Statement of corporate governance

Introduction

The following sections explain how the Company applies the main principles set out in section 1 of The Combined Code on Corporate Governance June 2008 issued by the Financial Reporting Council (the "Combined Code"), as required by the Listing Rules of the Financial Services Authority and where relevant, the main principles of the UK Corporate Governance Code June 2010 issued by the Financial Reporting Council (the "2010 Code").

The new 2010 Code applies to all companies with a premium listing of equity shares with accounting periods beginning on or after 29 June 2010. Hence the 2010 Code is not applicable to the current period presented. However, in anticipation of its application, the Board has voluntarily implemented a number of changes to its governance arrangements to reflect the requirements of the new 2010 Code because the Board is committed to the highest standards of corporate governance.

The Combined Code applies to the current period. Prior to its Admission on 26 July 2010, the Company was privately owned. Although not obliged prior to Admission to apply the Combined Code or the 2010 Code to its governance arrangements the Company had voluntarily adopted some governance standards commensurate with a UK listed company (as noted below).

Since its recent Admission, the Company has applied the principles and complied with the provisions of the Combined Code, save as described below. Where the Company has not complied the reasons for non-compliance are stated, including the period where it has not complied (if relevant). Recognising that it is a newly listed company the Board has the goal of moving the Company towards full compliance with all provisions of the 2010 Code as swiftly as practicable. The Company will continue to put in place new governance arrangements in order to meet that objective.

Further information on the Combined Code and the 2010 Code can be found at www.frc.org.uk.

The Board

The Company is led by the Board. Subject to the Articles, the Companies Act and any directions given by special resolution, the business of the Company will be managed by the Board who may exercise all of the powers of the Company.

The names, responsibilities and details of the current Directors on the Board are set out in the Board of Directors section. During the period there were a number of changes to the Board. The Non-Executive Directors, Tom Clayton, Jonathan Faiman and Jeremy Frampton resigned from the Ocado Limited board on 9 March 2010. In addition, Michael Robarts was appointed on 19 January 2010 as a non-executive Director and resigned on 26 July 2010. The Company announced on 18 February 2011 the resignation of Patrick Lewis from the Board.

Director election

The rules that the Company has about the appointment and replacement of Directors are described in the Directors' report.

In order to maintain high standards of corporate governance, the Articles require each Director to retire at every annual general meeting (each Director may offer himself or herself for reappointment by the members at such meeting). The Combined Code does not contain such a stringent requirement (except for directors serving longer than nine years) and this 2010 Code requirement did not apply to the Company for the current period. However, each Director will seek re-election by shareholders at the Company's AGM on 11 May 2011.

John Lewis Pension Fund right to appoint a director

As stated in the Company's prospectus on 6 July 2010, the John Lewis Pension Fund agreed with Ocado that Patrick Lewis, a Non-Executive Director originally appointed to the Board in October 2009 by the John Lewis Pension Fund, would step down from the Ocado board if the John Lewis Pension Fund's holding of ordinary shares in Ocado falls below 10 per cent. of the issued ordinary share capital of Ocado. On 11 February 2011, the company announced that John Lewis Pension Fund had sold its entire shareholding in the Company. As noted above, Patrick Lewis has resigned from the Board.

Chief Executive Officer

The Company's Chief Executive Officer is Tim Steiner. His biographical details are set out in the Board of Directors section.

The Chairman

Lord Grade joined the Board as an independent Non-Executive Director and Chairman in 2006 and along with some of the other members of the Ocado Board, he became a Director of the Company in March 2010. His biographical details are set out in the Board of Directors section. During the period, a Peerage of the United Kingdom for Life was conferred upon Michael. He notified the Board of this new commitment outside of the Company.

Division of responsibilities between Chairman and Chief Executive Officer

There is a clearly established and long-standing division of responsibilities between the Chairman and the Chief Executive Officer which is set out in writing and has been approved by the Board. The Chairman is responsible for leadership of the Board, ensuring its effectiveness and setting its agenda. He facilitates both the contribution of the Non-Executive Directors and constructive relations between the Executive and Non-Executive Directors. The Chief Executive Officer is responsible for the day-to-day management, operations and results of the Group, executing the strategy once agreed by the Board and making proposals to the Board for the strategic development of the Group. He creates a framework of strategy, values, organisation and objectives to ensure the successful delivery of results, and allocates decision making and responsibilities accordingly. He takes a leading role, with the Chairman, in the relationship with all external parties and in promoting the Company.

