(157,330)
(182,744)
(84,557)
(33,487)
(52,021)
(12,679)
Notes
Carrying
value
£’000
Contractual
cash flows
£’000
1 year or
less
£’000
1-2 years
£’000
2-5 years
£’000
More
than
5 years
£’000
17
17
19
19
(33,839)
(9,519)
(41,350)
(13,395)
(33,839)
(9,519)
(45,185)
(14,959)
(33,839)
(9,519)
(7,517)
(7,047)
—
—
(19,428)
(5,075)
—
—
(17,837)
(2,837)
—
—
(403)
—
21
(65,320)
(77,437)
(23,705)
(19,180)
(23,779)
(10,773)
(163,423)
(180,939)
(81,627)
(43,683)
(44,453)
(11,176)
Notes
17
17
19
19
21
Carrying
value
£’000
Contractual
cash flows
£’000
1 year or
less
£’000
1-2 years
£’000
2-5 years
£’000
More
than
5 years
£’000
(28,127)
(14,151)
(44,311)
(11,680)
(65,580)
(28,127)
(14,151)
(47,810)
(12,952)
(77,351)
(28,127)
(14,151)
(24,369)
(6,309)
(23,287)
—
—
(15,998)
(4,752)
(21,314)
—
—
(7,443)
(1,891)
(22,332)
—
—
—
—
(10,418)
(163,849)
(180,391)
(96,243)
(42,064)
(31,666)
(10,418)
147
Part V
Historical Financial Information relating to the Group
Currency risk
The Group only has foreign currency transactions in relation to its trade payables, principally arising on
purchases of plant and equipment. The Group’s exposure to currency risk is as follows:
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
1,423
—
—
901
—
—
41
2
—
15
—
5
1,423
901
43
20
Trade payables at the period end:
Euros . . . . . . . . . . . . . . . . . . . . . . . . . . . .
US dollar . . . . . . . . . . . . . . . . . . . . . . . . . .
Swedish krona . . . . . . . . . . . . . . . . . . . . . .
Due to the Group’s minimal exposure to currency risk no sensitivity analysis has been performed.
Interest rate risk
The Group is exposed to interest rate risk on its interest bearing borrowings. The Group’s interest rate
policy seeks to minimise interest expense and volatility by structuring the interest rate profile into a
diversified portfolio of fixed rate and floating rate liabilities.
At the balance sheet date the interest rate profile of the Group’s interest bearing financial instruments
was:
Notes
Fixed rate financial instruments
Financial liabilities . . . . . . . . . . . . . .
Variable rate instruments
Financial assets . . . . . . . . . . . . . . .
Financial liabilities . . . . . . . . . . . . . .
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
18
(91,746)
(82,433)
(78,715)
(77,260)
16
18
10,891
(43,330)
5,857
(39,157)
13,017
(41,350)
10,445
(44,311)
Sensitivity analysis
An increase of 100 basis points (1.0%) in interest rates at the balance sheet date would have decreased
equity and profit or loss by the amounts shown below. This calculation assumes that the change occurred
at the balance sheet date and had been applied to risk exposures existing at that date. This analysis
assumes that all other variables remain constant and considers the effect on financial instruments with
variable interest rates and financial instruments at fair value through profit or loss.
As at
2 December
2007
£’000
Equity
Gain/(loss) . . . . . . . . . . . . . . . . . . . . . . . . .
Income
Gain/(loss) . . . . . . . . . . . . . . . . . . . . . . . . .
148
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
(454)
(489)
(492)
(152)
(454)
(489)
(492)
(152)
Part V
Historical Financial Information relating to the Group
(e) Financial instruments by category
The Group has categorised its financial instruments as follows:
As at 2 December 2007
Assets as per balance sheet
Cash and cash equivalents . . . . . . .
Trade and other receivables
(excluding prepayments) . . . . . . . .
Available for-sale financial assets . . .
sheet
.....
.....
.....
.....
.....
.....
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Availablefor-sale
£’000
Loans and
receivables
£’000
16
—
10,891
—
—
10,891
15
13
—
395
6,897
—
—
—
—
—
6,897
395
395
17,788
—
—
18,183
—
—
—
—
—
—
—
—
—
—
—
—
20,142
10,409
47,221
33,101
54,754
—
—
—
—
—
—
967
20,142
10,409
47,221
33,101
54,754
967
—
—
165,627
967
166,594
Liabilities
at fair
value
through the
profit and
loss
£’000
Total
£’000
17
17
19
20
21
23
Total . . . . . . . . . . . . . . . . . . . . . .
As at 30 November 2008
Assets as per balance sheet
Cash and cash equivalents . . . . . . .
Trade and other receivables
(excluding prepayments) . . . . . . . .
Available for-sale financial assets . . .
Notes
Availablefor-sale
£’000
Loans and
receivables
£’000
Other
financial
liabilities at
amortised
cost
£’000
16
—
5,857
—
—
5,857
15
13
—
395
8,580
—
—
—
—
—
8,580
395
395
14,437
—
—
14,832
—
—
—
—
—
—
—
—
—
—
—
—
25,900
9,840
43,445
14,506
63,639
—
—
—
—
—
—
1,079
25,900
9,840
43,445
14,506
63,639
1,079
—
—
157,330
1,079
158,409
Total . . . . . . . . . . . . . . . . . . . . . .
Liabilities as per balance
Trade payables . . . . . . .
Accruals . . . . . . . . . . . .
Borrowings . . . . . . . . . .
Convertible loan stock . . .
Financial lease liabilities .
Derivative liability . . . . . .
sheet
.....
.....
.....
.....
.....
.....
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total . . . . . . . . . . . . . . . . . . . . . .
Total
£’000
Notes
Total . . . . . . . . . . . . . . . . . . . . . .
Liabilities as per balance
Trade payables . . . . . . .
Accruals . . . . . . . . . . . .
Borrowings . . . . . . . . . .
Convertible loan stock . . .
Financial lease liabilities .
Derivative liability . . . . . .
Liabilities
at fair
value
through the
profit and
loss
£’000
Other
financial
liabilities at
amortised
cost
£’000
17
17
19
20
21
23
149
Part V
Historical Financial Information relating to the Group
As at 29 November 2009
Assets as per balance sheet
Cash and cash equivalents . . . . . . .
Trade and other receivables
(excluding prepayments) . . . . . . . .
Available for sale financial assets . . .
sheet
.....
.....
.....
.....
.....
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Available
for-sale
£’000
Loans and
receivables
£’000
16
—
13,017
—
—
13,017
15
13
—
395
10,329
—
—
—
—
—
10,329
395
395
23,346
—
—
23,741
—
—
—
—
—
—
—
—
—
—
33,839
9,519
54,745
65,320
—
—
—
—
—
1,083
33,839
9,519
54,745
65,320
1,083
—
—
163,423
1,083
164,506
Liabilities
at fair
value
through the
profit and
loss
£’000
Total
£’000
17
17
19
21
23
Total . . . . . . . . . . . . . . . . . . . . . .
As at 21 February 2010
Assets as per balance sheet
Cash and cash equivalents . . . . . . .
Trade and other receivables
(excluding prepayments) . . . . . . . .
Available for sale financial assets . . .
Notes
Available
for sale
£’000
Loans and
receivables
£’000
Other
financial
liabilities at
amortised
cost
£’000
16
—
10,445
—
—
10,445
15
13
—
395
11,969
—
—
—
—
—
11,969
395
395
22,414
—
—
22,809
—
—
—
—
—
—
—
—
—
—
28,127
14,151
55,991
65,580
—
—
—
—
—
1,126
28,127
14,151
55,991
65,580
1,126
—
—
163,849
1,126
164,975
Total . . . . . . . . . . . . . . . . . . . . . .
Liabilities as per balance
Trade payables . . . . . . .
Accruals . . . . . . . . . . . .
Borrowings . . . . . . . . . .
Finance lease liabilities . .
Derivative liability . . . . . .
sheet
.....
.....
.....
.....
.....
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total . . . . . . . . . . . . . . . . . . . . . .
Total
£’000
Notes
Total . . . . . . . . . . . . . . . . . . . . . .
Liabilities as per balance
Trade payables . . . . . . .
Accruals . . . . . . . . . . . .
Borrowings . . . . . . . . . .
Finance lease liabilities . .
Derivative liability . . . . . .
Liabilities
at fair
value
through the
profit and
loss
£’000
Other
financial
liabilities at
amortised
cost
£’000
17
17
19
21
23
27. Capital management
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business. The Group is currently dependent on the
continuing support of its lending banks for its current working capital facilities. The Board’s objectives are
to keep borrowings within existing facilities and to negotiate and obtain additional resources required to
fund the Company’s working capital requirements for the foreseeable future.
The Board closely manages its trading capital, which it defines as its net assets plus net debt. Net debt is
calculated as total debt (finance leases, convertible loan stock and borrowings as shown in the balance
sheet), less cash and cash equivalents. The Group has performance based loan covenants in place over
certain borrowings. Management monitor the performance targets on a periodic basis considering actual
and forecast results. Management ensure constant communication with all its lenders and those lenders
with covenants have indicated their satisfaction with the progress of the Group. The main areas of capital
management revolve around the management of the components of working capital including monitoring
stock turn, age of stock, age of debtors, debtor days, creditor days, balance sheet re-forecasting, period
150
Part V
Historical Financial Information relating to the Group
projected loss, weekly cash flow forecasts and daily cash balances. Major investment decisions are
based on reviewing the expected future cash flows and all major capital expenditure requires approval
from the Board. There were no major changes in the Group’s approach to capital management during the
period.
The Group’s performance in remaining within its borrowing facilities, including standby overdraft facilities
and at the period ends as measured by the headroom available is as follows:
Notes
Total facilities available . . . . . . . . . .
Facilities drawn down . . . . . . . . . . .
Undrawn facilities at end of period . .
Cash and cash equivalents gross of
drawn overdraft facility . . . . . . . . .
18
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
154,681
(135,076)
131,684
(121,590)
137,775
(120,065)
137,798
(121,571)
19,605
10,094
17,710
16,227
11,286
6,163
13,157
14,218
30,891
16,257
30,867
30,445
16
Total undrawn facilities and cash
available at the end of the period .
28. Loss per share
(a) Basic
Basic loss per share is calculated by dividing the loss attributable to equity holders by the weighted
average number of Ordinary shares and Convertible preference shares in issue during the period
excluding Ordinary shares purchased by the Group and held as treasury shares, adjusted to reflect the
conversion of the Ordinary shares and the Convertible preference shares in Ocado Limited to Ordinary
shares and Convertible preference shares in the Company on a 1:100 basis on 9 February 2010. The loss
for the period is equally attributable to the shareholders of Ordinary shares and Convertible preference
shares. For more information see Note 24.
All operations are continuing for the financial periods presented.
For the
12 weeks
ended
21 February
2010
Number
000s
For the
12 weeks
ended
22 February
2009
(Unaudited)
Number
000s
337,607
377,691
377,691
400,051
83
13,874
53
3,077
47
5,619
6
—
229
—
Weighted average number of shares
at the end of the period . . . . . . . .
331,363
340,737
383,357
377,697
400,280
£’000
£’000
Loss attributable to shareholder . . . . .
(40,154)
(33,298)
(23,209)
(7,235)
(3,963)
pence
pence
pence
pence
pence
Basic loss per share . . . . . . . . . . . .
(12.12)
Issued ordinary shares and preference
shares at beginning of period . . . . .
Effect of share options exercised in
the period . . . . . . . . . . . . . . . . .
Effect of shares issued in the period . .
For the
52 weeks
ended
2 December
2007
For the
52 weeks
ended
30 November
2008
For the
52 weeks
ended
29 November
2009
Number
000s
Number
000s
317,406
£’000
£’000
(9.77)
£’000
(6.05)
(1.92)
Number
000s
(0.99)
(b) Diluted
Diluted loss per share is calculated by adjusting the weighted average number of Ordinary shares and
Convertible preference shares outstanding to assume conversion of all dilutive potential shares, adjusted
to reflect the conversion of the Ordinary shares and the Convertible preference shares in Ocado Limited
to Ordinary shares and Convertible preference shares on a 1:100 basis on 9 February 2010. The Group
has four categories of potentially dilutive shares: convertible loan stock, share options, shares held
pursuant to the JSOS and warrants.
151
Part V
Historical Financial Information relating to the Group
There was no difference in the weighted average number of shares used for basic and diluted loss per
share as the effect of all potentially dilutive shares outstanding was anti-dilutive.
29. Subsidiary
Ocado Holdings Limited is a 100 per cent. owned subsidiary of Ocado Group plc. It was incorporated in
the UK on 5 February 2010 with registration number 07148670.
Ocado Limited is a 100 per cent. owned subsidiary of Ocado Holdings Limited. It is incorporated in the UK
with registration number 3875000.
Ocado Information Technology Limited is a 100 per cent. owned subsidiary of Ocado Holdings Limited. It
was incorporated in Ireland on 19 January 2010 with a registration number 479792.
On 21 January 2010 Ocado Limited granted Ocado Information Technology Limited a license to use the
Group’s intellectual property outside of the UK, and in consideration Ocado Information Technology
Limited issued a promissory note which was settled by the issue of 5,075,840 ordinary shares of 1 Euro
each.
Jalapeno Partners Limited is a 100 per cent. owned subsidiary of Ocado Limited. It is incorporated in the
UK with registration number 4204963. It is a dormant Company as defined by section 250 of the
Companies Act 2006 Section 250. The only balances in the accounts of Jalapeno Partners are share
capital of £1 and an inter-company creditor of £1.
30. Commitments
Capital commitments
Contracts placed for future capital expenditure not provided in the historical financial information are as
follows:
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
Property, plant and equipment . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . .
7,270
—
6,481
49
5,636
—
11,116
26
Total capital expenditure committed at end of
period . . . . . . . . . . . . . . . . . . . . . . . . . .
7,270
6,530
5,636
11,142
Operating lease commitments
The Group leases a number of offices, facilities and equipment under non-cancellable operating leases.
The leases have varying terms, escalation clauses and renewal rights:
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
Amounts payables:
Within one year . . . . . . . . . . . . . . . . . . . . .
Within two to five years . . . . . . . . . . . . . . .
After five years . . . . . . . . . . . . . . . . . . . . .
2,114
6,507
10,224
2,151
6,041
36,683
2,535
8,399
36,392
2,595
8,153
36,039
Total commitment . . . . . . . . . . . . . . . . . . .
18,845
44,875
47,326
46,787
152
Part V
Historical Financial Information relating to the Group
31. Related party transactions
Key management personnel
Only the Executive and Non-Executive Directors are deemed to be key management personnel. It is the
Board who have responsibility for planning, directing and controlling the activities of the Group. Key
management personnel compensation is disclosed in Note 8.
Other related party transactions with key management made during the period are as follows:
Purchase of goods—company of a
close family member of an
Executive Director . . . . . . . . . . . .
Purchase of professional services—
Non-Executive Directors . . . . . . . .
For the
52 weeks
ended
2 December
2007
For the
52 weeks
ended
30 November
2008
For the
52 weeks
ended
29 November
2009
For the
12 weeks
ended
21 February
2010
£’000
For the
12 weeks
ended
22 February
2009
(unaudited)
£’000
£’000
£’000
62
196
116
86
—
57
51
48
10
13
119
247
164
96
13
£’000
All transactions are on an arm’s length basis and no financial period end balances have arisen as a result
of these transactions.
At the end of the financial period key management owed the Group £2,000 as at 21 February 2010 (2009:
£4,000) (2008: £42,000) (2007: £11,000) in respect of personal expenses incurred on the company credit
card that were reimbursed in the normal course of business. These balances were repaid after the
financial period end. In 2007 the Chairman owed the Group £100,000 which arose shortly before the
period end due to him exercising the right in his contract to purchase 667 Ordinary shares at their market
value of £100,000. The purchase price was outstanding at the financial period end but was paid
subsequent to the financial period end.
There were no other material transactions or balances between the Group and its key management
personnel or members of their close family.
153
Part V
Historical Financial Information relating to the Group
Major shareholders
Prior to November 2008 John Lewis plc was a 28 per cent. shareholder in Ocado Limited. During that time
the Group acquired goods for resale and professional services from affiliates of John Lewis plc and
charged affiliates in connection with other services. These transactions and the period end balances
arising from these transactions are given below. In November 2008 the John Lewis Partnership Pension
Trust Limited acquired from John Lewis plc the investment in Ocado Limited. The John Lewis Partnership
Pension Trust Limited is the corporate trustee of the John Lewis Trust for Pensions, of which John Lewis
plc is the principal employer, accordingly John Lewis plc and Waitrose no longer meet the criteria of a
related party.
Sales of services
—John Lewis and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional Services
—Waitrose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—John Lewis and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goods for Resale
—Waitrose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts receivable at the period end
—Waitrose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—John Lewis and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the
52 weeks
ended
2 December
2007
£’000
For the
52 weeks
ended
30 November
2008
£’000
185
226
185
226
1,301
211
1,111
231
35,174
40,505
36,686
41,847
3,479
418
3,897
Amounts payable at the period end
—Waitrose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—John Lewis and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,612
21
5,633
Since 2002 John Lewis plc has acted as guarantor for the obligations of the Group under a lease for the
Hatfield site. The maximum liability of John Lewis plc under the guarantee is £6.75m. The Group pays
John Lewis plc a fee of £150,000 per annum in consideration for the guarantee being provided in
accordance with the terms of an agreement entered into in September 2005. This is included in
professional services above.
John Lewis plc previously held three financial instruments in the Group, which formed part of the Group’s
borrowings and details are given in Note 20.
An associated entity of S. N. Roditi (who as at 21 February 2010 held 10.4 per cent. of the Company’s
issued share capital), underwrote Ocado’s last funding round in September 2009, for which it was paid a
fee of £387,500 pursuant to the terms of the agreement dated 1 July 2009 and variation letter dated
20 August 2009.
The Apple Trust, of which Jörn Rausing is a beneficiary (who at 21 February 2010 held 13.63 per cent. of
the Company’s issued share capital), underwrote Ocado’s last funding round in September 2009, for
which it was paid a fee of £387,500 pursuant to the terms of the agreement dated 1 July 2009 and
variation letter dated 20 August 2009.
154
Part V
Historical Financial Information relating to the Group
In March 2007 John Lewis plc exercised the option to extend the conversion of the £1.5m (£1.6m
including capitalised interest) until March 2009 for a premium totalling £122,000. In November 2008
John Lewis plc converted all convertible loan stock (including capitalised and accrued interest to that
date) for a total of 251,333 Convertible preference shares. The transactions are given below:
For the
52 weeks
ended
2 December
2007
£’000
For the
52 weeks
ended
30 November
2008
£’000
interest
......................
......................
......................
1,586
12,305
8,613
—
—
—
Total owed at the beginning of the period . . . . . . . . . . . . . . . . . . . . . . .
Interest charged at 4% on ‘A’ convertible loan stock . . . . . . . . . . . . . . .
22,504
63
—
—
Total owed at the period end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,567
—
Split
—Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—Capitalised loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46
22,521
—
—
Convertible loan
—‘A’ loan stock
—‘B’ loan stock
—‘C’ loan stock
stock issued and accrued
...................
...................
...................
Investment
The following transactions were carried out with Paneltex Ltd, further details of the investment in Paneltex
Limited are provided in Note 13 to this historical financial information.
For the
52 weeks
ended
2 December
2007
For the
52 weeks
ended
30 November
2008
For the
52 weeks
ended
29 November
2009
£’000
£’000
£’000
For the
12 weeks
ended
22 February
2009
(Unaudited)
£’000
Purchase of goods
—Plant and machinery . . . .
—Consumables . . . . . . . . .
133
165
3
160
289
160
13
34
11
27
Total purchase of goods . . . . .
298
163
449
47
38
Amounts payable at the period
end . . . . . . . . . . . . . . . . . .
66
7
19
16
11
155
For the
12 weeks
ended
21 February
2010
£’000
Part V
Historical Financial Information relating to the Group
32. Analysis of net debt
(a) Net debt
Current assets
Cash and cash equivalents . . . . . . .
Current liabilities
Borrowings . . . . . . . . . . . . . . . . . . .
Convertible loan stock . . . . . . . . . . .
Obligations under finance leases . . .
Non current liabilities
Borrowings . . . . . . . . . . . . . . . . . . .
Convertible loan stock . . . . . . . . . . .
Obligations under finance leases . . .
Notes
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
16
10,891
5,857
13,017
10,445
10,891
5,857
13,017
10,445
(876)
—
(5,066)
(15,016)
(14,506)
(9,989)
(12,087)
—
(19,669)
(27,773)
—
(19,314)
(5,942)
(39,511)
(31,756)
(47,087)
(46,345)
(33,101)
(49,688)
(28,429)
—
(53,650)
(42,658)
—
(45,651)
(28,218)
—
(46,266)
(129,134)
(82,079)
(88,309)
(74,484)
(124,185)
(115,733)
(107,048)
(111,126)
18
18
18
18
18
18
Total net debt . . . . . . . . . . . . . . . .
Net debt is calculated as total debt (finance leases, convertible loan stock and borrowings as shown on
the balance sheet), less cash and cash equivalents.
(b) Reconciliation of net cash flow to movement in net debt
Notes
Net increase/(decrease) in cash and
cash equivalents . . . . . . . . . . . . .
Net cash outflow/(inflow) from debt
and lease financing . . . . . . . . . . .
Non-cash movements:
—Exercise of convertible loan notes
to equity . . . . . . . . . . . . . . . . . . .
—Fair value movements on
convertible loan notes . . . . . . . . .
—Assets acquired under finance
lease . . . . . . . . . . . . . . . . . . . . .
As at
2 December
2007
£’000
As at
30 November
2008
£’000
As at
29 November
2009
£’000
As at
21 February
2010
£’000
(114)
(5,034)
7,160
(2,572)
(16,622)
(504)
6,467
1,040
22,633
60
—
(163)
(3,360)
(176)
—
(5,335)
(5,283)
(4,826)
(2,546)
Decrease/(increase) in net debt in
the period . . . . . . . . . . . . . . . . .
Opening net debt . . . . . . . . . . . . . .
(22,234)
(101,951)
8,452
(124,185)
8,685
(115,733)
(4,078)
(107,048)
Closing net debt . . . . . . . . . . . . . .
(124,185)
(115,733)
(107,048)
(111,126)
20
—
33. Post balance sheet events
In March 2010 the Chairman and Non-Executive Directors resigned as Directors of the Ocado Limited. In
March 2010 the Chairman and certain of the Non-Executive Directors were appointed to the Board of
Ocado Group Limited.
In May 2010 the Company repaid a loan of £5m secured over certain warehouse assets, software and
intellectual property that was renewable on a month by month basis.
156
Part V
Historical Financial Information relating to the Group
In May 2010 the Company agreed a new loan facility for £7.5m from an existing lender which is repayable
over 3 years in equal annual instalments. Interest is charged at LIBOR plus 5%. In addition the Company
agreed a new revolving credit facility for £7.5m from the same lender. These facilities are secured over
certain warehouse assets, software and intellectual property.
In May 2010 the Company signed a new 10 year agreement with Waitrose giving the Company the right to
continue to sell Waitrose goods and use Waitrose brands on its website and vans as it has had since
2000.
In May 2010 the Company agreed an extension of £3.4m to a credit facility with an existing lender for
vehicle finance leasing.
In June 2010 the Company agreed a £15m credit facility with a new lender for vehicle finance leasing.
On 23 June 2010 Ocado Group Limited re-registered as a public company and changed its name from
‘‘Ocado Group Limited’’ to ‘‘Ocado Group plc’’.
On 24 June 2010 Ocado Group plc announced its intention to list on the London Stock Exchange.
On 5 July 2010 the Company entered into a facility agreement (the ‘‘New Facility’’) between, amongst
others, Barclays Bank PLC, HSBC Bank plc and Lloyds TSB Bank plc. The lenders have agreed to make
available £100m to the Company under the New Facility. All amounts borrowed under the New Facility
shall be applied towards the acquisition of certain land, buildings, fixtures and tangible movable property.
The New Facility has an accordion feature which allows for the amount available under it to be increased
up to £130m, subject to lenders (existing or additional) agreeing to make available the additional
amounts. First utilisation under the New Facility is conditional on certain customary conditions precedent
and on Admission.
157
PART VI
UNAUDITED PRO FORMA FINANCIAL INFORMATION
(A) Unaudited pro forma statement of net assets
The unaudited pro forma statement of net assets set out below has been prepared to illustrate the effect
of the Offers on the Group’s net assets as if the Offers had taken place on 16 May 2010. This unaudited
pro forma statement of net assets has been prepared for illustrative purposes only and, because of its
nature, addresses a hypothetical situation and, therefore, does not represent the Group’s actual financial
position or results. The unaudited pro forma statement of net assets is compiled on the basis set out
below from the IFRS-EU consolidated balance sheet of the Company as at 16 May 2010, as set out in
Part VII (Unaudited Interim Financial Information relating to the Group for the 24 weeks ended 16 May
2010). It may not, therefore, give a true picture of the Group’s financial position or results nor is it
indicative of the results that may, or may not, be expected to be achieved in the future. The pro forma
financial information has been prepared on the basis set out in the notes below and in accordance with
Annex II to the Prospectus Directive Regulation.
As at 16 May
2010
(Note 1)
£ million
Adjustments
IPO
proceeds
(Note 2)
£ million
Unaudited
pro forma
total
(Notes 3
and 4)
£ million
.
.
.
.
7.2
90.5
2.3
0.4
—
—
—
—
7.2
90.5
2.3
0.4
Total non-current assets . . . . . . . . . . . . . . . . . . . . . . .
100.4
—
100.4
Current assets
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade and other receivables . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .
9.1
15.3
10.0
—
—
200.0
9.1
15.3
210.0
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
34.4
200.0
234.4
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
134.8
200.0
334.8
Current liabilities
Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations under finance leases . . . . . . . . . . . . . . . . . . .
(49.9)
(27.6)
(19.7)
—
—
—
(49.9)
(27.6)
(19.7)
(97.2)
—
(97.2)
Net current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
(62.9)
—
(62.9)
Non-current liabilities
Borrowings . . . . . . . . . . . . . . .
Obligations under finance leases
Derivative liability . . . . . . . . . . .
Provisions . . . . . . . . . . . . . . . .
(27.0)
(45.9)
(1.1)
(0.4)
—
—
1.1
—
(27.0)
(45.9)
—
(0.4)
(74.4)
1.1
(73.3)
(36.9)
201.1
164.2
Non current assets
Intangible assets . . . . . . . . . . . .
Property, plant and equipment . . .
Deferred tax asset . . . . . . . . . . .
Available-for-sale financial assets
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
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.
.
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.
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.
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.
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.
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.
.
.
.
.
.
.
.
.
.
.
Net (liabilities)/assets . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
The financial information has been extracted, without material adjustments, from the financial information set out in Part VII
(Unaudited Interim Financial Information relating to the Group for the 24 weeks ended 16 May 2010) prepared in accordance
with IFRS-EU.
(2)
IPO proceeds: adjustment to reflect the net proceeds of the Offers receivable by the Group, of £200 million, being gross
proceeds (including cash received on the exercise of 5,611,200 warrants on Admission by Ranelagh Nominees Limited at
£1.80 per share) of £215 million less estimated fees and expenses of £15 million (exclusive of VAT). The £1.1 million
derivative liability as at 16 May 2010 represents the fair value of these warrants which reverses when these warrants are
exercised on IPO.
(3)
This IFRS pro forma statement of net assets does not constitute financial statements within the meaning of section 434 of the
Companies Act 2006.
(4)
The unaudited pro forma statement of net assets does not reflect any trading or other transactions undertaken by the Group
since 16 May 2010.
158
Part VI
Unaudited Pro Forma Financial Information
(B) Accountants’ report on unaudited pro forma statement of net assets
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
7DEC200517132980
The Directors
Ocado Group plc
Titan Court
3 Bishops Square
Hatfield Business Park
Hatfield
AL10 9NE
Goldman Sachs International
Peterborough Court
133 Fleet Street
London
EC4A 2BB
J.P. Morgan Securities Ltd.
125 London Wall
London
EC2Y 5AJ
UBS Limited
1 Finsbury Avenue
London
EC2M 2PP
6 July 2010
Dear Sirs
Ocado Group plc (the ‘‘Company’’)
We report on the unaudited pro forma statement of net assets (the ‘‘Pro forma financial information’’)
set out in Part (A) of this Part VI of the Company’s prospectus dated 6 July 2010 (the ‘‘Prospectus’’)
which has been prepared on the basis described in the notes to the Pro forma financial information, for
illustrative purposes only, to provide information about how the Offer might have affected the financial
information presented on the basis of the accounting policies adopted by the Company in preparing the
unaudited financial information for the period ended 16 May 2010. This report is required by item 20.2 of
Annex I to the PD Regulation and is given for the purpose of complying with that PD Regulation and for no
other purpose.
Responsibilities
It is the responsibility of the directors of the Company to prepare the Pro forma financial information in
accordance with item 20.2 of Annex I to the PD Regulation.
It is our responsibility to form an opinion, as required by item 7 of Annex II to the PD Regulation as to the
proper compilation of the Pro forma financial information and to report our opinion to you.
PricewaterhouseCoopers LLP is a limited liability partnership registered in England with registered number OC303525. The registered office of PricewaterhouseCoopers LLP is
1 Embankment Place, London WC2N 6RH. PricewaterhouseCoopers LLP is authorised and regulated by the Financial Services Authority for designated investment business.
159
Part VI
Unaudited Pro Forma Financial Information
In providing this opinion we are not updating or refreshing any reports or opinions previously made by us
on any financial information used in the compilation of the Pro forma financial information, nor do we
accept responsibility for such reports or opinions beyond that owed to those to whom those reports or
opinions were addressed by us at the dates of their issue.
Save for any responsibility which we may have to those persons to whom this report is expressly
addressed and for any responsibility arising under item 5.5.3R(2)(f) of the Prospectus Rules to any
person as and to the extent there provided, to the fullest extent permitted by law we do not assume any
responsibility and will not accept any liability to any other person for any loss suffered by any such other
person as a result of, arising out of, or in connection with this report or our statement, required by and
given solely for the purposes of complying with item 23.1 of Annex I to the PD Regulation, consenting to
its inclusion in the Prospectus.
Basis of opinion
We conducted our work in accordance with the Standards for Investment Reporting issued by the
Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making
this report, which involved no independent examination of any of the underlying financial information,
consisted primarily of comparing the unadjusted financial information with the source documents,
considering the evidence supporting the adjustments and discussing the Pro forma financial information
with the directors of the Company.
We planned and performed our work so as to obtain the information and explanations we considered
necessary in order to provide us with reasonable assurance that the Pro forma financial information has
been properly compiled on the basis stated and that such basis is consistent with the accounting policies
of the Company.
Our work has not been carried out in accordance with auditing standards or other standards and practices
generally accepted in the United States of America or auditing standards of the Public Company
Accounting Oversight Board (United States) and accordingly should not be relied upon as if it had been
carried out in accordance with those standards and practices.
Opinion
In our opinion:
(A) the Pro forma financial information has been properly compiled on the basis stated; and
(B) such basis is consistent with the accounting policies of the Company.
Declaration
For the purposes of Prospectus Rule 5.5.3 R(2)(f), we are responsible for this report as part of the
Prospectus and we declare that we have taken all reasonable care to ensure that the information
contained in this report is, to the best of our knowledge, in accordance with the facts and contains no
omission likely to affect its import. This declaration is included in the Prospectus in compliance with
Item 1.2 of Annex I to the PD Regulation.
Yours faithfully
PricewaterhouseCoopers LLP
Chartered Accountants
160
PART VII
UNAUDITED INTERIM FINANCIAL INFORMATION RELATING TO THE GROUP FOR THE
24 WEEKS ENDED 16 MAY 2010
Consolidated statement of comprehensive income for the 24 weeks ended 16 May 2010
24 weeks
ended
16 May
2010
(unaudited)
£’000
24 weeks
ended
17 May
2009
(unaudited)
£’000
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
230,331
(159,662)
178,337
(123,784)
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70,669
1,887
(58,692)
54,553
736
(49,438)
Operating profit before administrative expenses . . . . . . . . . . .
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,864
(16,590)
5,851
(13,216)
(2,726)
3
(3,987)
(7,365)
3
(5,313)
Loss before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6,710)
—
(12,675)
—
Loss for the period attributable to the owners of the
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6,710)
(12,675)
pence
(1.68)
pence
(3.36)
Notes
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss per share
Basic and diluted loss per share . . . . . . . . . . . . . . . . . . . . . . . .
7
7
12
All operations are continuing.
Non-GAAP measure: Earnings/(loss) before interest taxation, depreciation, amortisation and
impairment (EBITDA)
Notes
Loss for the period attributable to the owners of the Company
Adjustments for:
Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of property, plant and equipment . . . . . . . . . . . .
Amortisation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...
.
.
.
.
.
.
.
.
.
.
.
.
Earnings/(loss) before interest taxation, depreciation,
amortisation and impairment (‘‘EBITDA’’) . . . . . . . . . . . . . . .
161
7
7
9
8
24 weeks
ended
16 May
2010
(unaudited)
£’000
24 weeks
ended
17 May
2009
(unaudited)
£’000
(6,710)
(12,675)
(3)
3,987
8,713
2,005
(3)
5,313
8,121
2,091
7,992
2,847
Part VII Unaudited Interim Financial Information relating to the Group for the 24 weeks ended
16 May 2010
Consolidated balance sheet as at 16 May 2010
Notes
Non-current assets
Intangible assets . . . . . . . . . . .
Property, plant and equipment .
Deferred tax asset . . . . . . . . . .
Available-for-sale financial asset
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8
9
Current assets
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities
Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations under finance leases . . . . . . . . . . . . . . . . . . . . . . . .
10
10
Net current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities
Borrowings . . . . . . . . . .
Obligations under finance
Derivative liability . . . . . .
Provisions . . . . . . . . . . .
......
leases .
......
......
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10
10
Net liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity
Share capital . . . . . . . . . . . . . . . . . . .
Share premium account . . . . . . . . . . .
Treasury reserve . . . . . . . . . . . . . . . .
Reverse acquisition reserve . . . . . . . .
Retained earnings/(accumulated deficit)
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Deficit attributable to equity holders . . . . . . . . . . . . . . . . . . .
162
11
11
11
11
16 May
2010
(unaudited)
£’000
29 November
2009
7,247
90,466
2,300
395
6,684
90,252
2,300
395
100,408
99,631
9,149
15,256
9,965
9,213
14,740
13,017
34,370
36,970
134,778
136,601
(49,936)
(27,564)
(19,735)
(47,237)
(12,087)
(19,669)
(97,235)
(78,993)
(62,865)
(42,023)
(27,013)
(45,872)
(1,126)
(430)
(42,658)
(45,651)
(1,083)
(366)
(74,441)
(89,758)
(36,898)
(32,150)
8,666
167
(47,741)
(116,230)
118,240
40
310,836
—
—
(343,026)
(36,898)
(32,150)
£’000
Part VII
Unaudited Interim Financial Information relating to the Group for the 24 weeks ended
16 May 2010
Consolidated statement of changes in equity for the 24 weeks ended 16 May 2010
Share
capital
Share
premium
Treasury
Reserve
Reverse
Acquisition
Reserve
Convertible
loan interest
reserves
Accumulated
(deficit)/
surplus
£’000
£’000
£’000
£’000
£’000
Balance at 1 December 2008 . . . . . . .
Loss for the period . . . . . . . . . . . . . .
38
—
281,649
—
—
—
—
—
1,139
—
(321,034)
(23,209)
(38,208)
(23,209)
Total comprehensive income for the
period . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
(23,209)
(23,209)
.
2
30,072
—
—
—
—
.
.
—
—
—
—
—
—
—
—
—
—
.
—
—
—
—
(5)
5
—
.
.
—
—
—
—
—
—
—
—
(1,134)
—
1,134
78
—
78
Total transactions with owners . . . . .
2
29,187
—
—
(1,139)
1,217
29,267
Transactions with owners:
Issue of Ordinary shares . . . . . . . . .
Transaction costs on issue of Ordinary
shares . . . . . . . . . . . . . . . . . . .
Issue of Convertible preference shares .
Transfer of equity on conversion of loan
stock . . . . . . . . . . . . . . . . . . . .
Transfer of equity on repayment of loan
stock . . . . . . . . . . . . . . . . . . . .
Share-based payments charge . . . . . .
(945)
60
£’000
Deficit
attributable
to equity
holders
£’000
30,074
(945)
60
Balance at 29 November 2009 . . . . . .
40
310,836
—
—
—
(343,026)
(32,150)
Balance at 30 November 2009 . . . . . .
Loss for the period . . . . . . . . . . . . . .
40
—
310,836
—
—
—
—
—
—
—
(343,026)
(6,710)
(32,150)
(6,710)
Total comprehensive income for the
period . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
(6,710)
(6,710)
—
—
—
—
—
43
1,705
—
Transactions with owners:
Issue of Ordinary shares in Ocado
Limited . . . . . . . . . . . . . . . . . . . .
Cancellation of Shares in Ocado Limited .
Issue of ordinary and convertible
preference shares by Ocado Group plc
Ocado Group plc capital reduction . . . .
Reverse acquisition of Ocado Limited by
Ocado Group plc . . . . . . . . . . . . . .
Issue of Ordinary shares in Ocado Group
plc . . . . . . . . . . . . . . . . . . . . . . .
Share-based payments charge . . . . . . .
3
(43)
49,443
—
476,509
(467,846)
—
—
—
3
—
Total transactions with owners . . . . .
8,626
Balance at 16 May 2010 (unaudited) . .
8,666
(360,279)
167
—
(310,669)
167
163
(47,741)
—
—
—
(476,509)
—
—
—
—
467,846
—
—
—
360,279
—
—
—
—
—
—
—
—
—
—
87
170
87
(47,741)
(116,230)
—
467,976
1,962
(47,741)
(116,230)
—
118,240
(36,898)
Part VII Unaudited Interim Financial Information relating to the Group for the 24 weeks ended
16 May 2010
Consolidated statement of cash flows for the 24 weeks ended 16 May 2010
Notes
Cash flow from operating activities
Loss before income tax . . . . . . . . . . . . .
Adjustments for:
—Depreciation expense . . . . . . . . . . . .
—Amortisation expense . . . . . . . . . . . . .
—Provision for dilapidations expense . . .
—Share-based payments charge . . . . . .
—Finance costs . . . . . . . . . . . . . . . . . .
—Finance income . . . . . . . . . . . . . . . . .
Changes in working capital:
—Decrease in inventories . . . . . . . . . . .
—Increase in trade and other receivables
—Increase in trade and other payables . .
..................
24 weeks
ended
16 May
2010
(unaudited)
£’000
24 weeks
ended
17 May
2009
(unaudited)
£’000
(6,710)
(12,675)
8,713
2,005
64
87
3,987
(3)
8,121
2,091
34
36
5,313
(3)
..................
..................
..................
64
(516)
2,722
1,497
(2,138)
5,051
Net cash inflow from operations . . . . . . . . . . . . . . . . . . . . . . .
Finance costs paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,413
(4,300)
7,327
(6,768)
Net cash inflow from operating activities . . . . . . . . . . . . . . . .
6,113
Cash flows from investing activities
Purchase of property, plant and equipment . . . . . . . . . . . . . . . . .
Purchase of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance income received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,440)
(2,568)
3
(8,145)
(2,011)
3
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . .
(6,005)
(10,153)
1,875
3,429
(3,597)
2,046
(6,913)
50
12,359
(1,077)
6,994
(3,945)
Net cash from financing activities . . . . . . . . . . . . . . . . . . . . . .
(3,160)
14,381
Net (decrease)/increase in cash and cash equivalents . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . .
(3,052)
13,017
4,787
5,857
Cash and cash equivalents at end of period . . . . . . . . . . . . . .
9,965
10,644
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Cash flows from financing activities
Proceeds from the issue of Ordinary share capital . .
Proceeds from borrowings . . . . . . . . . . . . . . . . . . .
Repayment of borrowings . . . . . . . . . . . . . . . . . . .
Proceeds from asset based financing arrangements .
Repayments of obligations under finance leases . . .
164
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9
8
7
7
11
559
Part VII
Unaudited Interim Financial Information relating to the Group for the 24 weeks ended
16 May 2010
Notes to the consolidated interim financial information
1.
General information
Ocado Group plc (hereafter ‘the Company’) is incorporated and domiciled in the United Kingdom
(Registration number 07098618). On 23 June 2010 the Company was re-registered as a public limited
company and changed its name to Ocado Group plc. The address of its registered office is Titan Court, 3
Bishops Square, Hatfield Business Park, Hatfield, Hertfordshire, AL10 9NE. The financial information
comprises the results of Ocado Group plc and its subsidiaries (hereafter ‘the Group’) (see Note 2(b)).
The financial information herein does not amount to full statutory accounts within the meaning of
Section 434 of the Companies Act 2006.
The financial period represents the 24 weeks ending 16 May 2010 (prior period 24 weeks ending 17 May
2009).
2.
Basis of preparation and development of Ocado Group plc
(a) Statement of compliance
This financial information is the unaudited condensed consolidated interim financial information
(hereafter ‘the Interim Financial Information’) of the Group. The Interim Financial Information has been
prepared in accordance with IAS 34 ‘Interim Financial Reporting’ and should be read in conjunction with
the Annual Report and Financial Statements of Ocado Limited for the 52 weeks ended 29 November
2009 which have been filed with the Registrar of Companies. The auditor’s report on the financial
statements of Ocado Limited for the 52 weeks ended 29 November 2009 was unqualified but included an
emphasis of matter relating to going concern on the basis of the uncertainty of the Group’s future funding.
That uncertainty will be resolved on the receipt by the Company of £200 million of net proceeds from the
offers of shares (the ‘‘Offers’’) and the Group being able to draw down on the new bank facilities (the ‘‘New
Facility’’), (see Note 15).
(b) Development of Ocado Group plc
The Company was incorporated on 8 December 2009 and on 9 February 2010 acquired the entire share
capital of Ocado Limited. As a result of this transaction, the ultimate shareholders in Ocado Limited
received shares in the Company in direct proportion to their original shareholdings in Ocado Limited. On
23 June 2010 the Company was re-registered as a public limited company and changed its name to
Ocado Group plc.
Under IFRS 3R ‘‘Business Combinations’’, the acquisition of Ocado Limited by the Company has been
accounted for as a reverse acquisition and the consolidated IFRS financial information of the Company is
therefore a continuation of the financial information of Ocado Limited.
As a result any financial information after 9 February 2010 represents consolidated financial information
of the Group. Prior to this date the historical financial information represents the financial information of
the Company’s only operating subsidiary, Ocado Limited (see Note 11).
The financial information is presented in sterling, rounded to the nearest thousand (£’000) unless
otherwise stated. It has been prepared under the historical cost convention, except for financial
instruments that have been measured at fair value.
The financial information has been prepared on the going concern basis, which assumes that the Group
will continue to be able to meet its liabilities as they fall due for the foreseeable future. The going concern
basis relies on the receipt of £200 million of net proceeds from the Offers and the New Facility being
available to the Group.
3.
Accounting policies
Except as described below, the accounting policies applied are consistent with those of the Annual
Report and Financial Statements of Ocado Limited for the 52 week period ending 29 November 2009. Set
165
Part VII Unaudited Interim Financial Information relating to the Group for the 24 weeks ended
16 May 2010
out below are additional accounting policies that did not apply as at 29 November 2009 but apply to this
Interim Financial Information.
(a) Basis of consolidation
The consolidated financial information includes the financial information of all subsidiaries. The financial
year ends of all entities in the Group are coterminous.
The financial information of subsidiaries are included in the consolidated financial information from the
date on which control over the operating and financial decisions is obtained and cease to be consolidated
from the date on which control is transferred out of the Group. Control exists when the Company has the
power, directly, or indirectly, to govern the financial and operating policies of an entity so as to obtain
economic benefits from its activities.
On 9 February 2010, the Group, previously headed by Ocado Limited, underwent a re-organisation by
virtue of which Ocado Limited’s shareholders in their entirety exchanged their shares for shares in the
Company, which was a newly formed company and which then became the ultimate parent company of
the Group. Notwithstanding the change in the legal parent of the Group, this transaction has been
accounted for a reverse acquisition and the consolidated financial information is prepared on the basis of
the new legal parent having been acquired by the existing Group.
All inter-company balances and transactions, including recognised gains arising from inter-group
transactions, have been eliminated in full. Unrealised losses are eliminated in the same manner as
recognised gains except to the extent that they provide evidence of impairment.
(b) Foreign currency translation
•
Functional and presentation currency
Items included in the financial information of each of the group’s entities are measured using the currency
of the primary economic environment in which the entity operates (‘the functional currency’). The
consolidated financial information is presented in sterling, rounded to the nearest thousand (£’000)
unless otherwise stated, which is the Company’s functional and the Group’s presentation currency.
•
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange
gains or losses resulting from the settlement of such transactions and from the translation at year end
exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the
income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net
investment hedges.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are
presented in the income statement within ‘finance income’ or ‘finance costs’. All other foreign exchange
gains and losses are presented in the income statement within ‘Operating loss’.
Changes in the fair value of monetary securities denominated in foreign currency classified as
available-for-sale are analysed between translation differences resulting from changes in the amortised
cost of the security and other changes in the carrying amount of the security. Translation differences
related to changes in amortised cost are recognised in profit or loss, and other changes in carrying
amount are recognised in equity.
Translation differences on non-monetary financial assets and liabilities such as equities held at fair value
through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation
differences on non-monetary financial assets such as equities classified as available-for-sale are
included in the available-for-sale reserve in equity.
166
Part VII
•
Unaudited Interim Financial Information relating to the Group for the 24 weeks ended
16 May 2010
Group companies
The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are
translated into the presentation currency as follows:
(a) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of
that balance sheet;
(b) income and expenses for each income statement are translated at average exchange rates (unless
average is not a reasonable approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at the rate on the dates of the
transactions); and
(c) all resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign
operations, and of borrowings and other currency instruments designated as hedges of such
investments, are taken to shareholders’ equity. When a foreign operation is partially disposed of or sold,
exchange differences that were recorded in equity are recognised in the income statement as part of the
gain or loss on sale.
(c) Employee benefits
Share-based payments
Employees (including Directors) of the Group receive remuneration in the form of share-based payment
transactions, whereby employees render services in exchange for rights over shares (‘equity-settled
transactions’).The cost of equity settled transactions with employees is measured by reference to the fair
value at the date at which they are granted. Fair value is measured by use of the Black-Scholes pricing
model. The expected life used in the model has been adjusted, based on management’s best estimate,
for the effects of non-transferability, exercise restrictions, and behavioural considerations. In valuing
equity-settled transactions, no account is taken of any performance conditions.
The Group operates an equity settled employee share option scheme (the Ocado 2001 Executive Share
Option Scheme or ‘‘ESOS’’) and a Joint Share Ownership Scheme (‘‘JSOS’’).
•
Equity settled share-based transactions:
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity,
over the years in which the performance conditions are fulfilled, ending on the date on which the relevant
employees become fully entitled to the award (‘‘vesting date’’). The vesting period for the ESOS is
three years. If the options remain unexercised after a period of 10 years from the date of grant or the
employee leaves the Company, the options expire (subject to a limited number of exceptions). The
shares in the JSOS vest in four annual tranches with the first tranche vesting on the first anniversary of the
date of grant.
The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting
date reflects the extent to which both the vesting period has expired and the number of awards, in the
opinion of the directors of the Company based on the best available estimate at that date that will
ultimately vest.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is
conditional upon a market condition, which are treated as vesting irrespective of whether or not the
market condition is satisfied, provided that all other performance conditions are satisfied.
