Ocado Regulatory News (OCDO)

OCADO GROUP PLC

Resetting the bar in online grocery, again

Full Year results for the 52 weeks ended 28 November 2021

8 February 2022

Business Highlights

● Five new Customer Fulfilment Centres ("CFCs") opened around the world, including first two in the US

● Now at thirteen live CFC sites; ten at year end, three launched since year end, a total of nine to open in 2022

● Seven out of ten Ocado Smart Platform ("OSP") partners now live on platform

● Partners reporting strong NPS scores in response to launch of new grocery services powered by our solutions

● Enabling partners to bring capacity to market faster: initial ramp ups of latest UK CFCs set record-breaking pace

● First OSP partner signed in July, when COVID-era travel restrictions eased, encouraging pipeline for new deals

● Kindred and Haddington teams successfully integrated; new strategic investments made in autonomy (Oxbotica; Wayve)

● Game-changing innovation set to further transform partner economics

Financial Highlights

● Group revenue up 7.2% to £2.5bn with all business segments growing

● Ocado Retail sales at £2.3bn, up 4.6%, notwithstanding material headwinds in H2, up 41.5% versus 2019 pre-COVID

● International Solutions revenues increase to £66.6m versus £16.6m in the prior year; live sites doubled

● Group EBITDA of £61.0m, compared with £73.1m in the prior year; investments in technology capability and Group support functions offset higher EBITDA in UK Solutions & Logistics and Ocado Retail

● Loss before tax £(176.9)m reflects increased investment in our Solutions business, particularly the increasing roll out of OSP

● Healthy liquidity; cash balance of £1.5bn, supporting significant UK and International growth plans. Net debt of £359.8m reflects successful refinancing in the year

* These measures are Alternative Performance Measures, refer to section 6 in the condensed financial statements.

Notes

1. Revenue is online sales (net of returns) including charges for delivery but excluding relevant vouchers/offers and value added tax. The recharge of costs to our UK Solutions clients and International Solutions clients are also included in revenue with the exception of recharges to Ocado Retail which are eliminated on consolidation

2. EBITDA* is a non-GAAP measure which we define as earnings before net finance cost, taxation, depreciation, amortisation, impairment and exceptional items*

3. Net exceptional income of £42.8 million primarily relates to £78.6 million of insurance income related to the Andover CFC fire in 2019, offset by litigation costs of £28.9 million (principally related to patent infringement litigation between the Group and AutoStore Technology AS).

4. During the period, the Group updated its policy on IAS 38 Intangible Assets following the IFRIC interpretation on accounting for configuration or customisation costs in cloud computing or SaaS arrangement. As a result of the Group's change in accounting policy, the prior period comparatives have been restated to derecognise previously capitalised SaaS related costs amounting to £8.3 million. This amount has been expensed in full and disclosed as an exceptional item. This restatement has increased the Group's loss for the prior period by £8.3 million and a corresponding decrease in the net exceptional income for the same amount. The impact on the balance sheet is a decrease in non-current assets by £8.3 million.

The commentary is on a pre-exceptional basis to aid understanding of underlying performance of the business.

Tim Steiner, Chief Executive Officer of Ocado Group, said:

"The past year has further reinforced that demand for online grocery is here to stay. In the majority of mature markets, the fastest growing channel is online and to truly win here food retailers need to deliver the best offer with the best economics across all customer missions. The innovation that is powering the development of the unique and proprietary Ocado Smart Platform is focused on providing an unequalled customer experience through ground-breaking technology which leads to an unrivalled low cost operation.

The new generation of Ocado technology, which we have called "Ocado Re: Imagined", represents a transformational leap forward allowing our partners to comprehensively out-compete peers online. Partners ordering CFCs today will be able to go-live quicker, at lower cost, and achieve higher margins and return on capital. For Ocado Group, this means a bigger addressable market, the opportunity to win new partners more quickly, and fresh opportunities to accelerate growth.

Over the last twenty years Ocado Group has been a pioneer in the development of online grocery retailing. With the innovations to the Ocado Smart Platform announced in January 2022, we have again re-set the bar, demonstrating decisively that an online grocery service powered by OSP is able to offer what the customer wants with the economics the retailer needs".

Key milestones in 2021

Ocado Group provides end-to-end online grocery fulfilment solutions to some of the world's largest grocery retailers. It created the award winning UK online grocery business Ocado.com over twenty years ago, which is now a 50:50 joint venture with Marks & Spencer. Ocado has spent two decades innovating in the online grocery space, investing in a broad technology estate that includes robotics, AI & machine learning, simulation, forecasting, and edge intelligence. This know-how is embodied in the highly flexible Ocado Smart Platform, a hardware and software solution that has been developed in-house to enable the ten grocery companies we work with in the UK and around the world to bring the market-leading Ocado consumer experience to their own customers.

Roll out of CFCs accelerating

● Ocado Group opened 5 CFCs in the financial year for OSP partners, doubling the number of live sites globally to 10. All of these sites were opened on time, despite global supply chain disruption

● 7 out of our 10 partners are live on OSP

● We doubled live international sites to 4, with the first 2 in the United States for Kroger, in Ohio and Florida, adding to those CFCs already ramping in Canada and France, for Sobeys and Groupe Casino

● In the UK, we opened 3 new sites for Ocado Retail; a mini CFC in Bristol and two larger CFCs in Purfleet and Andover, increasing their available growth capacity by around 40%

● In addition to sites launched, Kroger announced 6 new CFC sites across the US, and our Japanese partner, Aeon, identified the location of their second site in the wider Tokyo area. Alcampo, our new Spanish partner, announced plans for their first site in Madrid. Following the year end, Sobeys, our Canadian partner, announced their fourth CFC planned for the Greater Vancouver area. The CFC will benefit from new technology announced at Ocado Re: Imagined