Senior Independent Director

David Grigson joined the Board of Ocado as an independent Non-Executive Director in February 2010 and along with some of the other members of the Ocado Board he became a Director of the Company in March 2010. The Board appointed David to act as Senior Independent Director. His biographical details are set out in the Board of Directors section. The Senior Independent Director is available to shareholders of the Company to assist in resolving concerns of such shareholders.

Independence

The Combined Code recommends that at least half of 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. The Ocado Board comprises ten members, including the Chairman, two independent Non-Executive Directors, four Executive Directors and three Non-Executive Directors who are not deemed to be independent for the purposes of the Combined Code. The Company does not therefore currently comply with the relevant requirements of the Combined Code in relation to the balance of Executive and independent Non-Executive Directors, although it intends to do so.

The Company expects that as existing members of the Board step down and new directors are appointed, the Company will become compliant with the Combined Code (and the 2010 Code) in this respect.

Of the six Non-Executive Directors on the Board, the Chairman, David Grigson and Ruth Anderson are independent as defined in the Combined Code. However:

  • Robert Gorrie is not deemed independent for the purposes of the Combined 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 Board, he became a Director of the Company. He also provides consulting services to the Group under a separate consulting agreement. Notwithstanding, the Board considers Robert to be independent;
  • Jörn Rausing is not deemed independent for the purposes of the Combined Code because the Apple Trust (of which he is a beneficiary) is a major shareholder of the Company. Notwithstanding, the Board considers Jörn to be independent; and
  • David Young is not deemed independent for the purposes of the Combined Code because he was a Non-Executive Director of Ocado from October 2000 to March 2010 when, along with some of the other members of the Board, he became a Director of the Company. Notwithstanding, the Board considers David to be independent.

Non-Executive Directors

The Non-Executive Directors have wide and varied skills and commercial experience which they bring to the deliberations of the Board and the committees, as well as their independent judgment on Group strategy, risk and performance. The Board considers that its size and composition and that its balance of skills and experience is appropriate for the requirements of the business.

The Chairman seeks to ensure the effective contribution of the Non-Executive Directors and constructive relations between Non-Executive Directors and Executive Directors, particularly during discussions at Board meetings.

Each Non-Executive Director's letter of appointment to the Board sets out clearly the expected time commitment from them to the Company and at the time of appointment the relevant Non-Executive Director confirmed that that he or she is able to devote sufficient time as is necessary to the performance of his or her duties. The Board is satisfied that each of the Non-Executive Directors has sufficient time available to devote to the Company.

The terms and conditions of appointment of the Non-Executive Directors are available for inspection at the Company's registered office (during normal business hours) and at the Company's AGM.

Conflicts of interests

The Companies Act provides that directors must avoid a situation where they have, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with a company's interests. Directors of public companies may authorise conflicts and potential conflicts, where appropriate, if a company's articles of association permit.

Each Non-Executive Director's letter of appointment sets out the requirement for disclosing conflicts to the Chairman and the Company Secretary. As part of the Company's preparation for Admission each Director completed a questionnaire which required them to disclose any conflicts of interests. Other than Patrick Lewis (noted above), 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.

Whenever a Director takes on additional external responsibilities, the Board considers any potential conflicts that may arise. The Board will continue to monitor and review potential conflicts of interest on a regular basis.

The Board's role

The Board has a number of key responsibilities and formally reserved powers. The Board has responsibility for the overall management of the Group and for setting and reviewing the Group's long-term objectives and commercial strategy, including determination of the nature and extent of the significant risks that the Board is willing to take to implement its commercial strategy. The Board has set out a clear schedule of matters reserved for Board decisions (such schedule was approved by the Board prior to the Company's Admission). Other reserved matters include approval of: the annual report and half-yearly report; the Group's budgets; the authority levels for capital expenditure; the treasury policy; and any governance policies.

The Board delegates to management the detailed implementation of matters approved by the Board and the day-to-day operational aspects of the business. The Executive Directors and the management committee meet twice weekly to review operational performance and to monitor implementation of certain projects. Management has authority to undertake capital expenditure without Board approval up to certain pre-approved expenditure thresholds and above which the expenditure must be elevated to the Board for approval.