•
Cash settled share-based transactions:
The Group has exposure in respect of cash-settled share-based payment transactions and share-based
payment transactions with cash alternatives as defined by IFRS 2 ‘Share-based Payment’ only in respect
of the bad leaver provisions of the JSOS.
167
Part VII Unaudited Interim Financial Information relating to the Group for the 24 weeks ended
16 May 2010
4.
Significant accounting policies
The accounting policies applied by the Group in this condensed consolidated interim financial information
are consistent with those set out in the Ocado Limited Annual report and financial statements for the
52 weeks ended 29 November 2009.
In preparing the condensed consolidated interim financial information, management is required to make
accounting assumptions and estimates. The assumptions and estimation methods were consistent with
those applied to the Ocado Limited Annual report and financial statements for the 52 weeks ended
29 November 2009.
5.
Segmental reporting
IFRS 8 ‘Operating Segments’ requires that segments should be reported on the same basis as the
internal reporting information that is provided to the chief operating decision-maker. The Group’s chief
operating decision-maker has been identified as the chief executive officer (‘‘CEO’’). The Directors
consider there to be one business segment, being that of retailing and distribution of groceries and
consumer goods. The Group’s main activity is supermarket retailing and the CEO’s focus is on the
performance and growth of this activity. Internal reports reviewed regularly by the CEO provide
information to allow the chief operating decision-maker to allocate resources and make decisions about
the operations. The internal reporting focuses on the operations of the Group as a whole and does not
identify individual operating segments. Consequently all activities relate to this one segment.
6.
Gross sales
24 weeks
ended
16 May 2010
(unaudited)
£’000
24 weeks
ended
17 May 2009
(unaudited)
£’000
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing vouchers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
230,331
11,869
3,432
178,337
8,185
2,597
Gross sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
245,632
189,119
24 weeks
ended
16 May 2010
(unaudited)
£’000
24 weeks
ended
17 May 2009
(unaudited)
£’000
Bank interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
—
—
3
Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
3
7.
Finance income and costs
Interest payable on bank loans and overdrafts
Interest on finance leases . . . . . . . . . . . . . . .
Interest on borrowings . . . . . . . . . . . . . . . . .
Interest on convertible loan . . . . . . . . . . . . . .
Fair value movement in derivative liability . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(3)
(2,084)
(1,857)
—
(43)
(29)
(2,429)
(2,506)
(347)
(2)
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,987)
(5,313)
Net finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,984)
(5,310)
168
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Part VII
8.
Unaudited Interim Financial Information relating to the Group for the 24 weeks ended
16 May 2010
Intangible assets—Computer software
16 May 2010
(unaudited)
£’000
29 November
2009
£’000
Cost or valuation
At beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Internal development costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,503
470
2,098
24,114
294
4,095
At end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,071
28,503
Accumulated amortisation
At beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charge for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21,819)
(2,005)
(17,076)
(4,743)
At end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(23,824)
(21,819)
Net book value
At end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,247
6,684
9.
Property, plant and equipment
Land and
buildings
£’000
Fixtures,
fittings,
plant and
machinery
£’000
Motor
vehicles
£’000
Total
£’000
Cost or valuation
At 1 December 2008 . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,457
4,944
(66)
107,983
8,896
(4,401)
24,122
4,802
(6,286)
162,562
18,642
(10,753)
At 29 November 2009 . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . .
35,335
33
—
112,478
3,749
—
22,638
5,145
(2,389)
170,451
8,927
(2,389)
At 16 May 2010 (unaudited) . . . . . . . . . . . . . .
35,368
116,227
25,394
176,989
Accumulated depreciation and
At 1 December 2008 . . . . . . . .
Charge for the period . . . . . . . .
Impairment . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . .
.
.
.
.
(8,209)
(1,511)
(92)
66
(49,170)
(12,227)
(931)
4,401
(14,652)
(4,127)
—
6,253
(72,031)
(17,865)
(1,023)
10,720
At 29 November 2009 . . . . . . . . . . . . . . . . . .
Charge for the period . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9,746)
(689)
—
(57,927)
(5,996)
—
(12,526)
(2,028)
2,389
(80,199)
(8,713)
2,389
At 16 May 2010 (unaudited) . . . . . . . . . . . . . .
(10,435)
(63,923)
(12,165)
(86,523)
Net book value
At 29 November 2009 . . . . . . . . . . . . . . . . . .
25,589
54,551
10,112
90,252
At 16 May 2010 (unaudited) . . . . . . . . . . . . . .
24,933
52,304
13,229
90,466
impairment
..........
..........
..........
..........
Capital commitments contracted, but not provided for by the Group, amounted to £11,420,000 as at
16 May 2010 (unaudited) (29 November 2009: £5,636,000).
169
Part VII Unaudited Interim Financial Information relating to the Group for the 24 weeks ended
16 May 2010
10. Finance leases and borrowings
29 November
2009
16 May 2010
(unaudited)
£’000
Current liabilities
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations under finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,564
19,735
12,087
19,669
47,299
31,756
27,013
45,872
42,658
45,651
72,885
88,309
120,184
120,065
Non-current liabilities
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations under finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total finance leases and borrowings . . . . . . . . . . . . . . . . . . . . . . .
£’000
(unaudited)
£’000
Opening amount as at 30 November 2009 . . . . .
Proceeds from borrowings . . . . . . . . . . . . . . . . . .
Repayment of borrowings . . . . . . . . . . . . . . . . . .
Proceeds from asset based financing arrangements
Assets acquired under finance lease . . . . . . . . . . .
Repayments of obligations under finance leases . .
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Closing amount as at 16 May 2010 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . .
120,065
3,429
(3,597)
2,046
5,154
(6,913)
120,184
In January 2010 the Group entered into a loan of £2.9m which is secured on a freehold property. Interest
is charged at LIBOR plus 3.5%. It is repayable in fixed quarterly instalments from April 2010 with a final
bullet payment in January 2013.
11. Share capital and reserves
The movements in the called up share capital are set out below:
Ocado Limited
29 November 2009
Number of
shares
£’000
Authorised
Ordinary shares of 1p each . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible preference shares of 1p each . . . . . . . . . . . . . . . . . . . . . .
Allotted, called up and fully paid
Ordinary shares of 1p each . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible preference shares of 1p each . . . . . . . . . . . . . . . . . . . . . .
170
3,000,000
3,000,000
30
30
6,000,000
60
1,525,757
2,474,749
15
25
4,000,506
40
Part VII
Unaudited Interim Financial Information relating to the Group for the 24 weeks ended
16 May 2010
Ocado Group plc
As at 16 May 2010
(unaudited)
Number of
shares
£’000
Authorised
Ordinary shares of 2p each . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible preference shares of 2p each . . . . . . . . . . . . . . . . . . . . . .
300,000,000
300,000,000
6,000
6,000
600,000,000
12,000
Allotted, called up and fully paid
Ordinary shares of 2p each . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible preference shares of 2p each . . . . . . . . . . . . . . . . . . . . . .
185,874,125
247,474,900
3,717
4,949
Allotted, called up and fully paid . . . . . . . . . . . . . . . . . . . . . . . . . .
433,349,025
8,666
Less: Ordinary shares of 2p each held by the Group’s employee benefit
trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(32,476,700)
Allotted, called up and fully paid, excluding Ordinary shares held by the
Group’s employee benefit trust . . . . . . . . . . . . . . . . . . . . . . . . . . . .
400,872,325
On 9 February 2010 the Company acquired the entire share capital of Ocado Limited. As a result of this
transaction, the ultimate shareholders in Ocado Limited received shares in the Company in direct
proportion to their original shareholdings in Ocado Limited. Shareholders were issued 100 shares in the
Company for every 1 share in Ocado Limited. The shares in the Company have a par value of 2 pence
each. Therefore as at 16 May 2010 share capital represents that of the Company. Prior periods presented
represent the share capital of Ocado Limited.
Convertible preference shares are only convertible in to the same number of Ordinary shares either at the
option of the holder or on the occurrence of certain trigger events including a public listing. The
Convertible preference shares rank pari passu with Ordinary shares with the exception that on return of
assets on a liquidation, reduction of capital or otherwise, the holders of the Convertible preference shares
shall be entitled in respect of their preference shares (in proportion to the number of such shares held by
each of them) in priority to all other shareholders, to be paid out of the surplus assets of the Company
remaining after payment of its liabilities, the subscription price for their preference shares together with a
sum equal to any arrear of dividends declared calculated down to the date of the return of assets.
The Ordinary Shares held by the EBT Trustee pursuant to the Joint Share Ownership Scheme (‘‘JSOS’’)
are treated as treasury shares in the Group’s consolidated balance sheet in accordance with IAS 32
‘‘Financial instruments: Presentation’’. These shares have voting rights but these have been waived by
the EBT Trustee. The set-up of the JSOS was approved by resolution of the board of Directors on
13 January 2010 and approved by Shareholders by written resolution on 18 February 2010. Awards to the
Executive Directors and a select group of senior management were made through the acquisition of
32.5 million Ordinary Shares with an issue price of £1.50 per share, as set out above.
The number of allotted, called up and fully paid shares, excluding treasury shares, at the end of each
period differs from that used in the loss per share calculation in Note 12 as loss per share is calculated
using the weighted average number of ordinary shares and convertible preference shares in issue during
the period, excluding treasury shares.
171
Part VII Unaudited Interim Financial Information relating to the Group for the 24 weeks ended
16 May 2010
The movements in the called up share capital and reserves are set out below:
Notes
Ordinary
shares
Convertible
preference
shares
Ordinary
shares
Convertible
preference
shares
number
number
£’000
£’000
£’000
£’000
£’000
15
25
310,836
—
—
—
—
731
—
—
3
—
48,712
(18)
(25)
At 29 November 2009 .
1,525,757
2,474,749
Allotted in respect of the
employee share option
scheme . . . . . . . . . .
6,635
—
Allotted in respect of the
joint share ownership
scheme . . . . . . . . . . 11(a)
324,767
—
Cancellation of Ocado
Limited shares . . . . . 11(b)
(1,857,159) (2,474,749)
Issue of ordinary and
convertible preference
shares by Ocado
Group Limited . . . . . .
185,715,900 247,474,900
Capital reduction by the
Company . . . . . . . . .
—
—
Reverse acquisition of
Ocado Limited by the
Company . . . . . . . . . 11(c)
—
—
Allotted in respect of the
employee share option
scheme . . . . . . . . . .
158,225
—
Balance at 16 May
2010 (unaudited) . . .
(a)
185,874,125 247,474,900
Share Treasury
premium
reserve
(47,741)
—
—
Reverse
acquisition
reserve
—
—
204,287
272,222
—
—
(200,573)
(267,273)
—
—
—
—
360,279
—
—
—
—
(360,279)
3
—
167
3,717
4,949
167
(47,741)
(476,509)
(116,230)
Treasury reserve
This reserve arose when the Company issued equity share capital under its Joint Share Ownership Scheme, which are held in
trust by the Group’s Employee Benefit Trust. The consideration paid is deducted from total shareholders’ equity and classified
as treasury shares on consolidation.
(b)
Scheme of Arrangement and Capital Reduction
On 9 February 2010, pursuant to a Scheme of Arrangement, all of Ocado Limited’s Ordinary and Preference Shares were
cancelled. Subsequently, Ocado Limited issued 100 ordinary shares to the Company for £1 and in consideration of the
cancellation of Ocado Limited’s Ordinary and Preference Shares, the Company issued 185,715,900 Ordinary Shares and
247,474,900 Preference Shares on the basis of 1:100 Ordinary and Preference Shares for each Ocado Limited Share held.
The effect of the Scheme of Arrangement was to replicate the shareholders’ register of Ocado Limited at the Company level.
On 16 February 2010, pursuant to an order of the Court confirming the reduction of capital of the Company, the Company’s
share capital was reduced by decreasing the nominal value of each Ordinary and Preference Share issued pursuant to the
Scheme of Arrangement from 110 pence to 2 pence. This created distributable reserves of £467.8 million.
(c)
Reverse acquisition reserve
As detailed in Notes 2(a) and 2(b) to the Interim Financial Information, the acquisition by the Company of the entire issued
share capital of Ocado Limited has been accounted for as a reverse acquisition under IFRS3R. Consequently the previously
recognised book values and assets and liabilities have been retained and the consolidated interim financial information have
been presented as if the Company had always been the parent company of the Group.
The share capital for the period covered by the Interim Financial Information and the comparative periods is stated at the
nominal value of the shares issued pursuant to the share swap arrangement. Any difference between the nominal value of
these shares and previously reported nominal values of shares and applicable share premium issued by Ocado Limited has
been transferred to the ‘reverse acquisition reserve’.
12. Loss per share
(a) Basic
Basic loss per share is calculated by dividing the loss attributable to equity holders by the weighted
average number of Ordinary shares and Convertible preference shares in issue during the period
excluding Ordinary shares purchased by the Group and held as treasury shares, adjusted to reflect the
172
Part VII
Unaudited Interim Financial Information relating to the Group for the 24 weeks ended
16 May 2010
conversion of the Ordinary shares and the Convertible preference shares from Ocado Limited to the
Company on a 1:100 basis on 9 February 2010. The loss for the period is equally attributable to the
shareholders of Ordinary shares and Convertible preference share. For more information see Note 11.
All operations are continuing for the financial periods presented.
24 weeks
ended
16 May 2010
(unaudited)
Number
(’000s)
24 weeks
ended
17 May 2009
(unaudited)
Number
(’000s)
Issued Ordinary shares and Convertible preference shares at beginning of
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of share options exercised in the period . . . . . . . . . . . . . . . . . . . .
Effect of shares issued in the period . . . . . . . . . . . . . . . . . . . . . . . . . . .
400,051
510
—
377,691
28
—
Weighted average number of shares at the end of the period . . . . . . . . . .
400,561
377,719
£’000
£’000
Loss attributable to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6,710)
(12,675)
pence
pence
Basic loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1.68)
(3.36)
(b) Diluted
Diluted loss per share is calculated by adjusting the weighted average number of Ordinary shares and
Convertible preference shares outstanding to assume conversion of all dilutive potential shares, adjusted
to reflect the conversion of the Ordinary shares and the Convertible preference shares from Ocado
Limited to the Company on a 1:100 basis on 9 February 2010. The Company has three categories of
potentially dilutive shares: share options, share held pursuant to the JSOS and warrants.
There was no difference in the weighted average number of shares used for basic and diluted loss per
share as the effect of all potentially dilutive shares outstanding was anti-dilutive.
13. Related party transactions
Key management personnel
Only the Executive and Non-Executive Directors are deemed to be key management personnel. It is the
Board who have responsibility for planning, directing and controlling the activities of the Group. The key
management personal compensation is follows:
Salaries, fees and other short-term employee benefits . . . . . . . . . . . . . . .
Pension costs—defined contribution plans . . . . . . . . . . . . . . . . . . . . . . .
Equity settled share based payments granted under the joint share
ownership scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
173
24 weeks
ended
16 May 2010
(unaudited)
£’000
24 weeks
ended
17 May 2009
(unaudited)
£’000
635
29
696
42
27
—
664
738
Part VII Unaudited Interim Financial Information relating to the Group for the 24 weeks ended
16 May 2010
Other related party transactions with key management made during the period are as follows:
Purchase of goods
—company of a close family member of an Executive Director . . . . . . . . .
Purchase of professional services
—Non-Executive Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24 weeks
ended
16 May 2010
(unaudited)
£’000
24 weeks
ended
17 May 2009
(unaudited)
£’000
—
86
13
18
13
104
All transactions are on an arms length basis and no financial period end balances have arisen as a result
of these transactions.
At the end of the financial period key management owed the Group £5,000 (unaudited) (17 May 2009:
£4,000 (unaudited)) (29 November 2009: £4,000) in respect of personal expenses incurred on the
company credit card that were reimbursed in the normal course of business. These balances were repaid
after the financial period end.
There were no other material transactions or balances between the Group and its key management
personnel or members of their close family.
Investment
The Group holds a 25% interest in Paneltex Limited whose registered office is at Paneltex House,
Somerden Road, Hull. This stake was acquired in June 2001 at a cost of £395,000. Payment for the
shares was partly in cash (£237,000) and partly in equity (1,975 Convertible preference shares). The
Group’s 25% interest in Paneltex Limited has not been treated as an associated undertaking as the
Company does not have significant influence over Paneltex Limited.
The following transactions were carried out with Paneltex Ltd:
24 weeks
ended
16 May 2010
(unaudited)
£’000
24 weeks
ended
17 May 2009
(unaudited)
£’000
Purchase of goods
—Plant and machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—Consumables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
55
13
69
Total purchase of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66
82
Amounts payable at the period end . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
—
174
Part VII
Unaudited Interim Financial Information relating to the Group for the 24 weeks ended
16 May 2010
14. Analysis of net debt
(a) Net debt
16 May 2010
(unaudited)
£’000
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations under finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non current liabilities
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations under finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29 November
2009
£’000
9,965
13,017
9,965
13,017
(27,564)
(19,735)
(12,087)
(19,669)
(47,299)
(31,756)
(27,013)
(45,872)
(42,658)
(45,651)
(72,885)
(88,309)
(110,219)
(107,048)
(b) Reconciliation of net cash flow to movement in net debt
24 weeks
ended
16 May 2010
(unaudited)
£’000
Net increase/(decrease) in cash and cash equivalents .
Net cash outflow/(inflow) from debt and lease financing
Non-cash movements:
—Exercise of convertible loan notes to equity . . . . .
—Fair value movements on convertible loan notes . .
—Assets acquired under finance lease . . . . . . . . . .
24 weeks
ended
17 May 2009
(unaudited)
£’000
52 weeks
ended
29 November
2009
£’000
....
....
(3,052)
5,035
4,787
(14,331)
7,160
6,467
....
....
....
—
—
(5,154)
60
(176)
(1,861)
60
(176)
(4,826)
Decrease/(increase) in net debt in the period . . . . . . . . .
Opening net debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,171)
(107,048)
(11,521)
(115,733)
8,685
(115,733)
Closing net debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(110,219)
(127,254)
(107,048)
15. Events occurring after the reporting period
In May 2010 the Company repaid a loan of £5m secured over certain warehouse assets, software and
intellectual property that was renewable on a month by month basis.
In May 2010 the Company agreed a new loan facility for £7.5m from an existing lender which is repayable
over 3 years in equal annual instalments. Interest is charged at LIBOR plus 5%. In addition the Company
agreed a new revolving credit facility for £7.5m from the same lender. These facilities are secured over
certain warehouse assets, software and intellectual property.
In May 2010 the Company signed a new 10 year agreement with Waitrose giving the Company the right to
continue to sell Waitrose goods and use Waitrose brands on its website and vans as it has had since
2000.
In May 2010 the Company agreed an extension of £3.4m to a credit facility with an existing lender for
vehicle finance leasing.
In June 2010 the Company agreed a £15m credit facility with a new lender for vehicle finance leasing.
175
Part VII Unaudited Interim Financial Information relating to the Group for the 24 weeks ended
16 May 2010
In 23 June 2010 Ocado Group Limited re-registered as a public company and changed its name from
‘‘Ocado Group Limited’’ to ‘‘Ocado Group plc’’. The Company continues to operate the same business
and operations as it did immediately prior to the implementation of the Scheme.
On 24 June 2010 Ocado Group plc announced its intention to list on the London Stock Exchange.
On 5 July 2010 the Company entered into a facility agreement (the ‘‘New Facility’’) between, amongst
others, Barclays Bank PLC, HSBC Bank plc and Lloyds TSB Bank plc. The lenders have agreed to make
available £100m to the Company under the New Facility. All amounts borrowed under the New Facility
shall be applied towards the acquisition of certain land, buildings, fixtures and tangible movable property.
The New Facility has an accordion feature which allows for the amount available under it to be increased
up to £130m, subject to lenders (existing or additional) agreeing to make available the additional
amounts. First utilisation under the New Facility is conditional on certain customary conditions precedent
and on Admission.
Principal risks and uncertainties
Risk is an inherent part of doing business. The board has overall responsibility for the management of the
principal risks and internal control of the Group. The principal risks and uncertainties set out in Ocado
Limited’s Annual Report and Financial Statements for the 52 week period ended 29 November 2009
remain the same for this interim financial information. Those risks and uncertainties can be summarised
as follows:
•
Business continuity and disaster recovery
•
Reliance on Waitrose
•
Competition
•
Health and safety
•
Fraud
•
Regulatory environment
•
Ongoing financing
Statement of Directors’ responsibility
The Directors confirm that, to the best of their knowledge, this condensed consolidated Interim Financial
Information relating to the Group for the 24 weeks ended 16 May 2010 has been prepared in accordance
with IAS 34 as adopted by the European Union. The Group Interim Financial Information includes a fair
review of the information required by DTR 4.2.7R and DTR 4.2.8R under the Disclosure and
Transparency Rules.
176
PART VIII
CAPITALISATION AND INDEBTEDNESS STATEMENT
The following tables set out the capitalisation and indebtedness of the Group as at 16 May 2010. The
information below has been extracted without material adjustment from the unaudited interim financial
information for the 24 weeks ended 16 May 2010 included in Part VII (Unaudited Interim Financial
Information relating to the Group for the 24 weeks ended 16 May 2010).
Capitalisation and indebtedness(1)(2)
£ million
Current debt
Guaranteed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Secured(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unguaranteed/unsecured(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(42.4)
(4.9)
Total current debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(47.3)
Non-current debt (excluding current portion of the long term debt)
Guaranteed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Secured(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unguaranteed/unsecured(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
—
(67.8)
(5.1)
Total non-current debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(72.9)
Equity
Share capital . . . . . . .
Share premium account
Other reserves . . . . . .
Retained earnings . . . .
.
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.
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8.7
0.2
(164.0)
118.2
Total capitalisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(36.9)
(1)
This statement of indebtedness has been prepared under IFRS using policies which are consistent with those used in
preparing the Historical Financial Information of the Group set out in Part V.
(2)
The Group’s debt is shown net of unamortised issue costs.
(3)
The Group’s secured debt includes secured bank loans which are secured over certain warehouse assets, software and
intellectual property and certain freehold properties together with its finance leases which are secured on the assets to which
they relate.
(4)
Unguaranteed/unsecured debt relates to the Group’s Murabaha facility agreement with the Bank of London and the Middle
East plc, the Arlington Properties Development Ltd loan, and its unsecured credit agreement with Premium Credit in relation to
the deferral of the payment of its insurance premiums.
The following table sets out the unaudited net indebtedness of the Group as at 16 May 2010.(1)
£ million
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.1
Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.1
Current financial debt
Current bank debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of non current debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current financial debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1.1)
(27.6)
(19.7)
Current financial debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(48.4)
Net current financial indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(37.3)
Non-current financial indebtedness
Non-current bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current financial debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(27.0)
(45.9)
Non current financial indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(72.9)
Net financial indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(110.2)
(1)
The Group has no indirect or contingent indebtedness as at 16 May 2010.
177
PART IX
INFORMATION ABOUT THE OFFERS
1.
Reasons for the Offers and use of proceeds
For the reasons for the Offers and the use of proceeds, please see section 5 of Part I (Information about
the Company).
2.
Summary structure of the Offers
The Offers comprise:
•
the Institutional Offer, being an offer to institutional investors in the UK, the United States, the EU and
elsewhere; and
•
the Customer and Employee Offer, being an offer to Eligible Customers and Eligible Employees.
The Customer and Employee Offer will comprise approximately 15 per cent. of the total number of
Ordinary Shares comprised in the Offers, although the Company reserves the right to adjust the size
depending on actual demand.
The Ordinary Shares which are the subject of the Offers comprise:
•
approximately £205 million of New Ordinary Shares to be issued by the Company, raising primary
proceeds net of fees and expenses (but including cash received on the exercise of warrants and
options) of £200 million. If the Offer Price is set at the mid-point in the Price Range, this will result in
approximately 86,273,616 New Ordinary Shares being issued pursuant to the Offers and up to
further 10,134,074 New Ordinary Shares potentially to be issued to Selling Optionholders pursuant
to the exercise of options or warrants; and
•
up to 155,216,316 Ordinary Shares that may be sold by the Selling Shareholders pursuant to the
Offers. This figure also assumes that each Major Selling Shareholder sells the maximum number of
Ordinary Shares he has indicated he may sell, each Minor Selling Shareholder sells all of his
Ordinary Shares and each Selling Optionholder sells all of the Ordinary Shares which will be issued
to him if he exercises all of his options.
If the Company is not able to agree pricing or is unable to raise net proceeds of £200 million, Admission
will not occur. The Underwriting and Selling Shareholders’ Agreements are conditional on Admission.
The selling intentions of Major Selling Shareholders are non-binding. That means that although a Major
Selling Shareholder may not sell any more Ordinary Shares pursuant to the Offers than noted below, he
may decide, in his absolute discretion to sell fewer or none. In addition, the Company has provided a
facility through which Minor Selling Shareholders and Selling Optionholders may sell some or all of their
Ordinary Shares pursuant to the Offers. However, as at the date of this document, the Company does not
know the extent to which such persons will sell any such Ordinary Shares pursuant to the Offers.
The number of Existing Shares held and the maximum number each of the Major Selling Shareholders
has indicated he may sell is set out below. The total number of Existing Shares held by all Minor Selling
Shareholders is shown below. This is the maximum number of Existing Shares which the Minor Selling
Shareholders may offer to sell pursuant to the Offers. As at the date of this document, the Company does
not know with certainty the extent to which other such persons will sell any or all such Ordinary Shares
pursuant to the Offers. However, the Company has received non-binding indications from Minor Selling
Shareholders holding 28,861,700 Existing Shares, in aggregate, that they do not intend to sell any
Existing Shares pursuant to the Offers.
The total number of New Ordinary Shares which may be issued to Selling Optionholders and sold on their
behalf pursuant to the Offers is shown below. Subject to the Offer Price being not less than £1.90,
Ranelagh Nominees Limited has irrevocably committed to exercise certain warrants held by it provided
that it may sell the resulting 5,611,200 New Ordinary Shares issued to it or its nominee pursuant to the
Offers. As at the date of this document, the Company does not know whether any other Selling
Optionholder will exercise any of his or its exercisable options or warrants, or, if he or it does so, whether
any such Selling Optionholder will sell any Ordinary Shares issued as a result pursuant to the Offers.
178
Part IX
Information about the Offers
Number of
Ordinary
Shares and
Preference
Shares held(1)
Selling Shareholder
John Lewis Pension Fund, the business address of which is
Partnership House, Carlisle Place, London, SW1P 1BX . . . . . . . .
UBS Holdings Cayman Limited, the business address of which is
UBS House, 227 Elgin Avenue, PO Box 852, Grand Cayman,
Cayman Islands(5), (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arthur Seligman as Trustee of the Steiner Trust 2008 Millennium
Trust c/o Arthur Seligman, Lennox Paton, P.O. BOX N4875,
Nassau, Bahamas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trident Trust Co (BVI) Limited as Trustee of the Jason Gissing Life
Settlement II, the business address of which is Trident Chambers,
Wickham Cay, P.O. BOX 146, Road Town, Tortola, VG-1110,
British Virgin Islands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jonathan Faiman c/o Tempest Capital AG, Schulhausstrasse 12,
8002 Zurich, Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Apollo Nominees Ltd. on behalf of the Minor Selling
Shareholders(2), (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Apollo Nominees Ltd. on behalf of the Selling Optionholders(2), (4) . . .
Maximum
number of
Ordinary
Shares which
may be sold(1)
114,642,300
57,321,150
36,263,500
36,263,500
15,291,200
2,000,000
9,583,400
1,924,100
3,000,000
3,000,000
62,705,242
10,134,074
62,705,242
10,134,074
(1)
All Preference Shares in existence will convert into Ordinary Shares immediately before Admission on a one for one basis.
(2)
Apollo Nominees Ltd.’s business address is 1 Finsbury Avenue, London EC2M 2PP.
(3)
If a Minor Selling Shareholder decides to sell any Ordinary Shares pursuant to the Offers he or it will transfer legal title to (but
retain the entire beneficial interest in) his or its Ordinary Shares to Apollo Nominees Ltd. with effect from the date of Admission
in order for Apollo Nominees Ltd. to sell such Ordinary Shares on his or its behalf as part of the Offers.
(4)
Prior to the date of Admission, if a Selling Optionholder (including Ranelagh Nominees Limited) decides to exercise his or its
options or warrants and sell the Ordinary Shares issued as a result pursuant to the Offers, such Ordinary Shares will be issued
to Apollo Nominees Ltd. with effect from the date of Admission as nominee for such Selling Optionholders in order for Apollo
Nominees Ltd. to sell such Ordinary Shares on his or its behalf as part of the Offers.
(5)
Comprised in the Ordinary Shares that UBS Holdings Cayman Limited may sell are up to 18,131,750 Ordinary Shares that it
may sell pursuant to the Over-allotment Arrangements to the extent that they are not sold in the Offers.
(6)
UBS AG, an affiliate of UBS Holdings Cayman Limited, is a Minor Selling Shareholder. It has stated that it will sell its entire
shareholding of 2,980,100 Preference Shares, provided that the Offer Price is set above the lowest point in the Price Range.
The Ordinary Shares offered pursuant to the Offers will rank pari passu in all respects with all of the other
Ordinary Shares in issue and will carry the right to receive all dividends and other distributions declared,
made or paid on the Ordinary Shares after Admission.
3.
Price and size of the Offers
The price payable per Ordinary Share under the Institutional Offer and the Customer and is expected to
be announced on or around 21 July 2010.
The Pricing Statement will be published in printed form and available free of charge at the registered
office of the Company and at the offices of the JGCs. In addition, the Pricing Statement will be published
in electronic form and available on the Offer Website.
It is expected that the Offer Price will be in the range of 200 pence to 275 pence per Ordinary Share but
the Offer Price eventually determined may be within, above or below this indicative range. If the Price
Range changes prior to announcement of the final Offer Price, the Company would not envisage making
an announcement until determination of the Offer Price, unless required to do so by law or regulation.
Among the factors which may be considered in determining the Offer Price are the prevailing market
conditions, the level and nature of demand for Ordinary Shares under the Offers, the prices bid to acquire
Ordinary Shares under the Institutional Offer and the objective of encouraging the development of an
orderly after-market in the Ordinary Shares. Accordingly, the Offer Price will not necessarily be the
highest price at which all of the Ordinary Shares subject to the Offers could be sold.
179
Part IX
Information about the Offers
The Ordinary Shares that are the subject of the Offers will together comprise 50 per cent. of the issued
share capital of the Company on Admission. This percentage assumes that the Offer Price is at the
mid-point of the Price Range, the Company raises £200 million after costs and expenses (but including
cash received on the exercise of warrants and options) and each Selling Shareholder sells the maximum
number of Existing Shares he or it has indicated he may sell. The percentage is calculated disregarding
32,476,700 Existing Shares issued to the EBT Trustee pursuant to the JSOS.
4.
Allocation under the Offers
The allocation of Ordinary Shares between the Institutional Offer and the Customer and Employee Offer
will be determined at the Company’s discretion, in consultation with the JGCs. A number of factors will be
considered in determining the basis of allocation, including the level and nature of demand for Ordinary
Shares in the Offers and the objective of encouraging the development of an orderly and liquid aftermarket in the Ordinary Shares.
Applicants may be allocated Ordinary Shares having a value which is less than the sum applied for. If
applications in respect of the Customer and Employee Offer are greater than the portion of the Offers
allocated to the Customer and Employee Offer, the amount an Eligible Customer has offered to invest
may be scaled down or balloted or both. Valid applications from Eligible Employees will be allocated in
full.
The rights attaching to the Ordinary Shares will be uniform in all respects and the Ordinary Shares will
form a single class for all purposes. The rights attaching to Ordinary Shares are described in section 5 of
Part XIII (Additional Information).
5.
Application procedure
5.1 The Institutional Offer
The JGCs will solicit bids from prospective institutional investors (in the UK, the US, the EU and
elsewhere) to subscribe for or purchase Ordinary Shares in the Institutional Offer. Prospective investors
will be required to specify the number of Ordinary Shares which they would be prepared to acquire or
subscribe for either at prices specified by them or at the Offer Price eventually determined by the
Company. This process is known as ‘‘book building’’. Prospective investors will be required to submit bids
for Ordinary Shares in the Institutional Offer on 20 July 2010, although this may be extended at the
discretion of the JGCs (with the agreement of the Company).
5.2 The Customer and Employee Offer
This section should be read in conjunction with the terms and conditions set out in Part X (Terms and
Conditions of the Customer and Employee Offer).
The Company is offering Eligible Customers and Eligible Employees the opportunity to subscribe for or
purchase Ordinary Shares in the Customer and Employee Offer at the Offer Price. Eligible Customers
and Eligible Employees who wish to apply for Ordinary Shares in the Customer and Employee Offer
should download this document from the Offer Website and read this document and then complete and
submit the Customer and Employee Offer Application Form on the Offer Website, together with their
payment details as soon as possible. The latest time for receipt of applications in the Customer and
Employee Offer is 11.59 p.m. (London time) on 18 July 2010. Applications may not be made by post.
Applications for Ordinary Shares must be based on the monetary amount which applicants wish to invest
in Ordinary Shares, rather than on a number of Ordinary Shares. The minimum application amount under
the Customer and Employee Offer is £500 for Eligible Employees and £1,000 for Eligible Customers. The
maximum limit on the monetary amount that any applicant may apply to invest in the Customer and
Employee Offer is £12,000. The amount for which an Eligible Customer offers to invest may, however, be
scaled down or balloted or both as described above.
The basis of allocation for applications will be determined by the Company in consultation with the JGCs.
All applications under the Customer and Employee Offer will be made on the terms and conditions of
application set out in Part X (Terms and Conditions of the Customer and Employee Offer) and Part XI
(Terms and Conditions of the Ocado Share Account). If no part of an application is accepted no amount
will be debited from the applicant. If an application is accepted in part, an amount in respect of the
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successful application will be debited from the applicant. If more is debited from an applicant than is
required to pay for the Ordinary Shares allocated to that applicant, the excess amount will be returned to
the applicant, unless the excess amount is less than £5.00 in which case it will be returned to the
Company and donated to charity.
Persons under the age of 18 may not apply for Ordinary Shares in the Customer and Employee Offer.
Applicants who have any questions about how to complete their Customer and Employee Offer
Application Form should visit the Offer Website. If this does not provide the answer to their question, they
should contact the Ocado IPO Helpline, the telephone number for which is 0800 141 2954. There will be
no charge for calls from UK landlines. Lines are open from 9 a.m. to 5.30 p.m. Monday to Friday except
UK bank holidays. The Ocado IPO Helpline cannot provide advice on the merits of an investment in
Ordinary Shares nor give any financial, legal or tax advice.
All applicants who successfully apply for Ordinary Shares in the Customer and Employee Offer will
initially be required to hold their Ordinary Shares in the Ocado Share Account, which the Directors believe
to be a convenient way of holding Ordinary Shares.
6.
Withdrawal rights
If the Company is required to publish a supplementary prospectus, applicants who have applied to invest
in Ordinary Shares in the Offers shall have at least two clear Business Days following the publication of
the supplementary prospectus within which to withdraw their application in its entirety. If the application is
not withdrawn within the stipulated period, any application for Ordinary Shares in the Offers will remain
valid and binding. If a supplementary prospectus is published, applicants will be sent an email notifying
them and explaining to them how they may withdraw their applications; such withdrawals will be effected
by email only. Details of how to withdraw an application will also be available if a supplementary
prospectus is published on the Offer Website or at the offices of the Registrar (Capita Registrars Limited,
The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU) and the registered office of the
Company.
Any supplementary prospectus will not be automatically distributed to applicants but will be published on
the Offer Website and will be available in printed form free of charge at the registered office of the
Company and at the offices of the JGCs.
7.
Over-allotment and stabilisation
In connection with the Offers, the Stabilising Manager (or any of its agents) may (but will be under no
obligation to), to the extent permitted by law, over-allot or effect other transactions with a view to
supporting the market price of the Ordinary Shares at a level higher than that which might otherwise
prevail in the open market. The Stabilising Manager is not required to enter into such transactions and
such transactions may be effected on any securities market, over-the-counter market, stock exchange or
otherwise. Such stabilising transactions, if commenced, may be discontinued at any time and may only be
taken during the period beginning on the commencement of conditional dealings of the Ordinary Shares
on the London Stock Exchange and ending 30 days thereafter. However, there is no obligation on the
Stabilising Manager or any of its agents to effect stabilising transactions and there is no assurance that
stabilising transactions will be undertaken. In no event will measures be taken to stabilise the market price
of the Ordinary Shares above the Offer Price. Save as required by law or regulation, neither the
Stabilising Manager nor any of its agents intends to disclose the extent of any over-allotments or
stabilisation transactions under the Offers.
In connection with the Offers, the Stabilising Manager may, for stabilisation purposes, over-allot Ordinary
Shares up to a maximum of 10 per cent. of the total number of Ordinary Shares comprised in the Offers
(assuming no exercise of the Over-allotment Option). The Stabilising Manager will be able to borrow an
equivalent number of Ordinary Shares under the Stock Lending Agreement in order, amongst other
things to settle over-allotments (if any) at Admission. For the purposes of allowing the Stabilising Manager
to redeliver equivalent securities under the Stock Lending Agreement (to the extent that it is unable to do
so using Ordinary Shares acquired by it for the purposes of stabilisation), the Stabilising Manager has
entered into the Over-allotment Option with UBS Holdings Cayman Limited, pursuant to which it may
purchase or nominate purchasers for Ordinary Shares (‘‘Over-allotment Shares’’) up to the lower of
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10 per cent. of the total number of Ordinary Shares comprised in the Offers or up to approximately
18.1 million Ordinary Shares at the Offer Price. The Over-allotment Option may be exercised in whole or
in part from time to time and on one or more occasions, upon notice by the Stabilising Manager at any
time during the period beginning on the commencement of conditional dealings and ending 30 days
thereafter. The Over-allotment Shares made available pursuant to the Over-allotment Option will be sold
at the Offer Price on the same terms and conditions as, and will rank pari passu with, the Ordinary Shares,
including for all dividends and other distributions declared, made or paid on the Ordinary Shares after
Admission and will form a single class for all purposes with the Ordinary Shares.
8.
Listing, dealing and settlement
Application will be made to the FSA, in its capacity as the UK Listing Authority, for all of the Ordinary
Shares (including the 32,476,700 Ordinary Shares held by the EBT Trustee pursuant to the JSOS) to be
admitted to the premium listing segment of the Official List and application will be made to the main
market of the London Stock Exchange for those Ordinary Shares to be admitted to trading on the London
Stock Exchange. It is expected that admission to the Official List will become effective, and dealings will
commence on the London Stock Exchange, on 26 July 2010.
Each investor in the Institutional Offer will be required to undertake to pay the Offer Price for the Ordinary
Shares sold to it in such manner as shall be directed by the JGCs. Each investor in the Customer and
Employee Offer will be required to undertake to pay the amount specified by that investor on its Customer
and Employee Offer Application Form or such lesser amount following any scaling back of their
application. The Final Articles will permit the holding of Ordinary Shares under the CREST system.
CREST is a paperless settlement system allowing securities to be transferred from one person’s CREST
account to another’s without the need to use share certificates or written instruments of transfer.
Application will be made for the Ordinary Shares to be admitted to CREST with effect from Admission.
Accordingly, settlement of transactions in the Ordinary Shares following Admission may take place within
the CREST system if any Shareholder so wishes. CREST is a voluntary system and holders of Ordinary
Shares who wish to receive and retain share certificates will be able to do so. An investor applying for
Ordinary Shares in the Institutional Offer may, however, elect to receive shares in uncertificated form if
such investor is a system-member (as defined in the CREST Regulations) in relation to CREST.
Applicants in the Customer and Employee Offer should note that, except in the circumstances described
below, dealings in the Ordinary Shares will commence prior to Share Account Statements being made
available online.
It is intended that Share Account Statements will be made available online to persons entitled thereto by
4 August 2010. Unless and until Admission occurs the Share Account Statement will be of no value.
Settlement of the issue and sale of Ordinary Shares in the Offers is intended to take place on the
settlement date, which will be the day of Admission.
9.
Underwriting arrangements
The Underwriting and Selling Shareholders’ Agreements were entered into on 6 July 2010. A full
description of them and the Stock Lending Agreement is set out in section 17.4 of Part XIII (Additional
Information).
10. Lock-up arrangements
Pursuant to the terms of the Underwriting and Selling Shareholders’ Agreements and certain stand-alone
lock-up deeds of the same date, the following arrangements are in place:
The Company
Pursuant to the Underwriting Agreement, the Company has undertaken with each of the Underwriters
that, for a period ending 180 days after the date of the Pricing Statement (the ‘‘Company Lock-up
Period’’), it will not, and will procure that none of its affiliates (as defined in the Underwriting Agreement)
will:
•
directly or indirectly, issue, offer, lend, sell, contract to sell or issue, grant any option, right or warrant
to subscribe or purchase or allow any encumbrance (as defined in the Underwriting Agreement) to be
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created over or otherwise dispose of, directly or indirectly, any Ordinary Shares (or any securities
convertible into or exchangeable for Ordinary Shares or which carry rights to subscribe or purchase
Ordinary Shares) or any interest (within the meaning of section 820 of the Companies Act) in any
Ordinary Shares or enter into any transaction with the same economic effect as, or agree to do, any
of such things (the ‘‘Company Lock-up Actions’’); or
•
publicly announce any intention to do any of such things,
in each case without the prior written consent of the JGCs, on behalf of themselves and the other
Underwriters, provided that this undertaking shall not apply in respect of: (i) the issue of New Ordinary
Shares pursuant to the Offers; (ii) Ordinary Shares to be issued upon exercise of warrants or options to
purchase or subscribe for Ordinary Shares, or upon conversion of securities convertible into Ordinary
Shares, in each case, outstanding on the date of the Underwriting Agreement; (iii) shares to be issued to
other members of the Group; and (iv) the grant, in accordance with normal practice, or exercise of options
from time to time under the Company’s share option and incentive schemes in existence on the date of
Admission and described in section 11 of Part XIII (Additional Information). For the first 45 days of the
Company Lock-up Period, the JGCs may withhold their consent to any of the Company Lock-up Actions
at their sole discretion. From day 46 to day 180 (inclusive) of the Company Lock-up Period, the JGCs’
consent to such Actions shall not be unreasonably withheld or delayed.
Directors
Pursuant to the Underwriting Agreement, each of the Directors has undertaken with the Underwriters that,
for a period ending 365 days after the date of the Underwriting Agreement, he will not, and will procure
that none of his connected persons (as defined in the Underwriting Agreement) or persons acting on his
or their behalf will:
•
directly or indirectly, offer, lend, sell, contract to sell, grant any option, right or warrant to purchase or
allow any encumbrance (as defined in the Underwriting Agreement) to be created over or otherwise
dispose of, directly or indirectly, any Ordinary Shares (or any securities convertible into or
exchangeable for Ordinary Shares or which carry rights to subscribe or purchase Ordinary Shares)
or any interest (within the meaning of section 820 of the Companies Act) in any Ordinary Shares or
enter into any transaction with the same economic effect as, or agree to do, any of such things; or
•
deposit any Ordinary Shares (or any securities convertible into or exchangeable for Ordinary Shares
or which carry rights to subscribe or purchase Ordinary Shares) in any depositary receipt facility; or
•
publicly announce any intention to do any of such things,
in each case without the prior written consent of the JGCs, on behalf of themselves and the other
Underwriters, provided that this undertaking shall not apply in respect of: (i) Ordinary Shares issued to
him (or his connected persons) upon the exercise of options to purchase or subscribe for Ordinary Shares
outstanding on the date of the Underwriting Agreement; (ii) the exercise of options from time to time under
the Company’s share option and incentive schemes in existence on the date of Admission and described
in section 11 of Part XIII (Additional Information); (iii) the granting of an encumbrance (as defined in the
Underwriting Agreement) over the deposit of Ordinary Shares in a margin account (as defined in the
Underwriting Agreement) by a Director (or his connected persons) after the date of Admission, provided
that, in the event of a margin call or default on the margin account, the Director (or his connected persons)
will not settle that margin call or default by selling or permitting the sale of the Ordinary Shares (or
otherwise breaching the undertaking described above); (iv) Ordinary Shares sold by such Director (or his
connected persons) in the Offers (or as otherwise agreed by the JGCs); and (v) Ordinary Shares
purchased in the market by a Director (or his connected persons) after Admission.
These undertakings do not prohibit the Directors, or any of their connected persons (as defined in the
Underwriting Agreement), from:
•
accepting a general offer (a ‘‘Take-over Offer’’) made to all the holders of the issued and allotted
shares of the Company for the time being (other than shares held or contracted to be acquired by the
offeror or its associates within the meaning of section 988 of the Companies Act) made in
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accordance with the City Code on Takeovers and Mergers on terms which treat all such holder alike
and which has:
(i)
become or been declared unconditional in all respects; or
(ii) been recommended for acceptance by the directors for the time being of the Company;
•
executing and delivering an irrevocable commitment or undertaking to accept a Take-over Offer
(without any further agreement to transfer or dispose of any shares in the Company or any interest
therein);
•
selling or otherwise disposing of Ordinary Shares pursuant to any offer by the Company to purchase
its own Ordinary Shares which is made on identical terms to all holders of Ordinary Shares in the
Company;
•
transferring or disposing of Ordinary Shares pursuant to a scheme of reconstruction under
section 110 of the Insolvency Act 1986 or pursuant to a compromise or arrangement between the
Company and its creditors or any class of them or between the Company and its members or any
class of them which is agreed to by the creditors or members and (where required) sanctioned by the
court under Part 26 of the Companies Act;
•
taking up or disposing of any rights granted in respect of a rights issue or other pre-emptive share
offering by the Company;
•
voting on (and any disposal directly or indirectly arising in respect of) a scheme of arrangement or
analogous procedure in respect of the Ordinary Share capital of the Company;
•
disposing of Ordinary Shares in accordance with any order made by a court of competent jurisdiction
or required by law or to or by personal representatives of a Director who dies; or
•
effecting any transfer to any connected person (as defined in section 252 of the Companies Act on
the basis that this exception shall apply to the connected person of a Director as if he were a director)
of the relevant Director (or his connected persons), provided that in each case prior to making such
transfer, the relevant transferee gives an undertaking to the Underwriters on substantially the same
terms to that described above.