● We expect to open a further 9 CFCs in 2022, to almost double the number of operational sites once again to 19. For the first time, we will open more sites internationally; 6 in the US and 1 in each of Sweden, Canada and the UK. We have already made strong progress, having gone live with 3 sites since the year end, in each of the US, Canada and Sweden

Partners using the full flexibility of our solutions suite; customers responding positively to new services powered by OSP

● In each market where we have launched CFCs, our partners continue to report leading customer satisfaction as they progressively ramp into their capacity

● Our partners are using OSP to serve current customers, with new levels of service, as well as expand into new markets; notably, in the US, Kroger continues to build its network of Solutions in Florida and has announced plans to expand into the North East with OSP. The 6 sites they announced in 2022 include the first micro fulfillment center outside the UK, which they will use to serve customers in Florida, in as fast as 30 minutes with a selection of 10,000 fresh food items and essentials, in addition to large and mini format CFCs for large basket same and next day service

● Throughout the year ICA Sweden expanded its OSP ecosystem, culminating in the launch of their first CFC outside Stockholm in December 2021. They have now deployed our In-Store Fulfilment ("ISF") (in both stores and dark stores) and automated solutions, with multiple options for last mile across home delivery and click & collect. ICA operates a unique business model amongst our OSP partners which means that OSP will ultimately power the online grocery of more than 1,000 individual businesses, providing each retailer their own webshop and the flexibility to make their own decisions around product range, pricing and marketing, whilst leveraging the benefits of the same best-in-class fulfilment infrastructure

● 5 of our partners are now live with our ISF solution, with 3 more planned to launch in the coming years. Partners are using the flexibility of the ISF solution to provide online grocery services to a wider customer base and to build volumes online ahead of future CFC launches

Further improving the speed to market, cost to operate and resilience of our solutions

● In February, our mini CFC in Bristol launched just over a year after announcement, our fastest go-live yet

● We have been improving our build processes to reduce our time for installation by several months, including through bi-direction grid build, and implementing a new method of aligning the grid build and the build of peripherals which decouples the two tasks, enabling us to go faster

● Our technology can now ramp up as fast as our partners desire, as evidenced in the early success ramping up the latest sites launched in the UK; each of Bristol, Andover and Purfleet, ramped faster than those sites before it, with Purfleet achieving 35,000 orders per week in the first 14 weeks

● We have made significant progress towards our targeted level of engineering costs. Benefitting from the improvements in reliability and maintainability of the 500 series bot, by the end of the year our Bristol CFC was operating at a similar engineering cost per each as Erith CFC, which itself saw engineering cost per each fall by 36%, ahead of plan despite the impact of the fire in the second half

● Since the fire at Andover in 2019, we have implemented a number of measures to reduce the risk and impact of fire in our sites and continue to evaluate further opportunities in this area. Our progress, to date, was reflected in the successful containment of the fire at Erith in July

OSP signing

● In July 2021, we announced the signing of an agreement with Auchan Retail to partner with Ocado Solutions to develop Alcampo's online business in Spain using the Ocado Smart Platform, bringing our tenth partner into the OSP 'club'

● We remain in conversation with a number of retailers and continue to target further Solutions deals

Investing in new technologies and adjacencies to increase the future value of OSP

● We made two strategic £10 million investments in autonomous vehicle software specialists, Oxbotica and Wayve, to tackle diverse use cases: from vehicles designed for use inside CFCs, to last-mile deliveries; and even kerb-to-kitchen robots. Ultimately, we target a reduction in the logistics costs borne by OSP partners and more choice in the home delivery proposition. Both companies offer unique capabilities in AI, machine learning and optimisation technologies, whilst using different parallel approaches to train software to cope with complex real world applications safely, ensuring we will deliver robust solutions in this emerging market. We expect the first prototypes of early use cases within two years, and will continue to grow our dedicated team in this area

● We successfully integrated the teams from Kindred Systems ("Kindred") and Haddington Dynamics ("Haddington"), following the acquisitions announced last year. All engineers across Ocado and Kindred are now working on the same code base, and we have integrated significant prior R&D learnings into the Kindred system. We deployed the Kindred system into Erith on time, and have since ramped it according to our year end targets. Haddington have produced the first version of an arm we expect to use in grocery, and is now undergoing testing before being deployed into production. This combined progress means that we expect to be able to pick 50% of the range by volume robotically in a given CFC, by the end of 2023

● Near term, revenues from Kindred have ramped more slowly than expected, reflecting delays in the signing of new agreements. We remain excited by the long-term opportunity for Kindred's robotic picking solution, particularly in the general merchandise and logistics sectors

● In April, Jones Food Company ("JFC"), the UK's leading vertical farming company, in which Ocado retains a controlling interest, successfully raised £25 million (£5 million provided by Ocado) to assist in the building of a second vertical farm near Bristol. The value of Ocado's original stake in JFC is now worth more than double our initial investment

Ocado Retail, now a 50:50 JV between Ocado Group and M&S, is Ocado Group's original business and a leading pure play online grocer.

Continued strong performance as social distancing restrictions ease and the basket returns to pre-Covid-19 level

● Resilient sales growth of 4.6% in the year, driven by an increase in customer numbers of 22.4%, to 832,000, driving an increase in orders of 11.9%, to 357,000, offset by a reduction in basket size of 5.8% to £129

● Growth in orders, while positive, was constrained in the second half by the ongoing tight labour market in the UK, in addition to reduced capacity at the Erith CFC following a fire in July

● EBITDA margin achieved in H1 was 8.5%; as a result of aforementioned labour market challenges and operating disruption at Erith, as well as industry wide cost inflation, full-year EBITDA margin was 6.6%

● Despite operational disruption at Erith, mature CFC efficiency, as defined by Units per Labour Hour ("UPH") improved to 170, up from 169 in the prior year. Excluding disruption in the second half, UPH would have been 172