The Board delegates certain responsibilities to its principal committees, namely the Audit Committee, the Remuneration Committee and the Nomination Committee. The committees keep the full Board apprised of their work and refer matters requiring resolution to the full Board for approval as appropriate. The Audit Committee monitors the integrity of financial information and reviews the effectiveness of the financial controls and the internal control and risk management systems. The Remuneration Committee sets the remuneration policy for Executive Directors and determines their individual remuneration arrangements. The Nomination Committee recommends the appointment of Directors and has responsibility for evaluating the balance of the Board and for succession planning at Board level. Further details concerning the committees of the Board are set out below. The Company expects to establish other committees in certain areas including corporate social responsibility. The purpose of the corporate social responsibility committee would be to review and update the Company's existing corporate social responsibility policies, and monitor the Company's formal corporate social responsibility objectives and plan.

During the period the Board's key activity was overseeing the preparation of the Company for Admission. In addition the Board approved the entry into a new 10-year branding and sourcing arrangement with John Lewis and Waitrose.

Attendance

The table below shows the attendance of Directors at scheduled Board and committee meetings during the period. The Board had scheduled 10 meetings during the year and additional ad hoc meetings and conference calls were also convened to deal with specific matters, including the Company's Admission, which often required attention between scheduled meetings. Directors leave a meeting where the matters being discussed relate to them or which may constitute a conflict of interest to them. From 9 March 2010 onwards the main Board and committees were constituted with the Company and not Ocado, when the Directors were appointed to the Company Board (as noted above). The composition of each of the committees changed during the period, as described in the Board committees description set out below.

Board of Directors Audit Committee Remuneration Committee Nomination Committee
Actual Possible Actual Possible Actual Possible Actual Possible
Executive Directors
Tim Steiner 21 21 - - - - - -
Neill Abrams 23 23 - - - - - -
Andrew Bracey 23 23 - - - - - -
Jason Gissing 21 21 - - - - - -
Non-Executive Directors
Lord Grade (Chairman) 21 21 - - 1 1 1 1
Ruth Anderson 18 19 4 4 1 1 1 1
Robert Gorrie 20 21 5 5 - 1 1 1
David Grigson 17 19 3 3 - - 1 1
Jörn Rausing 21 21 - - 2 2 1 1
David Young 17 21 5 5 2 2 - 1
Former Directors
Patrick Lewis†* 14 21 - - - - - -
Michael Robarts†* 14 17 - - - - - -
Jeremy Frampton* 2 3 - - - - - -
Jonathan Faiman* 2 3 - - - - - -
Tom Clayton* 2 3 - - - - - -

† Patrick Lewis and Michael Robarts did not attend meetings on 25 May 2010 and 28 June 2010 because the sole subject matter of each of those meetings concerned the negotiations for the new branding and sourcing agreement between the Company and Waitrose and the John Lewis Pension Fund director appointment rights. Both Patrick and Michael were appointed to the Board by the John Lewis Pension Fund which was a major shareholder in the Company during the period.

* Jeremy Frampton, Jonathan Faiman and Tom Clayton resigned from the Ocado Limited board on 9 March 2010. Michael Robarts resigned from the Board of the Company on 26 July 2010. Patrick Lewis resigned from the Board of the Company on 15 February 2011.

Information and professional development

The Chairman is responsible for ensuring that all Directors are properly briefed on issues arising at Board meetings and that they have full and timely access to relevant information. The quality and supply of information provided to the Board will be reviewed as part of the Board evaluation exercise.

Directors appointed to the Board during the period participated in an induction programme including a CFC visit and meetings with members of senior management and certain key employees, for example, in the finance department. The Company intends to expand this induction program in future taking account of feedback from new Directors. The Board intends that in future the Board programme will include regular presentations from management to help maintain the Non-Executive Directors' understanding of the business and the sector.

The need for Director training is assessed by the Board from time-to-time. In conjunction with the Company's Admission, the Company Secretary, Neill Abrams, arranged for the Directors to receive information and a presentation on the duties and obligations of a listed company director. Training for Directors is available on an ongoing basis to meet any particular needs.