Selling Shareholders
Pursuant to the Selling Shareholders’ Agreement, each of the Major Selling Shareholders has severally
undertaken with the Underwriters that, for a period ending 180 days after the date of the Selling
Shareholders’ Agreement, he or it will not, and will procure that none of his or its connected persons (as
defined in the Selling Shareholders’ Agreement) or persons acting on his, its or their behalf will:
•
directly or indirectly, offer, lend, sell, contract to sell, or grant any option, right or warrant to purchase
or allow any encumbrance (as defined in the Selling Shareholders’ Agreement) to be created over or
otherwise dispose of, directly or indirectly, any Ordinary Shares (or any securities convertible into or
exchangeable for Ordinary Shares or which carry rights to subscribe or purchase Ordinary Shares)
or any interest (within the meaning of section 820 of the Companies Act) in any Ordinary Shares or
enter into any transaction with the same economic effect as, or agree to do, any of such things; or
•
deposit any Ordinary Shares (or any securities convertible into or exchangeable for Ordinary Shares
or which carry rights to subscribe or purchase Ordinary Shares) in any depositary receipt facility; or
•
publicly announce any intention to do any of such things,
in each case without the prior written consent of the JGCs, on behalf of themselves and the other
Underwriters, provided that this undertaking shall not apply in respect of: (i) Ordinary Shares issued a
Major Selling Shareholder (or his or its connected persons) upon the exercise of options to purchase or
subscribe for Ordinary Shares outstanding on the date of the Selling Shareholders’ Agreement; (ii) the
exercise of options from time to time under the Company’s share option and incentive schemes in
existence on the date of Admission and described section 11 of Part XIII (Additional Information); (iii) the
granting of an encumbrance (as defined in the Selling Shareholders’ Agreement) over the deposit of
Ordinary Shares in a margin account (as defined in the Selling Shareholders’ Agreement) by a Selling
Shareholder (or his connected persons) after the date of Admission, provided that, in the event of a
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margin call or default on the margin account, the Selling Shareholder (or his connected persons) will not
settle that margin call or default by selling or permitting the sale of the Ordinary Shares (or otherwise
breaching the undertaking described above); (iv) Ordinary Shares sold by a Major Selling Shareholder (or
his or its connected persons) in the Offers and/or under the Over-allotment Arrangements (or as
otherwise agreed by the JGCs); and (v) Ordinary Shares purchased in the market by a Major Selling
Shareholder (or his or its connected persons) after Admission (other than any Ordinary Shares purchased
pursuant to the Over-allotment Arrangements).
These undertakings do not prohibit the Lock-up Selling Shareholders, or any of their connected persons
(as defined in the Selling Shareholders’ Agreement), from:
•
accepting a Take-over Offer;
•
executing and delivering an irrevocable commitment or undertaking to accept a Take-over Offer;
•
selling or otherwise disposing of Ordinary Shares pursuant to any offer by the Company to purchase
its own Ordinary Shares which is made on identical terms to all holders of Ordinary Shares in the
Company;
•
transferring or disposing of Ordinary Shares pursuant to a scheme of reconstruction under
section 110 of the Insolvency Act 1986 or pursuant to a compromise or arrangement between the
Company and its creditors or any class of them or between the Company and its members or any
class of them which is agreed to by the creditors or members and (where required) sanctioned by the
court under Part 26 of the Companies Act;
•
taking up or disposing of any rights granted in respect of a rights issue or other pre-emptive share
offering by the Company;
•
voting on (and any disposal directly or indirectly arising in respect of) a scheme of arrangement or
analogous procedure in respect of the Ordinary Share capital of the Company;
•
disposing of Ordinary Shares in accordance with any order made by a court of competent jurisdiction
or required by law or to or by personal representatives of a Lock-up Selling Shareholder who dies; or
•
effecting any transfer of Ordinary Shares to any person with whom the Major Selling Shareholder (or
his connected persons) is connected (the question of whether any such person is so connected
falling to be determined for this purpose in accordance with the provisions of section 839 of the
Income and Corporation Taxes Act 1988 and/or section 252 of the Companies Act and, in the latter
case, on the basis this exception shall apply to each Major Selling Shareholder (or his or its
connected persons) as if he (or it) were a director) or any transfer of Ordinary Shares in which only
legal, but not the beneficial, interest in the Ordinary Shares is transferred, provided that, in each
case, prior to any such transfer, the relevant transferee has given an undertaking to the Underwriters
on substantially the same terms to that described above.
Other Shareholders
Pursuant to certain stand-alone lock-up deeds entered into on the same date as the Selling Shareholders’
Agreement, Spencer Nicholas Roditi, the Apple Trust, Mingulay Holdings Limited, Rovida Holdings
Limited, Sayro Ventures Limited and Trident Nominees (Guernsey) Limited and certain other persons
who have, or may come to have, interests in Ordinary Shares, who together hold (as at 5 July 2010, the
latest practicable date prior to the publication of this document) approximately 37 per cent. of the issued
share capital of the Company, have each given undertakings in favour of the Company and the
Underwriters on identical terms to those given by the Lock-up Selling Shareholders and which are subject
to the same exceptions.
11. Costs and expenses
The total costs and expenses of, and incidental to, the Offers which are to be borne by the Company are
estimated to amount to £15 million (excluding any amounts in respect of VAT) (assuming the Company
pays the discretionary part of the Underwriters’ commission referred to in section 17.4 of Part XIII
(Additional Information) and the discretionary elements of its other advisers’ fees). Each Selling
Shareholder will bear the amount of any stamp duty or SDRT chargeable on the sale of his Ordinary
Shares and his pro rata share of any selling commissions.
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12. Employee share schemes
Eligible Employees will also be entitled to participate in the Customer and Employee Offer irrespective of
their participation in any of the employee share schemes operated by the Group.
13. Holding and dealing in Ordinary Shares
It is a condition of participating in the Customer and Employee Offer that all successful applicants agree,
on allocation, to hold their Ordinary Shares in the Ocado Share Account.
The Ocado Share Account, a Company-sponsored nominee arrangement, provides a convenient way of
holding Ordinary Shares, which removes the need to have a share certificate which has to be kept safe
and secure. In addition, individuals’ names will not appear on the Company’s shareholder register, which
is a public register, so their details remain confidential. Instead, the Ordinary Shares will be held on behalf
of those individuals in the name of the Share Nominee. The Ocado Share Account has been set up
exclusively for persons who hold Ordinary Shares in the Company and hold those Ordinary Shares
electronically in a system managed and administered by the Registrar.
Persons holding Ordinary Shares in the Ocado Share Account:
•
have the right to receive the annual and other financial information that is sent to the shareholders of
any company should they wish to receive it, and are entitled to attend, speak and vote on a show of
hands and on a poll at general meetings of the Company;
•
will receive Share Account Statements showing the number of Ordinary Shares held on the
anniversary of them becoming a member and each anniversary thereafter; and
•
are entitled to leave the Ocado Share Account at any time and obtain a share certificate instead or
have their Ordinary Shares transferred into another nominee arrangement or deposit account.
However, there will be an administration charge for removing Ordinary Shares from the Ocado Share
Account. Share Account Statements are valuable documents and should be looked after carefully. If
a Share Account Statement or share certificate is lost, damaged or defaced, a charge may be made
for its replacement.
14. Interests of the Underwriters in the Offers
Certain of the Underwriters have the following interests in the Offers:
•
Goldman Sachs International holds 870,300 Ordinary Shares and 3,333,300 Preference Shares;
•
Michael Sherwood, who is Co-Chief Executive of Goldman Sachs International, holds 166,700
Preference Shares;
•
UBS Holdings Cayman Limited, an affiliate of UBS Limited holds 13,600 Ordinary Shares and
36,249,900 Preference Shares. UBS Holdings Cayman Limited has provided a non-binding
indication that it may sell up to its entire holding pursuant to the Offers and the Over-allotment
Arrangements, (it being the provider of the Over-allotment Option);
•
UBS AG, an affiliate of UBS Limited, holds 2,980,100 Preference Shares. Subject to the Offer Price
being set not lower than the bottom of the Price Range, UBS AG has committed to sell its entire
holding pursuant to the Offers;
•
Ranelagh Nominees Limited, an affiliate of Lloyds TSB Bank plc, holds warrants over
5,611,200 Ordinary Shares. Subject to the Offer Price being not less than £1.90, it has irrevocably
committed to exercise prior to Admission provided that it may sell the resulting 5,611,200 New
Ordinary Shares issued to it or its nominee pursuant to the Offers; and
•
Lloyds TSB Bank plc holds 17,800 Preference Shares which it may sell pursuant to the Offers.
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PART X
TERMS AND CONDITIONS OF THE CUSTOMER AND EMPLOYEE OFFER
This Part X contains the terms and conditions of the Customer and Employee Offer, pursuant to which
terms Eligible Employees and Eligible Customers may apply to buy Ordinary Shares in the Customer and
Employee Offer.
Introduction
1.
For the purposes of these terms and conditions only, references to ‘‘you’’ are to the person applying
online to buy Ordinary Shares in the Customer and Employee Offer using the Customer and
Employee Offer Application Form.
2.
If you apply for Ordinary Shares in the Customer and Employee Offer you will be agreeing with the
Company, the Directors, the Banks and the Receiving Agent to the terms and conditions set out
below.
Offer to purchase Ordinary Shares
3.
Applications must be made online on a Customer and Employee Offer Application Form. By
completing and submitting a Customer and Employee Offer Application Form, you, as the applicant:
a.
offer to acquire at the Offer Price the maximum number of Ordinary Shares (rounded down to
the nearest whole Ordinary Share) that may be acquired with the amount that you have specified
in your Customer and Employee Offer Application Form as the amount which you wish to invest
(or any smaller amount in respect of which your application to acquire Ordinary Shares in the
Customer and Employee Offer is accepted), subject to the provisions of the Prospectus, these
terms and conditions, the terms of the Customer and Employee Offer Application Form, the
Pricing Statement, any supplementary prospectus and the Final Articles;
b.
agree that your application to acquire Ordinary Shares in the Customer and Employee Offer
must be for a minimum investment in Ordinary Shares of £500 (if you are an Eligible Employee)
or £1,000 (if you are an Eligible Customer) at the Offer Price and for a maximum investment in
Ordinary Shares of £12,000 at the Offer Price;
c.
agree that there is no minimum allocation of Ordinary Shares for Eligible Customers in the
Customer and Employee Offer and that, in the event your application is scaled back, you may
not receive the full value of Ordinary Shares you applied to invest in and you may receive no
Ordinary Shares;
d.
agree that the Ordinary Shares allocated to you will be held in the Ocado Share Account and you
authorise the Company to send you a statement of entitlement by email, at your risk, to your
email address as set out in the Customer and Employee Offer Application Form submitted by
you online and to ensure that the Share Nominee, as nominee for you, is placed on the register
of members of the Company in respect of the Ordinary Shares for which your application is
accepted;
e.
in consideration of the Company, the Directors, the Banks and the Receiving Agent agreeing
that they will not, prior to the date of Admission (or such later date as the Company and the JGCs
may agree), sell to any person or assist in the sale to any person of any of the Ordinary Shares
comprised in the Offers other than by means of the procedures referred to in the Prospectus and
as a collateral contract between you, the Company, the Directors, the Banks and the Receiving
Agent which will become binding on you on the online submission by you of your Customer and
Employee Offer Application Form, you:
i.
agree that, subject to any statutory rights of withdrawal, your application may not be
revoked or withdrawn by you until after 31 August 2010 in the event that Admission has not
taken place by that date;
ii.
undertake to pay the Offer Price for the Ordinary Shares (which is payable in full and shall
be debited from your bank account via your debit card when requested by the Company) in
respect of which your application is accepted and acknowledge and agree that such
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amount may be debited from your bank account up to 4 Business Days before the Ordinary
Shares allocated to you are credited to the Ocado Share Account;
iii.
warrant that your payment, the details of which you will provide on your Customer and
Employee Offer Application Form, will be honoured on first presentation and agree that, if
such remittance is not so honoured, notwithstanding that the Share Nominee may have
been entered on the register of members of the Company (as nominee for you) made
available online, neither you nor the Share Nominee will be entitled to a Share Account
Statement in respect of the Ordinary Shares applied for or to enjoy or receive any rights,
dividend, distribution or other payment in respect of such Ordinary Shares unless and until
you make payment in cleared funds for such Ordinary Shares and such payment is
accepted by the Receiving Agent (which acceptance shall be in its absolute discretion and
on the basis that you indemnify the Company, the Directors, the Receiving Agent and the
JGCs and each other Bank against all costs, damages, losses, expenses and liabilities
arising out of, or in connection with, the failure of your remittance to be honoured on first
presentation);
iv.
agree that, at any time prior to unconditional acceptance by the Receiving Agent of such
late payment pursuant to sub-paragraph 3(e)(iii) above, the Receiving Agent may (on
behalf of the Company, the Directors and the Banks and without prejudice to any other
rights) terminate the agreement (if any) to allocate such Ordinary Shares to the Share
Nominee (as nominee for you) without liability to you and may reallocate the Ordinary
Shares to some other person, in which case you will not be entitled to any refund or
payment in respect of such Ordinary Shares and, in the event of termination, any Ordinary
Shares which have been issued to you will be sold as soon as is reasonably practicable
(and for which purpose you hereby irrevocably authorise the Company, or any person
appointed by it for this purpose, to execute on your behalf any instrument of transfer which
may be necessary to effect such sale) and consent to the proceeds of such sale being paid
to and retained by the Company and you will pay the Receiving Agent (on behalf of itself,
the Company, the Directors and the JGCs (on behalf of themselves and the other Banks)),
on demand, such amount as may be necessary to compensate the Receiving Agent, the
Company, the Directors and the JGCs (on behalf of themselves and the other Banks) for
any losses, costs and expenses incurred or expected to be incurred as a result of the
remittance not being honoured on first presentation or as a result of termination of the
agreement. Any decision by the Receiving Agent to accept payment shall be without
prejudice to the decision of the Company to accept the whole or any part of your application
as described in paragraph 8 below;
v.
agree that any Share Account Statement to which you may become entitled may not be
made available online pending clearance of your remittance or pending investigation of any
suspected breach of any of the warranties contained in paragraph 13 below;
vi.
agree, on request by any of the Receiving Agent, the Company, the Directors and the JGCs
on behalf of themselves and the other Banks, to disclose promptly in writing to such
requesting person such information as they may request in connection with your application
and authorise the Receiving Agent, the Company, the Directors and the JGCs to disclose
any information relating to your application which they may consider appropriate;
vii. agree that any Share Account Statement in respect of any Ordinary Shares to which the
Share Nominee may become entitled may not be made available online pending clearance
of your remittance, investigation of any suspected breach of these terms and conditions and
any verification of identity which is, or which the Receiving Agent, the Company or the JGCs
on behalf of themselves and the other Banks consider may be, required for the purposes of
the Money Laundering Regulations 2007;
viii. agree that, if evidence of identity satisfactory to the Company, the Directors, the JGCs on
behalf of themselves and the other Banks and the Receiving Agent is not provided to the
Receiving Agent on or before 11.59 p.m. (London time) on 18 July 2010 (or such later date
as the Company and the JGCs (on behalf of themselves and the other Banks) may agree),
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the Company, the Directors, the Receiving Agent or the JGCs (on behalf of themselves and
the other Banks) may terminate your contract of allocation and, in such case, an amount
may be debited from your bank account via your debit card by the Company (or its agents)
as compensation for breach of contract and you agree that, in such event, you will have no
claim against any Bank, the Receiving Agent, the Directors, the Company or any of their
respective officers, agents or employees in respect of the amount so debited by the
Company (or its agents) or otherwise in connection therewith;
ix.
agree that your Customer and Employee Offer Application Form is addressed to the
Company, the Directors, the Receiving Agent and the JGCs (on behalf of themselves and
the other Banks);
x.
agree that you are not engaged in nor applying on behalf of a person engaged in, or whom
you know or have reason to believe is engaged in, money laundering;
xi.
agree that any future communications sent by the Company to you in your capacity as a
shareholder of the Company will be in the English language and in electronic form to the
email address supplied in your application. Your consent to receiving all communications in
electronic form may be revoked at any time and will not affect your right to receive a
document or information in hard copy in accordance with section 1145 of the Companies
Act;
xii. agree that the Company has absolute discretion in determining whether or not you qualify
as an Eligible Customer or an Eligible Employee, as the case may be;
xiii. agree that the Company, the Directors and the JGCs (on behalf of themselves and the other
Banks) reserve jointly the right to alter any arrangements in connection with the Customer
and Employee Offer (including the timetable and terms and conditions of application); and
xiv. agree that the contract arising from acceptance of all or part of your application under the
Customer and Employee Offer will be, or will be deemed to be, entered into by you, the
Company, the Directors, the Banks and the Receiving Agent on these terms and conditions
(subject to paragraph 3(xii) above) and that any changes, additions or alterations made by
you will have no effect.
4.
If your Customer and Employee Offer Application Form is not completed correctly or is submitted
after 11.59 p.m. (London time) on 18 July 2010, or if the payment details supplied with it are incorrect
or invalid, it is liable to be rejected. In these circumstances, the Company’s decision whether to reject
or treat your application as valid shall be final and binding on you. None of the Company, the
Directors, the Banks, the Receiving Agent nor any of their respective officers, agents or employees
will accept any liability for any such decision and no claim will be made against any such persons in
respect of your non-receipt of Ordinary Shares, or for any loss resulting from the above.
5.
Any application may be rejected in whole or in part by the Company in its absolute discretion.
6.
The Company and its agents reserve the right to treat as valid any application not complying fully with
these terms and conditions or not in all respects completed and submitted in accordance with the
instructions on the Customer and Employee Offer Application Form. The Company and its agents
reserve the right to waive in whole or in part any of the provisions of these terms and conditions,
either generally or in respect of one or more applications. In these circumstances, the decision of the
Company as to whether to treat the application as valid and how to construe, amend or complete it
shall be final. You will not, however, be treated as having offered to invest a higher amount than is
indicated in your Customer and Employee Offer Application Form.
Acceptance of your offer
7.
The Company may accept your application if your application is submitted and validated (or treated
as valid, processed and not rejected) either:
a.
by notifying, publishing or announcing the final Offer Price, size of the Offers and the basis of
allocation (in which case the acceptance will be on that basis); or
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b.
8.
Terms and Conditions of the Customer and Employee Offer
by notifying acceptance to the Receiving Agent.
The acceptance may (at the absolute discretion of the Company, in consultation with the JGCs (on
behalf of themselves and the other Banks)) be of the whole or any part of your application and the
amount you have offered to invest may be scaled down or balloted or both if you are an Eligible
Customer. Valid applications from Eligible Employees will be allocated in full. The basis of allocation
for applications from Eligible Customers will be determined by the Company, in consultation with the
JGCs (on behalf of themselves and the other Banks). The Company, in consultation with the JGCs
(on behalf of themselves and the other Banks) reserves the right to scale down or ballot (or both)
applications from Eligible Customers as it, in its absolute discretion, considers appropriate.
Accordingly, if you are an Eligible Customer you may not receive the full value of Ordinary Shares
you applied to invest in and you may receive no Ordinary Shares.
Condition
9.
The contract arising from acceptance of applications (in whole or in part) in the Customer and
Employee Offer will be entered into by you (if you are a successful applicant) and the Company.
Under this contract, you will be required to acquire the Ordinary Shares at the Offer Price. This
contract will be conditional upon the Underwriting and Selling Shareholder Agreements becoming
wholly unconditional and not having been terminated before Admission, and Admission becoming
effective on or before 31 August 2010 (or such later date as the Company and the Receiving Agent
may agree with the JGCs (on behalf of themselves and the other Banks).
10. Subject to applicable law, you will not be entitled to exercise any remedy of rescission for innocent
misrepresentation (including pre-contractual representations) at any time after acceptance. This
does not affect any other rights you may have, including, for the avoidance of doubt, any statutory
withdrawal rights.
Return of application monies
11. In the event of a high volume of applications and before allocations are announced, the Receiving
Agent may debit from your bank account via your debit card an amount up to the full amount that you
have specified in your Customer and Employee Offer Application Form. In such circumstances, if any
application is not accepted in whole or is accepted in part only or if any contract created by
acceptance does not become unconditional, your bank account will be refunded via your debit card.
In the meantime, application monies will be retained by the Receiving Agent in an account
designated for the purpose of the Customer and Employee Offer to which no interest is credited. The
proceeds of this payment will be held pending acceptance and, if the application is accepted and the
conditions of the Customer and Employee Offer as set out in paragraphs 9 and 10 above are
satisfied, will be applied in discharging the total amount due for the Ordinary Shares allocated to you.
No fractional entitlements to Ordinary Shares will be allocated and refunds will not be made for
amounts below £5, and any such amounts shall be donated to a charity or charities of the Company’s
choice.
Applications
12. The number of Ordinary Shares to be allocated in the Customer and Employee Offer will be at the
absolute discretion of the Company in consultation with the JGCs (on behalf of themselves and the
other Banks). The Company has absolute discretion to decide in any individual case whether the
conditions of eligibility for the Customer and Employee Offer have been satisfied. To participate in
the Customer and Employee Offer, individuals must complete a Customer and Employee Offer
Application Form online. No person may apply jointly with others in the Customer and Employee
Offer.
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Warranties
13. By completing and submitting a Customer and Employee Offer Application Form, you:
a.
confirm that, in making an application, you are not making the application on behalf of any other
person and you are not relying on any information or representation other than as is contained in
the Prospectus, the Pricing Statement and any supplementary prospectus;
b.
agree that none of the Company, the Banks, the Receiving Agent, any Selling Shareholder, the
Directors or any employee of or person acting on behalf of them or any person responsible
solely or jointly for the Prospectus, the Pricing Statement and/or any supplementary prospectus,
or any part of any of them, shall have any liability for any such information or representation
(excluding for fraudulent misrepresentation);
c.
agree that you have read and understood the Prospectus and you agree to be bound by these
terms and conditions and the terms and conditions of your Customer and Employee Offer
Application Form;
d.
acknowledge that any investment decision you take in relation to the Ordinary Shares should be
based on consideration of the Prospectus;
e.
agree that, having had the opportunity to obtain and read the Prospectus, the Pricing Statement
and any supplementary prospectus, you shall be deemed to have noted all information and
representations (including all matters identified in the Risk Factors section of the Prospectus)
contained in the Prospectus, the Pricing Statement and/or any supplementary prospectus;
f.
agree that no person is authorised in connection with the Offers to give any information or make
any representation other than as contained in the Prospectus, the Pricing Statement and any
supplementary prospectus and, if given or made, any information or representation must not be
relied upon as having been authorised by the Banks, the Company, the Directors or any other
person;
g.
agree to the fullest extent permitted by applicable law that you waive any right you may have
under any law or regulation, other than English law or regulation, to bring an action or claim in
any jurisdiction, other than in England, against any person in relation to any and all information,
representations, statements or omissions contained in the Prospectus, Pricing Statement
and/or any supplementary prospectus or in relation to your application in this Customer and
Employee Offer;
h.
confirm that you have reviewed the restrictions contained in paragraph 15 below and warrant, to
the extent relevant, that you comply or have complied with the provisions of that paragraph
below;
i.
warrant that you are not a person who is under 18 on the date of your application;
j.
agree that all documents in connection with the Customer and Employee Offer may be sent to
you by post or email (at the Company’s absolute discretion) at your postal or email address set
out in your Customer and Employee Offer Application Form and that any such documents will be
sent at your own risk;
k.
warrant that (i) you are eligible to participate in the Customer and Employee Offer as an Eligible
Customer resident in the UK or an Eligible Employee resident in the UK or the Republic of
Ireland and (ii), subject as hereinafter provided, the Customer and Employee Offer Application
Form is completed and submitted online solely for and on behalf of the applicant and not directly
or indirectly, in whole or in part, for or on behalf of any other person;
l.
warrant and undertake that you are not applying as, or as nominee or agent for, a person who is
or may be a person mentioned in any of sections 67, 70, 93 or 96 of the Finance Act 1986
(concerning depositary receipts and clearance services);
m. warrant that you are not a person or other entity in the United States and that the Customer and
Employee Offer was not made to you (or persons for whom you are acting on a
non-discretionary basis) in or into the United States whether through viewing the Offer Website
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Terms and Conditions of the Customer and Employee Offer
from the United States or by the receipt of an email regarding the Customer and Employee Offer,
the Prospectus or any related offering documents in the United States or otherwise, and that you
are offering to acquire Ordinary Shares in the Customer and Employee Offer from outside the
United States and not for the account or benefit, on a non-discretionary basis, of a person in the
United States or with a view to the offer, sale or delivery, directly or indirectly, of the Ordinary
Shares to any person in the United States;
n.
warrant and undertake that you are not engaged in nor applying on behalf of a person engaged
in, or whom you know or have reason to believe is engaged in, money laundering; and
o.
agree that any material downloaded from the Offer Website, in relation to the Customer and
Employee Offer, is done at your own risk and that you will be solely responsible for any damage
or loss of data that results from the download of any material.
Money laundering
14. You agree that, in order to ensure compliance with any applicable money laundering regulations
(including, without limitation, the Money Laundering Regulations 2007), the Receiving Agent may, at
its absolute discretion, require verification of identity from any person completing a Customer and
Employee Offer Application Form. Failure to provide the necessary evidence of identity may result in
application(s) being rejected or delays in the despatch of documents.
Overseas investors
15. No person (other than an Eligible Employee resident in the Republic of Ireland) receiving a copy of
the Prospectus or accessing the Offer Website in any territory outside the UK may treat the same as
constituting an invitation or offer to him nor should he in any event apply online using the Customer
and Employee Offer Application Form. None of the contents of the Offer Website or the Prospectus
has been submitted to the clearance procedures of any authorities other than the UK Listing
Authority, as the competent authority in the UK. Any application made by an Eligible Customer
outside the UK will be rejected. Any application made by an Eligible Employee outside the UK or the
Republic of Ireland will be rejected.
General
16. To the fullest extent permitted by law, any liability for representations, warranties and conditions,
express or implied and whether statutory or otherwise (including, without limitation, precontractual
representations but excluding any fraudulent misrepresentations) are expressly excluded in relation
to the Ordinary Shares and the Offers, by the Company, the Directors, each Selling Shareholder, the
Banks and the Receiving Agent.
17. Save where otherwise stated or where the context otherwise requires, terms used in these terms and
conditions are as defined in the Prospectus (as supplemented by any supplementary prospectus
issued by the Company in relation to the Offers and the Pricing Statement).
18. The rights and remedies of the Company, the Directors, the Selling Shareholders, the Receiving
Agent and the Banks under these terms and conditions are in addition to any rights and remedies
which would otherwise be available to any of them, and the exercise or partial exercise of any one will
not prevent the exercise of others or full exercise.
19. The Company (with the consent of the JGCs (on behalf of themselves and the other Banks))
reserves the right to delay the closing time of the Customer and Employee Offer from 11.59 p.m.
(London time) on 18 July 2010 by giving notice through a Regulatory Information Service. In this
event, the revised closing time will be published in such manner as the Company in its absolute
discretion determines subject, and having regard, to the requirements of the UK Listing Authority.
20. The Company may terminate the Offers without any obligation to you whatsoever at any time prior to
Admission. If such right is exercised, the Offers will lapse and no money will be debited from your
account.
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Terms and Conditions of the Customer and Employee Offer
21. If a supplementary prospectus is published by the Company in relation to the Offers, you will have a
period of at least two clear Business Days within which you may withdraw your application to buy
Ordinary Shares in the Customer and Employee Offer. If a supplementary prospectus is published,
you will be sent an email notifying you of this fact and setting out how to withdraw your application
should you wish to. Such withdrawals will be effected by email only. Any supplementary prospectus
will be made available (along with information as to how you can withdraw your application) in the
same manner in which the Prospectus is being made available, including at the following places:
a.
on the Offer Website;
b.
at the registered office of the Company (Titan Court, 3 Bishops Square, Hatfield Business Park,
Hatfield, Hertfordshire AL10 9NE); and
c.
at the offices of the Receiving Agent (The Registry, 34 Beckenham Road, Beckenham, Kent
BR3 4TU).
If you do not notify the Company of your intention to withdraw in the required manner within the
stipulated period your application to buy Ordinary Shares in the Customer and Employee Offer will
remain valid and binding upon you.
22. Your Share Account Statement will be made available online on or before 4 August 2010. If you do
not receive notification of your Share Account Statement being available online on or before 4 August
2010, you should contact the Registrar. Once the Registrar is satisfied as to such a request, they will
arrange for you to be sent a replacement Share Account Statement free of charge. If at any point you
require a replacement Share Account Statement, you should contact the Registrar, who will arrange
for you to be sent a replacement Share Account Statement at a small cost.
23. You agree that all applications, acceptances of applications and contracts resulting from them under
the Customer and Employee Offer shall be exclusively governed by and construed in accordance
with English law and that you irrevocably submit to the exclusive jurisdiction of the English courts and
agree that nothing shall limit the right of the Banks, the Directors, the Receiving Agent or the
Company to bring any action, suit or proceedings arising out of or in connection with any such
application, acceptances or contracts in any other manner permitted by law or in any court of
competent jurisdiction.
24. You authorise the Banks and their agents, on your behalf, to make any appropriate returns to HMRC
in relation to stamp duty or stamp duty reserve tax (‘‘SDRT’’) (if any) on any contract arising on
acceptance of your application and in relation to stamp duty or SDRT (if any) payable on any transfer
of Ordinary Shares as a result of such contract.
25. You agree and acknowledge that:
a.
the Banks do not act for you and will not treat you as their customer by virtue of an application
being accepted under the Customer and Employee Offer and you agree that the Banks will not
be responsible for providing to you the protections afforded to their customers and that the
Banks do not owe you any duties or responsibilities concerning the price of the Ordinary Shares
or concerning the suitability of the Ordinary Shares for you as an investment or (save as
expressly set out in these terms and conditions) otherwise in connection with the Offers or any
transaction, arrangement or other matter referred to in the Prospectus; and
b.
the Banks and any of their respective affiliates may have engaged in transactions with, and
provided various investment banking, financial advisory and other services for, the Company
and certain of the Selling Shareholders, for which they received customary fees. The Banks and
any of their respective affiliates may provide such services to the Company and the Selling
Shareholders and any of their respective affiliates in the future.
26. You authorise the Company or the Receiving Agent and/or their agents to do all things necessary to
effect registration into your name (or the name of the Share Nominee) (as applicable) of any Ordinary
Shares acquired by you and authorise any representative of the Company or the Receiving Agent to
execute and/or complete any document of title required therefor.
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Terms and Conditions of the Customer and Employee Offer
27. Only persons applying for Ordinary Shares under the Offers may rely on the information and
representations contained in the Prospectus, the Pricing Statement and/or any supplementary
prospectus and, to the fullest extent permitted by law, any liability for the Prospectus, the Pricing
Statement and/or any supplementary prospectus to any other person is hereby excluded by the
Company, the Directors, any Selling Shareholder and the Banks and any person responsible solely
or jointly for the Prospectus, the Pricing Statement and any supplementary prospectus or any part of
any such document.
28. The dates and times referred to in these terms and conditions are based on the expectation that
Admission will occur on 26 July 2010 and may be altered by the Company in its absolute discretion
(in consultation with the JGCs (on behalf of themselves and the other Banks)) where the Company
considers it necessary to do so.
29. You consent to:
a.
holding your Ordinary Shares in the Ocado Share Account in accordance with the terms and
conditions set out in Part XI (Terms and Conditions of the Ocado Share Account); and
b.
the terms and conditions of the Offer Website.
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PART XI
TERMS AND CONDITIONS OF THE OCADO SHARE ACCOUNT
The Nominee Service is a convenient way to hold shares in a Company without needing share
certificates. Your shares are held by Capita IRG Trustees Limited on trust for you. You will remain
the beneficial owner of your shares and will still be able to benefit from shareholder rights, as
described in this document.
This Part XI sets out all the terms and conditions (‘‘Terms and Conditions’’) of the Nominee
Service provided by Capita IRG Trustees Limited (‘‘CIRGT’’). It replaces any previous terms and
conditions which you may have received. These Terms and Conditions together with your signed
Application Form or Form of Acknowledgement constitute an agreement which is legally binding
on CIRGT and you.
For your own benefit and protection you should read these Terms and Conditions carefully. If you
do not understand any point please ask for further information.
Please note that you may remove all or part of your Shares from the Nominee Service at any time.
The procedure to follow is set out in clause 19.
These Terms and Conditions will only take effect following the scaling and allocation of shares by
Ocado Group plc, when the underlying Shares are delivered to the Nominee.
The Nominee Service is administered by CIRGT, or any successor administrator that may be appointed.
CIRGT is authorised and regulated by the Financial Services Authority (‘‘FSA’’) and is entered on the FSA
register with registration number 184113. Further information may be obtained from the FSA’s Register
by visiting the FSA’s website http://www.fsa.gov.uk/register or by contacting the FSA on 0845 606 1234.
The FSA’s current address is 25 The North Colonnade, Canary Wharf, London E14 5HS.
The main business of CIRGT is the provision of nominee, administration and trustee services. Enquiries
about the Nominee Service, or these Terms and Conditions, should be addressed to CIRGT either by
post to Capita IRG Trustees Limited, Nominee Service, The Registry, 34 Beckenham Road, Beckenham,
Kent BR3 4TU or by e-mail to: [email protected]
TERMS AND CONDITIONS
1.
Definitions and interpretation
1.1
In these Terms and Conditions only the following words and expressions have the meanings and
interpretation set out below:
‘‘Affiliated Company’’
means a company in the same group of companies as CIRGT;
‘‘Agreement’’
means the legally binding agreement between us and you,
incorporating these Terms and Conditions;
‘‘Applicable Regulations’’
means all the statutory and other rules (including FSA Rules
and FSMA), regulations and provisions in force from time to
time, applicable to us or to the provision of the Nominee
Service, including the rules, principles and codes of practice
stipulated by any regulatory authority to which we are subject;
‘‘Application Form’’
means an application form to be completed by a person
requesting to become a Member;
‘‘Business Day’’
means any day which is not a Saturday or Sunday and on which
the banks are open for business in London and in any other city
where the Shares are listed;
‘‘Company’’
means the corporate client of CIRGT whose Shares you elect to
hold through the Nominee Service;
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‘‘CIRGT’’
means Capita IRG Trustees Limited, a company registered in
England with registration number 2729260 and its registered
office as above, which is authorised and regulated by the
Financial Services Authority and is entered on the FSA register
with registration number 184113;
‘‘CREST’’
the computer based system operated by Euroclear UK &
Ireland Limited (a subsidiary of Euroclear SA) for the transfer of
uncertificated securities;
‘‘FSA’’
means the Financial Services Authority;
‘‘FSMA’’
means the Financial Services and Markets Act 2000 (as
amended from time to time);
‘‘FSA Rules’’
means principles, guidance and rules issued by the FSA from
time to time;
‘‘Investor Code’’
means the unique reference number given to every Nominee
Account;
‘‘Nominee’’
means Capita IRG Trustees (Nominees) Limited (a whollyowned subsidiary of CIRGT). Where Shares are not held by
Capita IRG Trustees (Nominees) Limited, they will be held by
CIRGT in a suitably designated account or by any other
nominee appointed from time to time by CIRGT;
‘‘Nominee Account’’
means the client account, which we open for each Member, in
order for that Member to have access to the Nominee Service;
‘‘Nominee Register’’
the register of beneficial holders of Shares held through the
Nominee Service maintained by CIRGT showing, amongst
other things, the name, address and number of Shares held on
your behalf together with similar details in respect of every other
Member;
‘‘Nominee Service’’
means the share nominee custody service as described in
these Terms and Conditions;
‘‘Prospectus’’
means the prospectus published by Ocado Group plc in respect
of the initial public offering of the Shares;
‘‘Representative’’
means a person who is authorised to act on your behalf in
relation to your Nominee Account and who has provided us with
such proof of their authority to act, as we may reasonably
require. Proof may include but shall not be limited to a duly
executed Power of Attorney, Court of Protection Order and
Grant of Representation;
‘‘Share’’
means the shares or other securities of the Company held or to
be held on your behalf through the Nominee Service;
‘‘Specified Event’’
means any of the events listed in clause 21.1;
‘‘we/us’’
means Capita IRG Trustees Limited and, where relevant, the
Nominee, or any successor company appointed to replace us;
and
‘‘you’’ or ‘‘Member’’
the person(s) on whose behalf we are holding the Shares or, if
appropriate, your Representative(s) and ‘‘your’’ and ‘‘yourself’’
shall be construed accordingly.
1.2
The headings to the clauses are for convenience only and shall not affect the interpretation or
construction of these Terms and Conditions. References to ‘‘clauses’’ are references to clauses of
these Terms and Conditions.
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Terms and Conditions of the Ocado Share Account
1.3
Reference to any statute or statutory provision includes a reference to that statute or statutory
provision as from time to time amended extended or re-enacted and FSA Rules as amended from
time to time.
1.4
Any phrase introduced by the terms including, include, in particular, for example or any similar
expression shall be construed as illustrative and shall not limit the sense of the words preceding
those terms.
1.5
Terms not otherwise defined in these Terms and Conditions shall have the same meaning given to
them as in the Prospectus.
2.
How to join the Nominee Service
2.1
Who is eligible to become a Member
2.2
2.3
(a)
The Nominee Service is only available to individuals (including Representatives) over the
age of 18, who are resident in the United Kingdom (excluding the Channel Islands and Isle
of Man) or the Republic of Ireland; or
(b)
Any individual over the age of 18 located in a relevant jurisdiction, other than those specified
in 2.1(a), as agreed between CIRGT and the Company, in which case you must satisfy
yourself that under your local law you are eligible to participate in the Nominee Service.
How to become a Member
(a)
You will become a Member of the Nominee Service if you make a successful application for
Ordinary Shares under the Customer and Employee Offer. You will also become a Member
of the Nominee Service if you (i) hold, as at 24 June 2010, vested options issued under the
Ocado 2001 Executive Share Option Scheme; and (ii) elect to hold in the Nominee Service,
any Shares not sold on your behalf to meet the costs and expenses of the exercise of such
options.
(b)
If such application or election is successful, you agree to be bound by these Terms and
Conditions.
(c)
If we agree to hold your Shares in the Nominee Service, we will open a Nominee Account in
your name. When the Nominee Account is opened for you, you will be provided with an
Investor Code. You are responsible for keeping your account details secure and you must
not disclose details to any other person (who is not your Representative).
(d)
As the Nominee Service includes regulated activities, in accordance with the requirements
of the FSA Rules, we are required first, to classify our customers and secondly, to notify our
customers as to the client category in which we have classified them. For the purposes of
the FSA Rules, we are classifying you as a ‘Retail Client’. These Terms and Conditions, the
Customer and Employee Offer Application Form and any other Application Form will, for the
purposes of satisfying the FSA Rules, be regarded as the Client Agreement.
(e)
The Nominee Services are provided by us to you and not the Company. We are not acting
as agent for the Company in providing the Nominee Service although we have been
requested to provide a nominee service to Members by the Company. We are not acting as
principal in relation to any transactions with you.
Verification of Identity and Account Opening
(a)
To comply with Applicable Regulations (including compliance with the UK Money
Laundering Regulations), we are required to verify the identity of our customers. You
authorise us to make credit reference, identity (including searching the electoral roll), fraud
and other such searches (including the use of any electronic database(s)) and enquiries
that may be necessary for these purposes of opening the Nominee Account with us. The
credit reference agency may check the details you supply against any particulars on any
database (public or otherwise) to which they have access. They may also use your details in
the future to assist other companies for verification purposes. You also authorise us to
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Terms and Conditions of the Ocado Share Account
undertake further similar searches at regular intervals. A record of the search will be
retained. You may also be required to provide additional information.
2.4
(b)
You may be required to provide additional information such as a recent (i.e. not older than
three months) original council tax bill, utility bill or bank statement. In such instances, having
made a record of this information, we will return such documents to you.
(c)
Account opening and registration is always at our discretion. We may therefore refuse to
open the Nominee Account for you without informing you of our reasons for doing so and
you agree that we will have no liability to you for any loss you may incur if we decide not to
open a Nominee Account in your name.
Joint holdings
(a)
Shares held jointly must be held in a joint Nominee Account. We will open joint Nominee
Accounts for up to four joint holders, and all references in these Terms and Conditions to
‘‘you’’ or a ‘‘Member’’ apply to each joint holder individually, except where the context
otherwise requires.
(b)
We will only accept transfer instructions completed by or on behalf of all the joint holders.
(c)
Each joint holder agrees that:
(i) all obligations, undertakings and agreements on our part are given to the joint
holders taken together and not separately to each of them; and
(ii) all obligations, undertakings, agreements and liabilities arising out of or pursuant to
these Terms and Conditions constitute joint and several obligations of each joint
holder.
3.
How the Nominee Service works
3.1
We will hold your Shares in the name of the Nominee in uncertificated form on your behalf as
trustee subject to the provisions of the Company’s Articles of Association and any other document
governing the terms on which the Shares are issued or transferred. Although we will therefore be
the legal owner of the Shares, you will remain the beneficial owner of the Shares which means that,
subject to our legal obligations, we will treat the Shares as if they belonged to you.
3.2
The Shares will be registered in the name of the Nominee and we will hold the Shares as you
direct. Neither CIRGT nor the Nominee will have or claim any interest in your Shares except under
clauses 10.6, 18.5 and 21.2 of these Terms and Conditions or under any separate arrangement
which you may have with CIRGT. CIRGT will be responsible to you for any acts or omissions of the
Nominee in connection with your Shares.
3.3
We will maintain the Nominee Register. In connection with your holding of Shares, you agree to
provide promptly any information which the Company is entitled to request from the Nominee in
respect of those Shares registered in the Nominee’s name (for example, this may include
information required to satisfy nationality declaration requirements or the disclosure of information
relating to beneficial ownership of the Company’s share capital).
3.4
You can obtain the appropriate forms to transfer Shares or to provide us with instructions by writing
to Capita IRG Trustees Limited, Nominee Service, The Registry, 34 Beckenham Road,
Beckenham, Kent, BR3 4TU, or, by emailing [email protected]. You should state
the name of the Company and quote your Investor Code. Except where otherwise stated in these
Terms and Conditions, we will only act on written instructions which contain your Investor Code.
Your Investor Code is shown on your personal statement which will be sent to you by us in
accordance with clause 9.
3.5
We will only accept transfers of Shares into the name of the Nominee and to be held in your
Nominee Account if there is no change of beneficial owner in the Shares being transferred and all
applicable stamp duty and/or stamp duty reserve tax has been paid.
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3.6
You may instruct us to hold your Shares in the name of another person (provided they are over
18 years of age and eligible) by issuing written instructions on the appropriate form stating that
such a transfer is by way of a gift to another person (for example, a family member). The proposed
recipient must complete the Application Form to indicate his or her agreement to the Terms and
Conditions. You should seek independent tax advice if you are in any doubt as to the tax treatment
of such a gift. Other than pursuant to such an instruction, you cannot transfer your Shares to
another person in the Nominee Service.
3.7
Except for any transfer pursuant to clause 3.6, if you wish to transfer your Shares you must first
either:
(a)
ask for your Shares to be transferred into your own name in certificated form; or
(b)
instruct us to transfer your Shares to a third party in CREST (for example, a broker through
which you wish to sell) if this option is available.
We will arrange for this on receipt of your written instruction to do so on the appropriate form and
payment of any applicable charges (including stamp duty and/or stamp duty reserve tax). If you
ask for your Shares to be transferred into your name, they will be registered in your name on the
main register of shareholders of the Company and a share certificate will be issued to you in
accordance with the relevant provisions of its Articles of Association. If all your Shares are
transferred into your name or to a third party in CREST, this means that you will leave the Nominee
Service.
3.8
All movements of Shares, which may include sales, purchases and transfers to and from the
Nominee Account are subject to any applicable rules of the London Stock Exchange plc or other
market on which the transaction is effected.
3.9
You may not cancel or change any instructions in relation to a transfer of Shares once they have
been sent to us. We may refuse to act on instructions from you:
(a)
which are not given on the correct form or given on a form that has been incorrectly
completed;
(b)
which are not given in writing or are incomplete; or
(c)
if we believe that complying with such instructions would breach the FSMA, the FSA Rules
or any other applicable legal requirement.
We may also delay acting on your instructions if we reasonably feel that it is necessary (i) to obtain
additional information from you to comply with any legal or regulatory requirement (including
compliance with the UK Money Laundering Regulations) or (ii) to investigate any concerns we may
have as to the validity of your instructions. Where further enquiries are required, you authorise us
to make credit reference, identity (including searching the electoral roll and any other electoral
databases), fraud and other enquiries that we reasonably deem necessary for these purposes. We
accept no liability for any financial loss arising from such a delay. Instructions that are not accepted
will be returned to you, where appropriate.
3.10
Instructions to transfer are acknowledged by the issue of a statement. Any other instructions will
only be acknowledged by us acting on them and are not otherwise acknowledged.
4.
Our service
4.1
We will not conduct investment business with you on our premises or in person. We offer the
Nominee Service, only in relation to the Shares in the Company on these terms. Unless otherwise
agreed in writing, there are no restrictions on the markets or types of investment in which we may
carry on business on your behalf.
4.2
We will deal with you on an execution-only basis at all times. This means that our services
are limited to the execution of your instructions. We shall not provide you with any advice
on the merits or suitability of you holding your Shares or deciding to have your Shares held
through the Nominee Service, or any transaction contemplated by these Terms and
Conditions.
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4.3
We will never provide you with any investment, trading, tax or financial advice or any investment
management services. Nothing in these Terms and Conditions should be taken as a
recommendation to buy, sell or hold shares in any company. You should rely on your own
judgment when deciding whether or not to enter into any transaction contemplated by this
Agreement or seek any advice or assistance you may need from an appropriate
independent professional adviser.
4.4
CIRGT provides only a Nominee Service to you in relation to the Company’s Shares, which
are traded on a regulated market. CIRGT will not assess the suitability of the instrument or
the service provided or offered to you. As a result, the FSA rules on assessing suitability do
not apply. Therefore, we will not assess whether:
(a)
the relevant product or service meets your investment objectives;
(b)
you would be able financially to bear the risk of any loss that the product or service may
cause; or
(c)
you have the necessary knowledge and experience to understand the risks involved.
CIRGT is also not required to assess the appropriateness for you of the Nominee Service or any
transaction connected to the Nominee Service.
5.
Communications between you and us
5.1
General
(a)
You may give us instructions by email, via a designated web portal (where the Company
has agreed to this service) or by post. All communications between you and us, pursuant to
these Terms and Conditions, must be in English.
(b)
Except as otherwise stated in these Terms and Conditions, all communications sent by you
under these Terms and Conditions must be given in writing and sent to:
Capita IRG Trustees Limited, Nominee Service
The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU
(c)
You should quote:
•
the name of the Company whose Shares you hold through the Nominee Service;
•
your full name; and
•
your Investor Code (which can be found on your personal statement)
in all communications with us relating to your Nominee Account. You should quote your
Investor Code in all communications with us relating to your Nominee Account (for example
any change of address or instructions about receipt of dividends).
5.2
(d)
We do not have to establish the authority of anyone quoting or using your Investor Code
provided that we have acted with all due care in accepting those instructions. We shall not
be liable for forged or fraudulent instructions. If you are aware or suspect that your Investor
Code is no longer confidential then you should contact us as soon as possible.
(e)
You will be responsible for all instructions in respect of transactions contemplated by these
Terms and Conditions and for the accuracy of all information given to us.
Representatives
(a)
You may also appoint a Representative in writing to give us instructions on your behalf. You
may change your Representative or cancel the appointment of your Representative by
written notice to us, but we shall not be bound by any such variation until we have actually
received your written notice and obtained such proof of his authority to act as we may
reasonably require. Proof may include but shall not be limited to a duly executed Power of
Attorney, Court of Protection Order and Grant of Representation.
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(b)
5.3
Terms and Conditions of the Ocado Share Account
We shall be entitled to act upon the instructions of your Representative unless and until we
have been sent written notice by you that their authority has been revoked. We shall be
entitled to act upon any instructions or orders transmitted using your Investor Code. You
agree that all instructions received from your Representative shall be treated as your
instructions and you accept full responsibility in respect of any instruction or any error in any
instruction given by you or a Representative.
Communications with you
(a)
You authorise us to communicate with you by letter or email, unless specifically requested
otherwise by you in writing.
(b)
All communications sent by us will be sent to your last address as recorded on the Nominee
Register or sent by electronic means to your last email address notified to us.
Communications sent to you by post will be treated as received by you on the second
Business Day following the day they were sent in the case of an address in the United
Kingdom, or on the fifth Business Day following the day they were sent in the case of an
address outside of the United Kingdom. It is the responsibility of any joint holder who has
been sent the communication or payment to inform and account to the other joint holders.