● Drops per van per week ("DPV") reduced to 177, from 184 in 2020, as a result of surplus vans driven by the challenging labour market in the second half. Average deliveries per van shift improved across both UK partners as more normalised shopping behaviour enabled roster improvements

● Notwithstanding short term challenges, all evidence points to strong underlying demand for online grocery in the UK; now at 12% of total grocery market share in the UK, industry data points to continued robust growth of the online channel. For example, GlobalData expects online share to increase to 18% by 2025

Strong pipeline of capacity to absorb current and future demand

● Ocado Retail has invested in a strong pipeline of capacity to seize the considerable growth opportunity for online grocery in the UK; the three CFCs opened this year, including the first mini CFC in Bristol (30k orders per week, "OPW"), the new Andover CFC (60k OPW) and Purfleet (85k OPW) together increased growth capacity to over 600k OPW, up around 40% versus the end of 2020

● CFC openings planned for Bicester in 2H22 and Luton in 2023 will further expand ultimate capacity potential to around 700,000 orders per week

● In addition to these sites, today the business is announcing two further CFC sites in the Northwest and Southeast of England, both planned for 2024

● Following the success of Zoom in Acton, West London, Ocado Retail expects to open a second Zoom site in Canning Town, London in the second quarter of 2022; three further sites, one in London and two in other UK cities, will open over the next 18 months

FY22 guidance

Revenue

● Ocado Retail: return to strong, mid-teens revenue growth in 2022

● UK Solutions & Logistics:

○ Fee growth over 30% reflecting the accelerated capacity build out in UK

○ Cost recharges to grow at least in line with Retail revenue growth as we support our clients to build into the growing capacity

● International Solutions:

○ OSP fee revenue to more than double with increase of live international CFCs from 4 to 12, and continued ramp in ISF volumes

○ Double digit growth in Kindred revenues from £10 million in FY21

EBITDA

● Ocado Retail: as previously announced increased investments of around £50m to support long term growth. Ambition for EBITDA margin to rebuild towards 2021 levels following a significant year of investment in 2022, with long-term margins underpinned by technology and operating leverage

● UK Solutions & Logistics: EBITDA to increase by around 50%, reflecting increased fees due to the increasing live capacity for clients and engineering costs growing slower relative to this new capacity

● International Solutions: flat versus 2021; rising margin contribution as revenues grow, offset by increased investments in platform development and a minimum level of engineering cost required to support new CFCs in the early stages of ramp

Central P&L costs associated with Group Operations and Technology costs, to grow broadly in line with Group revenue growth

● £30 million increase in Technology investments in key areas of OSP platform development including additional focus areas such as autonomy

● £5 million increase in Group Operations to £80m; focused on building capabilities to support increased complexity and scale

● Central P&L costs are allocated across UK Solutions & Logistics (c. ⅓) and International Solutions (c. ⅔) and are expected to grow significantly below Group revenue growth after 2022, reflecting inherent operational leverage when at scale

Total capital expenditure for the Group is expected to be around £800 million driven by accelerating roll out of OSP worldwide

● 30% UK, of which 60% dedicated to the continued roll out of CFC and Zoom sites, inclusive of land, build and MHE cost, given consolidation of the Ocado Retail joint venture

● 50% International, reflecting an additional 8 CFCs to go-live during the year, of a total of 13 CFCs in build internationally at the end of 2021

● 20% Technology investment to support key areas of OSP platform development including additional focus areas such as autonomy

We continue to target further Solutions deals which would generate additional cash fees but would negatively impact short term profits

Ocado Re:Imagined - the next leap in innovation

Two weeks ago we unveiled the next leap of game-changing technology underpinning the unique and proprietary Ocado Smart Platform.

This evolution of the Ocado Smart Platform is one of the most significant steps forward in technology in Ocado's history and re-affirms OSP as the fastest, most flexible, most sustainable and most cost effective suite of solutions for operating online grocery businesses. Uniquely developed for the demands of the grocery space by our dedicated technology and engineering teams, these latest innovations to OSP are the result of cutting-edge research and development, as well as the accrued experience and know-how in driving unmatched efficiency across the entire online grocery delivery space over the last 20 years of Ocado.

The latest ground-breaking innovations include: the world's lightest and most efficient grocery fulfilment bot; dramatically lighter grids; robotic arms that pick groceries directly from the grid, a solution that automates the most physically demanding job in a Customer Fulfilment Centre; the world's first virtual distribution centre; a capability for short lead time deliveries; and a capability for powering retailers' own storefronts with the intelligence behind the Ocado Smart Platform.

Financial Implications

We do not expect these initiatives to have a material impact on FY22 results. However, partners ordering standard-sized CFCs today for delivery in H2 2023 will have the following features enabled: 600 Series bots; the 600 grid and Optimised Site Design; Automated Frameload; On-grid Robotic Pick; Ocado Swift Router; and Ocado Flex. Orders made prior to the launch of Ocado Re:Imagined for delivery at the end of FY23 can be retrofitted to include many of these enhancements.

The principal benefits of Ocado Re:Imagined are in site productivity and flexibility to serve. With regards the former, we expect that direct labour costs in a site will be 30% lower as a result of these initiatives; and that robotic site mature productivity, as measured by Units [processed] per Labour Hour ("UPH"), will be more than 300 compared to a goal of 200 before. With regards the latter, we expect that the time for the installation and testing of the Material Handling Equipment ("MHE") will be halved, from 10 months to 5 months, while the number of orders that can be delivered within four hours will increase from less than 10% to more than 50%.

We expect that the improved economics offered by Ocado Re:Imagined will drive incremental orders and accelerate the sign-up of new partnerships in the years to come, while increasing the Total Addressable Market available to the business.

Details of these innovations are available by watching the on-demand replay of the Ocado Re:Imagined event first broadcast on the 26th January 2022 on the Ocado Group website www.ocadogroup.com.

The RNS from the day of the event, including a summary of our initiatives, can be found here.