The committees have access to sufficient resources to discharge their duties, as required by the Combined Code. In this regard, remuneration consultants had advised the Remuneration Committee on executive remuneration during the period. The Audit Committee received updates from the Group's auditors on technical accounting issues or developments when required. The Company retained the services of professional services consultants for the recruitment of new Non-Executive Directors.

The Board is assisted by the Company Secretary, Neill Abrams, who reports to the Chairman in respect of his core duties to the Board. All Directors have access to the advice and services of the Company Secretary. He has responsibility for ensuring that Board procedures are followed and for governance matters. The Company Secretary, under the direction of the Chairman, was responsible for ensuring good information flows within the Board and its committees, as required under the Combined Code. The appointment and removal of the Company Secretary is one of the matters reserved for the Board.

Members of the Board may take independent professional advice at the Company's expense in the furtherance of their duties.

Director insurance and indemnities

The Company maintains directors' and officers' liability insurance cover for its Directors and officers as permitted under the Company's Articles and the Companies Act. Such insurance policies were renewed during the period and remain in force. The Company also indemnifies the Directors under an indemnity deed with each Director which contain provisions that are permitted by the director liability provisions of the Companies Act and the Company's Articles. The indemnity deeds were entered into by each Director at the time of Company's Admission. Qualifying third party indemnity provisions (as defined by section 234 of the Companies Act) were in force during the period and remain in force for the benefit of the Directors (and any officer) of the Company or of any associated company.

Board performance evaluation

The performance of the Board is important to the success of the Group and accordingly the Board considers that reviewing its performance is helpful. During the period, each of the Executive Directors was subject to a full performance evaluation from each other and the management committee. This process will be repeated annually. The Nomination Committee recommended to the Board that the Board should be subject to an annual performance evaluation in 2011, as required by the 2010 Code. In due course, the Nomination Committee will agree who will conduct the evaluation exercise, the key objectives of the appraisal, a process for conducting the evaluation and a means of comparing the results with evaluations in future years. The Nomination Committee expects that the performance evaluation will cover the performance of the Board, each of the Board committees and the individual Directors.

In conjunction with the implementation of this Board evaluation process, the Nomination Committee recommended that in due course, the Chairman separately review the contribution of each of the Directors with them.

Subsequent to the period end, the Chairman and the Non-Executive Directors met without the Executive Directors being present, as required by the Combined Code. The Senior Independent Director and the Non-Executive Directors also met without the Executive Directors or the Chairman being present, as required by the Combined Code, and subsequently met with the Chairman to provide feedback.

The explanatory notes set out in the Notice of Meeting for the AGM state the reasons that the Board believes each Director proposed for re-election at the AGM should be re-appointed.

Board committees

As envisaged by the Combined Code, the Board has established three committees: a Nomination Committee, a Remuneration Committee and an Audit Committee. The Chairman of each committee provides a report or update of each meeting of the respective committee to the Board at the following Board meeting.

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 also makes recommendations for the membership of the Audit and Remuneration Committees.

Meetings: The Nomination Committee meets when necessary and will normally meet no fewer than two times a year. The Nomination Committee met once since it was constituted around the time of the Company's Admission. It met primarily to discuss the composition of the Board and the recruitment of new Non-Executive Directors.

Members: The Nomination Committee is chaired by David Grigson, and all of the other Non-Executive Directors (including the Chairman) are members.

Independence: The Combined Code requires a majority of the members of the Nomination Committee to be independent Non-Executive Directors. As explained above, while the Board considers its Non-Executive Directors on the Nomination Committee to be independent, from the perspective of the Combined Code only three of the members of the Nomination Committee (David Grigson, Lord Grade and Ruth Anderson) are independent. Therefore the Company does not comply with the Combined Code in this respect.

Prior to the Company's Admission, the Company recruited two new independent Non-Executive Directors, to supplement the existing Non-Executive Directors. This process was led by the Chairman (as prior to the Company's Admission, the Nomination Committee had not been constituted). Professional services consultants, The Zygos Partnership, was instructed by the Chairman in connection with this process. Following an extensive search, the Chairman recommended to the Board that David Grigson and Ruth Anderson be appointed as independent Non-Executive Directors. Both were appointed to the Company Board in March 2010.