(c)
You are responsible for keeping your details on the Nominee Register up-to-date, by
notifying us in writing of any change of name, address, bank account details, telephone
number or email address and providing us with the supporting documentation where
required (e.g. in the case of a change of name, the deed poll or marriage certificate).
(d)
Any documents or cheques sent to you by us and any documents or cheques sent by you to
us will be sent at your risk and we accept no liability prior to receipt by us of any document or
cheque or, where relevant, after despatch of any document or cheque to you.
6.
Company meetings
6.1
We will send you information about shareholder meetings of the Company every time we receive
notice that a shareholder meeting is being convened. We will also provide an instruction form
(‘‘Form of Instruction’’) and you will be to able use this to instruct the Nominee how to cast votes in
respect of the Shares held in your Nominee Account on any poll called at the meeting. In such
case, we must have received the relevant instructions from you on a correctly completed form
before the deadline notified to you on the relevant form. In the absence of your instructions, no
votes will be exercised in respect of your Shares.
6.2
Depending on the Articles of Association of the Company, you may also be able to instruct the
Nominee to appoint yourself or another person of your choice, including the chairman of the
meeting, as your proxy in respect of the Shares held in the Nominee Account. This will enable you
or the proxy to attend and vote on a poll and, provided this is possible legally and is permitted by
the Articles of Association of the Company, on a show of hands.
6.3
Please note that the procedures described in this clause 6 will be subject to any matters regarding
voting, attendance at meetings etc provided for in the Company’s Articles of Association and any
policy decisions implemented by the Company in respect of the conduct of general meetings.
6.4
Except as provided for in this clause 6 and when you provide instructions to us, we shall have no
duty or responsibility to attend shareholders’ meetings on your behalf or to vote in respect of your
Shares.
7.
Information from the company
7.1
We will ensure that, any copies of summary financial statements and interim accounts sent by the
Company to its registered shareholders and received by CIRGT are also sent to you (or made
available to you electronically unless you specifically request otherwise).
7.2
If you wish to receive a copy of the full annual report and accounts of the Company, you should
notify us in writing.
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7.3
All other documents issued by the Company to registered holders generally will be forwarded by us
to Members, at or around the same time as registered holders electronically unless you specifically
request otherwise.
8.
Dividends, payments and corporate actions
8.1
Subject to clause 8.4, we will on your behalf claim and receive cash dividends and other
entitlements accruing on your Shares. Cash dividends and other entitlements will be distributed to
Members as soon as reasonably practicable after receipt by us from the Company, by means of
cheque or, at our discretion, electronic payment. Bank fees in respect of electronic payment or
telegraphic transfer shall be charged to the Member’s account. Payments will be made in the
currency in which dividends are normally paid in accordance with the Company’s dividend policy
from time to time.
8.2
If required to do so to comply with any legal or regulatory requirements, we may deduct or withhold
for such purposes sums on account of tax and pay the net amount to you.
8.3
If a payment made to you in respect of your Shares is returned to us and after reasonable enquiry
we cannot find your current address, we will not send you another payment until you notify us in
writing of your new address.
8.4
If the Company offers its shareholders (including any Members) the right to choose to receive
further Shares instead of a cash dividend pursuant to the terms of a dividend reinvestment plan
and if you wish to participate in the plan and validly elect to receive further Shares, we will ensure
that we receive the relevant Shares and hold them on your behalf in the Nominee Account and any
cash residue that arises will be held by us in accordance with clause 11.
8.5
In the event of a takeover, a capital reorganisation, conversion or other corporate action relating to
the Company, we will endeavour to notify you promptly and implement any instructions you give us
provided that the Company gives us adequate notice of the proposals and also that we receive
your instructions in good time so as to allow us to take appropriate action (however we will not be
liable if, for any reason, any notification by us does not reach you in time). We will however not be
obliged to do anything in such an event unless the Company gives us adequate notice and we
receive written instructions from you in reasonable time to allow us to take action in respect of the
Shares held in your Nominee Account.
8.6
We will not accept a takeover offer or other offer for any of the Shares held in your Nominee
Account in the absence of your instructions except where your Shares are compulsorily acquired.
In the event of a compulsory acquisition, we will accept the basic terms of the acquisition on your
behalf, but will not exercise choices or elections, in the absence of your specific instructions
received before relevant deadline.
8.7
Where the Company issues offer documents in respect of an optional corporate action (for
example, a tender offer, rights issue, placing and open offer, merger, scheme of arrangement or
amalgamation or reconstruction) we are not obliged to forward such documents to you. Where
appropriate you should contact the Company directly to obtain offer documents.
8.8
We will not be responsible for taking any corporate action in respect of the Shares held in your
Nominee Account and may allow the event to lapse if your instructions:
8.9
(a)
are not received by us by the stated time;
(b)
are incomplete or given by a third party who does not have the relevant authority; or
(c)
require payment on your behalf and you have insufficient funds in your Nominee Account.
Unless we receive instructions to the contrary, you authorise us to take all actions described
below:
8.9.1 make payments to ourselves or others for properly incurred expenses in handling your
Shares (for example costs of translation of foreign documents, foreign currency conversion
or bank charges) or other matters relating to our duties under these Terms and Conditions;
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8.9.2 receive and collect all income with respect to Shares and to credit cash receipts to your
Nominee Account;
8.9.3 execute in your name such ownership and other certificates as may be required to obtain
the payment of income from the Shares;
8.9.4 pay or cause to be paid from your Nominee Account any and all taxes, levies or
withholdings imposed on the Shares by any governmental authority in connection with
custody of and transactions in such Shares;
8.9.5 use reasonable efforts to promptly reclaim any foreign withholding tax relating to the
Shares; and
8.9.6 make payments to ourselves for our reasonable fees if we are required by any Applicable
Regulation to carry out additional services to those set out in these Terms and Conditions.
9.
Statements
9.1
You will receive an opening balance statement on joining the Nominee Service showing the
number of Shares you have. Further statements will be sent to you at least once a year (usually, at
the same time as the Company’s Annual Report and Accounts is despatched to shareholders),
together with details of the composition of your Nominee Account as at the end of the period
covered by the statement. You will also receive a statement after a change in the number of your
Shares showing your new balance. If you sell or transfer all of your Shares or in the event that the
Nominee Service ceases to be provided to you for any reason, a closing statement will be issued to
you. These statements are provided free of charge. If you require an interim statement or duplicate
statement of your holding in writing, we may make a charge to supply it (see clause 10.1).
9.2
It is your responsibility to check any statement which you receive from us. If you have any query or
concern in relation to the matters disclosed in the statement you must contact us as soon as
possible but, in any event, within two months of receipt of the statement. We shall correct any
mistaken credits or debits to the records maintained for your Nominee Account and will notify you
of any changes relevant to you.
9.3
If we have sent documents to your address on two separate occasions and they have been
returned and, after making all reasonable enquiries, we cannot find your current address, we will
not send any more documentation to you until you provide us with your correct address.
10.
Charges, expenses and payments
10.1
There is no initial charge for becoming a Member of the Nominee Service. We may make charges
in respect of other operations, for example, the transfer of Shares and the issue of duplicate
documentation. Duplicate documentation includes duplicate dividend warrants and duplicate
annual statements.
10.2
A copy of our charges are set out at the end of these Terms and Conditions and additional copies
may be obtained on request by writing to Capita IRG Trustees Limited, Nominee Service, The
Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU.
10.3
Our charges are subject to review and modification from time to time in the future for the following
reasons:
10.3.1 to reflect reasonable changes in the way we provide the Service to you;
10.3.2 as a result of new services which we may make available to you;
10.3.3 where reasonably required as a result of changes in market conditions or market practice;
10.3.4 to take account of changes or anticipated changes to, or to comply better with, applicable
laws or the interpretation of those laws, regulatory requirements, industry guidance or
codes of practice that we follow, or the way that we are regulated;
10.3.5 to reflect a decision or recommendation of a court, ombudsman, regulator or similar body
which is relevant to us or to the Service; or
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10.3.6 to take account of, in a proportionate manner, the cost to us of providing the Service.
10.4
We will give you at least 30 days’ prior notice of any increase in our charges payable by you. If you
are unhappy with such increase, you may cancel your agreement with us at any time without
charge within 30 days’ of our sending you the notice of such increase.
10.5
In addition to the above charges, you will be charged Value Added Tax (VAT) on any fees and
charges payable by you (for example, broker’s fees).
10.6
In addition to our fees and charges, you are responsible for paying any stamp duty and/or stamp
duty reserve tax applicable to share transactions, VAT, other duties and taxes in respect of your
Shares, where applicable. You should note that there may be other taxes or costs that may exist
that are not paid through us or imposed by us.
10.7
You may make any payments due to us under this Agreement as follows:
(a)
by authorising us to deduct the charges from your Nominee Account or annual dividends, if
any by indicating this on the Customer and Employee Offer Application Form or
subsequently to us in writing; or
(b)
if no such authority is provided under (a) above, you may pay by personal cheque crossed
and made payable to ‘Capita IRG Trustees Limited’, drawn on a United Kingdom bank or
building society account.
10.8
If any payment is not received by us on the due date for payment then, without limitation of any
other rights which we may have, we will be entitled to charge interest on the overdue amount (both
before and after judgment) at the rate of 1 per cent. above the sterling base rate from time to time of
our main UK bank from the due date until the actual date of payment.
10.9
Subject to clause 10.8 and 21.2 below, we and our agents will not have any lien (right to keep
possession of) or claim security interest in your Shares.
10.10 We do however reserve the right to sell any of your Shares or connected rights and to retain the
value of the amount which at any time is due and payable to us in respect of the provision of the
Nominee Service. In these circumstances, you authorise us to execute any stock transfer form or
other document or give any instruction necessary to give effect to any such sale and, by appointing
us to provide the Nominee Service under these Terms and Conditions, you acknowledge and
declare that in these circumstances we shall have a legal charge over your Shares and your rights
and interests in or in relation to your Nominee Account. If you owe us money in respect of the
provision of the Nominee Service, we reserve the right not to act on instructions from you until you
have paid us in full.
11.
Client money
11.1
We will treat all money, including dividend payments and other entitlements of a similar nature,
awaiting distribution to you as client money in accordance with the requirements of the FSA Rules
on client money. Your money will be segregated from our own funds. We will hold all money held in
sterling in a client bank account in the United Kingdom, with an approved bank in the United
Kingdom. Client Money in a foreign currency will be held in a client bank account
denominated in the relevant foreign currency with an approved bank in the United
Kingdom. No interest shall be payable to you in respect of such client money. The money will
not be used by us in any transactions other than as specified in these Terms and Conditions.
11.2
Please note that, whilst the cash balance for each Member will be recorded separately, it will be
pooled with the funds of other Members. Where a pooling event occurs, such as a default by
CIRGT or the Nominee or their bankers, you will not have a claim against a specific sum of money
in a specific account; your claim would be against the client money pool, held by us in general. The
funds may then be distributed on a pro rata basis to all Members which could result in each
Member receiving less back than that which is held on their behalf before such an event.
11.3
You agree that we may from time to time transfer your money to an intermediate broker, a
settlement agent, an exchange or a clearing house located in the United Kingdom or in a
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jurisdiction outside the United Kingdom to pay sums due in respect of transactions effected with or
through such persons on your behalf. Where your money is transferred to an intermediate broker,
a settlement agent, an exchange or a clearing house located outside the United Kingdom, the legal
and regulatory requirements applying to them will be different from that of the United Kingdom and,
in the event of their failure, this money may be treated in a different manner from that which would
apply if the money was held by an intermediate broker, settlement agent, an exchange or a
clearing house in the United Kingdom. We shall not be liable for any failure whatsoever, and
however caused, by such persons to return your money which is held by them unless it was
caused by our fraud, wilful default, negligence or breach of the FSA Rules or FSMA.
11.4
You agree that any balance due to you which is unclaimed after six years will cease to be treated
as Client Money, as defined under the FSA Rules, and we shall be entitled to remove any such
balance from your Nominee Account and retain it subject to us having taken reasonable steps to
locate you and to give you at least 28 days from the date of notification to make a claim. We
undertake to make good any valid claim which may subsequently be made against any balances
retained in this way and reserve the right to request such evidence as we feel reasonably
necessary to confirm the identity of the person claiming these funds in order to validate any claim
prior to settlement in respect of funds so removed from the Client Money account. We will not be
liable for any losses or claims for interest whatsoever in respect of such amounts unless such
losses or claims were caused by our fraud, wilful default, negligence or breach of the FSA Rules or
FSMA.
12.
Fractional benefits
Due to us holding your investments in the Nominee Account on a pooled basis, additional amounts
may arise that would not otherwise have occurred had such investments been registered in your
own name, (for example, following certain corporate actions). You consent that we shall determine
in our sole discretion, having regard to the size of the balance and the number of participants,
whether we shall distribute the balance to you or retain the balance for our own account.
Consequently, you may not be entitled to these additional amounts.
13.
Pooling
While details of your Shares are recorded in your Nominee Account, we will pool your Shares with
other customers’ Shares and as a result individual entitlements may not be identifiable by separate
certificates or other physical documents of title or equivalent electronic record. In the event of an
unreconcilable shortfall following any default by a custodian appointed by us, you may not receive
your full entitlement and any shortfall may be shared by all persons in proportion to their original
holdings in the pool.
14.
Risks
14.1
There are risks involved in investing in and holding Shares. As we only provide a Nominee
Service, we take no responsibility for the decision of a Member to buy, sell, hold or exercise
rights in relation to Shares. A share is a portion of the capital stock of a company which
typically entitles the holder to vote at general meetings, receive income in the form of
dividends and to share in the surplus assets of the company in the event of winding up.
14.2
The market information relating to the past performance of Shares is not an indication to
their future performance. The value of Shares or income from them may go down as well as
up. As Shares are valued from second to second, their bid and offer value fluctuates,
sometimes widely. The value of Shares may rise or fall due to the volatility of world markets,
interest rates and capital values or, for Shares held in overseas markets, due to changes in
the exchange rate in the currency in which the investments are denominated. You may not
necessarily get back the amount you invested.
14.3
Instructions given by you or on your behalf constitute a binding contract and cannot be
amended or cancelled after they have been given.
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14.4
Taxes may affect the net value of your investments and income received from them. Levels
and bases of, and relief from, taxation depend on the individual circumstances of each
customer and are subject to change as UK tax legislation may change from time to time. As
we only provide a Nominee Service, we do not accept any responsibility for tax advice.
14.5
There are risks involved in the transactions in Shares with which we may be involved. In the
case that your money is transferred to an intermediate broker, a settlement agent, an
exchange or clearing house located outside the United Kingdom, your money might not be
as well protected as would be the case if held by a bank or other financial institution in the
United Kingdom.
15.
Compliance with applicable regulations
15.1
The Terms and Conditions and all transactions between you and us are subject to Applicable
Regulations. If there is any conflict between these Terms and Conditions and any Applicable
Regulations, the Applicable Regulations will prevail to the extent necessary to avoid the conflict.
Nothing in these Terms and Conditions will exclude or restrict any obligations which we have to
you under the Applicable Regulations.
15.2
We may refrain from doing anything which could or might, in our reasonable opinion, be contrary to
any Applicable Regulations which would or might otherwise in our reasonable opinion render us
liable to any person. We may do anything which, in our reasonable opinion, is necessary to comply
with any such Applicable Regulations or to avoid any such liability.
15.3
CIRGT is authorised and regulated by the FSA to provide the Nominee Service in the United
Kingdom and nothing in these Terms and Conditions requires or implies that such services
will be provided in any territory in which CIRGT is not appropriately authorised.
16.
Representations and warranties
16.1
By applying to become a Member, you warrant and represent to us that:
(a)
all information that you supply to us is complete, true, accurate and not misleading in any
material respect;
(b)
you enter into this Agreement and any transactions contemplated by this Agreement as
principal and not as another person’s agent or representative;
(c)
you are not under any legal disability with respect to, and are not subject to any law or
regulation which prevents your performance of, this Agreement and any transactions
contemplated by this Agreement;
(d)
you are the legal and beneficial owner of all property provided by you to us under this
Agreement and you are entitled to pass to us full legal ownership of such property, free from
all liens, charges and encumbrances whatsoever and you will not create any security
interest of any kind over such property;
(e)
you have obtained all necessary consents and have the authority to enter into this
Agreement and any transaction contemplated by this Agreement; and
(f)
you are in compliance with all Applicable Regulations to which you are subject including,
without limitation, all tax laws and regulations, exchange control requirements and
registration requirements.
16.2
The above warranties and representations shall be deemed to be repeated each time you provide
us with instructions or enter into any transaction contemplated by this Agreement.
16.3
You undertake that, throughout the duration of this Agreement, you will promptly notify us
of any change to the details supplied by you or any change or anticipated change in your
financial circumstances (including any actual or threatened litigation) which may affect the
basis upon which we undertake business with you.
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17.
Crest and other clearing systems
17.1
Neither CIRGT nor the Nominee accepts responsibility for any delays or liabilities suffered by you
as a result of the operation, failure or suspension of the CREST System, the insolvency or other
default of Euroclear UK and Ireland Limited or of any participants in the CREST System or any
other clearing system used by us or the failure by any CREST settlement bank to make, receive,
credit or debit any payment. Neither CIRGT nor the Nominee accept responsibility for any delays
and liabilities suffered by you as a result of the suspension or removal of the sponsor by CREST as
a CREST sponsor, unless the suspension or removal is due to negligence, wilful default or fraud
on the part of CIRGT or the Nominee.
17.2
You will pay our reasonable costs or liabilities incurred in connection with an instruction to transfer
your Shares (whether or not involving Euroclear UK and Ireland Limited) that cannot be completed
for any reason caused by you. You undertake to notify us if you know of any person (e.g. a bank)
who has the right to prevent you from transferring your Shares.
17.3
Where an overseas Company’s Shares are held in uncertificated form by a clearing house, other
than Euroclear UK and Ireland Limited, the legal and regulatory regime applying to such a clearing
house may be different to that of the United Kingdom. In such a case, you agree that CIRGT’s and
the Nominee’s liabilities in respect of the activities of the overseas clearing house will be limited to
the extent as set out in section 17.1.
17.4
If we arrange your Shares to be held in one or more jurisdictions outside of the United Kingdom,
there may be different settlement, legal and regulatory requirements in overseas jurisdictions from
those applying in the United Kingdom and there may be different practices for the separate
identification of the Shares.
18.
Limitation of liability and indemnity
18.1
We will take all reasonable care and skill in the set up and administration of the Nominee Service.
18.2
If we cannot provide the Nominee Service due to circumstances beyond our reasonable control
(for example, because of failure of computer systems or telecommunications links or overriding
emergency procedures, postal delays, flood, fire, storm, labour disputes, accident, vandalism,
malicious damage, war or terrorism, failure of third parties to carry out their obligations, the
suspension of trading by any exchange or clearing house, the acts of governmental or regulatory
authority (including changes to Applicable Regulations), the absence of, or inaccuracy in any
information provided to us by you or on your behalf) we will, where possible, take such reasonable
steps as we can to provide the Nominee Service as soon as possible following any delay or failure.
18.3
Subject to this clause 18, our liability to you for providing the Nominee Service is limited to any
losses directly associated with the act or omission that gave rise to the liability. We will not be liable
for any damage or loss suffered by you which we could not reasonably have foreseen (for example
the loss of an alternative investment opportunity or any tax benefit).
18.4
Neither CIRGT nor the Nominee is acting as agent for the Company and they accept no
responsibility for the Company’s acts and omissions, including any decision by the Company to
suspend or terminate the Nominee Service.
18.5
Neither CIRGT nor the Nominee will be required to expend or risk its own funds or otherwise incur
any financial liability in the performance of any of its duties or in the exercise of any of its rights or
powers under these Terms and Conditions. If, notwithstanding this provision, either CIRGT or the
Nominee does so, CIRGT will be entitled upon notice to you to make such deductions from the
Shares or any income or capital arising from them or to sell all or any of the Shares and make such
deductions from the proceeds of sale as may be required to reimburse any loss or liability suffered.
18.6
We will not be responsible for any acts or omissions of the Company, or any broker, settlement
agent, depository, clearing or settlement agent or system.
18.7
We may employ agents and delegates on such terms as we think fit to carry out any part of our
obligations or discretions in connection with the Nominee Service and, save as otherwise provided
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in these Terms and Conditions, we shall be liable for the acts and omissions of such agents and
delegates as if they were our acts or omissions.
18.8
19.
Nothing in this Agreement shall exclude or limit:
(a)
our liability for death or personal injury resulting from the negligence caused by us or the
Nominee; or
(b)
liability for any losses or expenses (including loss of Shares) suffered by you as a direct
result of the negligence, wilful default or fraud of either CIRGT or the Nominee; or
(c)
any other liability which cannot be excluded or limited by law, including FSA Rules and
FSMA.
Termination
By you:
19.1
You may remove all or part of your Shares from the Nominee Service at any time by notifying us on
the appropriate form at the address provided in clause 5.1(b). Your instructions will take immediate
effect on receipt but will not cancel or amend any instructions you have already sent to us.
19.2
If you remove all of your Shares from the Nominee Service, your Agreement with us on these
Terms and Conditions will terminate. If we cease to hold Shares for you, you will need to enter into
a new agreement if, at a later date, you acquire Shares which are to be held through the Nominee
Service.
19.3
Removing all or part of your Shares from the Nominee Service will not affect any of your rights or
obligations arising prior to the date of such removal or which arise in consequence of such removal
or which relate to our provision of the Nominee Service to you and all such rights and obligations
shall continue to be subject to the Terms and Conditions prevailing at the time of the removal. You
will be required to pay any charges that are reasonably incurred for transferring Shares from the
Nominee Service (see also clause 10.2), but will not be required to make any additional payment to
us in respect of the termination of your Agreement with us.
19.4
The Nominee Service will automatically terminate if you die. If we receive adequate proof of your
death and:
(a)
you are the only person registered on the Nominee Register in respect of Shares we hold,
we will follow the instructions of your personal representative (appointed pursuant to a grant
of probate, letters of administration or other legally effective appointment (or overseas
equivalent)); or
(b)
Shares are registered on the Nominee Register as a joint holding by you and one or more
other Members, we will hold such Shares only in the name of such other Member(s) and
only take instruction from such other Member(s) and this Agreement between you and us
shall remain in force, but only between us and the other Member(s).
By us:
19.5
We may withdraw the Nominee Service from you and terminate our Agreement with you on not
less than 30 days’ written notice if, in our opinion, you are in material breach of these Terms and
Conditions or the Nominee is unable to comply with any obligations to which it may be subject in
respect of your Shares under the Company’s Articles of Association or under any applicable laws
or regulations.
19.6
The provision of the Nominee Service is at the discretion of the Company. If the agreement
between the Company and CIRGT for the provision of the Nominee Service terminates, our
Agreement with you will automatically terminate and we will notify you of this in writing.
19.7
Subject to the fees in the fee Schedule, no penalty will be payable by either party on termination of
these Terms and Conditions. On termination by either party and after the relevant notice period,
we will arrange for your Shares to be transferred into your name on the register of shareholders as
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soon as practicable and shall with immediate effect (but subject to clause 19.8) cease to process
instructions from you. You will be sent a share certificate by the Company in respect of your
holding of Shares. We may deduct all amounts due to us before transferring to you any credit
balances on your Nominee Account.
19.8
Termination of your Agreement with us will be without prejudice to the completion of transactions
already initiated. All transactions in progress will be executed in accordance with your instructions
and such transactions will be subject to our current charges (see clause 10).
20.
Conflicts of interest
20.1
You acknowledge and agree that when we (or our agents or delegates) enter into a transaction for
you, we may:
(a)
share charges with our Affiliated Company and other third parties, or receive and retain
remuneration from them in respect of transactions carried out on your behalf. Details of any
such remuneration or sharing arrangements are available to you on request;
(b)
be acting as agent or making arrangements for you on your instructions in relation to
transactions in which we are also acting for other customers; or
(c)
be in a position where we have some other material interest in relation to the transaction.
20.2
In accordance with FSA Rules, CIRGT has in place arrangements, which may be updated from
time to time, to manage conflicts of interest that arise between itself and its clients or between its
clients. CIRGT will deal with potential conflicts of interest in accordance with its Conflicts of
Interests Policy which provides that it will identify and manage conflicts of interest to ensure fair
treatment of all clients and ensure that it acts in the client’s best interests. If it is not possible to
manage or avoid a potential conflict of interest then CIRGT may seek to disclose the general
nature and/or sources of conflict to you before undertaking business for you. CIRGT will provide
full details of the Conflicts of Interest Policy upon receipt of a written request from you.
21.
Default
21.1
We may in our absolute discretion refuse to accept any further orders or instructions from you
and/or terminate this Agreement upon any of the following Specified Events:
21.2
(a)
you do not perform your obligations to us under this Agreement or any transaction
contemplated by this Agreement;
(b)
any warranty or representation made by you as set out at clause 16 is or becomes
incomplete, untrue, inaccurate or misleading;
(c)
a bankruptcy petition is presented to the Court in respect of you;
(d)
any regulator of our business or its rules so requires; or
(e)
we reasonably believe that any of the circumstances set out in 21.1.(a) to 21.1(d) above are
likely to happen and we reasonably believe that such action would be necessary or
desirable to protect our position.
Upon the happening of a Specified Event and without prejudice to CIRGT’s other rights, we
may at our discretion, without notice:
(a)
refuse to perform or reverse any outstanding transaction between us;
(b)
sell any of your investments or other assets held by us (the time, place and method of any
sale and the price shall be at our discretion and we shall inform you of the outcome of the
sale);
(c)
buy in investments, bring any claim for damages or exercise any other right which we may
have at law or otherwise or take any other action which appears appropriate to avoid or
reduce our risk of loss; and/or
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Terms and Conditions of the Ocado Share Account
(d)
combine, close or consolidate all or any of your accounts with us or any of our Affiliated
Companies and off-set any and all amounts owed to, or by, us or any of our Affiliated
Companies in such manner as we may reasonably determine.
21.3
You will bear any costs or associated costs of sale and for reasonable costs, losses,
damages or expenses (including without limitation any legal fees) incurred or suffered by
us as a direct consequence of a Specified Event or our taking any action as a consequence
of such Specified Event.
22.
Protection of information
22.1
The Data Protection Act 1998 provides protection to individuals by governing, amongst other
things, the way in which personal information is held and used. Individuals are also afforded rights
of access to such information held about them.
22.2
CIRGT hereby warrants that it will comply with its notification obligations under the Data Protection
(Notification and Notification Fees) Regulations 2000 and that it will protect your personal
information in accordance with the principles of the Data Protection Act 1998.
22.3
By becoming a Member of the Nominee Service, you agree that we may:
(a)
keep personal details which you or others have provided to us, and any information we
know from running your account on a database, and use such information to carry out the
Nominee Service described in these Terms and Conditions and to deal with your enquiries
and requests connected with the Nominee Service; and
(b)
may disclose information concerning you to the Company, the Nominee, the company’s
registrar, Euroclear UK and Ireland Limited (if entitled to such information) all of which may
disclose the information to regulatory, tax or governmental authorities as appropriate; to
any person with legal, administrative or regulatory power over us in respect of the Nominee
Service; to the broker, or Affiliated Companies who are involved in carrying out functions
related to the Nominee Service administration including such Affiliated Companies which
are outside of the EEA in countries (including India) which do not have similar protections in
place regarding your personal information and its use. However, we are committed to
protecting the confidentiality and security of information we collect about you and we will
ensure that such transfers are made in accordance with the requirements of the Data
Protection Act 1998.
22.4
You agree that the purposes for which we may process your personal information may be
amended from time to time to include other uses or disclosures of personal information subject to
us notifying you of such amendment.
22.5
Under the Data Protection Act 1998, you are entitled, on payment of a fee (of £10 currently), to a
copy of the information we hold about you. If you believe that any information held about you is
incorrect or incomplete, you may request it to be completed or corrected. Please address any
requests for information under this clause to the Data Protection Officer, Capita IRG Trustees
Limited, Nominee Service, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU and
quoting your full name and address, the name of the Company and your Investor Code which may
be found on your personal statement.
22.6
By using the Nominee Service you agree that information relating to you may be disclosed to other
Affiliated Companies so that you may be told about any products or services which might be of
interest to you. You may request that information is not used for this purpose by writing to the Data
Protection Officer, Capita IRG Trustees Limited, Nominee Service, The Registry, 34 Beckenham
Road, Beckenham, Kent, BR3 4TU and quoting your full name and address, the name of the
Company and your Investor Code which may be found on your personal statement.
23.
Tape recording of conversations and record keeping
23.1
You agree that we may:
(a)
record all telephone conversations between you and us; and
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(b)
Terms and Conditions of the Ocado Share Account
use such recordings, or transcripts from such recordings, as evidence in any dispute or
anticipated dispute between you and us.
23.2
Recordings or transcripts made by us may be destroyed under our normal practice (usually, but
not necessarily, two (2) calendar months from the date of the conversation). We may deliver
copies or transcripts of such recordings to any court or regulatory body.
23.3
We strongly recommend that you keep your own records of all communications between you and
us (such as instructions and orders) including details of the times, dates and nature of your
instructions as these details will be important if there is a dispute between you and us.
24.
Complaints and compensation scheme
24.1
If you think that you have reason to make a complaint please write in the first instance to:
Capita IRG Trustees Limited
Nominee Service
The Registry
34 Beckenham Road,
Beckenham,
Kent,
BR3 4TU.
Your complaint will be fully investigated and a full resolution sought. Our complaints procedure is
available upon request, but a copy will be provided automatically to you in the event of a complaint
being received.
24.2
If you are unhappy or dissatisfied with our handling or findings in relation to your dispute or
complaint you may be eligible to refer the matter to the Financial Ombudsman Service for further
investigation at: Financial Ombudsman Service, South Quay Plaza,183 Marsh Wall, London
E14 9SR.
24.3
We reserve the right to take any action necessary, which is the subject of a dispute or complaint
notified to us, for the purpose of limiting the amounts involved in such dispute or complaint. We will
inform you if we exercise this right, which shall be without prejudice to either your rights and
remedies or our rights and remedies. Any action taken by us pursuant to this clause 24.3 will not be
deemed to be an admission on our part.
24.4
CIRGT is a member of the Financial Services Compensation Scheme (‘‘Scheme’’). If we cannot
meet our obligations you may be entitled to compensation from the Scheme. This depends on the
type of business and the circumstances of the claim. Most types of investment business are
covered for 100% of the first £50,000 (a maximum of £50,000) as at the date of these Terms and
Conditions. The amounts of compensation may be changed from time to time and you should
check your entitlement with the Scheme. Further information about compensation arrangements is
available from the Scheme. You can contact the Scheme by calling their Helpline on 0207 892
7300, logging onto their website at www.fscs.org.uk or writing to the Financial Services
Compensation Scheme, 7th Floor, Lloyds Chambers, 1 Portsoken Street, London E1 8BN. You
may request further information concerning the conditions governing compensation and the
formalities which must be completed to obtain compensation by writing to Capita IRG Trustees
Limited, Nominee Service, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU or by
email to: [email protected].
25.
Transfer of the nominee service
We may transfer our duties to any other company at the request of the Company. If the new
company writes to you confirming that it will undertake all of our duties, we will cease to have any
duties and obligations in relation to the Service.
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Terms and Conditions of the Ocado Share Account
26.
Variation/replacement of these terms and conditions
26.1
We may change these terms and conditions in the future for the following reasons:
26.1.1
to reflect reasonable changes in the way we provide the Service to you;
26.1.2
as a result of new services which we may make available to you;
26.1.3
to take account of any corporate restructuring within the Capita group of companies;
26.1.4
where reasonably required as a result of changes in market conditions or market practice;
26.1.5
to take account of changes or anticipated changes to, or to comply better with, applicable
laws or the interpretation of those laws, regulatory requirements, industry guidance or
codes of practice that we follow, or the way that we are regulated;
26.1.6
to reflect a decision or recommendation of a court, ombudsman, regulator or similar body
which is relevant to us or to the Service;
26.1.7
to reflect changes in the Bank of England base rate, other specified market rates or
indices or tax rates;
26.1.8
to rectify errors, inaccuracies or ambiguities;
26.1.9
to reflect alterations in the scope and nature of the Nominee Service provided to you
under these Terms and Conditions resulting from the alterations made to our agreement
with the Company or our system capabilities or administration procedures;
26.1.10 to prevent misuse of the Service;
26.1.11 to take account of, in a proportionate manner, the cost to us of providing the Service;
26.1.12 to prevent fraud or to enhance the security of the Service; or
26.1.13 to make these Conditions easier to understand, fairer to you, or to correct mistakes.
26.2
We will give you at least 30 days’ prior notice of any change to these Terms and Conditions that is
to your disadvantage. You may cancel your agreement with us at any time without charge within
30 days of our sending you notice of such change. If you do not cancel your agreement with us
within this 30 day period then you will be deemed to have been accepted such change.
26.3
We may, as mentioned in clause 10.3, review and notify you of revised charging rates from time to
time.
26.4
If you have received our written notice and do not agree with the proposed changes, you may
terminate our Agreement at any time without charge (see clause 19 above). Any change will be
deemed to have been accepted by you if you have already instructed us to trade on your behalf
after the change has taken effect.
27.
General
27.1
We will not take notice of any trust affecting the Shares whether express, implied or constructive.
27.2
No conduct or delay on our part shall be taken as a waiver or variation of any rights which we may
have unless we waive or vary a particular right in writing. No waiver or variation on a particular
occasion will operate as a waiver or variation of our rights in respect of any other matter.
27.3
If any of the provisions of these Terms and Conditions is held invalid, illegal or unenforceable for
any reason, such provision shall be severed and the remainder of the provisions in these Terms
and Conditions shall continue in full force and effect as if they had been executed with the invalid
provision eliminated.
27.4
The Nominee has the right to enforce these Terms and Conditions in accordance with the
provisions of the Contracts (Rights of Third Parties) Act 1999. Except for the Nominee, nothing in
these Terms and Conditions shall confer or is intended to confer on any third party any benefit or
the right to enforce any terms contained herein for the purposes of the Contracts (Rights of Third
Parties) Act 1999.
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27.5
Terms and Conditions of the Ocado Share Account
This Agreement is subject to English law and you submit to the exclusive jurisdiction of the English
courts.
Fee Schedule (as at the date of this document)
•
Certificate withdrawals into own name—£11.75
•
Transfer to another CREST account—£11.75
•
Duplicate Cheque value between £30 and £100—£12.75
•
Duplicate Cheque value over £100—£16.00
•
Duplicate Tax Voucher—£17.00
•
Each additional Tax Voucher—£3.00
•
Duplicate Statement—£11.75
•
Small Estates (value of shares between £100 and £15,000) (Administration fee)—£37.50 plus
indemnity £37.75
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TAXATION
1.
United Kingdom taxation
The following statements do not constitute tax advice and are intended only as a general guide to current
UK law and HMRC published practice (which are both subject to change at any time, possibly with
retrospective effect). They relate only to certain limited aspects of the UK taxation treatment of holders of
the Ordinary Shares and are intended to apply only, except to the extent stated below, to persons who are
resident and, if individuals, ordinarily resident in the UK for UK tax purposes, and who are absolute
beneficial owners of the Ordinary Shares (otherwise than through an Individual Savings Account or a Self
Invested Personal Pension) and who hold them as investments (and not as securities to be realised in the
course of a trade). They may not apply to certain Shareholders, such as dealers in securities, insurance
companies and collective investment schemes, Shareholders who are exempt from taxation and
Shareholders who have (or are deemed to have) acquired their Ordinary Shares by virtue of an office or
employment. Such persons may be subject to special rules. Any person who is in any doubt as to their tax
position, or who is subject to taxation in any jurisdiction other than the UK, should consult their own
professional adviser without delay.
1.1 Taxation of chargeable gains
Shareholders who are individuals, trustees or personal representatives of deceased persons
A disposal of Ordinary Shares may give rise to a chargeable gain (or allowable loss) for the purposes of
UK capital gains tax, depending on the circumstances and subject to any available exemption or relief.
On 22 June 2010, the UK Government announced its intention to change the rate at which capital gains
tax is charged for individuals, trustees and personal representatives (which, absent such change, would
be a flat rate of 18 per cent.). The following two paragraphs are based on the Company’s understanding of
what is proposed in the Budget delivered on 22 June 2010 and the Finance Bill printed on 28 June 2010.
For individuals, capital gains tax will be charged at 18 per cent. where the total chargeable gains (save for
any chargeable gains actually arising before 23 June 2010) and, generally, total taxable income arising in
a tax year, after all allowable deductions (including losses, the income tax personal allowance and the
capital gains tax annual exempt amount, which is currently £10,100), are less than the upper limit of the
income tax basic rate band (which is currently £37,400). Subject to the following paragraph, to the extent
that any chargeable gains (or part of any chargeable gains) arising in a tax year exceed the upper limit of
the income tax basic rate band when aggregated with any such income (in the manner referred to above),
capital gains tax will be charged at 28 per cent. For trustees and personal representatives of deceased
persons, it is intended that capital gains tax will be charged at a flat rate of 28 per cent.
Chargeable gains arising in the current tax year before 23 June 2010 will continue to be liable to capital
gains tax at 18 per cent and will not be taken into account in determining the rate at which gains arising
after that date should be charged. In working out the capital gains tax payable in the current tax year,
taxpayers will generally be able to deduct losses and the annual exempt amount in the way which
minimises the capital gains tax due.
Corporate Shareholders
Where a Shareholder is within the charge to corporation tax, a disposal of Ordinary Shares may give rise
to a chargeable gain (or allowable loss) for the purposes of UK corporation tax, depending on the
circumstances and subject to any available exemption or relief. Corporation tax is charged on chargeable
gains at the rate applicable to that company. Indexation allowance may reduce the amount of chargeable
gain that is subject to corporation tax but may not create or increase any allowable loss.
Non-UK Resident Shareholders
A Shareholder who is an individual and who is only temporarily resident outside the UK for UK tax
purposes at the date of a disposal of the Ordinary Shares may be liable to UK tax on chargeable gains on
becoming resident or ordinarily resident in the United Kingdom again, in respect of disposals made while
he was temporarily resident outside the United Kingdom, subject to any available exemption or relief.
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Taxation
A Shareholder who is neither resident nor, in the case of an individual, ordinarily resident in the United
Kingdom (and is not temporarily resident outside the UK) will not be liable for UK tax on chargeable gains
realised on a disposal of Ordinary Shares unless such Shareholder carries on:
•
(in the case of a Shareholder who is an individual) a trade, profession or vocation in the UK through a
branch or agency and the Ordinary Shares either have been used in or for the purposes of the trade,
profession or vocation, or have been used or held for the purposes of the branch or agency, or
acquired for use by or for the purposes of the branch or agency; or
•
(in the case of a Shareholder which is a company) a trade in the UK through a permanent
establishment and the Ordinary Shares either have been used in or for the purposes of the trade
carried on through the permanent establishment, or, have been used or held for the purposes of the
permanent establishment or acquired for use by or for the purposes of the permanent establishment.
1.2 Stamp Duty and SDRT
The comments in this section relating to stamp duty and SDRT apply whether or not a Shareholder is
resident or ordinarily resident in the UK.
Issue of Ordinary Shares and sale of Existing Shares
Except in relation to the issue of Ordinary Shares to persons providing clearance services or issuing
depositary receipts (or, in either case, their nominee or agent), referred to below, no stamp duty or SDRT
will generally arise on the issue of Ordinary Shares.
Notwithstanding that stamp duty or SDRT may technically be payable by Investors on the sale to them by
Selling Shareholders of Existing Shares, separate arrangements have been made, and Investors other
than persons providing clearance services or issuing depositary receipts (or, in either case, their nominee
or agent) should have no liability in this regard.
Subject to certain exemptions, a charge to stamp duty or SDRT will arise on the transfer of Ordinary
Shares to particular persons providing a clearance service, their nominees or agents, or to an issuer of
depositary receipts, its nominee or agent. The rate of stamp duty or SDRT, as the case may be, in such
circumstances will generally be 1.5 per cent. of the amount or value of the consideration for the transfer
or, in some circumstances, the value of the Ordinary Shares concerned, in the case of stamp duty
rounded up, if necessary, to the nearest multiple of £5.
Under applicable legislation, there would also be a 1.5 per cent. SDRT charge on the issue of Ordinary
Shares to persons providing clearance services or issuing depositary receipts (or, in either case, their
nominee or agent). However, in October 2009 the European Court of Justice held that such a charge on
the issue of shares to a clearance service is contrary to Council Directive 69/335/EEC. HMRC have
accepted that no such charge can be imposed where the clearance service is located in the EU. HMRC
have also confirmed that they will not seek to levy a 1.5 per cent. SDRT charge on an issue of shares to a
depositary receipt issuer located within the EU. HMRC do not, however, agree that the reasoning of the
European Court of Justice extends to the issue of shares to a clearance service or a depositary receipt
issuer located outside the EU and maintain that a 1.5 per cent. SDRT charge on the issue price of the
shares should apply in those circumstances. It is recommended that, should this charge arise and
Shareholders be responsible for it, they consult their own professional adviser without delay.
There are certain exemptions with the aim of preventing a double charge arising when shares in respect
of which there has already been a 1.5 per cent. stamp duty or SDRT charge move between clearance
services, between depositary receipt issuers, or from one to the other (in either direction). Where shares
enter an EU clearance service or depositary receipt scheme without charge, in accordance with the
recent ruling by the European Court of Justice, a subsequent transfer of those shares to a clearance
service or depositary receipt issuer located outside the EU will not, however, benefit from those
exemptions.
Subsequent dealings in Ordinary Shares
Any subsequent dealings in Ordinary Shares will generally be subject to stamp duty or SDRT in the
normal way. An instrument effecting the transfer on sale of Ordinary Shares will generally be liable to
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Taxation
stamp duty at the rate of 0.5 per cent. (rounded up to the nearest multiple of £5) of the amount or value of
the consideration payable. An unconditional agreement to transfer such shares will generally be liable to
SDRT at the rate of 0.5 per cent. of the amount or value of the consideration payable, but such liability will
be cancelled, or a right to a repayment (generally, with interest) in respect of the payment of such SDRT
liability will arise, if the agreement is completed by a duly stamped transfer within six years of the
agreement having become unconditional. Stamp duty and SDRT are normally the liability of the
purchaser.
No stamp duty or SDRT will arise on a transfer of Ordinary Shares into the CREST system provided that,
in the case of SDRT, the transfer is not for money or money’s worth. Paperless transfers of Ordinary
Shares within CREST are liable to SDRT (at a rate of 0.5 per cent. of the amount or value of the
consideration payable) rather than stamp duty, and SDRT on relevant transactions settled within the
system or reported through it for regulatory purposes will be collected by CREST.
It should be noted that certain categories of person, including specified market intermediaries, are entitled
to an exemption from stamp duty and SDRT in respect of purchases of securities in specified
circumstances.
Certain other persons, being mainly persons providing clearance services or issuing depositary receipts
(or, in either case, their nominee or agent), may be liable to account for stamp duty or SDRT at a higher
rate of 1.5 per cent. on securities issued or transferred to them. See above for the position with respect to
issues and transfers to such persons.
1.3 Taxation of dividends
General
There is no UK withholding tax on dividends.
Individual Shareholders within the charge to UK Income Tax
When the Company pays a dividend to a Shareholder who is an individual resident (for tax purposes) in
the UK, the Shareholder will be entitled to a tax credit equal to one-ninth of the dividend received. The
dividend received plus the related tax credit (the ‘‘gross dividend’’) will be part of the Shareholder’s total
income for UK income tax purposes and will be regarded as the top slice of that income. However, in
calculating the Shareholder’s liability to income tax in respect of the gross dividend, the tax credit (which
equates to 10 per cent. of the gross dividend) is set off against the tax chargeable on the gross dividend.
Basic Rate Taxpayers
In the case of a Shareholder who is liable to income tax at the basic rate, the Shareholder will be subject to
tax on the gross dividend at the rate of 10 per cent. The tax credit will, in consequence, satisfy in full the
Shareholder’s liability to income tax on the gross dividend.
Higher Rate Taxpayers
In the case of a Shareholder who is liable to income tax at the higher rate, the Shareholder will be subject
to tax on the gross dividend at the rate of 32.5 per cent., to the extent that the gross dividend falls above
the threshold for the higher rate of income tax but below the threshold for the additional rate of income tax
when it is treated (as mentioned above) as the top slice of the Shareholder’s income. This means that the
tax credit will satisfy only part of the Shareholder’s liability to income tax on the gross dividend, so that the
Shareholder will have to account for income tax equal to 22.5 per cent. of the gross dividend (which
equates to 25 per cent. of the dividend received). For example, a dividend of £90 from the Company
would represent a gross dividend of £100 (after the addition of the tax credit of £10 (being one-ninth of
£90)) and the Shareholder would be required to account for income tax of £22.50 on the dividend, being
£32.50 (i.e. 32.5 per cent. of £100) less £10 (the amount of the tax credit).
Additional Rate Taxpayers
In the case of a Shareholder who is liable to income tax at the additional rate, the Shareholder will be
subject to tax on the gross dividend at the rate of 42.5 per cent., to the extent that the gross dividend falls
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Part XII
Taxation
above the threshold for the additional rate of income tax when it is treated (as mentioned above) as the
top slice of the Shareholder’s income. This means that the tax credit will satisfy only part of the
Shareholder’s liability to income tax on the gross dividend, so that the Shareholder will have to account for
income tax equal to 32.5 per cent. of the gross dividend (which equates to approximately 36.1 per cent. of
the dividend received). For example, a dividend of £90 from the Company would represent a gross
dividend of £100 (after the addition of the tax credit of £10 (being one-ninth of £90)) and the Shareholder
would be required to account for income tax of £32.50 on the dividend, being £42.50 (i.e. 42.5 per cent. of
£100) less £10 (the amount of the tax credit).
Corporate Shareholders within the charge to UK Corporation Tax
Shareholders within the charge to UK corporation tax which are ‘‘small companies’’ (for the purposes of
UK taxation of dividends) will not generally expect to be subject to tax on dividends from the Company.
Other Shareholders within the charge to UK corporation tax will not be subject to tax on dividends
(including dividends from the Company) so long as the dividends fall within an exempt class and certain
conditions are met. In general, dividends paid on shares that are ‘‘ordinary share capital’’ for UK tax
purposes and are not redeemable, and dividends paid to a person holding less than 10 per cent. of the
issued share capital of the payer (or any class of that share capital) are examples of dividends that fall
within an exempt class.
No Payment of Tax Credit
A Shareholder (whether an individual or a company) who is not liable to tax on dividends from the
Company will not be entitled to claim payment of the tax credit in respect of those dividends.
Non-Residents
The right of a Shareholder who is not resident (for tax purposes) in the UK to a tax credit in respect of a
dividend received from the Company and to claim payment of any part of that tax credit will depend on the
existence and terms of any double taxation convention between the UK and the country in which the
holder is resident, although generally no such payment will be available.
Distributions following a reduction in share capital
On 22 June 2010, the UK Government issued draft legislation which is intended to make it clear that
distributions made out of reserves arising from a reduction in capital by a UK company are subject to the
same rules described for dividends above. The draft legislation is expected to be enacted this year.
2.
United States taxation
This disclosure is limited to the US federal tax issues addressed herein. Additional issues may
exist that are not addressed in this disclosure and that could affect the US federal tax treatment of
the Ordinary Shares. This tax disclosure was written in connection with the promotion or
marketing of the Ordinary Shares by the Company and it cannot be used by any person for the
purpose of avoiding penalties that may be asserted against the person under the Internal
Revenue Code of 1986, as amended (the ‘‘Code’’). Shareholders should seek their own advice
based on their particular circumstances from an independent tax adviser.