Autostore update

The litigation between Ocado Group and AutoStore Technology AS ("AutoStore") continues, with claims brought by Ocado Group against AutoStore in the US, Germany and UK, and by AutoStore against Ocado Group in the US and UK.

On 13 December 2021, the judgment of the Chief Administrative Law Judge in the International Trade Commission was delivered in favour of Ocado. He held that three of the four AutoStore patents asserted against Ocado were invalid, and the fourth patent was not infringed. A fifth patent was abandoned by AutoStore on the eve of the hearing. Ocado is pleased that the judge has rejected AutoStore's attempt to use the ITC process to obstruct the development of Ocado's business in the United States. AutoStore's complaint to the ITC originally alleged infringement by Ocado of 33 claims spread across five different patents. The decision means that all of the 33 claims have either been rejected by the judge, or abandoned by AutoStore. The judge's findings have been appealed to the ITC and the final decision will not be issued until April 2022, however Ocado continues to have confidence in the merits of its position and the correctness of the judge's findings.

AutoStore's UK High Court infringement claim is scheduled to begin in the High Court in mid-March. The claim was based on 6 patents asserted against Ocado, covering three different inventions (patent families). In January 2022, AutoStore abandoned their infringement claim in relation to two of their three patent families (three of the six patents). Ocado's counterclaim for declarations of invalidity in relation to all six patents however remains in the case. In addition we will be seeking to recover our wasted costs in relation to the abandoned part of their claim, which are expected to be several million pounds.

Separately, Ocado actively continues to pursue its claims against AutoStore for infringement of Ocado's patents in both the United States and Europe. In Germany, the Munich and Mannheim District Courts agreed to allow invalidity arguments to be heard ahead of any decision on an injunction preventing AutoStore from using its Black Line robot in Germany (the German system, unlike the US and UK, separates the issues of validity and infringement into different hearings in different forums). As a result of this procedural step, the infringement litigation has been temporarily stayed. We will continue to pursue it vigorously to its successful conclusion.

Legal and other costs have been incurred to defend against AutoStore's claims and to file the Group's claims. As with all ongoing litigation, the outcome is uncertain. However, we remain confident in the integrity of our Intellectual Property portfolio and the disciplined approach we have taken to build our capabilities and the Ocado Smart Platform over the past twenty years.

Results presentation

A results presentation will be available online for investors at 9.30am. This can be accessed here. Following the presentation there will be an audio Q&A. To ask a question, dial into the conference call using the dial-in +44(0)330 336 9601 and confirmation code 3760986.

Contacts

Tim Steiner, Chief Executive Officer on 020 7353 4200 today or 01707 228 000

Stephen Daintith, Chief Financial Officer on 020 7353 4200 today or 01707 228 000

David Shriver, Director of Communications, on 020 7353 4200 today or 01707 228 000

Martin Robinson at Tulchan Communications on 020 7353 4200

Financial Calendar

The schedule for Ocado Retail results for the remainder of the 2022 financial year is for a Q1 Trading Statement on 17th March, 1H Results Announcement on the 12th July, Q3 Trading Statement on the 13th September and a Q4 Trading Statement on the 13th of December.

Cautionary statement

Certain statements made in this announcement are forward‐looking statements. Such statements are based on current expectations and assumptions and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results expressed or implied in these forward‐looking statements. Persons receiving this announcement should not place undue reliance on forward‐looking statements. Unless otherwise required by applicable law, regulation or accounting standard, Ocado does not undertake to update or revise any forward‐looking statements, whether as a result of new information, future developments or otherwise.

Financial Review

● Revenue increased 7.2% to £2,498.8 million (2020: £2,331.8 million), reflecting the continued strong demand for Ocado Retail's customer proposition and the increased popularity of UK online grocery in response to Covid-19. There was also strong revenue growth in International Solutions, up 301.2%, as retail partner sites became 'live'.

1. Payment Processing costs have been reassigned from Distribution and Administrative costs to Gross Profit, to better reflect the nature of these costs. FY2020 has been restated accordingly; the impact on periods prior to FY2020 has been assessed and is not material

2. Revenue is online sales (net of returns) including charges for delivery but excluding relevant vouchers/offers and value added tax, and the recharge of costs and associated fees charged to UK and International Solutions clients with the exception of recharges to Ocado Retail which are eliminated on consolidation

3. Other income is income that is not generated through the primary trading activities of the segments (for example, media income in the Retail segment)

4. Share of results from joint ventures relates to joint ventures where the Group does not exercise control such as MHE JVCo Limited ("MHE JVCo"), Karakuri Limited and Infinite Acres Holdings BV (which the Group disposed of in October 2021). The Ocado Retail joint venture, over which the Group exercises control, is not included in this category as its results are fully consolidated

* These measures are Alternative Performance Measures. Please refer to the section "Alternative Performance Measures" in the condensed financial statements

The commentary is on a pre-exceptional basis to aid understanding of underlying performance of the business.

Group revenue for the period increased by 7.2% to £2,498.8 million (2020: £2,331.8 million) and was 42.3% higher than in 2019. Retail continued its strong trading momentum, albeit average order size began to return towards pre-Covid levels at the end of the period as lockdown restrictions eased. The International Solutions business recognised an increase in revenue contribution of £50.0 million with the go-live of two new CFCs for Kroger in the US and the continued ramping-up of sales through the previously opened sites for Groupe Casino (France) and Sobeys (Canada). Total invoiced fees across all International partners were £143.0 million, an increase of 15.4% compared to the prior period. Cumulative fees not yet recognised as revenue amounted to £337.6 million at the end of the period.

Gross profit and other income grew strongly to £1,040.0 million (2020: £887.6 million), with Retail gross margin of 35.9% (2020: 33.6%), benefiting from higher order volumes, improved product mix, changes in sourcing arrangements, and cost savings.