The Company had previously stated its objective to re-balance the Board in favour of Non-Executive Directors who are considered independent under the 2010 Code. During the period, the Nomination Committee recommended that one new independent Non-Executive Director be sought and since the end of the period the recruitment of such new director to the Board was led by the chairman of the Nomination Committee. Professional services consultants, Lygon Group, were instructed by the chairman of the Nomination Committee in connection with this process. Here the Nomination Committee considered the skills, knowledge, background and experience required for the role, and prepared a job specification for the role. A number of Directors including the chairman of the Nomination Committee, the Chairman, the Chief Executive Officer and other Directors interviewed candidates for the role of Non-Executive Director. The Nomination Committee also specified the time commitment expected of the role and confirmed with candidates that each had sufficient time available to devote to the role.

The Company will continue to actively seek to recruit new non-executive directors so that the Board meets the independence requirements of the 2010 Code. The Nomination Committee will continue to meet regularly to consider the Board size and composition and to ensure that plans are in place for the orderly succession of appointments to the Board, as required by the 2010 Code.

The Nomination Committee's terms of reference are available on the website (www.ocadogroup.com/corporate-responsibility/corporate-governance.aspx) and set out the Nomination Committee's responsibilities.

Remuneration Committee

Role: The role of the Remuneration Committee is to determine and recommend to the Board the remuneration policy for the Chairman of the Board and the Executive Directors. This includes base salary, annual and long-term incentive entitlements and awards and pension arrangements. In determining the remuneration policy, the Remuneration Committee takes into account many factors including the need for a significant proportion of the Executive Directors' remuneration to be structured so as to link rewards to business and individual performance, as required by the Combined Code.

Members: The Remuneration Committee is chaired by David Young, and its other members are Ruth Anderson, Robert Gorrie and Jörn Rausing. During the period, the composition of the Remuneration Committee changed. Prior to Admission of the Company the Remuneration Committee comprised David Young (as chairman), Lord Grade and Jörn Rausing.

Independence: The Combined 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 Combined Code the only member of the Remuneration Committee who is independent is Ruth Anderson. Therefore the Company does not comply with the Combined Code in this respect.

Meetings: The Remuneration Committee will normally meet no fewer than two times a year. During the period, the Remuneration Committee met on two occasions.

Duties: The Remuneration Committee's key duties are as follows:

  • approve the design of, and determine targets for, any performance related pay schemes operated by the Group (ensuring that the performance related elements of Executive Directors' remuneration are stretching and designed to promote the long-term success of the Company and Group) and annual payments made under such schemes. In designing such schemes, the Remuneration Committee should follow the provisions in Schedule A to the 2010 Code;
  • review the design of all new long-term schemes and significant changes to such schemes for approval, in each case, by the Board and shareholders (save in the circumstances permitted by the Listing Rules). For any such schemes, determine each year whether awards will be made, and if so, the overall amount of such awards and the individual awards to Executive Directors;
  • determine the policy for, and scope of, pension arrangements (if any) for each Executive Director;
  • ensure that contractual terms on termination, and any payments made, are fair to the individual, and the Company or the relevant member of the Group (as applicable), that failure is not rewarded and that the duty to mitigate loss is fully recognised. The Remuneration Committee should aim to avoid rewarding poor performance and take a robust line on reducing compensation to reflect departing Directors' obligation to mitigate loss;
  • ensure that notice or contract periods should be set at one year or less;
  • within the terms of the agreed policy and in consultation with the Chairman and/or Chief Executive Officer as appropriate, determine the total individual remuneration package of each Executive Director and the Chairman including bonuses, incentive payments, share options or other share awards and any compensation payments (giving due regard to any relevant legal requirements and guidance);
  • review and note annually the remuneration trends across the Group;
  • oversee any major changes in employee benefits structures throughout the Group;
  • review the policy for authorising claims for expenses from the Chief Executive Officer and Chairman;
  • ensure that all provisions regarding disclosure of remuneration, including pensions, are fulfilled;
  • be responsible for establishing the selection criteria, selecting, appointing and setting the terms of reference for any remuneration consultants who advise the Remuneration Committee; and
  • obtain reliable, up-to-date information about remuneration in other companies, with a view to judging where to position the Company relative to other companies. The Remuneration Committee shall have full authority to commission any reports or surveys which it deems necessary to help it fulfil its obligations.

