TIDMOCDO

RNS Number : 6549C

Ocado Group PLC

11 February 2020

ANNUAL FINANCIAL REPORT

OCADO GROUP PLC

11 February 2020

Ocado Group plc

Annual Financial Report 2019

Ocado Group plc ("Ocado") has today submitted to the Financial Conduct Authority's national storage mechanism its annual report and accounts for the 52 weeks ended 1 December 2019 (as required by Listing Rules 9.6.1 and 9.6.3).

The annual report and accounts for the 52 weeks ended 1 December 2019 is available to view on Ocado's website: www.ocadogroup.com (in compliance with Disclosure Guidance and Transparency Rule 6.3.5(3)).

Ocado's annual report and accounts for the 52 weeks ended 1 December 2019 will also be available for viewing at the Financial Conduct Authority's national storage mechanism at www.morningstar.co.uk/uk/NSM.

This announcement follows Ocado's announcement today of its preliminary results for the same period. A condensed set of Ocado's financial statements and information on important events that have occurred during the year and their impact on the financial statements and related party information were included in Ocado's preliminary results announcement. That information together with the information set out below is the information provided in satisfaction of the requirements of Disclosure Guidance and Transparency Rule 6.3.5. The description of principal risks and uncertainties below is extracted in unedited full text from the annual report and accounts for the 52 weeks ended 1 December 2019. Reading this announcement and/or the preliminary results announcement should not be a substitute for reading the full annual report and accounts for the 52 weeks ended 1 December 2019. This announcement and the preliminary results announcement are available to view on Ocado's website: www.ocadogroup.com.

Principal risks and uncertainties

We have identified 13 principal risks and uncertainties facing Ocado. These are considered by the Board to be material to the development, performance, position or future prospects of Ocado. These risks, mitigations and changes during the year are summarised in the table below. They are not set out in priority order. Further information on risk is set out on pages 48 to 52 of the annual report and accounts for the 52 weeks ended 1 December 2019.

 
 Objective          Risks              Mitigation Action/Control                                     Change During 
                                                                                                      The Year 
=================  =================  ============================================================  ================== 
 IMPROVING          Risk of decline                                                                  çè 
  THE PROPOSITION   in high service      *    Weekly monitoring of the key indicators and the 
                    levels in                 underlying driver targets. 
                    the retail 
                    business 
                    especially           *    Continuing initiatives to improve resiliency and 
                    during the                operational performance of the Hatfield and Dordon 
                    transitional              CFCs. 
                    period of 
                    change 
                    associated           *    Along with the scaling of operations at Erith, these 
                    with the                  arrangements help reduce the impact of operational 
                    creation                  problems in CFCs on customer service levels. 
                    of the Ocado 
                    Retail joint 
                    venture 
-----------------  -----------------  ------------------------------------------------------------  ------------------ 
                    Failure to                                                                       çè 
                    maintain a           *    Continuation of Low Price Promise basket matching 
                    retail                    price comparison and competitive pricing. 
                    proposition 
                    which appeals 
                    to a broad           *    Development of appropriate M&S own-label range. 
                    customer base 
                    and sustains 
                    growth rates         *    Growth of branded ranges and expansion of supplier 
                    while managing            base. 
                    changes 
                    resulting 
                    from our new         *    Continuation of investment and optimisation of the 
                    arrangements              marketing channels to acquire new customers. 
                    with M&S 
 
                                         *    Continued improvement of webshop and apps. 
 
 
                                         *    Planned roll-out of further immediacy sites. 
-----------------  -----------------  ------------------------------------------------------------  ------------------ 
                    Risk that                                                                        çè 
                    current             *    Full review of projected financial impact undertaken 
                    Solutions                before signing any new partnerships. 
                    pricing levels 
                    may not provide 
                    both acceptable     *    Periodic review of delivery costs and close 
                    returns for              relationship with our partners provides oversight of 
                    our shareholders         project costs. 
                    and attractive 
                    long- term 
                    cost of             *    Regular review of IT prioritisation process and rate 
                    ownership                of software development and regular platform steering 
                    for our                  meetings. 
                    clients, while 
                    delivering 
                    a viable fully      *    Resources and capabilities will be scaled and 
                    operational              reallocated to help meet Ocado Solutions project 
                    end-to-end               deadlines. 
                    customer 
                    experience 
                                        *    There is an ongoing programme of design improvements 
                                             for the platform. 
 