Distribution and administrative costs grew by £163.1 million to £976.7 million (2020: £813.6 million) as we expand both in the UK and internationally. The total costs of £976.7 million include £562.1 million of distribution costs (increase of 4.2%); (2020: £539.2 million) and £83.3 million of administrative costs (increase of 12.4%); (2020: £74.1 million) in UK Solutions & Logistics. UK costs increased ahead of the growth in eaches shipped per week of 3.6%, reflecting higher engineering costs due to inefficiencies incurred given the relative immaturity of the three CFCs that went live during the year (Bristol, Andover and Purfleet) and inflationary pressures on costs of labour, particularly for LGV and delivery drivers where we have introduced measures to attract and retain employees. Distribution and administrative costs in the International segment grew by 90.8% to £177.4 million as a result of increased engineering and technology costs to support the go-live of operations for the first two CFCs with Kroger, and continued investment in the development of our Ocado Smart Platform (OSP) as we build our capabilities for our partners, across both CFC and in-store fulfilment solutions. In total, technology costs have increased from £77.1 million to £107.2 million reflecting an increase in technology headcount from 2,100 to 2,600 over the year. These costs are allocated to the UK Solutions and Logistics and International Solutions segments.

EBITDA* for the period was £61.0 million (2020: £73.1 million). Strong revenue growth in Retail, UK Solutions & Logistics and International Solutions delivered gross profit and other income of £1,040.0 million, up by 17.2% (2020: £887.6 million), and a gross margin of 41.6% (2020: 38.1%). In order to support our ambitious plans for growth in both the UK and internationally, we continue to reinvest much of our gross margin in our technology and support functions, scaling and improving the Ocado Smart Platform for our clients. The majority of the costs of this investment are reflected in the International Solutions results.

Depreciation, amortisation and impairment increased by 41.1% to £238.4 million (2020: £168.9 million), primarily due to an increase in depreciation and amortisation costs relating to our investment and rollout of OSP hardware and software at live CFC locations. At the end of the period we had 6 live UK sites, 4 live international sites and 21 sites in development or under construction.

Net finance costs decreased from £52.8 million to £42.3 million, largely reflecting unrealised foreign exchange gains in the year of £19.3 million (2020: £(2.4) million loss) on foreign currency denominated cash and intercompany balances. This was partly offset by £9.4m of incremental interest cost arising from a full year's interest charge on the £350.0 million unsecured Convertible Bond issued in June 2020 and from a higher interest cost on the issue of £500.0 million of Senior Unsecured Notes in October 2021 following the redemption of the existing £225.0 million Senior Secured Notes. Gross debt increased as a result to £1,828.4 million at the end of the period (2020: £1,405.2 million). The majority of the additional costs are non-cash items relating to the effective interest rate of these instruments and accrued interest.

As a result of the above, and after including net exceptional income of £42.8 million (2020: £96.3 million), primarily relating to £78.6 million of insurance income from the Andover CFC, offset by litigation costs of £28.9 million (principally related to patent infringement litigation between the Group and AutoStore Technology AS) and other exceptional charges, the statutory loss before tax for the period was £176.9 million (2020: loss of £52.3 million).

Segmental summary

Inter-segment eliminations and other

All revenue charged to Ocado Retail Ltd is eliminated on consolidation. For 2021, this totals £568.6 million on a pre-exceptional basis and is included as "Inter-segment and other" revenue. This is partly offset by revenue earned by Jones Food Company.

Group key performance indicators

The following table sets out a summary of selected unaudited operating information in the period:

1. A module of capacity is assumed as approximately 5,000 eaches per hour dependent on the specific metrics of a partner

2. A module is considered live when it has been fully installed and available for use by our partner

3. A module is classified as ordered when a contractual agreement has been signed with a partner and an invoice has been sent for the associated fees. This excludes modules which are required to be ordered in order to maintain exclusivity agreements, but which have not yet been agreed and invoiced

4. Reflecting the exit rate position in the year. Direct operating costs include engineering, cloud, and other technology support costs.

Retail

1. The results of the Ocado Retail Limited joint venture (referred to as either "Ocado Retail" or "Retail") are fully consolidated in the Group

2. Retail segment includes results from Speciality Stores Limited ("Fetch") until its disposal on 31 January 2021. Revenue growth excluding results from Fetch in 2020 and 2021 was +6.3%

3. Other Income includes Transitional Services Agreement income relating to the sale of Fetch

4. Payment processing costs of £14.5 million (2020: £13.9 million) have been reclassified from distribution costs to cost of sales, to more accurately reflect the nature of these costs

5. Distribution and administrative costs exclude depreciation, amortisation and impairment

6. Marketing costs exclude vouchers

7. EBITDA* does not include the impact of exceptional items

2021 saw Ocado Retail build on the exceptional performance of 2020, growing sales and delivering strong margins. Retail Revenue grew by 4.6% year-on-year (underlying growth of 6.3% adjusted for the disposal of Fetch) and was 41.5% higher than 2019 pre-pandemic levels.

EBITDA* increased from £148.5 million in 2020 to £150.4 million in 2021 (2019: £40.6 million), driven by continued strong demand for online grocery and enabled by increased capacity, strong customer acquisition and operational efficiencies. However, during the second half of the year we have seen some customer behaviours begin to return to pre-pandemic trends, whilst EBITDA was also impacted by an increase in labour costs and lower labour availability in a challenging post-lockdown UK labour market.

Three new CFCs opened in the year in Bristol, Andover and Purfleet, which will add capacity of around 170,000 orders per week at maturity, and will bring total capacity for Ocado Retail to over 600,000 orders per week. Andover and Purfleet saw the fastest ramp-up of orders of any CFC built to date, taking advantage of continued strong customer demand. As lockdown restrictions eased throughout 2021, Ocado Retail has not been immune to the challenges in the UK labour market leading to constraints on available capacity. However, with strong customer demand and additional capacity from our new CFC in Bicester, we expect continued strong revenue growth in 2022.