The Remuneration Committee has produced the Directors' remuneration report (see page 41) and will put it to the Company's shareholders for approval at the AGM on 11 May 2011.

The Remuneration Committee was advised by remuneration consultants, Towers Perrin (now Towers Watson), on certain remuneration issues. Towers Watson was appointed by the Remuneration Committee. The Remuneration Committee is satisfied that there is no connection between the Company and Towers Watson. In addition, the Remuneration Committee received advice from PricewaterhouseCoopers LLP, Slaughter and May and Appleby Trust (Jersey) Limited in connection with the implementation of the Group's JSOS.

The Board considers that the remuneration for Non-Executive Directors reflects the time commitment and responsibilities of the role.

The remuneration arrangements for Non-Executive Directors do not include share options. However, the Non-Executive Director, Robert Gorrie, holds share options in the Company which were granted to him while he held the position of Executive Director of the Company.

The Board determines the remuneration of the Non-Executive Directors within the limits set in the Company's Articles.

The Remuneration Committee will, in due course, undertake an annual review of its own performance and terms of reference to ensure it is operating effectively and recommend any changes it considers necessary to the Board for approval.

The Remuneration Committee's terms of reference are available on the website (www.ocadogroup.com/corporate-responsibility/corporate-governance.aspx) and set out the Remuneration Committee's responsibilities.

Audit Committee

Role: The Audit Committee's principal roles are to monitor the financial reporting process and the integrity of the financial statements of the Group and review the effectiveness of the Company's internal controls, risk management and audit. Its review of audit includes monitoring the effectiveness and independence of the auditors, including the provision of additional services by the auditors to the Group.

Meetings: The Audit Committee will normally meet no fewer than three times a year and during the period it met on five occasions to coincide with the Company's reporting timetable and its Admission.

Members: The Audit Committee is chaired by Ruth Anderson, and its other members are David Grigson, David Young and Robert Gorrie. As required by the Combined Code, at least one member of the Audit Committee is considered by the Board to have recent and relevant financial experience. The biography of each member of the Audit Committee is set out on pages 16 and 17. The Chief Financial Officer, Andrew Bracey, and senior members of the finance department and the auditors regularly attended the Audit Committee meetings. During the period, the composition of the Audit Committee changed. Prior to March 2010, the Audit Committee members comprised David Young and Robert Gorrie.

Committee Independence: The Combined Code 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 Combined 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 Combined Code in this respect.

The auditors had direct access to the chairman of the Audit Committee and had meetings with her without the Group's finance executives present. Since the period end, the Audit Committee met with the Group's finance executives without the auditors present. It is intended that the Audit Committee will also meet solely with the auditors.

Auditors independence: The Combined Code requires that the Board establish formal arrangements for maintaining an appropriate relationship with its auditors and explain how auditor objectivity and independence is maintained. Following the end of the period, the Audit Committee developed and implemented the Company's policy which restricts the engagement of its auditors in relation to non-audit services to help ensure that provision of non-audit services by the auditors do not have an impact on the independence and objectivity of the Company's auditors. The policy applies the guidance set out in the Guidance on Audit Committees issued by the Financial Reporting Council in December 2010.

The majority of the non-audit work undertaken by PricewaterhouseCoopers LLP during the period related to the Company's Admission. The total of non-audit fees paid to PricewaterhouseCoopers LLP during the period is set out in the notes to the financial statements. Since the end of the period, the Audit Committee has received a regular update from management on any non-audit services being provided by PricewaterhouseCoopers LLP and the cumulative total of any non-audit fees.

PricewaterhouseCoopers LLP also follows its own ethical guidelines and the Auditing Practices Board's Ethical Standard 5 - Non-Audit Services Provided to Audited Entities, and continually reviews its audit team to ensure its independence is not compromised.

Auditors re-appointment: In relation to the auditors, the Audit Committee reviewed the effectiveness and performance of the audit team and received assurances from the auditors regarding their independence. On the basis of this review, the Audit Committee recommended to the Board the re-appointment of PricewaterhouseCoopers LLP as auditors to the Company. The Board accepted this recommendation and this will be put to the shareholders at the AGM on 11 May 2011.

Principal activities of the Audit Committee: The Audit Committee discharged its responsibilities in a number of ways, as described below.