 
                                        *    The amount of capital invested in our platform is 
                                             carefully controlled and we have the ability to 
                                             reduce costs by scaling back the speed of future 
                                             development. 
-----------------  -----------------  ------------------------------------------------------------  ------------------ 
 MAXIMISING         Risk of the                                                                      é 
  EFFICIENCY        transformation       *    Creation of a Group Transformation team who are         The risk has 
                    programme                 supporting the business in the design and               increased 
                    failing to                implementation of the new operating model which         during the 
                    deliver a                 includes people, process and systems.                   period with 
                    sustainable                                                                       the successful 
                    operational                                                                       signing 
                    infrastructure       *    Increased hiring of key skills in the UK and            of further 
                    able to execute           internationally, including greater emphasis on          international 
                    effectively               graduate recruitment and training programmes.           deals 
                    the requirements 
                    for multiple 
                    Ocado Solutions      *    Standardisation of platform delivery to improve 
                    contracts,                repeatability. 
                    simultaneously 
                    in many 
                    international 
                    locations, 
                    while providing 
                    for sufficient 
                    management, 
                    technology 
                    and engineering 
                    capabilities(1) 
-----------------  -----------------  ------------------------------------------------------------  ------------------ 
                    Risk of delays                                                                   ê 
                    in the              *    Dedicated resources continue to work on modularising     The risk has 
                    generation               technology to enable faster replication and reduced      decreased 
                    of additional            build times.                                             during the 
                    capacity in                                                                       period with 
                    the UK                                                                            the announcement 
                                        *    New capacity increasing as Erith (CFC4) ramps up with    of further 
                                             plans to build CFC5 (Purfleet) and CFC6 (Bristol).       CFCs 
                                             CFC3 (Andover) is being rebuilt. 
 
 
                                        *    Regular steering meetings and management oversight 
                                             for new CFC projects. 
-----------------  -----------------  ------------------------------------------------------------  ------------------ 
 UTILISING          Technological                                                                    çè 
  KNOWLEDGE         innovation          *    Establishing our identity as a technology business, 
                    supersedes               international platform provider and innovation 
                    our own and              factory. 
                    offers improved 
                    methods of 
                    food                *    Engagement with a wide number of international 
                    distribution             grocers to understand market needs. 
                    to consumers 
 
                                        *    Experienced teams in place who understand the current 
                                             solutions and are aware of global alternatives used 
                                             in other industries. 
-----------------  -----------------  ------------------------------------------------------------  ------------------ 
                    Risk of                                                                          çè 
                    infringing          *    Conducting "freedom to operate" searches on selected 
                    a third party's          technologies in selected jurisdictions and monitoring 
                    IP or failing            IP filings by a large number of companies. 
                    to protect 
                    Ocado's own 
                    IP(2)               *    Where appropriate, obtaining specialist or legal 
                                             advice including to help ensure our ability to use 
                                             our IP is not restricted by infringement claims. 
 
 
                                        *    Ongoing effort to identify patentable inventions and 
                                             to apply for patents, with an increased number of 
                                             patent applications. Expansion of IP team to help 
                                             with IP protection work. 
 
 
                                        *    Ongoing review of our patent portfolio and discussion 
                                             of other IP issues by the Ocado Innovation Committee. 
 
 
                                        *    Where necessary we take steps to protect our IP from 
                                             unauthorised use. 
-----------------  -----------------  ------------------------------------------------------------  ------------------ 
 OPERATIONAL        Risk of supply                                                                   n 
                    chain               *    Setting up of a "Central Manufacturing Fund" governed 
                    disruption,              by Supply Chain with a view to ensuring reliable 
                    in particular            supply of components. 
                    for single 
                    source 
                    equipment,          *    Agile approach to manufactured products including the 
                    that adversely           ability to divert any product to sites with the most 
                    affects product          pressing requirements. 
                    availability, 
                    delivery, 
                    reliability 
                    and cost, 
                    resulting 
                    in delays 
                    to contractual 
                    commitments 
                    and loss of 
                    revenue(3) 
-----------------  -----------------  ------------------------------------------------------------  ------------------ 
                    Risk of a                                                                        çè 
                    food safety,        *    Experienced legal, food and product technology 
                    product safety           professionals and health and safety experts monitor 
                    or health                compliance against policies and procedures. 
                    & safety 
                    incident(4) 
                                        *    Supplier approval and certification process. 
 
 
                                        *    Food and product safety policies and quality 
                                             management with operational procedures. 
 
 
                                        *    Risk assessments and safe systems of work prepared by 
                                             qualified staff to raise awareness and knowledge. 
 