Revenue

Retail Revenue grew by 4.6% year on year (6.3% on an underlying basis excluding Fetch) and was 41.5% higher than 2019 levels driven by a continuation of the strong customer demand for online grocery. As lockdown restrictions were lifted through spring 2021, we saw customer behaviour begin to return towards pre-pandemic levels, with consumers returning to the office and spending less time at home, resulting in a return to a more pre-covid peak day shopping profile. Average basket value of £129 for 2021 (2020: £137) reflects winter periods in which lockdown restrictions remained in place and customers shopped less frequently with higher basket values. Average basket value in the final quarter of 2021 was £118, 12% up on the same period in 2019. We also saw a decline in eaches per basket by 7.1% to 52 (2020: 56) as we return to a more normalised weekly shopping profile.

The second half of the year saw the rate of revenue growth reduce given the comparatives of the exceptionally strong second half sales in 2020. Revenue in the second half was also impacted by the added challenges of temporarily reduced available capacity following the fire affecting a small section of the Erith CFC, and the well documented shortages of labour in the UK retail industry. However with increased capacity overall through three new CFCs and more normalised shopping behaviour, average orders per week for the full year grew to 357,000 (+11.9% year-on-year and +16.3% against 2019) with active customers growing to 832,000 (+22.4% year-on-year from 680,000 at the end of 2020), as we invested in marketing activity to drive long-term stable growth.

Gross profit and other income

Gross profit excluding other income grew by 10.9% to £737.5 million driven by a combination of higher order volumes, improved product mix, changes in sourcing arrangements and cost savings. Supplier funding income of £80.9 million grew by 16.9% compared to 2020 due to business growth and sourcing negotiations. Cost of sales efficiencies have allowed us to invest in retail prices and at the same time improve gross margins (including other income) year-on-year to 35.9% (2020: 33.6%). The change in treatment of payment processing costs from distribution costs to cost of sales has brought the gross margin down by 0.6% for both 2020 and 2021.

Distribution costs

1. Payment Processing costs have been reclassified for 2020 from distribution costs to cost of sales, to more accurately reflect the nature of these costs

Distribution costs primarily consist of fulfilment and delivery operation costs which are provided to Ocado Retail by the UK Logistics operation of the Ocado Group.

CFC costs increased by 14.0% to £180.1 million compared to a growth in average orders per week in the period of 11.9%. The higher rate of cost growth compared to order volume growth reflects the cost inefficiencies incurred due to the relative immaturity of the three new CFCs launched in the year. CFC costs were also affected, particularly in the second half, by the disruption of operations in Erith following the fire that took place in July, together with the additional temporary incentives to attract and retain staff in an increasingly competitive labour market. Despite the labour challenges and disruption in Erith, overall productivity improved, with Units per Hour ("UPH") in mature sites improving year-on-year by 0.6% to 170. It is worth highlighting that the three new CFCs in Bristol, Andover and Purfleet achieved this level of performance within 12 months of going live.

Trunking and delivery costs increased by 6.5% to £250.8 million, below order growth and with total cost per order delivered reducing by 5.3% year-on-year. Savings from Covid related costs which did not repeat in the current period were more than offset by the impact of deliveries per van per week reducing to 177, as a result of surplus vans driven by a challenging labour market, and investments in labour incentives in the second half of the year.

Other operating costs of £105.8 million (2020: £84.3 million) include the costs associated with the provision of the OSP and Logistics services to Ocado Retail by UK Solutions & Logistics. The increase is primarily due to the increase in OSP fees payable to UK Solutions from additional Erith ramp up capacity, and the new CFCs in Bristol, Andover and Purfleet in the period.

Marketing costs increased by £18.2 million to £40.3 million, increasing as a percentage of revenue to 1.8% (2020: 1.0%) with the launch of our first ever multi-media brand campaign in May, "There's An Ocado Just For You", to drive increased brand awareness and drive new customer acquisition. The number of active customers increased by 22.4% year on year to 832,000. In the prior year, marketing spend was lower than historic levels primarily due to very low levels of new customer acquisition.

Administrative costs increased by £8.3 million to £94.9 million, supporting underlying and future business growth. Key investments have included strengthening the buying team, which contributed to a strong margin performance in the period. This was partially offset by a reduction in costs relating to the senior management incentive scheme, compared to the prior year.

EBITDA*

EBITDA* for the Retail business was £150.4 million (2020: £148.5 million). Amounts recoverable under business interruption insurance for Andover and Erith are included in Group exceptional items, and therefore are excluded from the Retail segmental result. Costs related to the exit of long term agreements for IT services of £4.6 million are also included in exceptional items.

Key drivers

The following table sets out a summary of selected unaudited operating information in the period:

1. Change % compares 2021 against the relevant year

2. Active customers are classified as active if they have shopped at ocado.com within the previous 12 weeks

3. Average basket value refers to results of ocado.com

4. Average selling price is defined as gross sales divided by total eaches

UK Solutions & Logistics

1. Fee revenue includes fees charged to Ocado Retail of £120.5 million which eliminates on consolidation

2. Cost recharges include cost recharges to Ocado Retail of £445.8 million which eliminates on consolidation

3. Distribution and administrative costs excludes depreciation, amortisation and impairment

4. Distribution and administrative costs have been re-presented for FY2020 to reflect an updated split of activities in the new international organisational structure, with no overall impact on Revenue and EBITDA

UK Solutions & Logistics saw a good performance in the period, with customer fee revenue (from Ocado Retail and Morrisons) increasing by 27.8% to £149.7 million as 9 modules of additional sales capacity went 'live' during the year bringing total year-end 2021 'live' modules to 49 compared with 40 at year-end 2020. Total throughput in CFCs grew by 3.6% to 1.27 billion eaches picked, an average of 462,000 orders per week across Ocado Retail and Morrisons. With the addition of three new CFCs in Bristol, Andover and Purfleet, live CFCs at the end of the period will have a total capacity of around 750,000 orders per week at maturity (on a pre-Covid basket basis).