The following is a description of certain US federal income tax consequences to the US Shareholders
described below of owning and disposing of Ordinary Shares, but it does not purport to be a
comprehensive description of all tax considerations that may be relevant to a particular person’s decision
to acquire the Ordinary Shares. This discussion applies only to a US Shareholder who owns Ordinary
Shares as capital assets for tax purposes. In addition, it does not describe all of the tax consequences
that may be relevant in light of the US Shareholder’s particular circumstances, including alternative
minimum tax consequences and tax consequences applicable to US Shareholders subject to special
rules, such as:
•
certain financial institutions;
•
dealers or traders in securities who use a mark-to-market method of tax accounting;
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Part XII
Taxation
•
persons holding Ordinary Shares as part of a hedging transaction, straddle, wash sale, conversion
transaction or integrated transaction or persons entering into a constructive sale with respect to the
Ordinary Shares;
•
persons whose functional currency for US federal income tax purposes is not the US dollar;
•
entities classified as partnerships for US federal income tax purposes;
•
tax-exempt entities, including ‘‘individual retirement accounts’’ or ‘‘Roth IRAs’’;
•
persons who own or are deemed to own 10 per cent. or more of the Company by value or of the
Company’s voting shares; or
•
persons holding Ordinary Shares in connection with a trade or business conducted outside of the
United States.
If an entity that is classified as a partnership for US federal income tax purposes holds Ordinary Shares,
the US federal income tax treatment of a partner will generally depend on the status of the partner and the
activities of the partnership. Partnerships holding Ordinary Shares and partners in such partnerships
should consult their tax advisers as to the particular US federal income tax consequences of holding and
disposing of the Ordinary Shares.
This discussion is based on the Code, administrative pronouncements, judicial decisions, final, temporary
and proposed US Treasury regulations, all as of the date hereof, any of which is subject to change,
possibly with retroactive effect.
A ‘‘US Shareholder’’ is a person who, for US federal income tax purposes, is a beneficial owner of
Ordinary Shares and is:
•
a citizen or resident of the United States;
•
a corporation, or other entity taxable as a corporation, created or organised in or under the laws of the
United States, any state therein or the District of Columbia; or
•
an estate or trust the income of which is subject to US federal income taxation regardless of its
source.
US Shareholders should consult their tax advisers concerning the US federal, state, local and non-US tax
consequences of owning and disposing of Ordinary Shares in their particular circumstances.
This discussion assumes that the Company is not, and will not become, a passive foreign investment
company, as described below.
Taxation of distributions
Distributions paid on Ordinary Shares, other than certain pro rata distributions of Ordinary Shares, will be
treated as dividends to the extent paid out of the Company’s current or accumulated earnings and profits
(as determined under US federal income tax principles). Because the Company does not maintain
calculations of its earnings and profits under US federal income tax principles, it is expected that
distributions generally will be reported to US Shareholders as dividends. Subject to applicable limitations,
dividends paid to certain non-corporate US Shareholders in taxable years beginning before 1 January
2011 may be taxable at favourable rates, up to a maximum rate of 15 per cent. US Shareholders should
consult their tax advisers regarding the availability of the reduced tax rate on dividends in their particular
circumstances. Dividends will be treated as foreign-source dividend income to US Shareholders and will
not be eligible for the dividends-received deduction generally available to US corporations under the
Code. Dividends will be included in a US Shareholder’s income on the date of the US Shareholder’s
receipt of the dividend. The amount of any dividend paid in pounds sterling will be the US dollar amount
calculated by reference to the exchange rate in effect on the date of receipt, regardless of whether the
payment is in fact converted into US dollars. If the dividend is converted into US dollars on the date of
receipt, a US Shareholder should not be required to recognise foreign currency gain or loss in respect of
the dividend income. A US Shareholder may have foreign currency gain or loss if the dividend is
converted into US dollars after the date of receipt. Foreign currency income or losses generally will be
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Part XII
Taxation
treated as ordinary income or losses to such US Shareholder and generally will be income or losses from
sources within the United States.
Sale or other disposition of Ordinary Shares
For US federal income tax purposes, gain or loss realised on the sale or other disposition of Ordinary
Shares will be capital gain or loss, and will be long-term capital gain or loss if the US Shareholder held the
Ordinary Shares for more than one year. The amount of the gain or loss will equal the difference between
the US Shareholder’s tax basis in the shares disposed of and the amount realised on the disposition, in
each case as determined in US dollars. This gain or loss will generally be US-source gain or loss for
foreign tax credit purposes.
Passive foreign investment company rules
The Company does not believe that it was a passive foreign investment company (a ‘‘PFIC’’) for US
federal income tax purposes for its most recent taxable year and does not expect to become a PFIC in the
foreseeable future. However, since PFIC status depends on the composition of the Company’s income
and assets and the market value of its assets from time to time, which in turn may be determined in part by
reference to the market price of the Ordinary Shares, there can be no assurance that the Company will
not be a PFIC for any taxable year. In general, a non-US corporation will be considered a PFIC for any
taxable year in which (i) 75 per cent. or more of its gross income consists of passive income or (ii) 50 per
cent. or more of the average quarterly value of its assets consists of assets that produce, or are held for
the production of, passive income. For purposes of the above calculations, a non-US corporation that
directly or indirectly owns at least 25 per cent. by value of the shares of another corporation is treated as if
it held its proportionate share of the assets of the other corporation and received directly its proportionate
share of the income of the other corporation. Passive income generally includes dividends, interest, rents,
royalties and capital gains.
If the Company were a PFIC for any taxable year during which a US Shareholder held Ordinary Shares,
gains recognised by a US Shareholder on a sale or other disposition (including certain pledges) of
Ordinary Shares would be allocated rateably over the US Shareholder’s holding period for the Ordinary
Shares. The amounts allocated to the taxable year of the sale or other disposition and to any year before
the Company became a PFIC would be taxed as ordinary income. The amount allocated to each other
taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as
appropriate, for that taxable year, and an interest charge would be imposed on the amount of such tax.
Further, to the extent that any distribution received by a US Shareholder on its Ordinary Shares exceeds
125 per cent. of the average of the annual distributions on the Ordinary Shares received during the
preceding three years or the US Shareholder’s holding period, whichever is shorter, that distribution
would be subject to taxation in the same manner as gains, described immediately above. Certain
elections may be available that would result in alternative treatments (such as mark-to-market treatment)
of the Ordinary Shares. US Shareholders should consult their tax advisers to determine whether any of
these elections would be available and, if so, what the consequences of the alternative treatments would
be in their particular circumstances. In addition, if the Company were a PFIC, the 15 per cent. dividend
rate discussed above with respect to dividends paid to certain non-corporate US Shareholders would not
apply.
Information reporting and backup withholding
Payments of dividends and sales proceeds that are made within the United States or through certain
US-related financial intermediaries generally are subject to information reporting, and may be subject to
backup withholding, unless (i) the US Shareholder is an exempt recipient, or (ii) in the case of backup
withholding, the US Shareholder provides a correct taxpayer identification number and certifies that it is
not subject to backup withholding. The amount of any backup withholding from a payment to a US
Shareholder will be allowed as a credit against the holder’s US federal income tax liability and may entitle
it to a refund, provided that the required information is furnished to the Internal Revenue Service in a
timely fashion.
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PART XIII
ADDITIONAL INFORMATION
1.
Persons responsible
The Directors, whose names appear on page 32, and the Company accept responsibility for the
information contained in this document. To the best of the knowledge of the Directors and the Company
(who have taken all reasonable care to ensure that such is the case), the information contained in this
document is in accordance with the facts and does not omit anything likely to affect the import of such
information.
2.
Incorporation and activity of the Company
The Company was incorporated and registered in England and Wales under the Companies Act as a
private company limited by shares on 8 December 2009 with the name ‘‘Ocado Group Limited’’ and the
registered number 7098618. The principal legislation under which the Company operates is the
Companies Act and regulations made thereunder.
On 23 June 2010, by members’ written resolutions:
(A)
the Company resolved to be re-registered as a public limited company;
(B)
the Company resolved to change its name from ‘‘Ocado Group Limited’’ to ‘‘Ocado Group plc’’;
(C)
the Company adopted the Articles in substitution for the Old Articles; and
(D)
the Company resolved that, subject to, and with effect upon Admission, the Final Articles be
adopted in substitution for the Articles.
The Company is domiciled in the UK with its registered and head office at Titan Court, 3 Bishops Square,
Hatfield Business Park, Hatfield, Hertfordshire AL10 9NE. Its telephone number is +44 (0)1707 228000.
The Company has, since 9 February 2010, been the holding company of the Group and Ocado, the
operating company of the Group, is a wholly-owned subsidiary of the Company.
3.
Share capital of the Company
3.1
Incorporation
The Company was incorporated with one ordinary share of 110 pence which was subscribed for (nil paid)
by the subscriber to the memorandum of association of the Company, Trusec Limited.
On 10 December 2009, the subscriber share in the capital of the Company held by Trusec Limited was
transferred to Neill Abrams, a current Director of the Company and Neill Abrams extinguished the liability
to pay £1.10 for the share.
By member’s written resolutions passed on 19 December 2009:
(A)
the Company adopted the Old Articles; and
(B)
the subscriber share in the capital of the Company was reclassified as a Subscriber Ordinary Share.
3.2
Resolutions to give effect to the Scheme
Also on 19 December 2009, it was resolved by written resolutions that:
(A)
subject to and conditional on the Scheme becoming effective, the Directors be generally and
unconditionally authorised to exercise all the powers of the Company to allot shares in the Company
and to grant rights for or to convert security into shares in the Company:
(i)
up to an aggregate nominal amount of £450,000,000 as required for the purposes of the
Scheme;
(ii)
up to an aggregate nominal amount of £19,390,140 as required for the purposes of
arrangements requiring the Company to satisfy the entitlements of optionholders,
warrantholders and participants in the ESOS who had entitlements to Ordinary Shares and/or
Preference Shares following implementation of the Scheme; and
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Part XIII
(iii)
Additional Information
up to an aggregate nominal amount of £244,409,000 (representing the equivalent subsisting
authority in Ocado as at the date of the resolution),
for a period expiring (unless previously revoked or varied by the Company in general meeting) five
years from the date of the resolution, save that, in each case, the Company may before such expiry
make an offer or agreement which would or might require shares in the Company to be allotted or
rights to subscribe for or convert security into shares to be granted after such expiry and the Board
may allot shares or grant rights to subscribe for or convert security into shares in pursuance of such
an offer or agreement as if the authority conferred by the resolution had not expired;
(B)
subject to and conditional on the Scheme becoming effective and the passing of the resolution
described in paragraph (A) above, the Directors be empowered, pursuant to section 571 of the
Companies Act 2006, to allot equity securities (as defined in section 560 of the Companies Act) for
cash pursuant to the authority conferred by the resolution described in paragraph (A) above and/or
where such allotment constitutes an allotment of equity securities by virtue of section 560(2)(b) of
the Companies Act, as if section 561(1) of the Companies Act did not apply to any such allotment,
provided that this power shall be limited to:
(i)
the allotment of equity securities in connection with a rights issue, open offer or any other
pre-emptive offer in favour of holders of Ordinary Shares and/or Preference Shares in
proportion (as nearly as may be practicable) to their respective holdings of such shares, but
subject in each case to such exclusion or other arrangements as the Directors may deem
necessary or expedient to deal with fractional entitlements or legal or practical problems
arising in any overseas territory, the requirements of any regulatory body or stock exchange or
any other matter whatsoever; and
(ii)
otherwise than pursuant to sub-paragraph (i) above up to an aggregate nominal amount of
£244,409,000 (representing the equivalent subsisting authority in Ocado at the date of the
resolution),
and shall expire five years from the date of the resolution, save that the Company may before such
expiry make an offer or agreement which would or might require equity securities to be allotted after
such expiry and the Board may allot equity securities in pursuance of such an offer or agreement as
if the power conferred by the resolution had not expired; and
(C)
subject to and conditional upon:
(a)
the Ordinary Shares and the Preference Shares required to be allotted and issued by the
Company pursuant to the Scheme, by which the Company would be bound, having been
allotted and issued and registered in the names of the persons entitled to such Ordinary
Shares and/or Preference Shares in the Company’s register of members;
(b)
in respect of sub-paragraph (ii) below only, implementation of the Scheme involving the
cancellation of the entire issued share capital of Ocado and the subsequent issue of shares in
Ocado to the Company; and
(c)
the Scheme becoming effective and fully implemented,
the share capital of the Company be reduced by:
3.3
(i)
cancelling paid up share capital to the extent of 108 pence on each Ordinary Share and each
Preference Share in the capital of the Company issued pursuant to the Scheme and reducing
the nominal value of each such Ordinary Share and each such Preference Share from
110 pence to 2 pence; and
(ii)
cancelling and extinguishing the Subscriber Ordinary Share.
The Scheme
On the Scheme effective date, being 9 February 2010, pursuant to the Scheme, all of the Ocado Limited
Ordinary Shares and the Ocado Limited Preference Shares held at the Scheme record time, being 6pm
on 8 February 2010, were cancelled and, forthwith, Ocado issued 100 Ocado Limited Ordinary Shares to
the Company for £1 in aggregate, credited as fully paid, and, in consideration of the cancellation of the
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Part XIII
Additional Information
Ocado Limited Ordinary Shares and the Ocado Limited Preference Shares and the issue of 100 Ocado
Limited Ordinary Shares to the Company, the Company issued, in aggregate, 185,715,900 Ordinary
Shares and 247,474,900 Preference Shares to holders of such Ocado Limited Ordinary Shares and/or
Ocado Limited Preference Shares (as applicable) at the Scheme record time, credited as fully paid, on
the basis of one hundred Ordinary Shares and/or one hundred Preference Shares for each Ocado
Limited Ordinary Share and/or Ocado Limited Preference Share held (as applicable). The effect of the
Scheme was therefore to replicate the shareholders’ register of Ocado at the level of the Company.
Details of the Company’s Major Shareholders are set out in section 8 of this Part XIII.
On 16 February 2010, pursuant to an order of the Court confirming the reduction of capital of the
Company which was registered by the Registrar of Companies on that date, the Company’s share capital
was reduced by decreasing the nominal value of each Ordinary Share and each Preference Share issued
pursuant to the Scheme from 110 pence to 2 pence. As part of the same reduction of capital, the
Subscriber Ordinary Share was cancelled and extinguished.
3.4
The Preference Shares
The Preference Shares have certain conversion rights under the Articles. The holders of the Preference
Shares are entitled at any time and from time to time to convert any of the Preference Shares held by
them into the same number of Ordinary Shares. All of the Preference Shares shall automatically convert
into the same number of Ordinary Shares on Admission and the Ordinary Shares resulting from the
exercise of such a conversion shall, as from the date of conversion, rank pari passu in all respects with the
existing Ordinary Shares in the capital of the Company.
3.5
Total issued share capital
As at 5 July 2010, the latest practicable date prior to the publication of this document, the share capital of
the Company was £8,670,916, comprising 186,070,920 Ordinary Shares of 2 pence each (of which
32,476,700 were held by the EBT Trustee pursuant to the JSOS) and 247,474,900 Preference Shares of
2 pence each.
3.6
Corporate steps taken prior to the publication of this document
By written resolutions of the Company’s shareholders passed on 23 June 2010, it was resolved that:
(A)
subject to and conditional upon (in the case of the authorities described in paragaphs (ii) to (iv)
below) Admission, the Board be generally and unconditionally authorised, in substitution for (with
effect from Admission) all subsisting authorities, to exercise all powers of the Company to allot
shares in the Company and to grant rights to subscribe for or to convert any security into shares in
the Company:
(i)
up to an aggregate nominal amount of £5,000,000 in connection with the Offers;
(ii)
up to an aggregate nominal amount of £50,000 as required for the purposes of arrangements
requiring the Company to satisfy the entitlements of non-employee optionholders who have
entitlements to Ordinary Shares following Admission;
(iii)
up to an aggregate nominal amount of £6,666,666 (such amount to be reduced by the nominal
amount of any shares in the Company allotted or rights to subscribe for or to convert any
security into shares in the Company granted under sub-paragraph (iv) below in excess of such
sum); and
(iv)
comprising equity securities (as defined in section 560(1) of the Companies Act) up to an
aggregate nominal amount of £13,333,333 (such amount to be reduced by any allotments of
any shares in the Company or grants of rights to subscribe for or to convert any security into
shares in the Company made under sub-paragraph (iii) above) in connection with an offer by
way of a rights issue:
(a)
to holders of Ordinary Shares in proportion (as nearly as may be practicable) to their
existing holdings; and
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Part XIII
(b)
Additional Information
to holders of other equity securities as required by the rights of those securities or as the
Board otherwise considers necessary,
and so that the Board may impose any limits or restrictions and make any arrangements which
it considers necessary or appropriate to deal with treasury shares, fractional entitlements,
record dates, legal, regulatory or practical problems in, or under the laws of, any territory or
any other matter,
such authorities to apply until the end of the next annual general meeting of the Company (or, if
earlier, until the close of business on 19 September 2011) but, in each case, during this period the
Company may make offers and enter into agreements which would, or might, require shares to be
allotted or rights to subscribe for or convert securities into shares to be granted after the authority
ends and the Board may allot shares or grant rights to subscribe for or convert securities into shares
in the Company under any such offer or agreement as if the authority had not ended;
(B)
subject to and conditional upon the passing of the resolution described in section 3.6(A) above, the
Board be given power, in substitution for all subsisting powers, to allot equity securities (as defined
in the Companies Act) for cash under the authority given by the resolution described in
section 3.6(A) above and/or to sell Ordinary Shares held by the Company as treasury shares for
cash as if section 561 of the Companies Act did not apply to any such allotment or sale, such power
to be limited:
(i)
to the allotment of equity securities up to an aggregate nominal amount of £5 million in
connection with the Offers;
(ii)
to the allotment of equity securities and sale of treasury shares for cash in connection with an
offer of, or invitation to apply for, equity securities (but in the case of the authority granted
under paragraph (iv) of the resolution described at section 3.6(A) above, by way of a rights
issue only):
(a)
to holders of Ordinary Shares in proportion (as nearly as may be practicable) to their
existing holdings; and
(b)
to holders of other equity securities, as required by the rights of those securities, or as the
Board otherwise considers necessary as permitted by the rights of those securities,
and so that the Board may impose any limits or restrictions and make any arrangements which
it considers necessary or appropriate to deal with treasury shares, fractional entitlements,
record dates, legal, regulatory or practical problems in, or under the laws of, any territory or
any other matter; and
(iii)
in the case of the authority granted under sub-paragraph (iii) of the resolution described at
section 3.6(A) above and/or in the case of any sale of treasury shares for cash, to the allotment
(otherwise than under paragraph (ii) above) of equity securities or sale of treasury shares up to
a nominal amount of £1 million,
such power to apply until the end of the next annual general meeting of the Company (or, if earlier,
until the close of business on 19 September 2011 but, in each case, during this period the Company
may make offers, and enter into agreements, which would, or might, require equity securities to be
allotted (and treasury shares to be sold) after the power ends and the Board may allot equity
securities (and sell treasury shares) under any such offer or agreement as if the power had not
ended; and
(C)
subject to and conditional upon Admission, the Company be authorised for the purposes of
section 701 of the Companies Act to make one or more market purchases (as defined in
section 693(4) of the Companies Act) of its Ordinary Shares, such power to be limited:
(i)
to a maximum number of 100,000,000 Ordinary Shares;
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Part XIII
(ii)
Additional Information
by the condition that the minimum price which may be paid for an Ordinary Share is 2 pence
and the maximum price which may be paid for an Ordinary Share is the highest of:
(a)
an amount equal to 5 per cent. above the average market value of an Ordinary Share for
the five Business Days immediately preceding the day on which that Ordinary Share is
contracted to be purchased; and
(b)
the higher of the price of the last independent trade and the highest current independent
bid on the trading venues where the purchase is carried out,
in each case, exclusive of expenses;
such power to apply until the end of the next annual general meeting of the Company (or, if earlier,
19 September 2011) but in each case so that the Company may enter into a contract to purchase
Ordinary Shares which will or may be completed or executed wholly or partly after the power ends
and the Company may purchase Ordinary Shares pursuant to any such contract as if the power had
not ended.
The Directors undertake that, to the extent that the authority conferred under sub-paragraph (iii) of
the resolution described in section 3.6(A) above is in respect of an aggregate nominal amount which
exceeds the aggregate of (a) the aggregate nominal amount of the Company’s issued ordinary
share capital immediately following Admission (the ‘‘Admission Capital’’) and (b) one-third of the
Admission Capital, they will not exercise that authority in respect of such excess.
The Directors undertake that, to the extent that the authority conferred under sub-paragraph (iv) of
the resolution described in section 3.6(A) above is in respect of an aggregate nominal amount which
exceeds the aggregate of (a) the aggregate nominal amount of the Admission Capital and
(b) two-thirds of the Admission Capital, they will not exercise that authority in respect of such
excess.
The Directors undertake to limit the exercise of the power conferred by the resolution described in
section 3.6(B) above, as limited by sub-paragraph (iii) of that paragraph, to an aggregate nominal
amount which is not more than the aggregate of (a) the aggregate nominal amount of the Admission
Capital and (b) 5 per cent. of the Admission Capital.
The Directors undertake that, to the extent that the authority conferred by the resolution referred to
in section 3.6(C) above is in respect of an aggregate number of shares which exceeds the
aggregate of (a) the aggregate number of Ordinary Shares in issue immediately following
Admission (the ‘‘Aggregate Number’’) and (b) 10 per cent. of the Aggregate Number, they will not
exercise that authority in respect of such excess.
3.7
Confirmations
At the date of this document (and save as disclosed in sections 3, 9.3, 11, 12 and 17.4 of this Part XIII):
(A)
no share or loan capital of the Company has, since the incorporation of the Company, been issued
or agreed to be issued, or is now proposed to be issued, fully or partly paid, either for cash or for a
consideration other than cash, to any person;
(B)
no commission, discounts, brokerages or other special terms have been granted by the Company in
connection with the issue or sale of any share or loan capital; and
(C)
no share or loan capital of the Company is under option or agreed, conditionally or unconditionally,
to be put under option.
All of the Offer Shares have been marketed and will be available to the public in the UK.
Under the Final Articles and, in the case of the New Ordinary Shares, following their being issued, the
Ordinary Shares will be in registered form and capable of being held in Certificated and Uncertificated
form. No temporary documents of title have been or will be issued in respect of the Ordinary Shares. The
Ordinary Shares will rank pari passu for dividends.
As at 5 July 2010, being the last practicable date prior to the date of this document, the Company held no
treasury shares (as defined in the Companies Act 2006). However, the 32,476,700 Existing Shares held
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Part XIII
Additional Information
by the EBT Trustee pursuant to the JSOS are treated as treasury shares in the Group’s consolidated
balance sheet in accordance with IAS 32 ‘‘Financial Instruments: Presentation’’. No Ordinary Shares
have been issued other than fully paid.
Immediately following Admission, the Company’s share capital is expected to be as follows:
Number of Ordinary Shares expected to be in issue immediately following
Admission(1),(2)
497,476,810
(1)
Assumes that the Offer Price is set at the mid-point of the Price Range. This figure excludes the 32,476,700 Ordinary Shares
held by the EBT Trustee pursuant to the JSOS.
(2)
Assumes that all Selling Optionholders exercise their exercisable options.
Further information about the Ordinary Shares and the rights attaching to them is set out in sections 4
and 5 below, and further information on dealing arrangements and CREST is set out in section 21.
4.
Information about the Ordinary Shares
4.1
Description of the type and class of securities being offered
The Ordinary Shares have a nominal value of 2 pence each. Following the Offers, the Company will have
one class of Ordinary Shares, the rights of which are set out in the Final Articles, a summary of which is
set out in section 5 of this Part XIII.
When admitted to trading, the ISIN of the Ordinary Shares will be GB00B3MBS747.
The Existing Shares are, and the New Ordinary Shares will be, credited as fully paid and free from all
liens, equities, charges, encumbrances and other interests. The Existing Shares rank, and the New
Ordinary Shares will rank, in full for all dividends and distributions on Ordinary Shares of the Company
declared, made or paid after their issue.
4.2
Legislation under which the Ordinary Shares are created
The Existing Shares have been, and the New Ordinary Shares will be, created under the Companies Act.
4.3
Listing
Application will be made to the UK Listing Authority for all of the Ordinary Shares to be admitted to the
premium listing segment of the Official List. Application will also be made to the London Stock Exchange
for the Ordinary Shares to be admitted to trading on its main market for listed securities. It is expected that
Admission will become effective and that dealings in the Ordinary Shares will commence on the London
Stock Exchange by no later than 8.00 a.m. on 26 July 2010.
Listing of the Ordinary Shares is not being sought on any stock exchange other than the London Stock
Exchange. Conditional dealings in the Ordinary Shares (on a ‘‘when issued’’ basis) are expected to
commence on 21 July 2010. It is expected that Admission will become effective and that unconditional
dealings in the Ordinary Shares will commence at 8.00 a.m. (London time) on 26 July 2010. Dealings on
the London Stock Exchange before Admission will only be settled if Admission takes place. All dealings
before the commencement of unconditional dealings will be of no effect if Admission does not take place
and such dealings will be at the sole risk of the parties concerned.
4.4
Form and currency of the Ordinary Shares
The Ordinary Shares will be in registered form and will be capable of being held in Certificated and
Uncertificated form. The Registrar of the Company is Capita Registrars Limited of The Registry,
34 Beckenham Road, Beckenham, Kent BR3 4TU.
Title to the Certificated Ordinary Shares (if any) will be evidenced by entry in the register of members of
the Company and title to Uncertificated Ordinary Shares will be evidenced by entry in the operator
register maintained by Euroclear UK (which will form part of the register of members of the Company).
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No share certificates will be issued in respect of the Ordinary Shares in Uncertificated form. If any such
shares are converted to be held in Certificated form, share certificates will be issued in respect of those
shares in accordance with applicable legislation.
The Ordinary Shares are denominated in pounds sterling.
4.5
Rights attached to the Ordinary Shares
Each New Ordinary Share will, when issued and fully paid, rank pari passu in all respects with each
Existing Share and will have the same rights (including voting and dividend rights and rights on a return of
capital) and restrictions as each Existing Share, as set out in the Final Articles.
Subject to the provisions of the Companies Act, any equity securities issued by the Company for cash
must first be offered to Shareholders in proportion to their holdings of Ordinary Shares. The Companies
Acts and the Listing Rules allow for the disapplication of pre-emption rights which may be waived by a
special resolution of the Shareholders, either generally or specifically, for a maximum period not
exceeding five years.
Except in relation to dividends which have been declared and rights on a liquidation of the Company, the
Shareholders have no rights to share in the profits of the Company.
The Ordinary Shares are not redeemable. However, the Company may purchase or contract to purchase
any of the Ordinary Shares on or off-market, subject to the Companies Act and the requirements of the
Listing Rules. The Company may purchase Ordinary Shares only out of distributable reserves or the
proceeds of a new issue of shares made for the purpose of funding the repurchase.
Further details of the rights attached to the Ordinary Shares in relation to attendance and voting at general
meetings, entitlements on a winding-up of the Company and transferability of shares are set out in
section 5 of this Part XIII.
Further details of the voting and dividend rights attaching to Ordinary Shares issued pursuant to the JSOS
are set out in section 11.3 of this Part XIII.
4.6
Authorities relating to the New Ordinary Shares
Please refer to section 3 of this Part XIII for a description of the authorities in place relating to the Ordinary
Shares.
4.7
Description of restrictions on free transferability
Save as set out below and in section 11.3 of this Part XIII, the Ordinary Shares will be freely transferable.
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.
4.8
Taxation
Certain information on taxation in the UK and the United States with regard to the Offers is set out in
Part XII (Taxation). The information contained in Part XII (Taxation) is intended only as a general guide to
the current tax position in the UK and the United States for the Shareholders described therein.
Prospective Shareholders should consult their own tax advisers regarding the tax treatment of the
ownership and disposition of Ordinary Shares in light of their own circumstances. Prospective
Shareholders who are in any doubt as to their tax position or who are subject to tax in any other
jurisdiction should consult an appropriate professional adviser immediately.
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4.9
Additional Information
Mandatory bids, squeeze-out and sell-out rules relating to the Ordinary Shares
Please refer to section 6 of this Part XIII for information relating to mandatory bids, squeeze-out and
sell-out rules which are relevant to holders of Ordinary Shares.
5.
Summary of the Final Articles
The Final Articles, which were adopted on 23 June 2010 subject to and with effect upon Admission,
contain (amongst others) provisions to the following effect.
5.1
Unrestricted objects
The objects of the Company are unrestricted.
5.2
Limited Liability
The liability of the Company’s members is limited to any unpaid amount on the shares in the Company
held by them.
5.3
Change of Name
The Final Articles allow the Company to change its name by resolution of the Directors. This is in addition
to the Company’s statutory ability to change its name by special resolution under the Companies Act.
5.4
Share rights
Subject to applicable statutes (in this section the ‘‘Companies Acts’’), any resolution passed by the
Company under the Companies Acts and other Shareholders’ rights, shares may be issued with such
rights and restrictions as the Company may by ordinary resolution decide, or (if there is no such resolution
or so far as it does not make specific provision) as the Board may decide. These rights and restrictions will
apply as if they were set out in the Final Articles. Redeemable shares may be issued. The Directors can
decide on the terms and conditons and the manner of redemption of any redeemable shares. These
terms and conditons will apply as if they were set out in the Final Articles. Subject to the Final Articles, the
Companies Acts and other Shareholders’ rights, the shares in the Company are at the disposal of the
Board.
5.5
Voting rights
Shareholders will be entitled to vote at a general meeting or class meeting whether on a show of hands or
a poll, as provided in the Companies Acts. The Companies Act 2006 provides that:
(A)
on a show of hands every member present in person has one vote and every proxy present who has
been duly appointed by one or more members will have one vote, except that a proxy has one vote
for and one vote against if the proxy has been duly appointed by more than one member and the
proxy has been instructed by one or more members to vote for and by one or more other members
to vote against. For this purpose the Final Articles provide that, where a proxy is given discretion as
to how to vote on a show of hands, this will be treated as an instruction by the relevant Shareholder
to vote in the way that the proxy decides to exercise that discretion; and
(B)
on a poll every member has one vote per share held by him and he may vote in person or by one or
more proxies. Where he appoints more than one proxy, the proxies appointed by him taken together
shall not have more extensive voting rights than he could exercise in person.
This is subject to any rights or restrictions which are given to any shares or on which shares are held.
If more than one joint Shareholder votes (including voting by proxy), the only vote which will count is the
vote of the person whose name is listed before the other voters on the register for the share.
5.6
Restrictions
No Shareholder shall be entitled to vote at any general meeting or class meeting in respect of any share
held by him if any call or other sum then payable by him in respect of that share remains unpaid or if a
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member has been served with a restriction notice (as defined in the Final Articles) after failure to provide
the Company with information concerning interests in those shares required to be provided under the
Companies Acts.
5.7
Dividends and other distributions
The Company may by ordinary resolution from time to time declare dividends not exceeding the amount
recommended by the Board. Subject to the Companies Acts, the Board may pay interim dividends, and
also any fixed rate dividend, whenever the financial position of the Company, in the opinion of the Board,
justifies its payment. If the Board acts in good faith, it is not liable to holders of shares with preferred or pari
passu rights for losses arising from the payment of interim or fixed dividends on other shares.
The Board may withhold payment of all or any part of any dividends or other monies payable in respect of
the Company’s shares from a person with a 0.25 per cent. interest (as defined in the Final Articles) if such
a person has been served with a restriction notice (as defined in the Final Articles) after failure to provide
the Company with information concerning interests in those shares required to be provided under the
Companies Acts.
Except insofar as the rights attaching to, or the terms of issue of, any share otherwise provide, all
dividends shall be apportioned and paid pro rata according to the amounts paid up on the share during
any portion of the period in respect of which the dividend is paid. Except as set out above, dividends may
be declared or paid in any currency.
The Board may if authorised by an ordinary resolution of the Company offer ordinary Shareholders
(excluding any member holding shares as treasury shares) in respect of any dividend the right to elect to
receive ordinary shares by way of scrip dividend instead of cash.
Any dividend unclaimed after a period of 12 years from the date when it was declared or became due for
payment shall be forfeited and revert to the Company.
The Company may stop sending cheques, warrants or similar financial instruments in payment of
dividends by post in respect of any shares or may cease to employ any other means of payment, including
payment by means of a relevant system, for dividends if either (i) at least two consecutive payments have
remained uncashed or are returned undelivered or that means of payment has failed or (ii) one payment
remains uncashed or is returned undelivered or that means of payment has failed and reasonable
enquiries have failed to establish any new postal address or account of the holder. The Company may
resume sending dividend cheques, warrants or similar financial instruments or employing that means of
payment if the holder requests such resumption in writing.
5.8
Variation of rights
Subject to the Companies Acts, rights attached to any class of shares may be varied with the written
consent of the holders of not less than three-fourths in nominal value of the issued shares of that class
(calculated excluding any shares held as treasury shares), or with the sanction of a special resolution
passed at a separate general meeting of the holders of those shares. At every such separate general
meeting (except an adjourned meeting) the quorum shall be two persons holding or representing by proxy
not less than one-third in nominal value of the issued shares of the class (calculated excluding any shares
held as treasury shares).
The rights conferred upon the holders of any shares shall not, unless otherwise expressly provided in the
rights attaching to those shares, be deemed to be varied by the creation or issue of further shares ranking
pari passu with them.
5.9
Transfer of shares
The shares are in registered form. Any shares in the Company may be held in Uncertificated form and,
subject to the Final Articles, title to Uncertificated shares may be transferred by means of a relevant
system. Provisions of the Final Articles do not apply to any Uncertificated shares to the extent that such
provisions are inconsistent with the holding of shares in Uncertificated form or with the transfer of shares
by means of a relevant system.
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Subject to the restrictions contained in the Final Articles described in this section 5.9, any member may
transfer all or any of his Certificated shares by an instrument of transfer in any usual form or in any other
form which the Board may approve. The instrument of transfer must be signed by or on behalf of the
transferor and (in the case of a partly paid share) the transferee.
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 Board may
also decline to register a transfer of a Certificated share unless the instrument of transfer:
(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 Final 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.
The Board may decline to register a transfer of any of the Company’s Certificated shares by a person with
a 0.25 per cent. interest (as defined in the Final Articles) if such a person has been served with a
restriction notice (as defined in the Final Articles) after failure to provide the Company with information
concerning interests in those shares required to be provided under the Companies Acts, unless the
transfer is shown to the Board to be pursuant to an arm’s length sale (as defined in the Final Articles).
5.10 Sub-division of share capital
Any resolution authorising the Company to sub-divide any of its shares can provide that, as between the
holders of the divided shares, different rights and restrictions of a kind which the Company can apply to
new shares can apply to different dividend shares.
5.11 General meetings
The Final Articles rely on the Companies Act provisions dealing with the calling of general meetings. The
Companies Act provides that a general meeting (other than an adjourned meeting) must be called by
notice of at least 21 days in the case of an annual general meeting and at least 14 days in any other case.
Notice of a general meeting must be given in hard copy form, in electronic form, or by means of a website
and must be sent to every member and every Director. It must state the time and date and the place of the
meeting and the general nature of the business to be dealt with at the meeting. A notice calling an annual
general meeting must state that the meeting is an annual general meeting.
Each Director shall be entitled to attend and speak at any general meeting. The chairman of the meeting
may invite any person to attend and speak at any general meeting where he considers that this will assist
in the deliberations of the meeting.
5.12 Directors
(A)
Number of Directors
The Directors shall be not less than two and not more than 15 in number. The Company may by ordinary
resolution vary the minimum and/or maximum number of Directors.
(B)
Directors’ shareholding qualification
A Director shall not be required to hold any shares in the Company.
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(C)
Additional Information
Appointment of Directors
Directors may be appointed by the Company by ordinary resolution or by the Board. A Director appointed
by the Board holds office only until the next following annual general meeting of the Company and is then
eligible for re-appointment.
The Board or any committee authorised by the Board may from time to time appoint one or more Directors
to hold any employment or executive office for such period and on such terms as they may determine and
may also revoke or terminate any such appointment.
(D)
Retirement of Directors
At every annual general meeting of the Company, each Director shall retire from office and may offer
himself for re-appointment by the members.
(E)
Removal of Directors by special resolution
The Company may by special resolution remove any Director before the expiration of his period of office.
(F)
Vacation of office
The office of a Director shall be vacated if:
(i)
he resigns or offers to resign and the Board resolve to accept such offer;
(ii)
his resignation is requested by all of the other Directors and all of the other Directors are not
less than three in number;
(iii)
he is or has been suffering from mental or physical ill-health and the Board resolves that his
office be vacated;
(iv)
he is absent without the permission of the Board from meetings of the Board (whether or not an
alternate Director appointed by him attends) for six consecutive months and the Board
resolves that his office is vacated;
(v)
he becomes bankrupt or compounds with his creditors generally;
(vi)
he is prohibited by law from being a Director;
(vii) he ceases to be a Director by virtue of the Companies Acts; or
(viii) he is removed from office pursuant to the Final Articles.
If the office of a Director is vacated for any reason, he must cease to be a member of any committee or
sub-committee of the Board.
(G) Alternate Directors
Any Director may appoint any person to be his alternate and may at his discretion remove such an
alternate Director. If the alternate Director is not already a Director, the appointment, unless previously
approved by the Board, shall have effect only upon and subject to being so approved.
(H)
Proceedings of the Board
Subject to the provisions of the Final Articles, the Board may meet for the despatch of business, adjourn
and otherwise regulate its meetings as it thinks fit. The quorum necessary for the transaction of the
business of the Board may be fixed by the Board and, unless so fixed at any other number, shall be two. A
meeting of the Board at which a quorum is present shall be competent to exercise all the powers,
authorities and discretions vested in or exercisable by the Board.
The Board may appoint a Director to be the chairman or a deputy chairman and may at any time remove
him from that office. Questions arising at any meeting of the Board shall be determined by a majority of
votes. In the case of an equality of votes the chairman of the meeting shall have a second or casting vote.
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All or any of the members of the Board may participate in a meeting of the Board by means of a
conference telephone or any communication equipment which allows all persons participating in the
meeting to speak to and hear each other. A person so participating shall be deemed to be present at the
meeting and shall be entitled to vote and to be counted in the quorum.
The Board may delegate any of its powers, authorities and discretions (with power to sub-delegate) to any
committee, consisting of such person or persons as it thinks fit, provided that the majority of persons on
any committee or sub-committee must be Directors. The meetings and proceedings of any committee
consisting of two or more members shall be governed by the provisions contained in the Final Articles for
regulating the meetings and proceedings of the Board so far as the same are applicable and are not
superseded by any regulations imposed by the Board.
(I)
Remuneration of Directors
Each of the Directors shall be paid a fee at such rate as may from time to time be determined by the
Board, but the aggregate of all such fees so paid to the Directors shall not exceed £1,000,000 per annum
or such higher amount as may from time to time be decided by ordinary resolution of the Company. Any
Director who is appointed to any executive office shall be entitled to receive such remuneration (whether
by way of salary, commission, participation in profits or otherwise) as the Board or any committee
authorised by the Board may decide, either in addition to or in lieu of his remuneration as a Director. In
addition, any Director who performs services which in the opinion of the Board or any committee
authorised by the Board go beyond the ordinary duties of a Director, may be paid such extra remuneration
as the Board or any committee authorised by the Board may determine. Each Director may be paid his
reasonable travelling, hotel and incidental expenses of attending and returning from meetings of the
Board, or committees of the Board or of the Company or any other meeting which as a Director he is
entitled to attend, and shall be paid all other costs and expenses properly and reasonably incurred by him
in the conduct of the Company’s business or in the discharge of his duties as a Director. The Company
may also fund a Director’s or former Director’s expenditure and that of a Director or former Director of any
holding company of the Company for the purposes permitted under the Companies Acts and may do
anything to enable a Director or former Director or a Director or former Director of any holding company of
the Company to avoid incurring such expenditure as provided in the Companies Acts.
(J)
Pensions and gratuities for Directors
The Board or any committee authorised by the Board may exercise the powers of the Company to provide
benefits by the payment of gratuities or pensions or by insurance or in any other manner for any Director
or former Director or his relations, dependants or persons connected to him, but no benefits (except those
provided for by the Final Articles) may be granted to or in respect of a Director or former Director who has
not been employed by or held an executive office or place of profit under the Company or any of its
subsidiary undertakings or their respective predecessors in business without the approval of an ordinary
resolution of the Company.
(K)
Directors’ interests
The Board may, subject to the provisions of the Final Articles, authorise any matter which would
otherwise involve a Director breaching his duty under the Companies Acts to avoid conflicts of interest.
Where the Board gives authority in relation to a conflict of interest, or where any of the situations
described in (i) to (v) below applies in relation to a Director, the Board may (a) require the relevant Director
to be excluded from the receipt of information, the participation in discussion and/or the making of
decisions related to the conflict of interest or situation; (b) impose upon the relevant Director such other
terms for the purpose of dealing with the conflict of interest or situation as it may determine; and
(c) provide that the relevant Director will not be obliged to disclose information obtained otherwise than
through his position as a Director of the Company and that is confidential to a third party or to use or apply
the information in relation to the Company’s affairs, where to do so would amount to a breach of that
confidence. The Board may revoke or vary such authority at any time.
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Subject to the provisions of the Companies Acts, and provided he has declared the nature and extent of
his interest to the Board as required by the Companies Acts, a Director may:
(i)
be party to, or otherwise interested in, any contract with the Company or in which the Company
has a direct or indirect interest;
(ii)
hold any other office or place of profit with the Company (except that of auditor) in conjunction
with his office of Director for such period and upon such terms, including remuneration, as the
Board may decide;
(iii)
act by himself or through a firm with which he is associated in a professional capacity for the
Company or any other company in which the Company may be interested (otherwise than as
auditor);
(iv)
be or become a Director or other officer of, or employed by or otherwise be interested in any
holding company or subsidiary company of the Company or any other company in which the
Company may be interested; and
(v)
be or become a Director of any other company in which the Company does not have an
interest and which cannot reasonably be regarded as giving rise to a conflict of interest at the
time of his appointment as a Director of that other company.
A Director shall not, by reason of his office be liable to account to the Company or its members for any
benefit realised by reason of having an interest permitted as described above or by reason of having a
conflict of interest authorised by the Board and no contract shall be liable to be avoided on the grounds of
a Director having any such interest.
(L)
Restrictions on voting
No Director may vote on or be counted in the quorum in relation to any resolution of the Board concerning
his own appointment, or the settlement or variation of the terms or the termination of his own appointment,
as the holder of any office or place of profit with the Company or any other company in which the
Company is interested save to the extent permitted specifically in the Final Articles.
Subject to certain exceptions set out in the Final Articles, no Director may vote on, or be counted in a
quorum in relation to, any resolution of the Board in respect of any contract in which he has an interest
and, if he does so, his vote shall not be counted.
Subject to the Companies Acts, the Company may by ordinary resolution suspend or relax to any extent
the provisions relating to Directors’ interests or the restrictions on voting or ratify any transaction not duly
authorised by reason of a contravention of such provisions.
(M) Borrowing powers
Subject to the Final Articles, the Companies Acts and any directions given by the Company by special
resolution, the business of the Company will be managed by the Board who may exercise all the powers
of the Company, whether relating to the management of the business of the Company or not. In particular,
the Board may exercise all the powers of the Company to borrow money, to guarantee, to indemnify, to
mortgage or charge any of its undertaking, property, assets (present and future) and uncalled capital and
to issue debentures and other securities and to give security for any debt, liability or obligation of the
Company or of any third party. The Board must restrict the borrowings of the Company and exercise all
voting and other rights or powers of control exercisable by the Company in relation to its subsidiary
undertakings so as to secure that the aggregate principal amount of all borrowings (as defined in the Final
Articles) of the group (as defined in the Final Articles) (exclusive of borrowings owing by one member of
the group to another) does not exceed, or would as a result of such borrowing exceed, a sum equal to
£750,000,000. However, the Shareholders may pass an ordinary resolution allowing borrowings to
exceed such limit.
(N)
Indemnity of Directors
To the extent permitted by the Companies Acts, the Company may indemnify any Director or former
Director of the Company or any associated company against any liability and the Company has entered
into a deed of indemnity with each of the Directors. In addition, the Company may purchase and maintain
for any Director or former Director of the Company or any associated company insurance against any
liability.
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5.13 Methods of service
Any notice, document (including a share certificate or a Share Account Statement) or other information
may be served on or sent or supplied to any Shareholder by the Company personally, by post, by means
of a relevant system, by sending or supplying it in electronic form to an address notified by the
Shareholder to the Company for that purpose, where appropriate, by making it available on a website and
notifying the Shareholder of its availability, or by any other means authorised in writing by the
Shareholder.
The Company has served notice on its existing Shareholders of its intention to communicate with them
via the Website and has sought their acceptance to communicate with them by way of other electronic
means.
A successful applicant under the Customer and Employee Offer will have consented to receiving all
communications from the Company in electronic form to the email address supplied on the Customer and
Employee Offer Application Form. Such consent may be revoked at any time and will not affect a
Shareholder’s right to receive a document or information in hard copy in accordance with section 1145 of
the Companies Act.
6.
Mandatory bids and compulsory acquisition rules relating to Ordinary Shares
Other than as provided by the Takeover Code and Chapter 28 of the Companies Act, there are no rules or
provisions relating to mandatory bids and/or squeeze-out and sell-out rules relating to the Company.
6.1
Mandatory bid
The Takeover Code applies to the Company. Under the Takeover Code, if an acquisition of interests in
shares were to increase the aggregate holding of the acquirer and its concert parties to interests in shares
carrying 30 per cent. or more of the voting rights in the Company, the acquirer and, depending on
circumstances, its concert parties would be required (except with the consent of the Panel on Takeovers
and Mergers) to make a cash offer for the outstanding shares in the Company at a price not less than the
highest price paid for interests in shares by the acquirer or its concert parties during the previous
12 months. This requirement would also be triggered by any acquisition of interests in shares by a person
holding (together with its concert parties) shares carrying between 30 per cent. and 50 per cent. of the
voting rights in the Company if the effect of such acquisition were to increase that person’s percentage of
the total voting rights in the Company.
6.2
Squeeze-out
Under the Companies Act, if an offeror were to make an offer to acquire all of the shares in the Company
not already owned by it and were to acquire 90 per cent. of the shares to which such offer related it could
then compulsorily acquire the remaining 10 per cent. The offeror would do so by sending a notice to
outstanding members telling them that it will compulsorily acquire their shares and then, six weeks later, it
would deliver a transfer of the outstanding shares in its favour to the Company which would execute the
transfers on behalf of the relevant members, and pay the consideration to the Company which would hold
the consideration on trust for outstanding members. The consideration offered to the members whose
shares are compulsorily acquired under this procedure must, in general, be the same as the
consideration that was available under the original offer unless a member can show that the offer value
is unfair.