Internal controls: The Audit Committee received and considered reports during the period on the work undertaken by its auditors in reviewing and auditing the control environment and reviewing the financial reporting procedures, which the Audit Committee took into account in assessing the quality and effectiveness of the Group's systems of internal control.

Financial reporting: The Audit Committee reviewed the Group's financial statements including, prior to the period end, a review of the significant financial reporting issues and judgements. It reviewed the basis for preparing the Group consolidated financial statements on a going concern basis and disclosures in the financial statements. In addition, the Audit Committee reviewed the two interim management statements made by the Company prior to publication.

External auditors: The Audit Committee agreed the approach and scope of the audit work to be undertaken by the auditors. It reviewed the Group's processes for disclosing information to the auditors. The Audit Committee reviewed, with the auditors, the findings of their work and agreed the fees payable in relation to the audit for the period. As noted above, it also agreed and implemented a policy in relation to the provision of non-audit services by the auditors.

Internal audit: 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.

Treasury committee: The Audit Committee approved the terms of reference of the treasury committee which was established in June 2010. It reports periodically to the Audit Committee and must obtain the Audit Committee's approval if it wishes to carry out actions that go beyond the scope of its remit set out in the treasury policy. The treasury committee's role is to oversee the Company's treasury framework and working capital management as set out in the treasury policy and review compliance with the treasury policy.

Review and risk: Since the period end, the Audit Committee has received a report on key risks prepared by management and this, together with plans to mitigate such risks, will be reviewed regularly. In future, it is intended that the Audit Committee will receive individual reports in key areas such as IT security and controls, risk management, fraud and bribery.

Whistle blowing: The Audit Committee receives an update at each of its meeting on frauds and improprieties raised through the Company's whistle blowing procedures. The Company's whistle blowing procedure, which allows the Company's employees to report concerns anonymously, is set out in the employee handbook.

Bribery Act: Towards the end of the period, the Company introduced a gifts policy. The Company proposes to update this policy in light of the Bribery Act 2010 due to come into force in 2011.

Tax controls: Towards the end of the period, the Company appointed its Group treasurer as the "Senior Accounting Officer" for the purposes of Schedule 46 of Finance Act 2009. The Company's Senior Accounting Officer is responsible for ensuring and certifying that appropriate tax accounting arrangements have been established and are maintained by the Company. The Company plans to carry out an assessment of its tax accounting arrangements, systems and processes for corporation tax, VAT and payroll tax.

GSCOP: The Grocery Supply Code of Practice ("GSCOP") which became effective in 2010 does not apply to the Company, so it is not obliged to implement any measures to accommodate this code. Nevertheless, the Company is taking steps to prepare for the likely application of GSCOP in future, including documenting written terms of supply with all suppliers. The Audit Committee will monitor this code and consider any preparations for implementation of the GSCOP code's requirements if the need arises in future.

Terms of reference: The Audit Committee's terms of reference, which are available on the website (www.ocadogroup.com/corporate-responsibility/corporate-governance.aspx), set out the Audit Committee's responsibilities.

Internal control

The Board has oversight of the system of internal controls for the Company and for reviewing the effectiveness of such a system. Certain of these responsibilities have been delegated to the Audit Committee, which reports to the Board. Management is responsible for implementing and maintaining the necessary internal control systems and processes.

The Audit Committee has, in the period, reviewed the effectiveness of the Company's system of internal controls, including financial, operational and compliance controls and risk management systems. As noted above, its review had included consideration of reports prepared during the period by the Company's auditors.

A system of internal controls has been in place during the period, up to the date of approval of the annual report and accounts. The Company has made significant improvements to the Group's system of internal controls to address issues raised in the reviews, in connection with the continuing expansion of the Group's business and to recognise the more robust and formal control measures needed after the Company's Admission.

The Audit Committee is satisfied that the controls in place are appropriate. However, it is mindful that the internal control system is designed to manage rather than eliminate risk in order to achieve the Company's strategy and business objectives and so can only provide reasonable and not absolute assurance against loss.