Cost recharges to our UK partners increased by 4.4% to £560.7 million. The higher rate compared to volume throughput reflects the higher costs as our new sites ramp up to full efficiency, and the investments made in the period to strengthen our operational employee value proposition to respond to the challenges of the UK labour market throughout the second half of 2021. This impact is partially offset by improvements in CFC efficiency for our more established CFCs.

EBITDA increased from £44.4 million to £68.5 million as a result of the increase in fees from Ocado Retail and Morrisons. The growth in EBITDA accelerated faster than the growth in fee revenue driven by the higher proportion of additional capacity fees relating to the three new CFCs that went live in the period yet to ramp up in cost and utilisation, partially offset by the continuing investment in, and rollout of, our Ocado Smart Platform ("OSP") software.

Revenue

Revenue from the UK Solutions & Logistics business increased by £56.1 million to £710.4 million, an increase of 8.6%.

Fee revenue comprises the fees charged to our UK partners Ocado Retail and Morrisons for access to Ocado's technology platforms, capital recharges, management fees and research and development (fees charged to Ocado Retail are eliminated on Group consolidation). Total fees grew by 27.8% to £149.7 million, with fees to Ocado Retail growing broadly in line with overall live module capacity growth, including three new CFCs delivered in the period, and with additional fees arising from the return of Morrisons to the Erith CFC in February 2021, following the end of an agreement to temporarily release the Morrisons' Erith capacity back to Ocado Retail following a fire in the Andover CFC in February 2019.

Cost recharges represent the relevant operational variable and fixed costs recharged by the UK Logistics operation to Ocado Retail and Morrisons (costs recharged to Ocado Retail are eliminated on Group consolidation). These predominantly relate to fulfillment and delivery operations included in distribution costs, but also include certain central, head office activities, and transitional services fees to Ocado Retail reported within administrative costs. Cost recharges grew by 4.4% due to the increased costs at our new CFCs at Andover, Bristol and Purfleet as they ramp up to full capacity, and the increased costs of labour in a challenging market, particularly for LGV and delivery drivers. 

Other income, net of cost of sales

Other income, net of cost of sales, was £3.5 million (2020: £3.4 million). Other income primarily relates to Erith and Dordon property rental costs charged to Morrisons.

Distribution and administrative costs

Distribution costs comprise the costs of fulfilment and delivery operations which are recharged to Ocado Retail and Morrisons, and engineering and other support costs for the provision of the contracted services, for which fees are charged.

Total distribution costs grew by 4.2% to £562.1 million (2020: £539.2 million), against a growth in average eaches shipped per week (total CFC throughput) of 3.6% to 24.5 million (2020: 23.6 million eaches per week). Distribution costs grew ahead of the growth in eaches delivered due to cost inflation and costs incurred, largely temporary in nature, to address labour shortages. This was particularly prevalent during the second half of the fiscal year and one which became an increasingly important issue for the industry throughout 2021 following lockdown easing and post-Brexit labour pool changes. This resulted in us taking a number of measures to hire and retain LGV and delivery drivers during the year, including raising hourly rates and sign-on bonuses.

Productivity improvements saw the average number of Units per Hour ("UPH") in mature CFCs (Hatfield, Dordon and Erith) improve year-on-year to 170 in the period (2020: 169). Since opening in February, our first mini CFC in Bristol has achieved UPH of 164, and those in Andover and Purfleet are already ahead of our original expectations. UPH for the year of 170 was impacted by the disruption caused by a fire in Erith in July 2021 which impacted available capacity for the remainder of the year. Excluding this period of disruption, UPH for the year was 172.

Trunking and delivery operations saw average deliveries per van shift improve across both UK partners, driven by more normalised shopping behaviour during the week enabling roster improvements. These productivity improvements were more than offset by a fall in deliveries per van per week to 177, reflecting a decision to retain a surplus of vans to mitigate supply uncertainty, as well as investments in labour incentives in the second half of the year.

Distribution costs also include the engineering costs of operating CFCs for which a fee is charged to our UK partners. Due to the immaturity of the three new CFCs launched in the year, these costs were naturally higher on a cost per each basis whilst these CFCs ramp up volumes but we maintain a largely fixed level of engineering support. By the end of the year however, our Bristol CFC was operating at a similar engineering cost per each level as the Erith CFC, which itself saw engineering cost per each fall by 36% year-on-year despite the impact of the fire.

Administrative costs consist of direct and centrally allocated head office costs (some of which are recharged to Ocado Retail and Morrisons) and an allocation of central technology costs. Administrative costs grew by 12.4% to £83.3 million (2020: £74.1 million), primarily as a result of the allocation of additional headcount and technology resources to support and improve the platform and infrastructure required for UK growth. Total technology headcount for the Group increased to 2,600 by the end of 2021, compared to 2,100 at the same point in 2020.

EBITDA*

EBITDA* from UK Solutions & Logistics activities was £68.5 million, an increase of £24.1 million, driven by the growth in fees from additional Ocado Retail capacity and the re-entry of Morrisons into the Erith CFC. The value of Morrisons fees foregone prior to re-entry into Erith forms part of the business interruption insurance claim for Andover. Amounts recoverable under this claim are included in exceptional income, and therefore are excluded from the UK Solutions & Logistics segmental result.

Key drivers

The following table sets out a summary of selected unaudited operating information in the period:

1. Measured as units dispatched from the CFC per variable hour worked by Hatfield CFC, Dordon CFC and Erith CFC operational personnel. 