6.3
Sell-out
The Companies Act also gives minority members a right to be bought out in certain circumstances by an
offeror who has made a takeover offer. If a takeover offer related to all the shares in the Company and, at
any time before the end of the period within which the Offers could be accepted, the offeror held or had
agreed to acquire not less than 90 per cent. of the shares, any holder of shares to which the offer related
who had not accepted the offer could by a written communication to the offeror require it to acquire those
shares. The offeror would be required to give any member notice of his/her right to be bought out within
one month of that right arising. The offeror may impose a time limit on the rights of minority members to be
bought out, but that period cannot end less than three months after the end of the acceptance period or, if
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later, three months from the date on which notice is served on members notifying them of their sell-out
rights. If a member exercises his/her rights, the offeror is entitled and bound to acquire those shares on
the terms of the offer or on such other terms as may be agreed.
7.
Organisational Structure
The Group comprises the Company and its subsidiary undertakings. The Company has the following
subsidiaries, all of which are directly or indirectly 100 per cent. owned by it:
Company name
Place of incorporation
Principal activity
Ocado Holdings Limited
England and Wales
Intermediate holding company
Ocado Limited
England and Wales
Principal operating company of
the Group
Ocado Information Technology Limited
The Republic of Ireland
Ownership and licensing of
Ocado intellectual property for
use outside the UK
Jalapeno Partners Limited
England and Wales
Dormant
The Company owns directly the entire issued share capital of Ocado Holdings Limited which holds the
entire issued share capital of Ocado and Ocado Information Technology Limited.
The Company and Ocado Holdings Limited are holding companies. Ocado is the operating company of
the Group and holds the intellectual property necessary to operate the Business in the UK. Ocado
Information Technology Limited holds the intellectual property rights to operate the Business outside the
UK; if the Group were to operate the Business or otherwise licence its technology outside the UK, the
relevant operating company would licence these rights from Ocado Information Technology Limited.
Ocado has one wholly owned subsidiary, Jalapeno Partners Limited, which is dormant. In addition,
Ocado holds 25 per cent. of the issued share capital of Paneltex Limited, which is incorporated in England
and Wales. The principal activity of Paneltex Limited is engineering (including the customisation of the
Group’s vans).
234
Part XIII
8.
Additional Information
Major Shareholders
As at 5 July 2010 (the latest practicable date prior to the publication of this document) and insofar as is
known to the Company, the following persons are, directly or indirectly, interested in 3 per cent. or more of
the issued share capital of the Company, and will have the following interests immediately after
Admission:
Shareholding(1)
Shareholder
(3)
John Lewis Pension Fund
Percentage of
issued share
capital as at
5 July 2010
Percentage of
issued share
capital
immediately
following
Admission(2)
..................
114,642,300
26.44%
10.82%
The Apple Trust(4) . . . . . . . . . . . . . . . . . . . . . . . . .
59,080,100
13.63%
11.15%
S. N. Roditi and associated holdings . . . . . . . . . . . .
45,230,900
10.43%
8.53%
UBS Holdings Cayman Limited and UBS AG . . . . . .
39,243,600
9.05%
3.42%
Appleby Trust (Jersey) Limited (as trustee of the
employee benefit trust established for the
purposes of the JSOS)(5) . . . . . . . . . . . . . . . . . . .
32,476,700
7.49%
6.13%
Tim Steiner and the Steiner 2008 Millennium Trust(6)
29,687,600
6.85%
5.22%
............
27,437,400
6.33%
4.61%
Jason Gissing and The Jason Gissing Life
Settlement II(8) . . . . . . . . . . . . . . . . . . . . . . . . . .
19,241,000
4.44%
3.27%
Kira Faiman and Jonathan Faiman
(7)
(1)
This figure is an aggregate of the number of Ordinary Shares and the Preference Shares held by each Shareholder as at
5 July 2010 for comparative purposes. On Admission all Preference Shares will convert on a one for one basis into Ordinary
Shares and the Company will have a single class of shares.
(2)
The percentage of issued share capital immediately following Admission assumes that the Company issues 86,273,616 New
Ordinary Shares pursuant to the Offers (which itself assumes that the Offer Price is set at the mid-point in the Price Range
and the exercise of options and warrants prior to Admission), and that each Major Shareholder which is a Major Selling
Shareholder sells the maximum number of Existing Shares in the Offers which he or it has indicated, on a non-binding basis,
it may sell. The Apple Trust, S.N. Roditi and associated holdings and Appleby Trust (Jersey) Limited (as trustsee for the
employee benefit trust established for the purposes of the JSOS are not selling any Existing Shares pursuant to the Offers.
The percentage includes those shares held by the EBT Trustee—see footnote (5) below.
(3)
Patrick Lewis is a pensioner of the John Lewis Partnership Trust for Pensions. Patrick Lewis and Michael Robarts are
directors of the John Lewis Pension Fund.
(4)
Jörn Rausing and his immediate family are the beneficiaries of the Apple Trust. Its trustees are Pascal Picci and David Way.
On 21 June 2010 the trustees of the Apple Trust entered into a contract for the transfer of the Ordinary Shares held by them to
Hamilton Trust Company Limited, the trustee of the Apple II Trust. The beneficiaries of the Apple II Trust are the same as the
beneficiaries of the Apple Trust. Completion of the transfer will take place on 5 April 2011 unless the parties decide otherwise.
The Apple II Trust will be locked-up to the same extent as the Apple Trust.
(5)
Appleby Trust (Jersey) Limited is the EBT Trustee. The Ordinary Shares held by it are treated as treasury shares in the
Group’s consolidated balance sheet and are, in certain places in this document, excluded from the calculations of the
Company’s issued share capital.
(6)
On 21 June 2010 Tim Steiner entered into contracts for the transfer of 14,000,000 Ordinary Shares in aggregate held in his
name to his father, in consideration of £100 and 97 per cent. of the market value of the Ordinary Shares on completion (which
amount may be paid over three years). Completion is due to take place on 30 June 2013 or such other date as the parties
may agree. Tim Steiner will retain a beneficial interest in the transferring Ordinary Shares until completion. Tim Steiner’s
father’s interest in these shares will be locked-up to the same extent as Tim’s own interests.
(7)
On the day this document was published Kira Faiman entered into a contract for the transfer of 24,437,400 Ordinary Shares
held in her name to Walker Fund Services Limited as trustee of the Tempest Trust, a trust of which she is the beneficiary. The
consideration payable per Ordinary Share by the Tempest Trust was the bottom of the Price Range and completion is the
same day. Walker Fund Services Limited’s interests in these shares will be locked-up to the same extent as Kira’s own
interests.
(8)
On 21 June 2010 Jason Gissing entered into five contracts for the transfer of 1,840,000 Ordinary Shares (9,200,000 Ordinary
Shares in aggregate) held in his name to his mother, in consideration, per contract, of £100 and 98 per cent. of the market
235
Part XIII
Additional Information
value of the Ordinary Shares transferred on completion (which amount may be paid over five years). Completion is due to
take place on 30 June 2013 or such other date as the parties may agree. Jason Gissing will retain a beneficial interest in the
transferring Ordinary Shares until completion. Jason Gissing’s mother’s interest in these shares will be locked-up to the same
extent as Jason’s own interests.
As at 5 July 2010 (the latest practicable date prior to the publication of this document) and immediately
after Admission:
(A)
the Company is not aware of any persons who, directly or indirectly, jointly or severally, will exercise
or could exercise control over the Company; and
(B)
none of the Major Shareholders has or will have different voting rights.
Certain of the Banks have interests in the Company. Please refer to ‘‘the Joint Global Co-ordinators,
Co-Book Runners and Co-Lead Managers’’ on page 29 above for details.
9.
Directors
9.1
Other directorships and partnerships
The details of those companies and partnerships outside the Group of which the Directors are currently
directors or partners, or have been directors or partners at any time during the previous five years prior to
the date of this document, are as follows:
Current directorships
and partnerships
Name of Director
Michael Grade
David Grigson
Previous directorships
and partnerships
Society of Stars
Pinewood Shepperton PLC
National Angels Limited
Lymington Charter Limited
James Grant Group Limited
The Gradelinnit Company Limited
Tudor Films LLP
Ingenious Film Partners 2 LLP
Phoenix Film Partners LLP
AKL Technologies Limited
Society of Stars (Events) Limited
Carnage and Gold Limited
Bushwacker Productions Limited
The David Lean Bafta
Foundation
ITV PLC
Charlton Athletic PLC
AKL Technologies Limited
Hemscott Limited
Studiolink Limited
Pinewood Studios Limited
Creston PLC
Standard Life PLC
Z 2010 Limited
49 Wellington Street (Management)
Limited
Dolma Development Fund
Reuters Group PLC
The Carphone Warehouse
Group PLC
Nations Healthcare (Burton)
Limited
Nations Healthcare (North
Bradford) Limited
Nations Healthcare (Nottingham)
Limited
Nations Healthcare Limited
Date of resignation/
company’s dissolution
(resigned 23/3/09)
(resigned 12/3/09)
(dissolved 7/3/09)
(dissolved 25/7/05)
(resigned 3/12/09)
(resigned
(resigned
(resigned
(resigned
(resigned
(resigned
31/12/09)
25/9/09)
23/3/09)
25/9/06)
5/5/06)
13/2/06)
(resigned 31/7/08)
(resigned 31/03/10)
(resigned 13/4/09)
(resigned 13/4/09)
(resigned 13/4/09)
(resigned 13/4/09)
Tim Steiner
—
Natural Farming Limited (a
Jersey company)
(resigned 19/8/09)
Neill Abrams
—
Returnshare Property
Management Limited
Skyline Balloons Limited
(resigned 14/11/05)
236
(dissolved 28/5/05
following insolvency)
Part XIII
Current directorships
and partnerships
Name of Director
Previous directorships
and partnerships
Andrew Bracey
—
Mars Bidco Limited
Mars Holdings Limited
Mars Issuer Limited
Mars UK Holdco Limited
Domum Properties Limited
Compton Manor Shoot Limited
Violet Acquisitions Limited
Violet Equityco Limited
Violet Opholdco Limited
Violet Pikco Limited
Violet S Propco Limited
Violet Seniorco Limited
Jason Gissing
—
—
Ruth Anderson
The Gynaecology Cancer Research
Fund (The Eve Appeal)
The Royal Parks
The Duke of Edinburgh’s Award
KPMG LLP
Robert Gorrie
Hornsey Town Hall Creative Trust
Robert Gorrie Limited
—
Jörn Rausing
Tetra Laval Group
Alfa Laval AB
DeLaval Holdings AB
—
David Young
The Soil Association Limited
—
Patrick Lewis
John Lewis Partnership plc
John Lewis Pension Fund
Margrange Investments Limited
J.H. Birtwistle & Company
Limited
(now called LUPFAWJHB
Limited)
Stead, McAlpine & Company
Limited
(now called LUPFAWSMA
Limited)
Michael Robarts
John Lewis Pension Fund
PF Consultants 2009 Limited
—
Additional Information
Date of resignation/
company’s dissolution
(resigned 2/12/07)
(resigned 2/12/07)
(resigned 2/12/07)
(resigned 2/12/07)
(dissolved 4/4/06)
(dissolved 21/2/06)
(resigned 20/3/06)
(resigned 20/3/06)
(resigned 20/3/06)
(resigned 20/3/06)
(resigned 20/3/06)
(resigned 20/3/06)
(resigned 3/4/09)
(resigned 14/9/07)
(resigned 14/9/07)
—
As well as being a Director of the Company, Patrick Lewis is also a director of John Lewis Partnership plc.
Waitrose is an indirect wholly-owned subsidiary of John Lewis Partnership plc and, as described in this
document, is the Group’s key supplier and also a competitor. Other than Patrick Lewis, no Director has
any actual or potential conflicts of interest between any of his duties to the Company and his private
interests and/or other duties.
9.2
Confirmations
As at the date of this document, no Director has during the last five years:
(A)
any convictions in relation to fraudulent offences;
(B)
been associated with any bankruptcies, receiverships or liquidations acting in the capacity of any of
the positions set out against the name of the Director in section 9.1 of this Part XIII;
(C)
been subject to any official public incrimination and/or sanctions by any statutory or regulatory
authorities (including designated professional bodies); or
(D)
been disqualified by a court from acting as a member of the administrative management or
supervisory bodies of an issuer or from acting in the management or conduct of the affairs of any
issuer.
237
Part XIII
9.3
Additional Information
Interests of Directors in Ordinary Shares
Interests in shares in the Company
Set out below are the direct and indirect interests of the Directors in the issued share capital of the
Company (including interests in the issued share capital of the Company held in discretionery trusts and
Shares in which the Directors have only certain beneficial interests) as at 5 July 2010, being the latest
practicable date prior to the publication of this document, and as they are expected to be on Admission:
Interests of the Directors in the issued
share capital of the Company as at
5 July 2010(1)
Percentage of
issued share
capital of the
Shareholding(1)
Company
Director
Michael Grade(3) . .
David Grigson . . . .
Tim Steiner(4) . . . .
Neill Abrams(5) . . .
Andrew Bracey . . .
Jason Gissing(6) . . .
Ruth Anderson . . .
Robert Gorrie(7) . . .
Jörn Rausing(8) . . .
David Young . . . . .
Patrick Lewis(9) . . .
Michael Robarts(10)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Interests of the Directors in the issued
share capital of the Company
immediately following Admission(2)
Percentage of
issued share
capital of the
Shareholding
Company
.
.
.
.
.
.
.
.
.
.
.
.
78,000
—
29,687,600
1,710,500
750,000
19,241,000
—
1,627,900
59,080,100
—
—
—
0.02%
—
6.85%
0.39%
0.17%
4.44%
—
0.38%
13.63%
—
—
—
120,105
—
27,687,600
1,210,500
750,000
17,316,900
—
627,900
59,080,100
—
—
—
0.02%
—
5.22%
0.23%
0.14%
3.27%
—
0.12%
11.15%
—
—
—
Total . . . . . . . . . . . . . . .
112,175,100
25.87%
106,793,105
20.15%
(1)
This figure is an aggregate of the number of Ordinary Shares and the Preference Shares held by each Director as at 5 July
2010 for comparative purposes. On Admission all Preference Shares will convert on a one for one basis into Ordinary Shares
and the Company will have a single class of shares, the Ordinary Shares. This figure includes the 32,476,000 Ordinary
Shares held by the EBT Trustee pursuant to the JSOS.
(2)
This percentage assumes that the Company issues 86,273,616 New Ordinary Shares pursuant to the Offers (which itself
assumes that the Offer Price is set at the mid-point in the Price Range) and the exercise of options and warrants prior to
Admission, and the figure and the percentage assume that each Director which is a Major Selling Shareholder sells the
maximum number of Existing Shares in the Offer which he has indicated, on a non-binding basis, he may sell. This figure
includes the 32,476,700 Ordinary Shares held by the EBT Trustee pursuant to the JSOS.
(3)
Michael Grade is entitled to a single bonus of £100,000 payable on Admission which he has elected to receive in Ordinary
Shares at the Offer Price in accordance with the terms of his letter of appointment. Assuming that the Offer Price is set at the
mid-point in the Price Range, this would mean that he would receive 42,105 Ordinary Shares.
(4)
On 21 June 2010 Tim Steiner entered into contracts for the transfer of 14,000,000 Ordinary Shares in aggregate held in his
name to his father, in consideration of £100 and 97 per cent. of the market value of the Ordinary Shares on completion (which
amount may be paid over three years). Completion is due to take place on 30 June 2013 or such other date as the parties
may agree. Tim Steiner will retain a beneficial interest in the transferring Ordinary Shares until completion. Tim Steiner’s
father’s interests in such shares shall be locked-up to the same extent as Tim’s own interests.
(5)
On 22 June 2010 Neill Abrams transferred 75,000 Ordinary Shares held in his name to his wife by way of a gift. He retains no
beneficial interest in these shares. He also entered into three contracts on 22 June 2010. Each contract was for the transfer of
100,000 Ordinary Shares held in his name to his wife, as bare trustee, for each of his three children, in consideration of £100
and 97 per cent. of the market value of the Ordinary Shares on completion (which amount may be paid over five years).
Completion is due to take place on 30 June 2013 or such other date as the parties may agree. Neill Abrams will retain a
beneficial interest in the transferring Ordinary Shares until completion. Neill’s wife’s and children’s interests in such shares
will be locked-up to the same extent as Neill’s own interests.
(6)
On 21 June 2010 Jason Gissing entered into five contracts for the transfer of 1,840,000 Ordinary Shares (9,200,000 Ordinary
Shares in aggregate) held in his name to his mother, in consideration, per contract, of £100 and 98 per cent. of the market
value of the Ordinary Shares transferred on completion (which amount may be paid over five years). Completion is due to
take place on 30 June 2013 or such other date as the parties may agree. Jason Gissing will retain a beneficial interest in the
transferring Ordinary Shares until completion. Jason Gissing’s mother’s interests in such shares will be locked-up to the
same extent as Jason’s own interests.
(7)
On 22 June 2010 Robert Gorrie entered into two contracts each for the transfer of 500,000 Ordinary Shares held in his name
to his wife, as bare trustee for each of his two children, in consideration of £100 and 97 per cent. of the market value of the
238
Part XIII
Additional Information
Ordinary Shares on completion (which amount may be paid over five years). Completion is due to take place on Admission or
such other date as the parties may agree. Robert Gorrie will retain a beneficial interest in the transferring Ordinary Shares
until completion. Robert Gorrie’s children’s interests in such shares will be locked-up to the same extent as Robert’s own
interests.
(8)
Jörn Rausing and his immediate family are beneficiaries of the Apple Trust which is a Major Shareholder. The trustees of the
Apple Trust are Pascal Picci and David Way. On 21 June 2010 the trustees of the Apple Trust entered into a contract for the
transfer of the Ordinary Shares held by them to Hamilton Trust Company Limited, the trustee of the Apple II Trust. The
beneficiaries of the Apple II Trust are the same as the beneficiaries of the Apple Trust. Completion of the transfer will take
place on 5 April 2011 unless the parties decide otherwise. The Apple II Trust will be locked-up to the same extent as the
Apple Trust.
(9)
Patrick Lewis is a pensioner of the John Lewis Trust for Pensions and a director of John Lewis Pension Fund which is a Major
Shareholder.
(10)
Michael Robarts is a director of the John Lewis Pension Fund which is a Major Shareholder.
Options over Ordinary Shares
Each of Tim Steiner, Neill Abrams, Andrew Bracey, Jason Gissing and Robert Gorrie has, as at 5 July
2010 (being the latest practicable date prior to the publication of this document), the following options
over Ordinary Shares pursuant to the ESOS:
Director
Number of
options over
Ordinary
Shares
Date of issue
Option price
(£)
Exercise/vesting period
Tim Steiner . . . . . . . . . . . . .
May 2005
200,000
1.15
16 May 2008–
15 May 2015
Neill Abrams . . . . . . . . . . . . .
May 2002
175,000
1.00
May 2002
175,000
1.50
November 2003
100,000
0.90
May 2005
100,000
1.15
7 February 2005–
6 February 2012
7 February 2005–
6 February 2012
30 November 2006–
29 November 2013
16 May 2008–
15 May 2015
46,296
1.35
16 November 2012–
15 November 2019
Andrew Bracey . . . . . . . . . . .
November 2009
Jason Gissing . . . . . . . . . . . .
May 2005
200,000
1.15
16 May 2008–
15 May 2015
Robert Gorrie . . . . . . . . . . . .
May 2002
175,000
1.50
7 February 2005–
6 February 2012
In addition to the options over Ordinary Shares pursuant to the ESOS detailed above, Andrew Bracey has
the following options over Ordinary Shares:
Director
Andrew Bracey . . . . . . . . . .
Number of
options over
Ordinary
Shares
Date of issue
Option price
(£)
4 February 2002
886,700
0.90
3 January 2004
435,300
1.03
239
Exercise/vesting period
4
4
3
3
February 2002–
February 2017
January 2004–
January 2018
Part XIII
Additional Information
Interests in Ordinary Shares under the JSOS
Each of Tim Steiner, Jason Gissing, Neill Abrams and Andrew Bracey has, as at 5 July 2010 (being the
latest practicable date prior to the publication of this document), the following interests in Ordinary Shares
pursuant to the JSOS:
Vesting on
1 January
2011
Tim Steiner . . .
Neill Abrams . .
Andrew Bracey
Jason Gissing .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2,513,100
1,017,200
1,675,400
1,675,400
Vesting on
1 January
2012
2,513,100
1,017,200
1,675,400
1,675,400
Vesting on
1 January
2013
2,513,100
1,017,200
1,675,400
1,675,400
Vesting on
1 January
2014
2,513,000
1,017,100
1,675,300
1,675,300
Total
10,052,300
4,068,700
6,701,500
6,701,500
General
Save as set out above, no Director has any interests (beneficial or non-beneficial) in the share capital of
the Company. Save as set out above, no Director holds an interest in any other securities of the
Company.
9.4
Transactions with Directors
Save as described below, none of the Directors:
•
has or has had any interest in any transaction which is or was unusual in its nature or conditions or
significant to the Business which was effected by any member of the Group during the current or
immediately preceding financial year, or which was effected during an earlier financial year and
remains in any respect outstanding or unperformed; and
•
has or had a beneficial interest in any contract to which any member of the Group was a party during
the current or immediately preceding financial year.
Robert Gorrie provides consultancy services to the Group and chairs the meetings of the Ocado
employee council. Robert Gorrie provides these services through Robert Gorrie Limited (of which Robert
Gorrie is the sole shareholder) and it is paid a per diem fee for these services.
The Apple Trust (of which Jörn Rausing is a beneficiary) underwrote Ocado’s last funding round in
September 2009, for which it was paid a fee of £387,500 under the terms of an agreement dated 1 July
2009 and a side letter dated 20 August 2009. Payment of that fee was set off against the subscription
amount payable by the Apple Trust for the shares it subscribed for in that funding round.
There are no outstanding loans or guarantees granted or provided by any member of the Group for the
benefit of any of the Directors.
9.5
Executive Directors’ service contracts, remuneration and emoluments
Ocado has entered into service contracts with each of the Executive Directors for the provision of services
to the Group. Each of the contracts was entered into on 22 June 2010. The terms of these contracts,
together with the dates on which each Executive Director joined Ocado and the Company, are set out
below:
240
Part XIII
Date of appointment
by the Company
Director
Date of appointment
by Ocado
Additional Information
Unexpired term (months)
Notice
Notice
periods by periods by
Company
Director
(months)
(months)
Tim Steiner
9 March 2010
13 April 2000
Continuous employment
until terminated by either
party. Ends automatically
on retirement age of 65.
12
6
Neill Abrams
10 December 2009
8 September 2000
Continuous employment
until terminated by either
party. Ends automatically
on retirement age of 65.
12
6
Andrew Bracey
10 December 2009
3 November 2009
Continuous employment
until terminated by either
party. Ends automatically
on retirement age of 65.
12
6
Jason Gissing
9 March 2010
2 February 2000
Continuous employment
until terminated by either
party. Ends automatically
on retirement age of 65.
12
6
The remuneration (including salary and other benefits and any contingent or deferred compensation)
payable by Ocado to the Directors for services in all capacities to Ocado by any person in FYE 2009 are
set out below.
Basic salary
or fees
Director
Tim Steiner . . .
Neill Abrams . .
Andrew Bracey
Jason Gissing .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
£352,411
£216,913
£23,439
£268,144
Benefits in
kind
Bonus
£262,040
£110,416
—
£191,208
Pension
contributions
£3,275
£2,313
£246
£2,634
£33,630
£16,500
—
£24,630
2009
Total
£651,356
£346,142
£23,685
£486,616
*
Andrew Bracey was appointed to the Board of Ocado on 3 November 2009. His annual salary is £250,000. He was not paid
any cash bonuses in FYE 2009.
9.6
Non-executive Directors’ letters of appointment and fees
The Chairman and the non-executive Directors do not have service contracts and are appointed by letter
of appointment, the details of which are set out in the table below:
Michael Grade . .
David Grigson . . .
Ruth Anderson . .
Robert Gorrie(1) . .
Jörn Rausing . . .
David Young . . . .
Patrick Lewis(2) . .
Michael Robarts(2)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Date of appointment to
the board of Ocado
Date of
appointment to
the Board
Current
Term
15 September 2006
3 February 2010
—
1 April 2000
13 March 2003
13 October 2000
21 October 2009
19 January 2010
9
9
9
9
9
9
9
9
3
3
3
3
3
3
3
3
March
March
March
March
March
March
March
March
2010
2010
2010
2010
2010
2010
2010
2010
years
years
years
years
years
years
years
years
Notice
period
6 months
1 month
1 month
1 month
1 month
1 month
1 month
1 month
Current
age
67
55
56
51
50
68
44
65
(1)
From April 2000 to April 2006, Robert Gorrie was the logistics director of Ocado. On 1 May 2006 he became a non-executive
Director. In addition to his role as a non-executive Director, Robert Gorrie provides consultancy services to the Group and
chairs the meetings of the Ocado employee council. Robert Gorrie provides these services through Robert Gorrie Limited (of
which Robert Gorrie is the sole shareholder) and is paid a per diem fee for these services. These fees are included in
additional remuneration above.
(2)
Patrick Lewis and Michael Robarts were appointed by John Lewis Pension Fund pursuant to its right to appoint two directors
under the shareholders’ agreement that, from 2000, governed the relationship between Ocado and its shareholders (and
which expires on Admission).
241
Part XIII
Additional Information
Details of the fees and other remuneration payable annually to each of the non-executive Directors for
FYE 2009 are set out below:
Basic annual
salary/fees
Michael Grade .
Robert Gorrie . .
Jörn Rausing . .
David Young . .
Patrick Lewis . .
Michael Robarts
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
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Additional
remuneration
(annual
unless
specified)
£111,764
£15,000
—
£27,539
—
—
—
£18,950
—
—
—
—
FYE
2009 Total
£111,764
£33,950
—
£27,539
—
—
In addition to his role as a non-executive Director, Robert Gorrie provides consulting services to the
Group and chairs the meetings of the Ocado employee council. Robert Gorrie provides these services
through Robert Gorrie Limited (of which Robert Gorrie is the Sole Shareholder) and is paid a per diem fee
for these services. These fees are included in additional remuneration above.
Michael Grade is entitled to a single bonus of £100,000 payable on Admission which he has elected to
receive in Ordinary Shares at the Offer Price in accordance with the terms of his letter of appointment.
Ruth Anderson and David Grigson were appointed after the end of FYE 2009.
As at Admission, the non-executive Directors receive the following annual fees from the Company:
•
Michael Grade: £100,000;
•
David Grigson: £55,000, plus £6,500 for chairing the nomination committee;
•
Ruth Anderson: £40,000, plus £10,000 for chairing the audit committee;
•
Robert Gorrie: £40,000;
•
Jörn Rausing: £40,000;
•
David Young: £40,000, plus £8,000 for chairing the remuneration committee;
•
Patrick Lewis: £40,000; and
•
Michael Robarts: £40,000.
9.7
Recent share dealings by Directors
Ocado’s last funding round took place in September 2009, at which both the Fidelity Investment Fund
(‘‘Fidelity’’) and Generation IM Climate Solutions Fund, L.P. (‘‘Generation’’) acquired shares in Ocado.
This funding round ascribed an enterprise value to Ocado of approximately £650 million. Immediately
after this funding round, a discretionary trust of which Jason Gissing is a beneficiary sold shares to
several other shareholders (including Fidelity, Generation and the John Lewis Pension Fund) and a
discretionary trust of which Tim Steiner is a beneficiary sold shares to Andrew Bracey. All shares were
issued and transfers made at the same share price.
9.8
John Lewis Pension Fund right to appoint a director
Pursuant to an agreement dated 6 July 2010 with the Company, the John Lewis Pension Fund has
agreed to procure that Patrick Lewis will immediately offer his resignation from the Board:
•
if at any time the John Lewis Pension Fund’s holding of Ordinary Shares falls below 10 per cent. of
the issued Ordinary Share capital of the Company (disregarding, for these purposes, Ordinary
Shares issued to the EBT Trustee for so long as the same have not vested); or
•
if he ceases to be a trustee or director of the John Lewis Pension Fund unless, at or before such time
he also ceases or had ceased to have any office, employment or consultancy arrangement with any
member of the John Lewis group.
242
Part XIII
Additional Information
Under the terms of the same agreement, if Patrick Lewis were to leave the Board then, provided the John
Lewis Pension Fund continues to hold 10 per cent. or more of the issued Ordinary Share capital of the
Company (disregarding, for these purposes, Ordinary Shares issued to the EBT Trustee for so long as
the same have not vested), the John Lewis Pension Fund shall have the right:
•
if Patrick Lewis’ departure occurs during the period ending 18 months from the date of Admission, to
appoint a replacement director to the Board provided the Board gives its consent to such
appointment (such consent not to be unreasonably withheld or delayed); and
•
if Patrick Lewis’ departure occurs after the period ending 18 months from the date of Admission, to
nominate a replacement director. The nomination committee of the Company is obliged to consider
such nomination in good faith, but may approve or reject the proposed nomination in its discretion.
10.
Related party transactions
Save as disclosed in section 9.4 of this Part XIII and in the financial information set out in the related party
transactions note (note 31) to the historical financial information of the Group for FYE 2007, FYE 2008,
FYE 2009 and P1-3 2010 contained in Part V (Historical Financial Information relating to the Group) and
the equivalent note (note 13) to the unaudited financial information for the Group for P1-6 2010 contained
in Part VII (Unaudited Interim Financial Information relating to the Group for the 24 weeks ended 16 May
2010), Ocado entered into no transactions with related parties during FYE 2007, FYE 2008, FYE 2009
and P1-6 2010.
For the period between 16 May 2010 and the date of this document, the Group entered into the following
related party transactions:
Key management personnel
2 July 2010
£000s
Purchase of professional services
-Non-Executive Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
4
All transactions are on an arm’s length basis and no financial period end balances have arisen as a result
of these transactions.
At 2 July 2010 key management owed the Company £1,000 in respect of personal expenses incurred on
the company credit card that were reimbursed in the normal course of business.
Investment
2 July 2010
£000s
Purchase of goods
—Plant and machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—Consumables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
10
Total purchase of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
Amounts payable at the period end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
11.
Share plans and employee incentive schemes
The Group currently operates two employee share incentive schemes, both of which will continue to
operate after Admission. These are the Ocado 2001 Executive Share Option Scheme (the ‘‘ESOS’’) and
the Joint Share Ownership Scheme (the ‘‘JSOS’’).
The Company intends to operate an additional all-employee share scheme, the Ocado Sharesave
Scheme, after listing, subject to HMRC approval.
243
Part XIII
Additional Information
11.1 The Ocado 2001 Executive Share Option Scheme
Subject to HMRC approval, the Company intends to amend the rules of the ESOS so that following
Admission they will operate as set out below.
Status
The ESOS is a company share option scheme approved by HMRC. Options may also be granted under
the terms of a schedule, which is not so approved. The ESOS was established by Ocado in 2001.
Prior to the Scheme, Ocado granted options over shares in Ocado to eligible employees (which in
practice was all employees in the Group). In conjunction with the Scheme, the ESOS rules were amended
to permit the existing option holders to exchange their options over shares in Ocado for options over
Ordinary Shares in the Company.
Under the ESOS, Ocado or the trustees of an employee trust may grant options over shares in the
Company to eligible employees. The eligible employees to whom options are granted and the terms of
such options will be determined by the directors of Ocado or the trustees.
Eligibility
The employees who are eligible to participate in the ESOS are all Ocado’s Executive Directors and
employees, including the employees of Ocado’s subsidiaries. Directors and employees may not
participate if, in the period of 12 months before grant of the option, they had a material interest (broadly
owning or controlling 25 per cent. of its share capital) in Ocado or a company which owns or controls
Ocado and that company was a close company.
Options are not transferable and will lapse if the option holder purports to transfer, charge or alienate the
option.
The Board has resolved that options will not be granted to Directors under the ESOS without first setting
appropriate performance targets.
Exercise price
The exercise price of options may not be less than the market value of the Company’s shares on the date
of grant. If the trustees or the directors of Ocado have determined that the exercise of an option will be
satisfied by the issue of Ordinary Shares, the exercise price may also not be less than the nominal value
of Ordinary Shares.
Limitations on grant
The ESOS is subject to limits so that no more than 10 per cent. of the issued ordinary share capital of the
Company may be placed under option or issued under any employee share scheme in any ten year
period and no more than 5 per cent. of the issued ordinary share capital of the Company may be placed
under option or issued under any discretionary employee share scheme in any ten year period. For this
purpose a discretionary scheme is one in which those taking part are senior employees and directors
chosen at the discretion of the body administering the scheme. Ordinary Shares issued or placed under
option prior to Admission are disregarded.
Options may not be granted under the ESOS to any employee if, as a result, the aggregate market value
of shares granted to him and subject to outstanding options under the ESOS or any other
HMRC-approved share option scheme (other than a savings-related share option scheme) established
by Ocado or an associated company, would exceed £30,000 (or such other limit as may be specified in
the tax legislation).
Except in exceptional circumstances, options may only be granted in the six weeks following an
announcement of the Company’s results to the London Stock Exchange. Options may not be granted
after 30 June 2020.
244
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Ability to exercise
The directors of Ocado or trustees may impose a performance target and any further condition
determined to be appropriate on the exercise of an option. Any performance target must generally be
measured over a period of at least three years. The directors or trustees may substitute, vary or waive any
performance target if they consider that the target is no longer appropriate in such manner as is
reasonable in the circumstances and produces a fairer measure of performance and is neither materially
more nor less difficult to satisfy.
There are currently no options granted which are subject to performance targets that have not yet been
met.
Options may be exercised from the date of grant, subject to any performance target being satisfied.
Options will lapse on the earlier of the tenth anniversary of grant, the Ocado directors determining that a
performance target can no longer be satisfied or the option holder ceasing to be an employee. Options
may be exercised in whole or in part.
Where, in relation to an option granted after Admission, Ocado or any member of the Group is liable to
account for tax or social security, the option holder must pay an amount sufficient to discharge the liability
or he will be taken to have authorised the disposal of such number of shares as he is entitled to on
exercise as is necessary to meet the amount due. The grantor may determine that the exercise of an
option is conditional on the payment of employer’s national insurance contributions by the option holder in
respect of the exercise.
Leaving service
If an option holder dies before the tenth anniversary of grant, his personal representative may exercise his
options at any time in the 12 month period following his death, subject to any performance target being
satisfied. If not so exercised, the options lapse.
If an option holder ceases to be employed before the tenth anniversary of grant by reason of ill-health,
injury, disability, redundancy, retirement at the age under which he is bound to retire under his contract of
employment, early retirement with agreement of Ocado or the business in which he is engaged ceasing to
be part of the Ocado group, the option holder may exercise the option during whichever is the longer of
12 months after cessation of employment, 42 months after date of grant of the option and (in the case of
options granted before Admission) 42 months after the last time the option holder exercised an option so
as to qualify for tax relief, subject to any performance target being satisfied. If not so exercised, the option
shall lapse immediately. The directors or trustees may determine that an option holder who ceases to be
employed for any other reason may also exercise the option within such period.
In the case of options granted after Admission, options will only become exercisable in respect of a
proportion of the shares subject to the option, determined by the amount of the performance period which
has expired on cessation of employment.
Change of control
If there is a change of control of the Company as a result of a general offer to acquire shares or a person
acquiring over 50 per cent. of the Company’s issued ordinary share capital, all options may be exercised
at any time during the period of six months beginning with the time of change of control, subject to any
performance target being satisfied. If not so exercised, the options lapse unless the directors or trustees
determine otherwise.
If there is a compulsory acquisition of shares in the Company, all options may be exercised at any time
during the period beginning with the date a notice is served to compulsorily acquire shares and ending
seven clear days before the date on which entitlement to serve such a notice ceases, subject to any
performance target being satisfied. If not so exercised, the options lapse when entitlement to serve the
notice ceases.
If a person proposes to obtain control of the Company through a compromise or arrangement approved
by the court, all options may be exercised during the period beginning with the court meeting of the
Company’s members and ending on the earlier of six months thereafter and seven clear days before the
court sanctions the compromise or arrangement. Exercise is subject to the compromise or arrangement
245
Part XIII
Additional Information
becoming effective and any performance target being satisfied. Options not so exercised lapse if the
compromise or arrangement becomes effective.
In the case of options granted after Admission, options will only become exercisable in respect of a
proportion of the shares subject to the option, determined by the amount of the performance period which
has expired on change of control.
If a company acquires control of the Company, an option holder may by agreement with that company
release his option in whole or in part consideration of the grant to him of a new equivalent option relating to
the shares in the acquiring company or a company which has control over the acquiring company. The
period allowed for doing so is (depending on whether the acquiring company makes a general offer for the
Company shares, compulsorily acquires the Company or obtains the Company through a compromise or
arrangement) either six months beginning with the time of change of control, the period during which the
acquiring company remains bound to compulsorily acquire shares or six months beginning with the time
the court sanctions the compromise or arrangement. The directors of Ocado may determine that an
option holder will be deemed to have agreed to the release of his option in return for a new equivalent
option if there is a scheme of arrangement under which a company obtains control of the Company, the
option holder does not object to the exchange of his option and HMRC agrees to the exchange in relation
to the particular transaction.
Winding up
If notice is given of voluntary winding up of the Company, all options may be exercised during the period
beginning with the date the notice is given and ending seven clear days before the resolution is passed or
defeated. Exercise is conditional on the resolution being passed and any performance target being
satisfied. If the resolution is passed, all options not so exercised lapse.
In the case of options granted after Admission, options will only become exercisable in respect of a
proportion of the shares subject to the option, determined by the amount of the performance period which
has expired on notice being given of the resolution for winding up.
Adjustments
Ocado may adjust options following any variation in the Company’s share capital, including
capitalisations or rights issues. Any such adjustment will require the consent of HMRC.
Amendments
Ocado may amend the rules of the ESOS, except that an amendment shall not have effect until it has
been approved by HMRC. An amendment may not adversely affect the rights of an existing option holder
except where the amendment has been approved by a class meeting of the existing option holders.
Shareholder approval is required for any amendment to the provisions dealing with eligibility, individual or
scheme limits, terms of options, adjustment of options or changing and ending the ESOS where the
amendment is to the advantage of employees.
Notwithstanding the restrictions listed above, amendments may be made to take account of changes in
the law or keep or get favourable tax/regulatory treatment. Ocado may make minor amendments to ease
administration of the ESOS or correct clerical errors.
Non-HMRC Approved Schedule
The terms of the schedule are broadly the same as those of the tax-approved part of the ESOS, subject to
the following principal differences:
Certain restrictions on operation of the ESOS, required to be included by HMRC in a tax approved plan,
do not apply. In particular options may be granted to employees of the Company or any of its subsidiaries.
Other than in exceptional circumstances, an option may not be granted to an individual if the result would
be that the aggregate market value of the shares subject to options granted to him in any financial year of
the Company under the ESOS would exceed three times the individual’s pay.
If an option holder dies before the tenth anniversary of grant, his personal representative may exercise his
option in the three-year period following his death but no later than 10 years after the date of grant.
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11.2 The Ocado Sharesave Scheme (the ‘‘Sharesave Scheme’’)
The Sharesave Scheme was approved by a written resolution of the Shareholders on 23 June 2010.
Status
The Sharesave Scheme is a savings-related share option plan which is intended to be approved by
HMRC.
Under the Sharesave Scheme, the Company or the trustees of an employee trust may grant options over
shares in the Company to eligible employees. All eligible employees must be invited to participate in the
Sharesave Scheme each time the Sharesave Scheme is operated. To obtain an option an eligible
employee must agree to save a fixed monthly amount for three, five or seven years with an approved
savings institution. The amount saved will determine the number of shares over which the option is
granted.
Eligibility
The employees who are eligible to participate in the Sharesave Scheme are all the Company and its
subsidiaries’ employees, and those directors who are required to work for the Company or any of its
subsidiaries for at least 25 hours per week, provided that the employee/director’s earnings are general
earnings to which section 15 of the Income Tax (Earnings and Pensions) Act (‘‘ITEPA’’) 2003 applies and
the employee/director is ordinarily resident in the UK. The employee/director must have been an
employee/director at all times during the period of five years ending on the grant date (or such shorter
period as the Board may determine).
The Board may also allow any other employee of the Company or its subsidiaries to participate in the
Sharesave Scheme.
Options are non transferable and will lapse if the participant transfers the option or creates any interest in
the option in favour of a third party, or if a bankruptcy order is made in respect of him.
Exercise price
The exercise price of options may not be less than 80 per cent of the average market values of the
Company’s shares for the five days before the date selected by the board of the Company (provided this
date is not earlier than the most recent date that the Company announced its results to the Stock
Exchange or the 30th day before the grant date). In the case of an option to subscribe for shares, the
exercise price may not be less than the nominal value of the Company’s shares on the grant date.
Options must be granted within 30 days of the first of the dealing days used to calculate the exercise price.
This period may be extended to 42 days if applications must be scaled down.
Limitations on grant
The Sharesave Scheme is subject to limits so that no more than 10 per cent. of the Company’s equity
share capital may be placed under option or allocated under any employee share scheme in any ten year
period. No account will be taken of shares allocated or remaining to be allocated in respect of options or
awards granted prior to Admission. If applications are received for more shares than are available
because of this limit (or any other limit chosen by the board of the Company) then applications must be
scaled down. If the applications, after scaling down, are still for more shares than are available, the board
of the Company may decide that no options will be granted or options will be granted to applicants chosen
by lot.
The monthly contribution which an eligible employee may pay under his savings contract may not exceed
the maximum allowed by paragraph 25 of Schedule 3 to the ITEPA 2003, currently £250 (or such lower
maximum as the Board may decide), or be less than the minimum monthly contribution allowed under a
savings contract at that time, currently £5 (or such higher amount, which may not exceed £10, as the
Board may decide).
Except in exceptional circumstances, invitations to participate in the Sharesave Scheme may only be
issued during the six weeks following HMRC approval of the Sharesave Scheme, the period starting three
247
Part XIII
Additional Information
weeks before and ending six weeks after the Company announces its results to the London Stock
Exchange and the 90 days following the date on which the Ordinary Shares are first admitted to trading on
the London Stock Exchange.
No options may be granted under the Sharesave Scheme after 30 June 2020.
Ability to exercise
Options may be exercised at any time in the period of six months starting with the maturity date (which will
be three, five or seven years from the date of grant). If not exercised within this period, the option will
lapse. If a participant continues to hold employment with the Company or any of its subsidiaries after
reaching the age of 65, he may exercise his option in the six-month period starting with the day after he
reaches the age of 65.
Options may be exercised in whole or in part. If exercised in part an option will lapse in respect of the
balance.
Exercise date
Unless a later date is agreed between the Company and the participant, the exercise date of an option will
be the earlier of the second dealing day after the date on which notice of exercise is received and the date
on which the board of the Company approves exercise of the option. The board of the Company may limit
the number of exercise dates but there must be at least two in every month.
Leaving service
A participant’s option will generally lapse when he is no longer an employee or director of the Company or
any of its subsidiaries.
If a participant’s employment ends for a permitted reason (injury, disability, redundancy, retirement on
reaching age 60 or the age at which he is bound to retire under his employment contract, the business in
which he is engaged ceasing to be part of the Company’s group or any other reason in relation to options
which he has held for over three years at the date his employment ends, except his misconduct,
impropriety or death), he may exercise his option in the period of six months starting on the day after his
employment ends. If not so exercised his option will lapse unless he dies during that period.
If a participant dies before the maturity date, his personal representatives may exercise his option in the
period of 12 months starting on the day after his death. If a participant dies on or within six months after
the maturity date, his personal representatives may exercise his option in the period of 12 months starting
on the maturity date. If not so exercised the option will lapse. The personal representatives of a participant
may not however exercise his option unless he was employed by the Company or any of its subsidiaries
when he died or he died during a period when he was allowed under the rules to exercise his option.
Change of control
If any person obtains control of the Company as a result of a general offer to buy all of the issued ordinary
share capital of the Company, a participant may exercise his option in the period of six months after the
change of control or the date on which any conditions to the offer are met or waived.
If the general offer is made by means of compromise/arrangement or the court approves a compromise/
arrangement between the Company and its members, a participant may exercise his option during such
period as the Board may decide starting not earlier than the date that the compromise/arrangement is
sanctioned and ending not later than six months after the date on which it becomes effective.
If any person who has control of the Company gives notice to compulsorily acquire shares of the
Company, a participant may exercise his option in the period of 30 days starting on the date the notice is
given.
Options will lapse if not exercised during the periods above, unless they are exchanged for new options.
With the agreement of the acquiring company, a participant may release his option in return for the grant
to him of a new option, provided the new option is over shares which meet the conditions of Schedule 3 to
the ITEPA 2003, the new option is over shares in the acquiring company or another company that meets
248
Part XIII
Additional Information
the requirements of Schedule 3 to the ITEPA 2003 and the total exercise price of the new option and
market value of the new shares is equal to the total exercise price of the old option and market value of the
old shares (or is otherwise agreed by HMRC). The release and grant of a new option must occur in the
period of six months starting on the date of change of control or court approval of a compromise/
arrangement or, in the case of compulsory acquisition of shares, in the period during which the acquiring
company remains bound or entitled to acquire shares.
Winding up
If a resolution is passed for winding up of the Company or an order is made for compulsory winding up of
the Company, a participant may exercise his option during the period of 60 days starting on the date the
resolution or order is passed or made. The participant is then entitled to share in the Company’s assets
along with other shareholders.
Adjustments
The Company may adjust options following a variation in the Company’s share capital. The adjustment
must be on the basis that there is no material change (as far as possible) to the total exercise price of the
option and must be approved by HMRC.
Amendments
The Company may amend the Sharesave Scheme in any way, including the creation of sub-schemes.
However, shareholder approval is required for any amendment to the provisions dealing with eligibility,
individual or scheme limits, terms of options, adjustment of options or changing and ending the scheme
where the amendment is to the advantage of employees. No amendment may be made which would
adversely affect a participant’s subsisting rights without his written consent or the consent of the majority
of the participants affected by the amendment. While the Sharesave Scheme is intended to be approved
by HMRC, no amendment to a feature of the Sharesave Scheme which is necessary to meet the
requirements of Schedule 3 to the ITEPA 2003 shall have effect unless it is approved by HMRC.
Notwithstanding the restrictions listed above, the Company may make amendments to allow the
Sharesave Scheme to keep or get approval under the ITEPA 2003, take account of changes in the law or
keep or get favourable tax/regulatory treatment. The Company may make minor amendments to ease
administration of the Sharesave Scheme or correct clerical errors.
11.3 The Company’s Joint Share Ownership Scheme (‘‘JSOS’’)
Status
The JSOS is a share ownership scheme under which its participants and Appleby Trust (Jersey) Limited
(the ‘‘EBT Trustee’’) acquired separate beneficial interests in 32,476,700 Ordinary Shares which
represented, at the time of issue, 7.5 per cent. of the then issued share capital of the Company. As at
5 July 2010, being the latest practicable date prior to the publication of this document, these shares
comprised 7.49 per cent. of the issued share capital of the Company, and following Admission, and
assuming that the Offer Price is set at the mid-point in the Price Range, are expected to comprise 6.1 per
cent. of the issued share capital of the Company. These Ordinary Shares were divided into four tranches,
vesting over four years.
Eligible employees
The employees eligible to participate in the JSOS are all bona fide employees of the Company or its
subsidiaries.
Participants’ interests are generally non-transferable during the period beginning on acquisition of the
interest and ending on 31 December 2013. 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.
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Respective interests
The EBT Trustee and the participants together paid £1.50 per Ordinary Share acquired, apportioned in
relation to the value of their respective beneficial interests.
The Company’s remuneration committee is responsible for deciding the identity of the participants and
the number of Ordinary Shares that may be acquired.