 
                                        *    Active monitoring of international regulatory changes 
                                             supported by territory expertise and recognised 
                                             safety management system standards. 
-----------------  -----------------  ------------------------------------------------------------  ------------------ 
                    Risk of changes                                                                  çè 
                    in regulations       *    Regular monitoring of regulatory developments to 
                    impacting                 ensure that changes are identified. 
                    our business 
                    model or the 
                    viability            *    Due diligence carried out at appropriate stages in 
                    of Ocado                  the Ocado Solutions process. 
                    Solutions' 
                    deals. 
-----------------  -----------------  ------------------------------------------------------------  ------------------ 
                    Risk of negative                                                                 çè 
                     implications       *    Engagement with regulators and monitoring by 
                     due to changes          management and specialist teams of the global and 
                     in the global           economic environment and regulatory changes to access 
                     economic and            the potential impacts on hiring employees, trading, 
                     geopolitical            operations or the business model. 
                     environment, 
                     including 
                     Brexit and 
                     the associated 
                     tariffs or 
                     difficulty 
                     in hiring 
                     employees, 
                     that may impact 
                     our business 
                     model(5) 
-----------------  -----------------  ------------------------------------------------------------  ------------------ 
                    Failure to                                                                       çè 
                    prevent or          *    IT systems are structured to operate reliably and 
                    respond to               securely. The security of our IT systems is regularly 
                    a major cyber            tested by third parties. 
                    attack or 
                    data breach 
                    that could          *    An information security and PCI security governance 
                    result in                programme overseen by the Information Security 
                    business                 Committee. 
                    disruption, 
                    reputational 
                    damage,             *    A dedicated Information Security team to monitor for 
                    significant              security issues and respond to security incidents. 
                    fines or the 
                    loss of 
                    customer,           *    No customer payment card data is held in Ocado's 
                    employee or              databases. 
                    confidential 
                    business 
                    information         *    Data Protection Officer oversees the Group's privacy 
                                             compliance programme. 
-----------------  -----------------  ------------------------------------------------------------  ------------------ 
                    Risk of business                                                                 çè 
                     interruption        *    IT systems are structured to operate reliably and 
                                              securely. 
 
 
                                         *    Dedicated engineering teams on site with daily 
                                              maintenance programmes to support the continued 
                                              operation of equipment. 
 
 
                                         *    Ongoing testing and research and development to make 
                                              equipment and MHE more reliable and robust. 
 
 
                                         *    Disaster recovery testing and business continuity 
                                              plans continue to be progressed and updated. 
 
 
                                         *    High level of protection for CFCs and equipment, 
                                              combined with business interruption insurance to 
                                              transfer residual risks. 
=================  =================  ============================================================  ================== 
 
 

(1) The risk covering the execution of multiple international contracts and the requirement for resources has been amended to reflect the importance of the transformation programme.

(2) The risks described in the 2018 annual report as "Risk of infringing a third party's IP" and "Risk of failing to protect Ocado's own IP" have been combined.

(3) A new risk covering supply chain disruption has been added to reflect the increased significance of the Ocado Solutions programme.

(4) The risk described in the 2018 annual report as "Risk of a food safety or product safety incident" has been expanded to include health & safety incidents.

(5) The risk described in the 2018 annual report as "Risk of negative implications caused by final Brexit terms such as increase in import costs or difficulty in hiring employees" has been expanded to reflect the global economic and geopolitical environment resulting from Ocado's increased international reach.

Key: é Risk has increased ê Risk has decreased çè No change n Not applicable

For further information on the financial risks see pages 192 to 194 of the notes to the consolidated financial statements in the annual report and accounts for the 52 weeks ended 1 December 2019.

Directors' Responsibility Statement

Ocado's annual report and accounts for the 52 weeks ended 1 December 2019 contains the following statements regarding responsibility for the financial statements and the annual report in compliance with DTR 4.1.12. This responsibility statement is repeated here (below) solely for the purposes of complying with Disclosure Guidance and Transparency Rule 6.3.5. It is not connected to the extracted information presented in the preliminary results announcement or this announcement.

Each of the Directors who held office at the date of the approval of this Annual Report (whose names and functions are listed on page 70 of this Annual Report) confirms, to the best of his or her knowledge, that:

-- the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and

-- the "Management Report" (as defined in the Directors' Report on page 132) includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

The Directors of Ocado Group plc are listed on page 70 of the annual report and accounts for the 52 weeks ended 1 December 2019 and are listed on the Ocado Group's corporate website: www.ocadogroup.com. The Directors of Ocado Group plc as at the date of this announcement are as follows:

Lord Stuart Rose;

Tim Steiner;

Neill Abrams;

Duncan Tatton-Brown;

Mark Richardson;

Luke Jensen;

Jörn Rausing;

Andrew Harrison;

Emma Lloyd;

Julie Southern;

John Martin; and

Claudia Arney

Enquiries

For further information contact:

 
              Ocado Group plc                                         Investor Relations 
               Company Secretary                                       David Shriver 
               Neill Abrams                                            +44 1707 228 000 
               email: company.secretary@ocadogroup.com                 investor.relations@ocado.com 
 

Person responsible for arranging the release of this announcement:

Neill Abrams

Company Secretary

Ocado Group plc

Buildings One & Two

Trident Place

Mosquito Way

Hatfield

Hertfordshire AL10 9UL

Fax: +44 (0)1707 227 997

email: company.secretary@ocadogroup.com

Ocado Group plc LEI: 213800LO8F61YB8MBC74

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