The main features of the Company's internal control and risk management systems in relation to the financial reporting process (as required under the Disclosure and Transparency Rules) are:

  • an organisational structure with clear segregation of duties, control and authority;
  • comprehensive management information systems for providing management with financial and operational performance measurement indicators each week. This information is summarised monthly and reviewed by the Board;
  • formal budgeting and re-forecasting processes. Variances from budget and forecasts are monitored and explained to the Board by management;
  • a capital approval policy that controls the Group's capital expenditure that can be undertaken without Executive Director or Board approval;
  • monitoring the progress of major projects, including the second CFC project, by management and the Executive Directors and by the Board;
  • a review of key accounting policies by the Audit Committee each year; and
  • a review of reports on any whistle blowing and fraudulent activity by employees or suppliers is undertaken by the Audit Committee.

Risk management

The Board accepts that risk is an inherent part of the business. The Company's formal risk management system was put in place in conjunction with the Company's Admission. The Company's risk management system is designed to identify key risks and provide assurance that these risks are fully understood and managed.

The Company's risk management department undertook a business-wide risk and controls assessment in 2010, identifying any actions to mitigate risk and implement new control procedures where necessary. The risk management assessment undertaken in 2010 consisted of formal identification by each department of the key risks to achieve their business objectives and the controls in place to manage them. This exercise was facilitated by the head of risk management.

The risk management department maintains a risk register which was compiled as a result of this risk assessment. The risk register lists all of the key risks that face the Company in achieving its objectives. It identifies the potential impact and likelihood of each risk both, before taking into account any mitigating controls and after any mitigating factors are taken into account. Some actions necessary to mitigate some of these risks have been identified and discussed by the risk management department and the heads of each relevant department.

Subsequent to the period end, the risk management department provided a report to the Audit Committee to allow it to review the risk assessment. It is expected that in due course, the Audit Committee will make some recommendations for taking actions to mitigate risks and agreeing specific timelines for taking such actions. These agreed actions will then be monitored by the risk management department until they are implemented.

The effectiveness of the risk management process will be reviewed by the Audit Committee which then reports to the Board. The Company intends that the risk management department will report to the Audit Committee summarising the risk management process and the risk assessment. The Audit Committee will report to the Board thereafter.

As part of the Board's oversight of risk, it receives an update at each Board meeting on health and safety issues. Any specific issues which might affect the Company's reputation are reported to the Board as they occur.

The Audit Committee is also concerned with financial risk management. The treasury committee reports to it on financial risk management issues such as hedging the Company's exposure to movements in interest rates and currency, as noted above.

Investor relations

The Company is committed to maintaining constructive communications with its shareholders. Normal shareholder contact is the responsibility of the Chief Executive Officer, Tim Steiner, the Chief Financial Officer, Andrew Bracey and the head of investor relations. The Chairman and the Senior Independent Director are available to the Company's shareholders to discuss any of their concerns.

The Company regularly meets with its large investors and institutional shareholders who, along with analysts, are invited to presentations by the Company immediately after the announcement of the Company's results. The Chairman will occasionally attend these presentations by the Company to investors. The Board regularly receives feedback from the Executive Directors on the views of major shareholders and the investor relations programme and also receives regular reports on the main changes to the composition of the Company's share register. One of the Company's largest shareholders, the Apple Trust, has a representative Director on the Board.

All shareholders can access the annual report, trading statements, investor presentations and regular announcements on the Company's corporate website (www.ocadogroup.com). All shareholders can choose to receive an annual report either in paper or electronic form.

The Company's AGM

Shareholders will have the opportunity to meet and question the Board at the AGM. The AGM of Ocado Group plc will be held at 2 pm on 11 May 2011 at One Bunhill Row, London EC1Y 8YY.

A detailed explanation of each item of business to be considered at the AGM is included with the Notice of Meeting which will be sent to shareholders before the AGM. To allow for maximum shareholder input, the Company offers electronic proxy voting and voting through the CREST electronic proxy appointment service. The Broad proposes that all resolutions proposed at the AGM will be taken on a poll vote. This follows best practice guidelines and enables the Company to count all votes, not just those of shareholders who attend the meeting. The Company expects that the Chairman will announce the provisional voting results at the meeting. The final voting results will be announced by the Company immediately following the AGM via the Regulatory News Service and will also be available on the Company's corporate website (www.ocadogroup.com).

Share capital, voting rights and significant shareholders

Details concerning the Company's share capital, significant shareholders, special rights, voting rights and other matters as required by the Disclosure and Transparency Rule 7.2 are set out in the Directors' report.