The EBT Trustee’s interest in each Ordinary Share held under the JSOS is the value up to a specified
price for the tranche of which that share forms part (the ‘‘Hurdle’’). The participant’s interest is the excess
in value over the Hurdle. Each tranche vests in the year indicated, normally only if the relevant participant
remains employed by the Company, and the Hurdles for each tranche are as follows:
Tranche
1
2
3
4
Vesting date
1
1
1
1
January
January
January
January
2011
2012
2013
2014
Hurdle
£1.73
£1.91
£2.08
£2.28
Once the relevant vesting date is reached a tranche will vest even if the share price has not exceeded the
Hurdle. A participant may elect to leave his vested interests in the JSOS. Alternatively he may request
that the EBT Trustee deliver to him his vested interest, either in cash (after deduction of any personal loan
and broker’s commission and other costs of sale of the shares) or in Ordinary Shares.
A participant may request the EBT Trustee to sell to the participant the EBT Trustee’s interest in a
tranche, after the tranche has vested. The EBT Trustee is not bound to agree to this request.
Where, in relation to any Ordinary Share held under the JSOS or any participant interest, the Company or
a member of the Company’s group is liable to account for tax or social security in respect of a participant,
the EBT Trustee is entitled to sell any Ordinary Shares held under the JSOS and deduct from the sale
proceeds an amount necessary to discharge such liability, unless the participant has paid an amount
sufficient to discharge the liability beforehand.
Subscription for the Ordinary Shares
As described above, the subscription price for the Ordinary Shares acquired for the purposes of the JSOS
was apportioned between the participants and the EBT Trustee proportionately to the value of their
respective beneficial interests. This meant that the majority of the subscription amount was borne by the
EBT Trustee. The participants who were not Directors were granted loans by Ocado on arm’s length
terms in order to fund their subscription; the participants who were Directors were not.
The EBT Trustee funded its subscription by way of a loan from Ocado. When the EBT Trustee sells jointly
owned Ordinary Shares held pursuant to the JSOS, it will apply the proceeds that represent its beneficial
interest to repay that loan. Ocado has no recourse under the loan to the assets of the EBT Trustee other
than the proceeds of the sales of jointly held shares. To the extent that the Hurdles are not met, the
proceeds of sale may not be sufficient for the EBT Trustee to repay the loan in full. If the proceeds of the
sale of its beneficial interest are greater than the amount the EBT Trustee is required to repay under the
loan, the EBT Trustee may apply any surplus for future employee incentivisation arrangements.
Voting rights
The EBT Trustee will not normally exercise the voting rights of unvested Ordinary Shares held under the
JSOS but may exercise such rights on vested Ordinary Shares at the request of the relevant participants.
Similarly, Ordinary Shares held under the JSOS will not receive any dividends paid, but the Hurdles will
be reduced proportionally so as not to distort the value of the participants’ interests in the Ordinary
Shares.
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Leaving employment
If a participant leaves during the currency of the scheme, he may lose all or part of his beneficial interest,
depending on the circumstances in which he leaves:
•
if he is a ‘‘very bad leaver’’ (i.e., he has been or could have been dismissed by the Company for
cause or he has been in material breach of an obligation binding on him after termination), his vested
and unvested interests in Ordinary Shares held under the JSOS may be acquired by the EBT Trustee
for the lower of their market value and the initial subscription price;
•
if he is a ‘‘bad leaver’’ (i.e., he is neither a ‘‘good leaver’’ nor a ‘‘very bad leaver’’), he would retain his
vested interests but unvested interests may be acquired by the EBT Trustee for the lower of the
market value and the initial subscription price. If he subsequently goes to work for a competitor of the
Company, his vested interests may also be acquired by the EBT Trustee at market value; and
•
if he is a ‘‘good leaver’’ (i.e., he left employment as a result of illness, injury, disability, redundancy,
retirement on or after his contractual retirement date, early retirement by agreement with the
Company or the business in which he is engaged ceasing to be part of the Company’s group), he
would continue to participate in the JSOS although the EBT Trustee may offer to buy out his vested
and unvested interests. However, if a good leaver subsequently goes to work for a competitor of the
Company, his vested and unvested interests may be acquired by the EBT Trustee at market value.
Where the EBT Trustee acquires an unvested interest, that interest may be redistributed to benefit other
employees or among the remaining participants in the JSOS.
If a participant dies while in employment or after having left as a ‘‘good leaver’’, then this interest will vest
entirely on the date of his death.
Change of control
If a general offer is made which would result in the offeror obtaining control of the Company, a participant
may request the EBT Trustee to accept the offer with respect to Ordinary Shares that have vested under
the JSOS.
If the Company is subject to a compromise or arrangement approved by the court, a participant may
request the EBT Trustee to vote in accordance with his directions at any shareholder meeting in respect
of Ordinary Shares that have vested under the JSOS. Where any consideration is received by the EBT
Trustee as a result of such compromise or arrangement (other than consideration in the form of shares of
a company that has obtained control of the Company, where 90 per cent. of that company’s shares are
held in substantially the same proportions by substantially the same persons who previously held shares
in the Company) the EBT Trustee must pay a proportion of the consideration to a participant that is
equivalent to his interest, and the participant will then have no further interest in the Ordinary Shares
under the JSOS. Shares which are unvested because the vesting date has not yet been reached shall be
treated for this purpose as if they have vested.
Repurchase
The Company may require the EBT Trustee to sell to it Ordinary Shares held under the JSOS at any time
after 1 January 2019 or where the EBT Trustee has acquired a participant’s interest as a result of a
participant ceasing to be employed.
Limitations on grant
The aggregate number of Ordinary Shares held for the purposes of the JSOS cannot exceed 7.5 per cent.
of the Company’s issued ordinary share capital.
Amendment
The board of the Company may amend the rules of the JSOS from time to time.
However, an amendment may not be made to the definition of ‘‘eligible employee’’, the restrictions on
transfer of a participant’s interest or the limit of the aggregate number of Ordinary Shares that can be
acquired through the JSOS without shareholder approval, unless the amendment is minor and benefits
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the administration of the JSOS, or is necessary for tax reasons or to take account of a change in
legislation. An amendment may not adversely affect the rights of a participant who already has a
beneficial interest in Ordinary Shares under the JSOS except where the amendment has been approved
by the participant or is of a minor nature and benefits the administration of the JSOS.
12.
Options and warrants over Ordinary Shares
12.1 Option granted to Anthony O’Neill
Ocado granted an option to subscribe for 74 shares in Ocado for £90.42 per share on 4 February 2002.
This option will expire on 4 February 2012. Following the reorganisation that resulted in the Company
becoming the holding company of the Group, this option is now an option to subscribe for 7,400 Ordinary
Shares at a price of £0.9042 per Ordinary Share.
12.2 Option granted to Tom Clayton
Ocado granted an option to subscribe for 943 shares in Ocado for £53 per share on 7 February 2002. This
option will expire on 7 February 2012. Following the reorganisation that resulted in the Company
becoming the holding company of the Group, this option is now an option to subscribe for 94,300 Ordinary
Shares at a price of £0.53 per Ordinary Share.
12.3 Option granted to Compton Overseas International Limited
Ocado granted an option to Compton Overseas International Limited to subscribe for 477 Ocado Limited
Preference Shares for £103.37 per share on 30 April 2004. This option will expire 30 days after
Admission. Following the reorganisation that resulted in the Company becoming the holding company of
the Group, this option is now an option to subscribe for 47,700 Preference Shares at a price of £1.0337
per Preference Share.
12.4 Option granted to The Apple Trust
Ocado granted an option to The Apple Trust on 3 January 2003 to subscribe for such number of shares in
Ocado (and following the reorganisation that resulted in the Company becoming the holding company of
the Group, in the Company) at the Offer Price as are required to ensure that The Apple Trust will hold
5.68 per cent. of the issued share capital of Ocado on Admission. Following the reorganisation that
resulted in the Company becoming the holding company of the Group, this option is now an option in
respect of Ordinary Shares.
12.5 Option granted to Hawkeye Capital Partners Limited (‘‘Hawkeye’’)
The Company documented an option to Hawkeye on 21 June 2010 to subscribe for 38,700 Ordinary
Shares at a price of £1.0337 per share. This option was granted to Hawkeye for investor introduction
services performed by it in 2003. This option will expire 30 days after Admission.
12.6 Non-dilution right granted to Generation IM Climate Solution Fund, L.P. (‘‘Generation’’)
Ocado and Generation entered into a subscription agreement on 28 August 2009 which granted
Generation the right to subscribe for such number of shares at the Offer Price as it elects in Ocado
(following the reorganisation that resulted in the Company becoming the holding company of the Group,
in the Company) up to an aggregate amount which would result in its percentage shareholding being
equal to the percentage shareholding of Generation prior to Admission.
12.7 Pre-emption right of FIL Investments International (‘‘FIL Int’’) and FIL Investment Services
(UK) Limited (‘‘FIL UK’’)
Ocado, FIL Int and FIL UK entered into a subscription agreement on 29 August 2009 which, as amended
by a letter agreement dated 22 June 2010, granted FIL Int and FIL UK a pre-emption right in proportion to
their holding of Ordinary Shares over any Ordinary Shares issued by the Company if the offer price for
such shares is lower than £1.35. The pre-emption right will expire immediately prior to Admission.
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12.8 Warrants granted to Lloyds TSB Bank plc
Ocado granted warrants to Lloyds TSB Bank plc to subscribe for 28,612 shares in Ocado for £180 per
share on 3 December 2004. These warrants were transferred to Ranelagh Nominees Limited (an affiliate
of Lloyds TSB Bank plc) on 4 August 2006. Following the reorganisation that resulted in the Company
becoming the holding company of the Group, the warrants are now warrants to subscribe for 2,861,200
Ordinary Shares in the Company at a price of £1.80 per Ordinary Share.
In addition, Ocado granted warrants to Lloyds TSB Bank plc to subscribe for 20,833 shares in Ocado for
£180 per share on 30 May 2006. These warrants were transferred to Ranelagh Nominees Limited on
4 August 2006. Following the reorganisation that resulted in the Company becoming the holding company
of the Group, the warrants are now warrants to subscribe for 2,083,300 Ordinary Shares in the Company
at a price of £1.80 per Ordinary Share.
Subject to the Offer Price being no less than £1.90, Ranelagh Nominees Limited has irrevocably
committed to exercise all warrants transferred to it by Lloyds TSB Bank plc prior to Admission provided
that it may sell the resulting 4,244,500 New Ordinary Shares issued to it or its nominee pursuant to the
Offers.
Please also see section 12.9 below.
12.9 Warrants granted to Ranelagh Nominees Limited
Ocado granted warrants to Ranelagh Nominees Limited to subscribe for 6,667 shares in Ocado for £180
per share on 6 February 2007. Following the reorganisation that resulted in the Company becoming the
holding company of the Group, the warrants are now warrants to subscribe for 666,700 Ordinary Shares
in the Company at a price of £1.80 per Ordinary Share.
Subject to the Offer Price being no less than £1.90, Ranelagh Nominees Limited has irrevocably
committed to exercise all its warrants prior to Admission provided that it may sell the resulting 667,600
New Ordinary Shares issued to it or its nominee pursuant to the Offers.
Please also see section 12.8 above.
12.10 Confirmation
The total issued warrants and options to subscribe for Ordinary Shares (as described in section 11.1 of
this Part XIII and this section 12) will not, if all were exercised, exceed 20 per cent. of the issued share
capital of the Company at Admission.
Additional information on the intentions of Ranelagh Nominees Limited with regard to the warrants it holds
to subscribe for 5,611,200 Ordinary Shares are provided in sections 12.8 and 12.9 above.
13.
Corporate governance
13.1 Compliance with the UK Corporate Governance Code
In anticipation of Admission, the Board has implemented a number of changes to its governance
arrangements to give further assurance to Shareholders that the Board is committed to the highest
standards of corporate governance. From Admission, the Company will apply the principles and comply
with the provisions of the UK Corporate Governance Code save as described in sections 13.2 to 13.4
below.
13.2 The Board
The Company is led and controlled by the Board. The names, responsibilities and details of the current
Directors appointed to the Board are set out above in Part II (Directors).
The UK Corporate Governance Code recommends that at least half the board of directors of a UK listed
company, excluding the chairman, should comprise non-executive directors determined by the Board to
be independent in character and judgement and free from relationships or circumstances which may
affect, or could appear to affect, the director’s judgement. As at the date of this document, the Board
comprises 12 members, including the chairman, two independent non-executive Directors, four
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Executive Directors and five non-executive Directors who are not deemed to be independent for the
purposes of the UK Corporate Governance Code. The Company will not therefore comply with the
relevant requirements of the Code in relation to the balance of executive and independent non-executive
Directors.
Of the eight non-executive Directors on the Board, the chairman, David Grigson and Ruth Anderson are
independent as defined in the UK Corporate Governance Code. However:
•
Robert Gorrie is not deemed independent for the purposes of the UK Corporate Governance Code
because he was an executive director of Ocado from April 2000 until April 2006 and a non-executive
director from May 2006 until March 2010 when, along with some of the other members of the Ocado
Board, he became a Director of the Company. He also provides consulting services to the Group
under a separate consulting agreement. The Board considers Robert to be independent;
•
Jörn Rausing is not deemed independent for the purposes of the UK Corporate Governance Code
because the Apple Trust (of which he is a beneficiary) is a Major Shareholder. Details of his
shareholding are set out in section 8 of this Part XIII. The Board considers Jörn to be independent;
•
David Young is not deemed independent for the purposes of the UK Corporate Governance Code
because he was a Director of Ocado from October 2000 to March 2010 when, along with all of the
other then members of Ocado Board, he became a Director of the Company. The Board considers
David to be independent;
•
Patrick Lewis is a director of John Lewis Partnership plc. John Lewis Partnership plc is the ultimate
holding company of Waitrose which, as described in this document, is the Group’s key supplier and
also a competitor. Patrick is also a director of and was appointed to the Board by the John Lewis
Pension Fund which is a Major Shareholder. Accordingly Patrick Lewis is not deemed independent
for the purposes of the UK Corporate Governance Code; and
•
Michael Robarts was appointed to the Board by the John Lewis Pension Fund which is a Major
Shareholder. Accordingly Michael is not deemed independent for the purposes of the UK Corporate
Governance Code.
The Company has no immediate intention to appoint further independent non-executive Directors
(although it does expect to appoint at least one in the six months following Admission), nor to remove from
the Board any of the current Directors, to comply with the relevant provisions of the UK Corporate
Governance Code save that Michael Robarts is expected to stand down from the Board shortly after
Admission). However, the Company expects that as existing members of the Board step down and new
Directors are appointed, the Company will become compliant with the UK Corporate Governance Code in
this respect.
In order to maintain high standards of corporate governance, the Final Articles require each Director to
retire at every annual general meeting (each Director may offer himself for reappointment by the
members at such meeting). The UK Corporate Governance Code does not yet require the Company to
implement such a procedure.
13.3 Board responsibilities
The Board has authority for the conduct of the business of the Group. There are a number of matters that
have been specifically reserved for the Board.
13.4 Board committees
As envisaged by the UK Corporate Governance Code, the Board has established three committees: an
audit committee, a nomination committee and a remuneration committee. If the need should arise, the
Board may set up additional committees as appropriate.
Audit committee
The audit committee’s role is to assist the Board in fulfilling its oversight responsibilities, including the
review of the financial reporting process, the system of internal control and risk management, the audit
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process and the Company’s process for monitoring compliance with laws and regulations and its own
code of business conduct. The audit committee will normally meet no fewer than three times a year.
The audit committee is chaired by Ruth Anderson, and its other members are David Grigson, David
Young and Robert Gorrie. As required by the UK Corporate Governance Code, one member of the audit
committee (Ruth Anderson) is considered by the Board to have recent and relevant financial experience.
The UK Corporate Governance Code also requires a board to establish an audit committee of at least
three independent non-executive directors. As explained above, while the Board considers each of its
non-executive Directors on the audit committee to be independent, from the perspective of the UK
Corporate Governance Code only two of the four members of the audit committee (Ruth Anderson and
David Grigson) are independent. Therefore the Company does not comply with the UK Corporate
Governance Code in this respect.
The Group does not have a dedicated internal audit function, although internal reviews of the Group’s
operations are undertaken periodically by senior financial staff. The audit committee and the Board have
considered the need for an internal audit function and concluded that, given the Group’s size and
structure, it is not necessary at this time. The need for an internal audit function will be monitored and
developed as the size and complexity of the Group increases.
Nomination committee
The nomination committee’s principal responsibility is to keep the composition and balance of the Board
under review, consider succession planning, lead the process for Board appointments and make
recommendations to the Board on all new appointments and re-appointments of non-executive Directors.
The nomination committee will normally meet no fewer than two times a year.
The nomination committee is chaired by David Grigson, and all of the other non-executive Directors
(including Michael Grade) are members. The UK Corporate Governance Code requires a majority of the
members of the nomination committee to be independent non-executive directors. As explained above,
while the Board considers six of its non-executive Directors on the nomination committee to be
independent, from the perspective of the UK Corporate Governance Code only three of the members of
the nomination committee (David Grigson, Michael Grade and Ruth Anderson) are independent.
Therefore the Company does not comply with the UK Corporate Governance Code in this respect.
Remuneration committee
The purpose of the remuneration committee is to determine and agree with the Board the remuneration
policy and salary market position for the chairman of the Board and the Executive Directors, to monitor the
structure and levels of remuneration for the next most senior category of executives and make
recommendations if appropriate and to review and administer all aspects of any share scheme operated
by or to be established by the Company. This includes base salary, annual and long-term incentive
entitlements and awards and pension arrangements. No Director or executive shall be involved in any
decisions as to his or her remuneration. The remuneration committee will also generate an annual report
of the Company’s remuneration policy and practices which will form part of the Company’s annual report
and ensure that each year it is put to the Company’s shareholders for approval. The remuneration
committee will normally meet no fewer than two times a year.
The remuneration committee is chaired by David Young, and its other members are Ruth Anderson,
Robert Gorrie and Jörn Rausing. The UK Corporate Governance Code requires a board to establish a
remuneration committee of at least three independent non-executive directors. As explained above, while
the Board considers each of its non-executive Directors on the remuneration committee to be
independent, from the perspective of the UK Corporate Governance Code the only member of the
remuneration committee who is independent is Ruth Anderson. Therefore the Company does not comply
with the UK Corporate Governance Code in this respect.
13.5 Model Code
From Admission, the Company shall require the Directors and other persons discharging managerial
responsibilities within the Group to comply with the Model Code as published in the Listing Rules, and
shall take all proper and reasonable steps to secure their compliance.
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14.
Additional Information
Pensions
Ocado contributes to the personal pension plans of its staff through a defined contribution company
personal pension scheme which is administered by Standard Life. Employer contributions to the scheme
are a percentage of salary based on length of service.
15.
Significant change
There has been no significant change in the financial or trading position of the Group since 16 May 2010
being the date to which the historical financial information in Part VII (Unaudited Interim Financial
Information relating to the Group for the 24 weeks ended 16 May 2010) was prepared.
16.
Litigation
There are no governmental, legal or arbitration proceedings (including any such proceedings which are
pending or threatened of which the Company is aware) which may have, or have had during the
12 months preceding the date of this document, a significant effect on the Group or its financial position or
profitability.
17.
Material contracts
Set out below is a summary of (a) each material contract (other than a contract in the ordinary course of
business) to which Ocado or the Company is a party which has been entered into within the two years
immediately preceding the date of this document; and (b) any other contract (other than a contract in the
ordinary course of business) entered into by any member of the Group which contains a provision under
which any member of the Group has any obligation or entitlement which is material to the Group as at the
date of this document.
17.1 Branding Arrangements and Sourcing Agreement with Waitrose and John Lewis
Various agreements have been entered into between Ocado and John Lewis and Waitrose. The original
Sourcing and Branding Agreements (and the shareholders’ agreement that, from 2000, governed the
relationship between Ocado and its shareholders) were progressively amended, superseded or
otherwise updated, most recently by the 2008 Agreement and the 2010 Agreement. Such changes built
on the strengths and continuing mutual benefits of the original deal between the parties and reflected also
the development of both Ocado’s and Waitrose’s own online operations. The current relationship
between Waitrose (as a sourcing agent and brand owner) and Ocado is set out in this suite of agreements
to which the 2010 Agreement is the most recent addition, and is a newly extended arm’s length
commercial arrangement which takes into account the historic relationship between the parties and other
relevant factors.
•
2010 Agreement
Under the 2010 Agreement, Ocado and Waitrose agreed to extend the term of their relationship and
reached further agreement on certain other key elements.
As a result of the 2010 Agreement, the Sourcing Agreement will now expire on 1 September 2020,
unless terminated earlier by any party giving written notice. The earliest such notice may expire is
1 March 2017. To terminate by notice with effect from 1 March 2017, at least 18 months’ written
notice must be given; such notice period reduces on a sliding scale so that to terminate by notice
with effect from 1 September 2017 onwards, only 12 months’ notice need be given.
•
Sourcing Agreement
Under the Sourcing Agreement, Waitrose acts as Ocado’s sourcing agent for the negotiation and
entry into of Ocado’s supply commitments. In the majority of cases where Waitrose sources
products for Ocado in this way, Ocado is then able to place its orders for goods directly with the
supplier at the prices obtained by Waitrose, but must deal with all logistics, handling and billing
matters itself. Currently approximately 85 per cent. (by volume) of the goods sold by Ocado stocks
(supplied by approximately 350 different suppliers) are sourced through Waitrose in this way. In
other cases, Ocado places orders with Waitrose for the relevant products, and these orders are
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aggregated with the requirements of Waitrose’s branches, delivered by the supplier to the Waitrose
regional distribution centre, and then forwarded to Ocado. Waitrose then bills Ocado for the relevant
products. In all cases Waitrose is obliged to use its reasonable endeavours to procure terms for
Ocado which are comparable to those obtained by Waitrose itself, including volume discounts and
availability of support for promotions. Ocado pays Waitrose a fee for these services in all cases.
The 2010 Agreement amended or clarified some important elements of the Sourcing Agreement
and Branding Arrangements. These included:
•
Sourcing fee
The sourcing fee is calculated as a percentage of Ocado’s net sales (exclusive of delivery charges,
certain refunds, and VAT) of products sourced through Waitrose. The parties agreed a new
sourcing fee under the 2010 Agreement to take effect from 1 December 2010; unlike the fee
currently paid, the new sourcing fee will vary according to whether the product sold is third partybranded, Waitrose own-label, John Lewis own-label or sourced from John Lewis (the percentage
being higher in respect of the latter categories than the former).
Accordingly, the new sourcing fee will rise to the extent that Ocado sells a higher percentage of
products that are Waitrose own-label, John Lewis own-label or sourced from John Lewis, and
(subject to the minimum sourcing fee described below) will fall to the extent that Ocado sells a higher
percentage of Ocado own-label, third party-branded products and products not sourced through
Waitrose.
In FYE 2009, Ocado paid Waitrose a sourcing fee of £4.7 million in accordance with the terms of the
2008 Agreement. The Directors estimate that this would have increased to £6.4 million had the
sourcing fee payable from 1 December 2010 been payable in FYE 2009.
From 1 December 2010 there will also be a minimum annual sourcing fee payable by Ocado to
Waitrose. The Directors expect that this minimum fee will be broadly equivalent, as a percentage of
Ocado’s net sales (exclusive of delivery charges and VAT) of grocery products, to the fee paid in
FYE 2009.
•
Scope of products covered
Ocado has the right to stock and sell (and must not source elsewhere) all grocery products in the
assortment of grocery products stocked by Waitrose supermarkets (subject to certain exclusions
such as where Waitrose is unable to procure such supply for Ocado, either at all or in sufficient
quantities). If Ocado wishes to introduce a product not comprised in the Waitrose assortment then
Waitrose has a right of first refusal on whether to supply that product if it is a product from a range
that is already stocked by Waitrose supermarkets; otherwise Ocado may source the product directly
from a third party, although Ocado is not permitted to stock and sell any products that carry the
brand of certain Waitrose competitors. This provision, contained in the 2010 Agreement, was a
significant change from the equivalent provision in the 2008 Agreement which had required Ocado
to offer Waitrose a right of first refusal to source for it any products it wished to stock.
The Sourcing Agreement treats differently the various non-grocery products that are either branded
‘‘John Lewis’’ or sourced by Waitrose from John Lewis. Ocado also has the right to source certain of
these non-grocery products. Either party may give the other three months’ notice to cease the
supply of any or all of these products. Sales of these non-grocery products accounted for
approximately 0.5 per cent. of Ocado’s gross sales in FYE 2009 (P1-3 2010: 0.8 per cent.). Ocado
and John Lewis are in discussions as to whether they can agree a separate agreement for Ocado to
source non-grocery products from John Lewis on a long term basis, and Ocado has agreed not to
source these products from certain John Lewis competitors until 1 January 2011 (unless the
negotiations terminate unsuccessfully before that date). Ocado is not otherwise restricted as to
whom it may source non-grocery products from.
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•
Additional Information
Minimum Sourcing Requirements
•
Minimum sourcing of third party-branded groceries: in each quarter, at least 80 per cent.
of Ocado’s sales of third party-branded groceries must be sourced through Waitrose
(subject to certain exceptions designed to protect Ocado from Waitrose’s suppliers
ceasing to be willing to supply Ocado). Ocado will have three months, following notice
from Waitrose, to remedy any breach of this provision. If Ocado fails to rectify the breach
Waitrose may terminate the Sourcing Agreement and Branding Arrangements on
six months’ notice (and may terminate immediately, if Ocado breaches the provision
three times in any rolling 24 month period). Following termination in these
circumstances, Ocado is obliged to pay Waitrose a termination fee of £40 million. These
minimum sourcing provisions cease to bind the parties once any party has given valid
notice to terminate the agreements.
•
Minimum sourcing of own-label groceries: in each quarter up to 25 May 2013, no more
than 20 per cent. of Ocado’s net grocery sales of Waitrose own-label and Ocado
own-label groceries may comprise net sales of Ocado own-label groceries. Thereafter,
the threshold rises to 30 per cent. The same termination provisions (including the
termination fee) apply as apply to the minimum sourcing of third party-branded products,
save that if in the 12 months prior to termination, no more than 20 per cent. (or, following
25 May 2013, 30 per cent.) of the total number of own-label SKUs were Ocado
own-label, the termination fee will be £10 million. These minimum sourcing provisions
cease to bind the parties once any party has given notice to terminate the agreements.
By way of illustration, in FYE 2009 99.5 per cent. of Ocado’s sales of third party-branded groceries
were sourced from Waitrose (P1-3 2010: 99.2 per cent.) and 1.5 per cent. of Ocado’s sales of
own-label groceries comprised sales of Ocado own-label groceries (P1-3 2010: 2.4 per cent.). The
Directors believe, therefore, that the minimum sourcing provisions in the 2010 Agreement do not,
realistically, place a significant restriction on the independent growth of the Business. The minimum
sourcing requirements do not affect Ocado’s sales of non-grocery products.
•
Termination
Waitrose may terminate the Sourcing Agreement on six months’ written notice if Ocado fails to pay
sums due under the agreement within a set time period, commits certain material breaches (and
fails to cure them within 30 business days), or the Branding Arrangements are terminated other than
as a result of breach by Waitrose. Waitrose may also terminate the Sourcing Agreement
immediately by giving Ocado written notice on Ocado’s insolvency or ceasing to operate its online
home delivery grocery service. Ocado may terminate the Sourcing Agreement on six months’ notice
following a failure to pay by Waitrose or a material breach and immediately on Waitrose’s
insolvency.
In addition, either party may terminate the agreement on three months’ notice following a competitor
of Waitrose or John Lewis acquiring 50 per cent. or more of the Ordinary Shares or control of the
Company’s board. Following termination in these circumstances, Ocado will pay Waitrose the lower
of £40 million and 4 per cent. 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.
•
Branding Arrangements
Under the Branding Arrangements Ocado has a non-exclusive arrangement with Waitrose under
which Ocado may, in accordance with set operating procedures and a style guide and subject to
Waitrose’s prior approval, use the Waitrose brand and trademarks in the UK for its online grocery
retailing and delivery service in return for a nominal royalty fee. The Branding Arrangements will
terminate upon Ocado and Waitrose entering into a new branding agreement, and may terminate
upon material breach by either party (and failure to cure such breach within 30 business days),
insolvency of either party, or the bringing of the Ocado, John Lewis and/or Waitrose brands into
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disrepute, or termination of the Sourcing Agreement. On termination, Ocado is required to cease
using the Waitrose brand and the Waitrose trade marks immediately.
The 2010 Agreement strengthened some of the brand protection provisions. In particular, specific
mention was made to the reputation for excellence of the Waitrose, John Lewis and the John Lewis
Partnership brands, and Ocado undertook on behalf of itself and any future controllers of Ocado not
to do anything which would diminish or would be likely to diminish that reputation. Ocado also
undertook not to position its offering as a whole to be similar to that of a discount retailer.
If Ocado (or any future controllers of it) breach these brand protection provisions, it would have
90 days following notice from Waitrose or John Lewis to rectify the breach. If Ocado (or such
controller) fails to rectify the breach, or if it breaches the provisions three times in any rolling
24 month period, Waitrose and John Lewis may terminate the Sourcing Agreement and Branding
Arrangements on 30 days’ notice (or immediately following three breaches in a 24 month period).
Following termination in these circumstances, Ocado is obliged to pay Waitrose £40 million.
•
Restrictions on WaitroseDeliver
In addition to amending the Sourcing Agreement and replacing the Branding Agreement with the
Branding Arrangements, Waitrose and Ocado agreed in the 2008 Agreement to relax the
non-compete provision applying to the WaitroseDeliver service which had been contained in the
shareholders’ agreement. This provision was relaxed further under the 2010 Agreement.
As a result, until 31 December 2010, Waitrose is prevented from offering the WaitroseDeliver
service to any person living within the area bounded by the M25 motorway. This prohibition does not
extend to a limited number of deliveries made from five Waitrose stores within the M25 to customers
in certain postcode areas.
Between 1 January 2011 and 30 June 2011 Waitrose may effect a phased extension of the
WaitroseDeliver service within the M25, so that by July 2011 it may provide the service without
contractual limitations.
•
IPO Fee
Pursuant to the 2010 Agreement Ocado agreed to procure that the Company would pay John Lewis
a fee of £850,000 following Admission in recognition of the support provided to the Business by
John Lewis and in partial reimbursement for the costs incurred by the John Lewis Pension Fund (of
which John Lewis is sponsor) in respect of the Offers.
Termination or notice of termination of the Sourcing Agreement and Branding Arrangements in any
circumstances would be an event of default under the New Facility. However, with the exception of the
change of control termination right described in paragraph 1.4 of the Risk Factors, which is customary for
an agreement of that type, the Company is in control of whether any such termination rights will arise.
17.2 CFC Leases
Ocado entered into a lease of the CFC on 12 June 2002 for an initial term of 20 years to expire on
28 September 2021. Certain obligations of the Company as tenant under this lease were guaranteed by
John Lewis. Ocado later entered into a reversionary lease of the CFC on 6 March 2008, which granted the
Company a further lease of the CFC for a term of 11 years which effectively extends the term of the initial
lease of the CFC, to expire on 27 September 2032. There was no guarantor to this reversionary lease.
Ocado also entered into a further lease of an additional storage yard at the CFC on 6 March 2008, for a
term expiring on 28 September 2032. For the purposes of this section the leases of the CFC are
collectively referred to as the ‘‘CFC Leases’’.
Under the CFC Leases, Ocado currently pays an annual rent of £2,528,984 comprising: £2,209,398 per
annum for the principal warehouse; £294,586 per annum for a car park; and £25,000 per annum for the
additional storage yard. The rents will next be reviewed on 28 September 2011 and every fifth year
thereafter during the term, in each case on an upwards only open market basis.
In addition to the rent, Ocado pays a service charge towards the general upkeep and maintenance of the
Hatfield Business Park (originally the Hatfield Aerodrome) on which the CFC is situated. This service
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Additional Information
charge is paid in common with other occupiers of that business park and is calculated as a fair and
reasonably proportion of the total service charge properly attributable to the CFC site.
In each case, Ocado has been granted a full structural demise of the relevant premises and the CFC
Leases restrict Ocado’s use of the CFC site to storage and distribution with ancillary offices and staff
facilities.
The CFC Leases permit Ocado to assign, underlet, charge and part with possession of the leases,
subject to certain conditions which are set out in the CFC Leases. The CFC Leases do not contain any
break rights in favour of either the landlord or the tenant of those leases.
John Lewis currently guarantees Ocado’s obligations under the CFC Leases. Ocado pays John Lewis a
fee of £150,000 per annum in consideration for the guarantee being provided in accordance with the
terms of an agreement entered into in September 2005. Under the 2008 Agreement, Ocado is required to
procure John Lewis’s release from this guarantee upon Admission. In consideration for John Lewis
agreeing to continue to guarantee Ocado’s obligations under the CFC Leases for a period of up to
18 months from Admission, Ocado has agreed to increase the fee payable to fee equivalent to £240,000
per annum for the first six months from Admission and fee equivalent to £220,000 per annum for the
twelve months thereafter.
17.3 Key financing arrangements
•
Lloyds TSB Bank plc
On 22 November 2004 Ocado (as borrower) and Lloyds TSB Bank plc (as lender) entered into a term loan
agreement which was amended and restated on 30 May 2006, 6 February 2007, 15 August 2008 and
26 May 2010. The facility consists of three sterling term loan facilities of £11,219,494.92 (the ‘‘A Facility’’),
£15,887,267.50 (the ‘‘B Facility’’) and £7,500,000 (the ‘‘C Facility’’) and a sterling revolving credit facility
of £7,500,000 (the ‘‘RCF’’) and is for Ocado’s general corporate purposes. The facility is secured against
the delivery management system software and the LOKI/Fenrir software program. The facility is
guaranteed by the Company and Ocado Holdings Limited and by Ocado in the event of an additional
borrower drawing down under the facility.
Loans drawn under the A Facility and B Facility bear interest at the London Inter-Bank Offer Rate plus a
margin of 2 per cent. per annum together with a sum for certain mandatory costs (if any). In addition,
interest at a margin of 4 per cent. per annum is accrued, capitalised and added to the outstanding
principal amount. Loans drawn under the C Facility bear interest at the London Inter-Bank Offer Rate plus
a margin of 5 per cent. per annum together with a sum for certain mandatory costs (if any). Loans drawn
under the RCF bear interest at the London Inter-Bank Offer Rate plus a margin of 7 per cent. per annum
together with a sum for certain mandatory costs (if any). Interest on overdue amounts is charged at a rate
of 1 per cent. above the rate which would have been payable.
Repayment of £15,625,000 is due pro-rata on the A Facility and B Facility on 1 December 2010 with the
balance due on 1 December 2011. Repayments of the C Facility are due in three instalments of
£2,500,000 on 26 May 2011, 26 May 2012 and 26 May 2013.
The agreement contains customary warranties, representations, covenants and events of default. The
financial covenants require that Ocado’s cumulative EBITDA be not less than specified incremental
amounts in specified quarterly test periods, that the ratio of EBITDA to net interest at the end of each such
quarter period be greater than one for one on 31 August 2010, two to one until 31 May 2011 and three to
one for 31 August 2011 and for each quarter period thereafter and that Ocado maintain certain cash flow
levels in relation to debt service. Any material changes to the Sourcing Agreement and Branding
Arrangements must be agreed in advance by Lloyds TSB Bank plc acting reasonably. The Company,
Ocado and Ocado Holdings Limited may not acquire any company, business or undertaking without the
prior written consent of Lloyds TSB Bank plc acting reasonably and may not enter into, invest in or acquire
any interest in a joint venture. The agreement restricts the payments of dividends or any distributions by
Ocado. Termination or notice of termination of the Sourcing Agreement and Branding Arrangements with
Waitrose or John Lewis or an adverse change in Ocado’s, the Company’s or Ocado Holdings Limited’s
financial or trading position or prospects which, in the opinion of Lloyds TSB Bank plc, is likely to
materially affect their ability to comply with their obligations under the agreement constitute an event of
default and all outstanding amounts would become repayable on demand.
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Part XIII
•
Additional Information
Bank of London and the Middle East plc
On 27 July 2009 Ocado (as borrower) and Bank of London and the Middle East plc (as lender) entered
into a murabaha facility agreement. The facility is governed under Shariah law and the facility amount is
£10 million.
In place of interest, Ocado makes repayments to a principal sum in excess of the borrowed amount
following an exchange of metal commodities contract. This excess sum is calculated by multiplying the
commodity cost price by 8 per cent and again by N/365, where N is the number of days to elapse from the
settlement date to maturity. Repayments are made quarterly and all outstanding sums must be paid on
the maturity date, being 27 July 2012.
The agreement contains customary warranties, representations, covenants and events of default, with
certain financial covenants requiring that EBITDA must remain positive and that total borrowings and
liabilities must not exceed £160 million. The agreement restricts the distribution of dividends unless the
Group is current with all payments under the agreement and provided that such distribution does not
exceed 50 per cent. of Ocado’s net profit for the period on which the distribution is being made. If there is
an adverse change in Ocado’s financial or trading position or prospects which, in the bank’s opinion is
likely to materially affect its ability to comply with its obligations under the agreement, an event of default
would be triggered and all outstanding amounts would become repayable on demand.
•
HSBC Equipment Finance (UK) Limited
On 22 July 2004 Ocado (as lessee) and HSBC Equipment Finance (UK) Limited (as lessor) entered into a
master sale and leaseback agreement. The agreement may be terminated on one month’s notice by
either party but without prejudice to rights accrued under any leasing agreements made thereunder.
Under the agreement, Ocado may purchase and install plant equipment and subsequently sell and
leaseback the equipment. There have been 24 such sale and leaseback agreements covering the
majority of the conveyor systems and associated capital goods that have been added to the CFC since
August 2004, with outstanding sums totalling £31,580,000.
•
Barclays Bank PLC, HSBC Bank plc and Lloyds TSB Bank plc
On 5 July 2010 Ocado (as original borrower) entered into a sterling term loan facility (the ‘‘New Facility’’)
between, among others, Barclays Bank PLC, HSBC Bank plc and Lloyds TSB Bank plc (as mandated
lead arrangers and lenders), and Barclays Bank PLC (as agent and security trustee). The lenders have
agreed to make available £100 million to the borrowers under the New Facility. All amounts borrowed
under the New Facility shall be applied towards (i) the acquisition of land located in England and Wales;
(ii) the acquisition of building materials, fixtures and buildings attached to land located in England and
Wales; and/or (iii) the acquisition of plant, machinery, equipment, fittings and/or any other tangible
movable property to be located at the existing CFC, the second CFC and the Spokes located in England
and Wales. The New Facility has an accordion feature which allows for the amount available under it to be
increased up to £130 million, subject to lenders (existing or additional) agreeing to make the additional
amount available.
The borrowers may only draw down under the New Facility if certain customary conditions precedent are
satisfied and Admission takes place. The New Facility is secured against the LOKI/Fenrir software
program and the assets financed by the New Facility. The New Facility is guaranteed by the Company,
Ocado Holdings Limited and Ocado in the event of an additional borrower drawing down under it. Any of
the Company’s subsidiaries whose EBITDA, gross assets or turnover account for 5 per cent. or more of
the Group’s EBITDA, gross assets or turnover (calculated on a consolidated basis) shall become
additional guarantors, and the guarantors (taken together) must account for at least 90 per cent. of the
Group’s EBITDA, gross assets and turnover.
Loans drawn under the New Facility bear interest at the London Inter-Bank Offer Rate plus a margin of
3.5 per cent. per annum together with a sum for certain mandatory costs (if any). Repayment is due on the
termination date of the New Facility, 6 January 2014.
The New Facility contains customary warranties, representations, covenants and events of default. The
financial covenants require that the ratio of EBITDA to net interest at the end of each quarter period be not
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Additional Information
less than 3:1 until the test date falling in May 2011, not less than 3.5:1 thereafter until the test date falling
in August 2011 and 4:1 thereafter. The financial covenants also require that the ratio of net debt to
EBITDA must not exceed 3:1, and that the ratio of gross debt to EBITDA must not exceed 5.5:1 for any
covenant test period in respect of which EBITDA is less than £35 million.
The New Facility contains an undertaking from Ocado that it shall ensure that there are no changes,
amendments or waivers to the terms of the Sourcing Agreement and Branding Arrangements which are
reasonably likely to have a material adverse effect on: (i) the ability of the borrowers and the guarantors
(taken as a whole) to perform or comply with their payment obligations under the New Facility and/or the
financial covenants and the guarantor cover test; or (ii) the validity or enforceability of, or the effectiveness
or ranking of any security granted pursuant to the New Facility.
If either Ocado, Waitrose or John Lewis gives notice to terminate the Sourcing Agreement and Branding
Arrangements it will be an event of default under the New Facility. However, with the exception of the
change of control termination right described in paragraph 1.4 of the Risk Factors, which is customary for
an agreement of that type, the Company is in control of whether any such termination rights will arise.
Subject to exceptions for certain permitted acquisitions and permitted joint ventures, the borrowers and
the guarantors may not acquire any company, business or undertaking and may not enter into, invest in or
acquire any interest in a joint venture. The terms of the New Facility also require that Ocado must ensure
that at all times when at least £10,000,000 is outstanding under the New Facility interest payments in
respect of at least 50 per cent. but not more than 100 per cent. of the amounts drawn under it (from time to
time) are hedged for a minimum duration of three years or until the termination date of the New Facility
(whichever is shorter).
17.4 Underwriting and Selling Shareholder Agreements
The Company, the Directors, the Major Selling Shareholders and the Underwriters have entered into the
Underwriting and Selling Shareholder Agreements dated 6 July 2010. Pursuant to these Agreements:
•
the Company has agreed, subject to certain conditions (the last condition being Admission), to allot
and issue, at the Offer Price, the New Ordinary Shares to be issued in connection with the Offers;
•
the Selling Shareholders have agreed, subject to certain conditions (the last condition being
Admission), to sell, at the Offer Price, the Ordinary Shares to be sold by them in connection with the
Offers;
•
the Underwriters have severally agreed, subject to certain conditions including Admission, to
procure subscribers and purchasers for (or, failing which, to subscribe or purchase themselves) the
Offer Shares (in such proportions as set out in the Agreements) pursuant to the Offers;
•
in consideration for their services under the Underwriting Agreement and subject to Admission
occurring, the Company has agreed to pay to the Underwriters a commission of two per cent. of the
amount equal to the product of the Offer Price and the aggregate number of New Ordinary Shares
issued and sold by the Company pursuant to the Offers;
•
each Selling Shareholder has agreed to pay to the Underwriters a commission of two per cent. of the
amount equal to the product of the Offer Price and the aggregate number of Ordinary Shares sold by
them pursuant to the Offers. UBS Holdings Cayman Limited, as provider of the Over-allotment
Option, has also agreed to pay to the Underwriters a commission of two per cent. of the amount
equal to the product of the Offer Price and the aggregate number of Ordinary Shares sold pursuant
to the Over-allotment Arrangements;
•
subject to Admission occurring, the Company may also, in its discretion, decide to award to some or
all of the Underwriters an incentive commission in aggregate at a level to be determined by the
Company of up to 1 per cent. of the amount equal to the product of the Offer Price and the aggregate
number of Offer Shares (including Ordinary Shares sold pursuant to the Over-allotment
Arrangements) (the ‘‘Incentive Commission’’). Any Incentive Commission shall be borne by the
Company and the Selling Shareholders (which includes UBS Holdings Cayman Limited, as provider
of the Over-allotment Option, and Ranelagh Nominees Limited but does not include Selling
Optionholders and Minor Selling Shareholders selling fewer than 50,000 Ordinary Shares in the
Offers) pro rata to the number of Offer Shares being sold or allotted by them or on their behalf;
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Additional Information
•
the obligations of the Underwriters to procure subscribers and purchasers for or, failing which,
themselves to subscribe for and purchase the Ordinary Shares to be issued and sold in connection
with the Offers on the terms of the Underwriting and Selling Shareholder Agreements are subject to
certain conditions. These conditions include the absence of any breach of representation or
warranty under the Underwriting and Selling Shareholder Agreements, there having been no
material adverse change since the date of the Underwriting and Selling Shareholder Agreements
and Admission having occurred not later than 8.00 a.m. on 26 July 2010 or such later time and/or
such date (not later than 8.00 a.m. (London time) on 31 August 2010) as the Company may agree
with the JGCs (on behalf of themselves and the other Underwriters). In addition, any of the JGCs (on
behalf of themselves and the other Underwriters) has the right to terminate the Underwriting and
Selling Shareholders’ Agreements, exercisable in certain circumstances prior to Admission. These
circumstances, which are typical for agreements of this nature, include the occurrence of certain
significant changes in the condition (financial or otherwise), business prospects or earnings of the
Group and certain changes in financial, political or economic conditions;
•
subject to the Underwriters bearing their own out-of-pocket costs and expenses and certain
additional expenses, the Company has agreed to pay the costs, charges, fees and expenses (other
than any amount in respect of tax) incurred by the Underwriters in connection with the Offers,
Admission and the arrangements contemplated by the Underwriting and Selling Shareholder
Agreements;
•
the Major Selling Shareholders have agreed to pay to and reimburse the Underwriters in respect of
any stamp duty and/or SDRT arising on the initial sale of the Ordinary Shares by Major Selling
Shareholders under the Offers (including the Sale of Ordinary Shares pursuant to the
Over-allotment Option), subject to certain limitations;
•
each of the Company, the Major Selling Shareholders and the Directors has given certain
representations, warranties and undertakings to the Underwriters. The liabilities of the Company
under the Underwriting Agreement are not limited as to amount or by time. The liabilities of the
Directors and the Major Selling Shareholders under the Underwriting and Selling Shareholders’
Agreements are limited as to time and amount;
•
pursuant to the Underwriting Agreement, the Company has given an indemnity to the Underwriters
in a form that is typical for an agreement of this nature;
•
the parties to the Underwriting and Selling Shareholder Agreements have given certain covenants
to each other regarding compliance with laws and regulations affecting the making of the Offers in
relevant jurisdictions;
•
the Company, the Major Selling Shareholders, the Directors and, pursuant to certain stand-alone
lock-up deeds entered into on the same date as the Underwriting and Selling Shareholder
Agreements, certain Shareholders who between them hold more than 37 per cent. of the issued
share capital of the Company have agreed to be subject to certain lock-up arrangements further
details of which are set out in section 10 of Part IX (Information about the Offers); and
•
the Selling Shareholders’ Agreement also contains the terms of the Over-allotment Arrangements
more fully described in section 7 of Part IX (Information about the Offers).
17.5 Stock Lending Agreement
In connection with the Over-allotment Arrangements, the Stabilising Manager will enter into the Stock
Lending Agreement with Tim Steiner and Jason Gissing, pursuant to which the Stabilising Manager, on
Admission, will be able to borrow up to 18,131,750 Ordinary Shares for the purposes, among other things,
of allowing the Stabilising Manager to settle, at Admission, over-allotments, if any, made in connection
with the Offers pursuant to the Over-allotment Arrangements. If the Stabilising Manager borrows any
Shares pursuant to the Stock Lending Agreement, it will be required to return equivalent securities to the
relevant lender in accordance with the terms of the Stock Lending Agreement.
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Part XIII
18.
Additional Information
Property
The Group has the following property interests, all of which are held by Ocado:
Property
CFC
Location
Gypsy Moth
Avenue, Hatfield
Business Park,
Hatfield, Herts
AL10 9BD
Tenure
Leasehold
Purchase Price/
Rent (exc. VAT)
£2,528,984 per
annum comprising:
£2,209,398 per
annum
(warehouse)
Term
Major
Encumbrances
20 years ending on N/A
27 September
2021, reversionary
lease extending
term until
27 September
2032
£294,586 per
annum (car park)
£25,000 per annum Lease for yard
(additional yard)
commenced on
6 March 2008 until
Rent reviews in
28 September
September 2011
2032
and every five
years thereafter
Titan Court Ground Titan Court Ground Leasehold
Floor
Floor, 3 Bishops
Square, Hatfield
Business Park,
Hatfield, Herts
AL10 9NE
8 month rent-free
period until June
2010
N/A
10 years ending on N/A
20 October 2019
£137,627.48 (first
year rent)
£197,627.50 per
annum (subject to
rent review in
October 2014 but
benefitting from
further 4 month
rent-free period if
the tenant break
option at fifth
anniversary of
lease date is not
exercised)
Titan Court Top
Titan Court, Top
Floor (Head Office) Floor, 3 Bishops
Square, Hatfield
Business Park,
Hatfield, Herts
AL10 9NE
Leasehold
8 months rent free
period until June
2010
£323,068 per
annum (subject to
rent review in
October 2014 but
benefitting from
further 4 month
rent-free period if
the tenant break
option at fifth
anniversary of
lease date is not
exercised)
264
10 years ending on N/A
20 October 2019
Part XIII
Property
Weybridge Spoke
Coventry Spoke
Location
Canada House,
Canada Road,
Byfleet, West
Byfleet, Surrey
KT14 7HQ
Purchase Price/
Rent (exc. VAT)
Tenure
Leasehold
Note: Ocado is
currently
negotiating a
reversionary lease
of this Spoke to
include the
warehouse, offices
and yard and the
car park. It is
proposed that the
lease will be for a
term of 10 years
commencing on
20 February 2011
at the same rent as
the existing lease
with a 7 month rent
free period from
20 February 2011,
subject to an
upwards only open
market rent review
on the fifth
anniversary of the
lease with a tenant
break right
exercisable on
20 February 2016
subject to
6 months’ notice.
50 additional car
parking spaces at
Canada Road,
Byfleet, Surrey
KT14
Licence
5 Crondal Road,
Exhall, Coventry
CV7 9NH
Freehold
Additional Information
Term
Major
Encumbrances
£275,000 per
5 years ending on
annum
and including
(warehouse, offices 19 February 2011
and yard)
N/A
£75,000 per annum 24 June 2007 until
(car park and
19 February 2011
pathways)
N/A
No rent review
£10,000 per annum 12 September
2007 until
19 February 2011
N/A
No review of
licence fee
£2,115,000
N/A
Subject to a
charge dated
30 November 2006
in favour of
Barclays Bank PLC
Subject to a
charge dated
11 September
2008 in favour of
Barclays Mercantile
Business Finance
Limited
Manchester Spoke
Units D4 & D5
Stanley Green
Trading Estate,
Commercial
Avenue, Cheadle
Hulme, Cheadle
SK8 6QH
Leasehold
£100,000 per
annum
No rent review
265
5 years ending on
May 18 2014
N/A
Part XIII
Additional Information
Property
Southampton
Spoke
Location
Unit B5, Normandy
Way, Marchwood
Industrial Park,
Marchwood,
Southampton,
Hampshire
SO40 4BX
Tenure
Leasehold
Purchase Price/
Rent (exc. VAT)
Term
Major
Encumbrances
£84,150 per annum 10 years ending on N/A
for B5 (Main
1 December 2015
Building) subject to
rent review on
2 December 2010
£13,850 per annum 18 January 2007 to N/A
for D1 (Additional
1 December 2015
Yard Area) subject
to review on
2 December 2010
£12,000 per annum
for B4.4 (Car Park)
4 years ending on N/A
24 December 2011
Dartford Spoke
Leeds Spoke
Zone A, Plots 2
and 3, Littlebrook
Business Park,
Manor Way,
Dartford, Kent
DA1 5PZ
Freehold
Unit J, Springwell
27, Dark Lane,
Birstall, Leeds
Freehold
£2,475,000
N/A
Subject to a charge
dated 17 February
2010 in favour of
Barclays Bank PLC
Subject to a charge
dated 2 March
2010 in favour of
Barclays Mercantile
Business Finance
Limited
£254,000
N/A
Subject to a
charge dated
30 December 2008
in favour of
Barclays Bank PLC
Subject to a
charge dated
21 January 2009 in
favour of Barclays
Mercantile
Business Finance
Limited
White City Spoke
White City Spoke,
5 & 7 Ariel Way,
White City
Industrial Park,
Wood Lane,
Hammersmith,
London W12 7SL
Leasehold
£147,598.50 per
annum subject to
review on 25 June
2014
Note: Ocado
proposes to take a
further lease of a
third unit at White
City with the
intention of it being
operational in
September 2010.
Negotiations for
that lease are at an
early stage and
terms have not yet
been agreed.
266
25 June 2009 to
N/A
31 December 2019
Part XIII
Property
Aylesford (Former
Spoke, now used
to store old
equipment only)
19.
Location
Newsprint House,
New Hythe
Industrial Estate,
Bellingham Way,
Aylesford, Kent
ME20 7DL
Purchase Price/
Rent (exc. VAT)
Tenure
Leasehold
(Periodic Tenancy)
£1,000 per month
subject to review
on a rolling
monthly basis
Additional Information
Term
Rolling monthly
basis
Major
Encumbrances
N/A
Working capital statement
The Company is of the opinion that, taking into account the net proceeds of the Offers and the facilities
available to the Group, the Group has sufficient working capital for its present requirements, that is, for at
least the next twelve months from the date of the publication of this document.
20.
Dividend policy
Neither Ocado nor the Company has ever declared or paid a dividend. The Company currently intends to
retain any future earnings of the Business and therefore the Directors do not anticipate declaring or
paying dividends in the foreseeable future.
21.
Information on the CREST settlement system
CREST, the computerised paperless system for settlement of sales and purchases of shares in the
London securities markets, commenced operations in July 1996.
The CREST Regulations provide for the transfer of shares in the UK without stock transfer forms, and the
evidencing of title to shares without share certificates, through a computer-based system and
procedures, defined in the CREST Regulations as a ‘‘relevant system’’ and is operated by CRESTCo.
The Final Articles contain specific provisions to enable the Ordinary Shares to be dematerialised into a
relevant system, including CREST. A copy of the Final Articles is available for inspection.
The Board has resolved to enable any or all of the Ordinary Shares to join CREST and, accordingly,
Shareholders will be able to hold the Ordinary Shares to which they become entitled in electronic form in
an account on the CREST system or in the physical form of certificates. Each Shareholder will be able to
choose whether or not to convert his Ordinary Shares into Uncertificated form and the Registrar will
continue to register written instructions of transfer and issue Share Account Statements in respect of the
Ordinary Shares held in Certificated form.
It is currently anticipated that the Ordinary Shares will be eligible to join CREST with effect immediately
upon their admission to trading on the London Stock Exchange.
22.
Consents
PricewaterhouseCoopers LLP has given and has not withdrawn its written consent to the inclusion in this
document of its reports in Part (A) of Part V (Financial Information Relating to the Group and Part (B) of
Part VI (Unaudited Pro Forma Financial Information) and the references thereto in the form and context in
which they appear and has authorised the contents of its reports for the purposes of item 5.5.3R(2)(f) of
the Prospectus Rules.
A written consent under the Prospectus Rules is different from a consent filed with the SEC under
section 7 of the US Securities Act. As the offered Ordinary Shares have not been and will not be
registered under the US Securities Act, PricewaterhouseCoopers LLP has not filed a consent under
section 7 of the US Securities Act.
23.
Expenses of the Offers
The total expenses of, or incidental to, the Offers to be borne by the Company are estimated to be
approximately £15 million (assuming the discretionary part of the Underwriters’ commission described in
section 17.4 of this Part XIII and the discretionary elements of the fees of the Company’s other advisers
are paid) (exclusive of amounts in respect of VAT). This amount includes the IPO fee referred to in
section 17.1 of this Part XIII.
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Part XIII
Additional Information
Each Selling Shareholder will bear the amount of any stamp duty or SDRT chargeable on the sale of his
Ordinary Shares and his pro rata share of any selling commissions.
24.
Auditor
PricewaterhouseCoopers LLP whose registered office is 10 Bricket Road, St. Albans AL1 3JX, are the
auditors of Ocado and audited the financial statements for Ocado for the three 52 week periods
ended 29 November 2009, 30 November 2008 and 2 December 2007. The reports in respect of the
financial statements for Ocado for the three 52 week periods ended 29 November 2009, 30 November
2008 and 2 December 2007, respectively, were unqualified and did not contain a statement under
section 237(2) or (3) of the Companies Act 1985 or section 498(2) or (3) of the Companies Act.
PricewaterhouseCoopers LLP is a member of the Institute of Chartered Accountants in England and
Wales.
25.
No incorporation of website information
The contents of the Website, the Offer Website and the Corporate Website do not form part of this
document.
26.
Sources of information
26.1 Financial information
Unless otherwise stated, in this document financial information in relation to the Group referred to in the
Prospectus has been extracted without material adjustment from, in respect of financial information
relating to FYE 2007, FYE 2008, FYE 2009, P1-3 2009 and P1-3 2010, Part V (Financial Information
relating to the Group), and, in relation to P1-6 2010, from Part VII (Unaudited Interim Financial Information
relating to the Group for the 24 weeks ended 16 May 2010) or, in either case, has been extracted from
those of the Group’s accounting records which have been used to prepare that financial information.
Investors should ensure that they read the whole of this document and not only rely on the key information
or information summarised within them.
Unless stated otherwise, all financial information in this document relating to the Group for FYE 2007,
FYE 2008, FYE 2009 and P1-3 2010 has been audited. For the avoidance of doubt, such financial
information relating to the Group does not include operating information relating to the Group, even where
such operating information includes certain financial metrics. Such operating information which is not
audited includes, without limitation, average order size and average product wastage.
None of the financial information in this document relating to the Group for P1-3 2009 or P1-6 2010 has
been audited, nor has any financial information not relating to the Group (unless indicated otherwise).
26.2 Unaudited operating information
Unaudited operating information in relation to the Group is derived from the following sources:
(i) management accounts for the relevant accounting periods presented; and (ii) internal financial
reporting systems supporting the preparation of financial statements. Operating information derived from
management accounts or internal reporting systems in relation to Group is to be found principally in the
Summary, Part I (Information about the Company), Part III (Selected Historical Financial Information),
Part IV (Operating and Financial Review) and Part VII (Unaudited Interim Financial Information relating to
the Group for the 24 weeks ended 16 May 2010).
Management accounts are prepared using information derived from accounting records used in the
preparation of the Group’s historical financial information, but may also include certain other
management assumptions and analyses.
26.3 Industry and market data
Industry data have been obtained from industry publications, market participants and surveys. Such third
party providers of information include: IGD, Verdict, Which?, Tesco plc, J Sainsbury plc, John Lewis
Partnership plc and Wal-Mart Stores, Inc.
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Where third party information has been used in the Prospectus, the source of such information has been
identified. The Company confirms that the information provided by the third parties referred to above has
been accurately reproduced. So far as the Company is aware and has been able to ascertain from
information published by such third parties, no facts have been omitted which would render the
reproduced information inaccurate or misleading.
27.
Calculation of issued share capital on Admission
27.1 Options and warrants
All references in this document to the issued share capital of the Company on Admission (and the
percentage of such issued share capital held by certain Shareholders) have been calculated on the basis
that all of the options or warrants held over Ordinary Shares which are exercisable on or prior to
Admission (as described in sections 11.1, 11.2 and 12 of this Part XIII) will be exercised prior to or on
Admission.
15,816,926 Ordinary Shares are held under options or warrants which are capable of being exercised
between 5 July 2010 (being the latest practicable date prior to the publication of this document) and
Admission and thereafter.
27.2 Ordinary Shares held under the JSOS
As indicated in a number of places in this document, references to the issued share capital of the
Company are shown variously to include and exclude the 32,476,700 Ordinary Shares held by the EBT
Trustee pursuant to the JSOS. Such Ordinary Shares are issued and fully paid shares which are treated
as treasury shares in the Group’s consolidated balance sheet. It is to reflect this accounting treatment that
such Ordinary Shares are sometimes excluded from the issued share capital figures; such accounting
treatment does not affect the issued and fully paid nature of these Ordinary Shares.
28.
Securities laws and selling and transfer restrictions
The distribution of this document and the offer of Ordinary Shares in certain jurisdictions may be restricted
by law and therefore persons into whose possession this document come should inform themselves
about and observe any restrictions, including those set out in the sections that follow. Any failure to
comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.
28.1 General
No action has been or will be taken in any jurisdiction (other than the UK), that would permit a public
offering of the Ordinary Shares, or possession or distribution of this document or any other offering
material in any country or jurisdiction where action for that purpose is required. Accordingly, the Ordinary
Shares may not be offered or sold, directly or indirectly, and neither this document nor any other offering
material or advertisement in connection with the Ordinary Shares may be distributed or published in or
from any country or jurisdiction except under circumstances that will result in compliance with any and all
applicable rules and regulations of any such country or jurisdiction. Persons into whose possession this
document come should inform themselves about and observe any restrictions on the distribution of this
document, the Securities Note and the Summary and the offer of Ordinary Shares contained in this
document. Any failure to comply with these restrictions may constitute a violation of the securities laws of
any such jurisdiction. This document does not constitute an offer to subscribe for any of the Ordinary
Shares offered hereby to any person in any jurisdiction to whom it is unlawful to make such offer or
solicitation in such jurisdiction.
28.2 United States
The Ordinary Shares have not been and will not be registered under the US Securities Act, or qualified for
sale under the laws of any state of the United States. Subject to certain exceptions, the Ordinary Shares
may not be offered, sold, pledged, taken up, exercised, resold, transferred or delivered directly or
indirectly in the United States or to US persons (as defined in Regulation S) absent registration or
pursuant to an exemption from or in a transaction not subject to, the registration requirements of the
US Securities Act. The Ordinary Shares will be offered and sold in the United States only to QIBs in
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reliance on Rule 144A or under exemption from, or in a transaction not subject to, the registration
requirements of the US Securities Act and in offshore transactions outside the United States in reliance
on Regulation S.
Any offer or sale of the Ordinary Shares in the United States in reliance on Rule 144A or another
exemption from the registration requirements of the US Securities Act will be made by broker-dealers who
are registered as such under the US Exchange Act.
Until the expiration of 40 days after the later of the commencement of the offering and the original issue or
sale date of the Ordinary Shares offered in the offering, an offer, sale or transfer of the shares within the
United States by a dealer may violate the registration requirements of the US Securities Act if such offer
or sale is made otherwise than pursuant to an exemption from registration under the US Securities Act.
Each subscriber or purchaser of the Ordinary Shares outside the United States pursuant to Regulation S
will be deemed, by its acceptance of the Ordinary Shares, to have represented and agreed, on its behalf
and on behalf of any investor accounts for which it is subscribing for or purchasing the shares, that none of
the Group or any of the Group’s affiliates nor the Underwriters, nor any person representing the Group,
any of its affiliates or the Underwriters, has made any representation to it with respect to the offering or
sale of any shares, other than the information contained in this document, which Prospectus has been
delivered to it and upon which it is solely relying in making its investment decision with respect to the
Ordinary Shares, has had access to such financial and other information concerning the Company and
the shares as it has deemed necessary in connection with its decision to purchase any of the Ordinary
Shares, and that:
•
The subscriber or purchaser understands and acknowledges that the Ordinary Shares have not
been and will not be registered under the US Securities Act, or with any securities regulatory
authority of any state of the United States, and may not be offered, sold or otherwise transferred
except in compliance with the registration requirements of the Securities Act or any other applicable
securities law or pursuant to an exemption therefrom or in any transaction not subject thereto;
•
The subscriber or purchaser and the person, if any, for whose account or benefit the subscriber or
purchaser is acquiring the Ordinary Shares acquiring the Ordinary Shares in an ‘‘offshore
transaction’’ meeting the requirements of Regulation S and is located outside the United States at
the time the buy order for the Ordinary Shares was originated and continues to be outside of the
United States and has not purchased the Ordinary Shares for the benefit of any person in the United
States or entered into any arrangement for the transfer of the Ordinary Shares to any person in the
United States;
•
The subscriber or purchaser is not an affiliate of the Group or a person acting on behalf of such
affiliate; and it is not in the business of buying and selling securities or, if it is in such business, it did
not acquire the Ordinary Shares from the Group or an affiliate thereof in the initial distribution of the
Ordinary Shares;
•
The subscriber or purchaser is aware of the restrictions on the Offers and sale of the Ordinary
Shares pursuant to Regulation S described in this document and agrees to give any subsequent
purchasers of such Ordinary Shares notice of any restrictions on the transfer thereof;
•
The Ordinary Shares have not been offered to it by means of any ‘‘directed selling efforts’’ as
defined in Regulation S or as the result of a general solicitation as defined in Regulation D; and
•
The Group shall not recognise any offer, sale, pledge or other transfer of the Ordinary Shares made
other than in compliance with the above-stated restrictions.
Terms defined in Regulation S shall have the same meaning when used in the foregoing paragraph. Each
subscriber or purchaser of the Ordinary Shares within the United States pursuant to Rule 144A or an
exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act
will be deemed by its acceptance of the Ordinary Shares to have represented and agreed on its behalf
and on behalf of any investor accounts for which it is subscribing for or purchasing the shares, that none of
the Group or any of the Group’s affiliates nor the Underwriters, nor any person representing the Group,
any of its affiliates or the Underwriters, has made any representation to it with respect to the offering or
sale of any shares, other than the information contained in this document, which Prospectus has been
delivered to it and upon which it is solely relying in making its investment decision with respect to the
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Ordinary Shares, has had access to such financial and other information concerning the Company and
the shares as it has deemed necessary in connection with its decision to purchase any of the Ordinary
Shares, and that:
•
The subscriber or purchaser acknowledges that the Ordinary Shares have not been and will not be
registered under the Securities Act or with any securities regulatory authority of any state of the
United States and are subject to significant restrictions on transfer;
•
The subscriber or purchaser (i) is a QIB, (ii) is aware that the sale to it is being made in reliance on
Rule 144A or another exemption from, or in a transaction not subject to, the registration
requirements of the US Securities Act, and (iii) is acquiring such Ordinary Shares for its own account
or for the account of a QIB, in each case for investment and not with a view to, or for offer or sale in
connection with, any resale or distribution of the Ordinary Shares in violation of the US Securities
Act or any state securities laws;
•
The subscriber or purchaser is aware that the Ordinary Shares are being offered in the United
States in a transaction not involving any public offering in the United States within the meaning of the
US Securities Act;
•
If, in the future, the subscriber or purchaser decides to offer, resell, pledge or otherwise transfer
such Ordinary Shares, such Ordinary Shares may be offered, sold, pledged or otherwise transferred
only (i) to a person whom the beneficial owner and/or any person acting on its behalf reasonably
believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii) in accordance with
Regulation S, (iii) in accordance with Rule 144 (if available), in each case in accordance with any
applicable securities laws of any state of the United States or any other jurisdiction or (iv) in another
transaction exempt from or not subject to the registration requirements of the US Securities Act;
•
The Ordinary Shares have not been offered to it by means of any general solicitation or general
advertising;
•
The Ordinary Shares are ‘‘restricted securities’’ within the meaning of Rule 144(a)(3) and no
representation is made as to the availability of the exemption provided by Rule 144 for resales of any
Ordinary Shares;
•
The purchaser will not deposit or cause to be deposited such Ordinary Shares into any depositary
receipt facility established or maintained by a depositary bank other than a Rule 144A restricted
depositary receipt facility, so long as such Ordinary Shares are ‘‘restricted securities’’ within the
meaning of Rule 144(a)(3); and
•
The Group shall not recognise any offer, sale pledge or other transfer of the Ordinary Shares made
other than in compliance with the above-stated restrictions.
Each subscriber or purchaser acknowledges that the Group and the Underwriters will rely upon the truth
and accuracy of the foregoing acknowledgements, representations and agreements, and agrees that if
any of the acknowledgements, representations or warranties deemed to have been made by such
subscriber or purchaser by its subscription for or purchase of shares are no longer accurate, it shall
promptly notify the Group and the Underwriters; if they are acquiring any Ordinary Shares as a fiduciary or
agent for one or more investor accounts, each subscriber or purchaser they represents that they have
sole investment discretion with respect to each such account and full power to make the foregoing
acknowledgements, representations and agreements on behalf of each such account.
•
The Ordinary Shares, to the extent they are in certificated form and unless otherwise determined by
the Group in accordance with applicable law, will bear a legend to the following effect:
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE ‘‘US SECURITIES ACT’’) OR WITH ANY
SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE
UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT (A)(1) TO A PERSON WHO THE SELLER AND ANY PERSON ACTING ON ITS BEHALF
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE US SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
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REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH
RULE 903 OR RULE 904 OF REGULATION S UNDER THE US SECURITIES ACT, (3) PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER THE US SECURITIES ACT PROVIDED BY
RULE 144 THEREUNDER (IF AVAILABLE) OR (4) IN ACCORDANCE WITH AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE US SECURITIES ACT, AND (B) IN ACCORDANCE WITH
ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES. NO
REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY
RULE 144 UNDER THE US SECURITIES ACT FOR RESALES OF THIS SECURITY.
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE FOREGOING, THIS SECURITY MAY
NOT BE DEPOSITED INTO ANY UNRESTRICTED DEPOSITARY RECEIPT FACILITY IN RESPECT
OF SECURITIES ESTABLISHED OR MAINTAINED BY A DEPOSITARY BANK; and
•
the Company shall not recognise any offer, sale, pledge or other transfer of the Ordinary Shares
made other than in compliance with the above-stated restrictions.
Terms defined in Rule 144A shall have the same meaning when used in the foregoing paragraph.
Each subscriber or purchaser of the Ordinary Shares will be deemed by its acceptance of the Ordinary
Shares to have represented and agreed that it is purchasing the Ordinary Shares for its own account, or
for one or more investor accounts for which it is acting as a fiduciary or agent, in each case for investment,
and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the US
Securities Act or any state securities laws, subject to any requirement of law that the disposition of its
property or the property of such investor account or accounts be at all times within its or their control and
subject to its or their ability to resell such Ordinary Shares pursuant to Rule 144A, Regulation S or any
other exemption from registration available under the US Securities Act.
28.3 European Economic Area
In relation to each member state of the European Economic Area which has implemented the Prospectus
Directive (each, a ‘‘relevant member state’’), with effect from and including the date on which the
Prospectus Directive was implemented in that relevant member state (the ‘‘relevant implementation
date’’), no Ordinary Shares have been offered or will be offered pursuant to the Offers to the public in that
relevant member state prior to the publication of a prospectus in relation to the Ordinary Shares which has
been approved by the competent authority in that relevant member state or, where appropriate, approved
in another relevant member state and notified to the competent authority in the relevant member state, all
in accordance with the Prospectus Directive, except that with effect from and including the relevant
implementation date, offers of Ordinary Shares may be made to the public in that relevant member state
at any time:
•
to legal entities which are authorised or regulated to operate in the financial markets or, if not so
authorised or regulated, whose corporate purpose is solely to invest in securities;
•
to any legal entity which has two or more of: (i) an average of at least 250 employees during the last
financial year; (ii) a total balance sheet of more than e43 million; and (iii) an annual turnover of more
than e50 million as shown in its last annual or consolidated accounts;
•
to fewer than 100 natural or legal persons (other than qualified investors as defined in the
Prospectus Directive); or
•
in any other circumstances which do not require the publication by the Company of a prospectus
pursuant to Article 3(2) of the Prospectus Directive, provided that no such offer of Ordinary Shares
shall result in a requirement for the publication of a prospectus pursuant to Article 3 of the
Prospectus Directive or any measure implementing the Prospectus Directive in a relevant member
state and each person who initially acquires any Ordinary Shares or to whom any offer is made
under the Offers will be deemed to have represented, acknowledged and agreed that it is a
‘‘qualified investor’’ within the meaning of Article 2(1)(e) of the Prospectus Directive.
For the purpose of this document, the expression ‘‘offer of any Ordinary Shares to the public’’ in relation to
any Ordinary Shares in any relevant member state means the communication in any form and by any
means of sufficient information on the terms of the Offers of any Ordinary Shares to be offered so as to
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Part XIII
Additional Information
enable an investor to decide to purchase any Ordinary Shares, as the same may be varied in that relevant
member state by any measure implementing the Prospectus Directive in that relevant member state.
In the case of any Ordinary Shares being offered to a ‘‘financial intermediary’’ as that term is used in
Article 3(2) of the Prospectus Directive, such financial intermediary will also be deemed to have
represented, acknowledged and agreed that the Ordinary Shares acquired by it in the Offers have not
been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their
offer or resale to, persons in circumstances which may give rise to an offer of any Ordinary Shares to the
public other than their offer or resale in a relevant member state to qualified investors as so defined or in
circumstances in which the prior consent of the JGCs has been obtained to each such proposed offer or
resale. The Company, the JGCs and their affiliates, and others will rely upon the truth and accuracy of the
foregoing representation, acknowledgement and agreement.
28.4 Australia
This document is not a disclosure document under Chapter 6D of the Australian Corporations Act 2001
(Cth) (the ‘‘Australian Corporations Act’’), has not been and will not be, lodged with the Australian
Securities and Investments Commission and does not purport to include the information required of a
disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly: (i) the offer of the
Ordinary Shares in Australia may only be made to persons who are ‘‘sophisticated investors’’ (within the
meaning of Section 708 (8) of the Australian Corporations Act) or to ‘‘professional Investors’’ (within the
meaning of Section 708 (11) of the Australian Corporations Act) or otherwise pursuant to one or more
exemptions contained in Section 708 of the Australian Corporations Act, so that it is lawful to offer, or
invite applications for, the Ordinary Shares without disclosure to persons under Chapter 6D of the
Australian Corporations Act; and (ii) this document may only be made available in Australia to persons as
set out in (i) above.
If you acquire Ordinary Shares, then you (i) represent and warrant that you are a person to whom an offer
of securities can be made without a disclosure document in accordance with Subsections 708 (8) or (11)
of the Australian Corporations Act and (ii) agree not to sell or offer for sale any Ordinary Shares in
Australia within 12 months after their issue to the offeree or invitee under this document, except in
circumstances where disclosure to investors under Chapter 6D would not be required under the
Australian Corporations Act.
No person receiving a copy of this document may treat the same as constituting an invitation or offer to
such person unless such an invitation or offer could lawfully be made to such person without
contravention of any registration or other legal requirements. In such circumstances, this document is to
be treated as received for information only and should not be copied or redistributed.
28.5 Canada
The Ordinary Shares have not been, and will not be, qualified by a prospectus in accordance with the
prospectus requirements under applicable securities law in any Canadian jurisdiction and therefore may
not be offered or sold, directly or indirectly, in Canada except in compliance with applicable Canadian
securities laws.
28.6 Japan
The Ordinary Shares have not been and will not be registered under the Securities and Exchange Law of
Japan (Law No. 25 of 1948 as amended) (the ‘‘Securities and Exchange Law’’), and may not be offered or
sold, directly or indirectly, in Japan or to, or for the benefit of, a resident of Japan, or to others for
re-offering or resale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan except
pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the
Securities and Exchange Law and other relevant laws and regulations of Japan.
28.7 Switzerland
The Ordinary Shares will not be publicly offered in Switzerland and will not be listed on the SIX Swiss
Exchange (‘‘SIX’’) or on any other stock exchange or regulated trading facility in Switzerland. This
document has been prepared without regard to the disclosure standards for issuance prospectuses
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Additional Information
under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing
prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or
regulated trading facility in Switzerland.
Neither this document nor any other offering or marketing material relating to the Company or the
Ordinary Shares have been or will be filed with or approved by any Swiss regulatory authority. In
particular, this document will not be filed with, and the offer of Ordinary Shares will not be supervised by,
the Swiss Financial Market Supervisory Authority (FINMA), and the offer of Ordinary Shares has not been
and will not be authorised under the Swiss Federal Act on Collective Investment Schemes (‘‘CISA’’). The
investor protection afforded to acquirers of interests in collective investment schemes under the CISA
does not extend to acquirers of Ordinary Shares.
29.
Documents available for inspection
Copies of the following documents may be inspected at the registered office of the Company, Titan Court,
3 Bishops Square, Hatfield Business Park, Hatfield, Hertfordshire AL10 9NE and the offices of Slaughter
and May, One Bunhill Row, London EC1Y 8YY during normal business hours on any weekday
(Saturdays, Sundays and public holidays excepted) for the duration of the Offers:
•
the Final Articles;
•
the historical financial information relating to the Group and the report thereon by
PricewaterhouseCoopers LLP, as set out in Part V of this document;
•
the unaudited pro forma financial information and the
PricewaterhouseCoopers LLP, as set out in Part VI of this document;
•
the written consent letters of PricewaterhouseCoopers LLP referred to in section 22 of this Part XIII;
and
•
a copy of this document.
report
thereon
by
For the purposes of PR 3.2.4, the Prospectus will be published in printed form and available free of charge
for the duration of the Offers at the registered office of the Company at Titan Court, 3 Bishops Square,
Hatfield Business Park, Hatfield, Hertfordshire AL10 9NE and at the offices of the JGCs. In addition, the
Prospectus will be published in electronic form and available on the Offer Website at
www.ocadoshares.com, subject to certain access restrictions applicable to persons resident outside the
UK.
Dated 6 July 2010
274
DEFINITIONS
The following definitions apply throughout this document unless the context requires otherwise:
‘‘2008 Agreement’’
means the agreement between Ocado, Waitrose and John
Lewis dated 20 February 2008 (as amended on 22 August
2008), more fully described in section 17.1 of Part XIII
(Additional Information);
‘‘2010 Agreement’’
means the agreement between Ocado, Waitrose and John
Lewis dated 25 May 2010, more fully described in section 17.1
of Part XIII (Additional Information);
‘‘Admission’’
means the admission of the Ordinary Shares to the premium
listing segment of the Official List and to trading on the London
Stock Exchange’s main market for listed securities which is
expected to be on 26 July 2010;
‘‘Articles’’
means the articles of association of the Company at the date of
this document;
‘‘Banks’’
has the same meaning as the Underwriters;
‘‘Barclays Capital’’
Barclays Capital, the investment banking division of Barclays
Bank PLC, a company incorporated in England and Wales with
registered number 1026167;
‘‘Board’’
means the board of directors of Ocado or the Company from
time to time as the context may require;
‘‘Branding Agreement’’
means the branding agreement between Ocado and Waitrose
dated 13 October 2000 as replaced by the Branding
Arrangements, more fully described in section 17.1 of Part XIII
(Additional Information);
‘‘Branding Arrangements’’
means the branding arrangements which replaced the
Branding Agreement, as set out in the 2008 Agreement and the
2010 Agreement, more fully described in section 17.1 of
Part XIII (Additional Information);
‘‘Business’’
means the Group’s core business, being the online sale of
groceries via the Website;
‘‘Business Day’’
means any day other than a Saturday or Sunday on which
banks are open for business in London, other than for the
purposes of trading and settlement in sterling;
‘‘CAGR’’
means compound annual growth rate;
‘‘Certificated’’ or ‘‘in Certificated
form’’
means recorded on the relevant register as being held in
Certificated form and title to which may be transferred by means
of a stock transfer form;
‘‘CFC’’
means either Ocado’s customer fulfilment centre, a dedicated
highly automated warehouse used for the operation of the
Business and more fully described in Part I (Information about
the Company) or, generally, a customer fulfilment centre (as the
context requires);
‘‘Co-Bookrunners’’
means Barclays Capital and HSBC Bank plc;
‘‘Co-Lead Managers’’
means Jefferies International Limited, Lloyds TSB Corporate
Markets and Numis Securities Limited;
‘‘Companies Act’’
means the Companies Act 2006;
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Definitions
‘‘Company’’
means Ocado Group plc, a company incorporated in England
and Wales with registered number 7098618 whose registered
office is at Titan Court, 3 Bishops Square, Hatfield Business
Park, Hatfield, Hertfordshire AL10 9NE;
‘‘Corporate Website’’
means www.ocadogroup.com;
‘‘Court’’
means the High Court of Justice of England and Wales;
‘‘CREST Regulations’’
means The Uncertificated Securities Regulations 2001
(SI 2001 No. 3755), as amended from time to time;
‘‘Customer and Employee Offer’’
the offer of Ordinary Shares to Eligible Customers and Eligible
Employees at the Offer Price pursuant to the terms and
conditions of the Customer and Employee Offer which are set
out in Part X (Terms and Conditions of the Customer and
Employee Offer);
‘‘Customer and Employee Offer
Application Form’’
means the form on the Offer Website pursuant to which Eligible
Customers and Eligible Employees can apply online to
purchase or subscribe for Ordinary Shares in the Customer and
Employee Offer;
‘‘Directors’’
means the directors of the Company whose names are set out
in Part II (Directors) or the directors of Ocado from time to time
as the context may require;
‘‘Disclosure and Transparency
Rules’’
means the disclosure and transparency rules made by the FSA
under Part VI of FSMA;
‘‘EBITDA’’
means operating profit/(loss) before interest (including interest
on finance leases), taxation, depreciation, amortisation and
impairment loss;
‘‘EBITDA margin’’
means EBITDA as a percentage of gross sales;
‘‘EBT Trustee’’
means the trustee from time to time of the employee benefit
trust established for the purposes of the JSOS, currently
Appleby Trust (Jersey) Limited;
‘‘Eligible Customers’’
means Ocado customers who are resident in the UK and who
spent more than £300 with Ocado between 1 January 2010 and
24 June 2010;
‘‘Eligible Employees’’
means all of the Group’s employees and officers as at the date
of this document who are over the age of 18 and resident in the
UK or the Republic of Ireland;
‘‘ESOS’’
means the Ocado 2001 Executive Share Option Scheme as
described in section 11.1 of Part XIII (Additional Information);
‘‘Executive Directors’’
means Tim Steiner, Neill Abrams, Andrew Bracey and Jason
Gissing;
‘‘Existing Shares’’
the Ordinary Shares and Preference Shares that are in issue at
the date of this document (including the 32,476,700 Ordinary
Shares issued to the EBT Trustee which are presented as
treasury shares in the Group’s consolidated balance sheets);
‘‘Final Articles’’
means the articles of association of the Company resolved to
be adopted by a written members’ resolution dated 23 June
2010, subject to, and with effect upon, Admission;
‘‘FSA’’
means the UK Financial Services Authority;
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Definitions
‘‘FSMA’’
means the Financial Services and Markets Act 2000 (as
amended);
‘‘FTE’’
means full time equivalent;
‘‘FYE 2007’’
means the financial year (that is, the period of 52 weeks) ended
2 December 2007;
‘‘FYE 2008’’
means the financial year (that is, the period of 52 weeks) ended
30 November 2008;
‘‘FYE 2009’’
means the financial year (that is, the period of 52 weeks) ended
29 November 2009;
‘‘Goldman Sachs International’’
means Goldman Sachs International, an unlimited company
incorporated in England and Wales with registered
number 2263951;
‘‘Gross margin’’
means gross profit expressed as a percentage of gross sales;
‘‘Group’’
means the Company and its subsidiaries (as defined in the
Companies Act);
‘‘HMRC’’
means Her Majesty’s Revenue & Customs;
‘‘HSBC Bank plc’’
means the company of that name incorporated in England and
Wales with registered number 00014259;
‘‘IFRS-EU’’
means International Financial Reporting Standards as adopted
for use in the EU;
‘‘Institutional Offer’’
the offer of Ordinary Shares to certain institutions at the Offer
Price as summarised in section 5.1 of Part IX (Information about
the Offers);
‘‘Investors’’
means any person who acquires Shares pursuant to the Offers;
‘‘IT’’
means information technology;
‘‘Jefferies International Limited’’
means the company of that name incorporated in England and
Wales with the registered number 01978621;
‘‘John Lewis’’
means John Lewis plc, the parent company of Waitrose. John
Lewis was incorporated in England and Wales with registered
number 233462 and its registered office is 171 Victoria Street,
London SW1E 5NN;
‘‘John Lewis Pension Fund’’
means John Lewis Partnership Pensions Trust, which is the
corporate trustee of the John Lewis Partnership Trust for
Pensions. The John Lewis Pension Fund was incorporated in
England and Wales with registered number 372106 and its
registered office is 171 Victoria Street, London SW1E 5NN;
‘‘Joint Global Co-ordinators’’ or
‘‘JGCs’’
means Goldman Sachs International, J.P. Morgan Cazenove
and UBS Limited;
‘‘J.P. Morgan Cazenove’’
means J.P. Morgan Securities Ltd., a company incorporated in
England and Wales with registered number 2711006, which
operates its investment banking business in the UK under the
name J.P. Morgan Cazenove;
‘‘JSOS’’
means the Company’s joint share ownership scheme, more
fully described in section 11.3 of Part XIII (Additional
Information);
277
Definitions
‘‘LGV’’
means Ocado’s large goods vehicles; Category N3 motor
vehicles used for the carriage of goods and having a maximum
mass exceeding 12 tonnes;
‘‘Listing Rules’’
means the listing rules made by the UK Listing Authority under
Part VI of FSMA;
‘‘Lloyds TSB Corporate Markets’’
is the trading name of Lloyds TSB Bank plc, a company
incorporated in England and Wales with registered
number 00002065;
‘‘Lombard’’
means Lombard Vehicle Management Limited, Lombard
Vehicle Management (1) Limited, Lombard Vehicle
Management
(2)
Limited
and
Lombard
Vehicle
Management (3) Limited;
‘‘London Stock Exchange’’
means the London Stock Exchange plc;
‘‘Major Selling Shareholders’’
means those Selling Shareholders who have given non-binding
indications of interest in selling Ordinary Shares pursuant to the
Offers and who are party to the Selling Shareholders’
Agreement;
‘‘Major Shareholder’’
means these Shareholders listed as such in section 8 of
Part XIII (Additional Information);
‘‘Mercedes-Benz Charterway’’
is the trading name of Mercedes-Benz Financial Services UK
Limited;
‘‘Minor Selling Shareholders’’
means those Shareholders holding (as at 5 July 2010, the latest
practicable date prior to the publication of this document)
individually less than 1.33 per cent. of the issued share capital
of the Company who the Company has offered the opportunity
to sell some or all of their Ordinary Shares pursuant to the
Offers;
‘‘Model Code’’
the code set out at Annex 1 to Rule 9 of the Listing Rules;
‘‘New Facility’’
means the £100 million facility granted to Ocado by Lloyds,
Barclays and HSBC described in section 17.3 of Part XIII
(Information about the Company);
‘‘New Ordinary Shares’’
the new Ordinary Shares to be allotted and issued under the
Offers or pursuant to the exercise of options or warrants to
subscibe for Ordinary Shares in the Company prior to
Admission;
‘‘Numis Securities Limited’’
means the company of that name incorporated in England and
Wales with registered number 02285918;
‘‘Ocado’’
means Ocado Limited, a company incorporated in England and
Wales with registered number 3875000 whose registered office
is at Titan Court, 3 Bishops Square, Hatfield Business Park,
Hatfield, Herts AL10 9NE;
‘‘Ocado Information Technology
Limited’’
means the company of that name incorporated in the Republic
of Ireland with registered number 479792 whose registered
office is at 1 Adelaide Court, Adelaide Road, Dublin 2;
‘‘Ocado IPO Helpline’’
means the telephone helpline available at 0800 141 2954;
‘‘Ocado Limited Ordinary Shares’’
means ordinary shares of 1 pence each in the share capital of
Ocado;
278
Definitions
‘‘Ocado Limited Preference
Shares’’
means convertible preference shares of 1 pence each in the
share capital of Ocado;
‘‘Ocado Share Account’’
means the arrangements for the holding of Ordinary Shares
through a nominee, the terms and conditions of which are set
out in Part XI (Terms and Conditions of the Ocado Share
Account);
‘‘Offer Price’’
means the price at which Ordinary Shares comprised in the
Offers will be issued or sold to investors;
‘‘Offer Shares’’
means those Ordinary Shares comprised in the Offers;
‘‘Offer Website’’
means www.ocadoshares.com;
‘‘Offers’’
means the Institutional Offer and the Customer and Employee
Offer;
‘‘Official List’’
means the Official List of the UK Listing Authority;
‘‘Old Articles’’
means the articles of association of the Company adopted on
19 December 2009 which will be replaced by the Final Articles;
‘‘Ordinary Shares’’
means the ordinary shares with a nominal value of two pence
each in the share capital of the Company;
‘‘Over-allotment Arrangements’’
means the arrangements pursuant to which the Stabilising
Manager may procure purchasers for or failing which itself
purchases or nominates purchasers for, the Over-allotment
Shares, as more particularly described in Part IX (Information
about the Offers);
‘‘Over-allotment Option’’
means the option granted by UBS Holdings Cayman Limited to
the Stablising Manager to buy Ordinary Shares at the Offer
Price in accordance with the Over-allotment Arrangements;
‘‘Over-allotment Shares’’
the Ordinary Shares which the Stabilising Manager, pursuant
to the Over-allotment Arrangements, may purchase from
UBS Holdings Cayman Limited;
‘‘P1-3 2009’’
means the 12 week period ended 22 February 2009;
‘‘P1-3 2010’’
means the 12 week period ended 21 February 2010;
‘‘P1-6 2009’’
means the 24 week period ended 17 May 2009;
‘‘P1-6 2010’’
means the 24 week period ended 16 May 2010;
‘‘Preference Shares’’
means convertible preference shares of two pence each in the
share capital of the Company which will convert to Ordinary
Shares on Admission;
‘‘Price Range’’
means the range of prices within which the Offer Price is
expected to fall, being 200 pence to 275 pence per Ordinary
Share;
‘‘Pricing Statement’’
means the statement expected to be published by the Company
on or around 21 July 2010, in which the Offer Price will be
announced;
‘‘Prospectus’’
means this document;
‘‘Prospectus Rules’’
means the prospectus rules made by the UK Listing Authority
under Part IV of FSMA;
279
Definitions
‘‘Receiving Agent’’
means Capita Registrars Limited, incorporated in England and
Wales (with registration number 2605568) whose registered
office is The Registry, 34 Beckenham Road, Beckenham, Kent
BR3 4TU;
‘‘Registrar’’
means Capita Registrars Limited, incorporated in England and
Wales (with registration number 2605568) whose registered
office is The Registry, 34 Beckenham Road, Beckenham, Kent
BR3 4TU;
‘‘Registrar of Companies’’
means the registrar of Companies in England and Wales within
the meaning of the Companies Act;
‘‘Scheme’’
means the scheme of arrangement under sections 895 to 899
of the Companies Act between Ocado and holders of Ocado
Ordinary Limited Shares and Ocado Limited Preference
Shares, the effective date of which was 9 February 2010;
‘‘SDRT’’
means stamp duty reserve tax;
‘‘SEC’’
means the US Securities and Exchange Commission;
‘‘Selling Optionholders’’
means those persons holding options or warrants over Ordinary
Shares or Preference Shares (as at 5 July 2010, being the latest
practicable date prior to the publication of this document) to
whom the Company has offered the opportunity to sell some or
all of the New Ordinary Shares which will be issued upon the
exercise of their options or warrants pursuant to the Offers;
‘‘Selling Shareholders’ Agreement’’
means the agreement between the Company, the Underwriters
and the Major Selling Shareholders dated 5 July 2010, details of
which are set out in section 17.4 of Part XIII (Additional
Information);
‘‘Selling Shareholders’’
means each of the Major Selling Shareholders and some or all
of the Minor Selling Shareholders and some or all of the Selling
Optionholders as set out in section 2 of Part IX (Information
about the Offers);
‘‘Settlement Date’’
is expected to be 26 July 2010, the date on which the sale or
issue of Ordinary Shares pursuant to the Institutional Offer will
be completed;
‘‘Share Account Statement’’
means a statement of a person’s holding of Ordinary Shares in
the Ocado Share Account;
‘‘Share Nominee’’
means Capita IRG Trustees Limited (details of which are set out
in Part XI (Terms and Conditions of the Ocado Share Account))
or any other person appointed by the Company or Receiving
Agent to act as the nominee shareholder of Ordinary Shares in
the Ocado Share Account;
‘‘Shareholder’’
means a holder for the time being of Ordinary Shares;
‘‘SKU’’
means a ‘‘stock keeping unit’’, that is each individual product
line stocked;
‘‘Sourcing Agreement’’
means the sourcing agreement between Ocado and Waitrose
dated 13 October 2000 as progressively amended, superseded
and updated from time to time, more fully described in
section 17.1 of Part XIII (Additional Information);
280
Definitions
‘‘Spoke’’
means the trans-shipment sites used for the intermediate
delivery of customers’ orders as more fully described in Part I
(Information about the Company);
‘‘Stabilising Manager’’
means Goldman Sachs International;
‘‘Stock Lending Agreement’’
means the agreement described in section 17.5 of Part XIII
(Additional Information);
‘‘Subscriber Ordinary Share’’
means the subscriber ordinary share of 110 pence in the capital
of the Company whose rights became deferred in accordance
with its terms upon the Scheme becoming effective;
‘‘Takeover Code’’
the City Code on Takeovers and Mergers;
‘‘UBS Investment Bank’’
or ‘‘UBS Limited’’
means UBS Limited, a company incorporated in England and
Wales with registered number 2035362;
‘‘UK’’ or ‘‘United Kingdom’’
means the United Kingdom of Great Britain and Northern
Ireland;
‘‘UK Corporate Governance Code’’
means the UK Corporate Governance Code published by the
Financial Reporting Council, as in force from time to time;
‘‘UK Listing Authority’’
means the Financial Services Authority acting in its capacity as
the competent authority for the purposes of Part VI of the FSMA
and in the exercise of its functions in respect of the admission of
securities to the Official List other than in accordance with
Part VI of the FSMA;
‘‘Uncertificated’’ or ‘‘in
Uncertificated form’’
means recorded on the relevant register as being held in
uncertificated form in CREST and title to which, by virtue of the
CREST Regulations, may be transferred by means of CREST;
‘‘Underwriters’’
means Goldman Sachs International, J.P. Morgan Cazenove,
UBS Limited, Barclays Capital, HSBC Bank plc, Jefferies
International Limited, Lloyds TSB Corporate Markets and
Numis Securities Limited;
‘‘Underwriting Agreement’’
means the agreement between the Company, the Underwriters
and the Directors dated 6 July 2010, details of which are set out
in section 17.4 of Part XIII (Additional Information);
‘‘Underwriting and Selling
Shareholder Agreements’’
means the Underwriting
Shareholders’ Agreement;
‘‘US’’, ‘‘USA’’ or ‘‘United States’’
means the United States of America, its territories and
possessions, any state of the United States of America and the
District of Columbia and all other areas subject to its jurisdiction;
‘‘US Securities Act’’
means the US Securities Act of 1933, as amended;
‘‘Usdaw’’
means the Union of Shop, Distributive and Allied Workers;
‘‘Waitrose’’
means Waitrose Limited, a company incorporated in England
and Wales with registered number 99405;
‘‘WaitroseDeliver’’
means the online retail business of Waitrose, by which
customer orders placed online are delivered from Waitrose
shops,
and
run
currently
from
the
website
www.waitrosedeliver.com; and
‘‘Website’’
means www.ocado.com, Ocado’s public website from which
the Business operates.
281
Agreement
and
the
Selling
Merrill Corporation Ltd, London
10ZBD49501
Ocado Group plc
Prospectus
Ocado Group plc, Titan Court, 3 Bishops Square, Hatfield Business Park, Hatfield, Herts AL10 9NE
Ocado prospectuscoverfinal.indd 1
Prospectus
Ocado Group plc
02/07/2010 09:32