International Solutions

1. Fees Invoiced represents design and capacity fees invoiced during the year for existing and future CFC and in-store fulfilment commitments. These are recognised in the Income Statement according to IFRS15 once a working solution is provided to the customer

2. Revenue includes £9.6 million revenue from Kindred Systems, and £8.1 million of equipment sales to retail partners recognised as revenue under IFRS 15. The cost of this equipment is recognised in cost of sales, with the resulting impact on EBITDA of nil

3. Distribution and administrative costs excludes depreciation, amortisation and impairment

In financial year 2021 we went live with our first CFCs in the US for Kroger in Monroe, Ohio, and Groveland, Florida. These facilities were opened on time, on budget, and continue to ramp up in line with partner expectations. Combined with the existing international CFCs with Groupe Casino in Paris, and with Sobeys in the Greater Toronto area that opened in the second half of 2020, the International Solutions business has started to deliver material revenue for the first time, with revenue in the period of £66.6 million. Since year end we have gone live with our first CFC with ICA Gruppen in Stockholm, the second CFC with Sobeys in Montreal and third CFC with Kroger in Atlanta, Georgia. We are expecting a further 5 Kroger sites to go live in the remainder of the 2022 financial year. This means that by the end of 2022 we will have 12 live international sites (the 4 we started the year with plus the 8 that are going live this year). We have a strong pipeline of further CFC commitments in addition to significant in-store fulfillment capabilities to be delivered across a number of our existing partners, including a new partnership with Alcampo that was signed in July 2021.

We continue to invest in the Ocado Smart Platform and build the support functions to support rapid international expansion with distribution and administrative costs growing to £177.4 million from £93.0 million in 2020, primarily reflecting the increase in technology costs allocated to the segment. Losses in the period grew from £(83.3) million to £(119.3) million.

International Solutions also includes revenue from contracts with third party customers, the largest being Gap, of Kindred Systems following completion of this acquisition in December 2020. We have made good progress integrating the team and creating collaborative ways of working. Whilst we have seen a slower ramp up in revenue to date compared to original expectations, we remain encouraged by the long-term opportunity for Kindred's robotic picking solution, in particular for customers within the general merchandise and logistics sectors.

Fees and revenue

Fees invoiced for the year totalled £143.0 million (2020: £123.9 million), and includes design and capacity fees invoiced across a number of clients relating to existing and future CFC and in-store fulfillment commitments, including our new partnership with Alcampo, and fees associated with the go-live of operations with Kroger.

Under revenue recognition rules, fees relating to OSP are not recognised as revenue until a working solution is delivered to the partner, i.e. the CFC "goes live". At the end of the period cumulative fees not yet recognised as revenue amounted to £337.6 million.

Revenue in the period of £66.6 million reflects ongoing capacity fees and amortised amounts relating to design and upfront fees across our current operational partners, Group Casino; Sobeys; and Kroger. In addition to revenue contribution of £9.6 million from Kindred Systems, International Solutions revenue also includes £8.1 million relating to the sale of equipment to a number of partners that is recognised as revenue. This has nil impact on EBITDA.

Distribution costs

Distribution costs primarily consist of the engineering and technology costs of operating the OSP platform and CFCs for our international clients. These costs grew from £8.6 million in 2020 to £25.6 million in 2021 as a result of the go-live of operations for the first two CFCs with Kroger, and the annualisation of the first CFCs for Group Casino and Sobeys that opened in 2020, all of which remain in a maturing growth profile and so are not indicative of the target model.

Administrative costs

Administrative costs primarily consist of costs supporting our international partnership agreements and the non-capitalised costs of employees who are developing the OSP platform, such as research costs. These costs grew from £84.4 million in 2020 to £151.8 million in 2021 as we continued to increase our investment in building our long-term OSP capabilities for our partners, across both CFC and in-store fulfillment solutions.

EBITDA*

EBITDA* from our International Solutions activities was a loss of £(119.3) million (2020: £(83.3) million), principally due to the increased investment in our teams and technology to support our international growth ambitions, and the support costs relating to new CFCs.

Kindred

We have made good progress integrating the team and creating collaborative ways of working. Whilst we have seen a slower ramp up in revenue to date compared to original expectations, the business has performed well over the second half of the year, with 280 live robots operating within third party customer locations delivering revenue of £9.6 million. More than 1.2 million items a day were sorted by our robots for a number of days in November and we continue to develop our induct product, having operated a proof of concept robot with a significant player in the logistics market during the peak end of year season. Following integration, we remain encouraged by the long-term opportunity for Kindred's robotic picking solution, in particular for customers within the general merchandise and logistics sectors.

Haddington

Haddington Dynamics is now fully integrated into our technology division. Since acquisition, we have continued to invest to further develop a highly dextrous, lightweight, low-cost robotic arm which is a core component for robotic picking. The unique combination of the arms' design and construction are critical to unlocking the potential for the future of our on-grid robotic pick.

Key drivers

The following table sets out a summary of selected unaudited operating information in the period:

1. A module is considered live when it has been fully installed and available for use by our partner

2. A module is classified as ordered when a contractual agreement has been signed with a partner and an invoice has been sent for the associated fees. This excludes modules which are required to be ordered in order to maintain exclusivity agreements, but which have not yet been agreed and invoiced

3. A module of capacity is assumed as approximately 5,000 eaches per hour dependent on the specific metrics of a partner

Group and other 

The 'Group and other' segment represents revenue and costs which do not relate to the Retail, UK Solutions and Logistics, and International Solutions segments. This includes Board costs, the consolidated results of Jones Food Company, and MHE rental income. This segment reported an EBITDA* loss of £(38.6) million in the current period (2020 loss: £(36.5) million). This loss includes an increase in share-based senior management incentive charges, charges relating to deferred consideration in respect of the Kindred Systems and Haddington Dynamics acquisitions, and losses recognised for Jones Food Company in the period.

1. Board costs include Salaries and Bonuses for Directors totalling £9.4 million (FY20: £7.3 million ); Director Insurance costs of £1.8m (FY20: £0.3 million) and other Board costs of £0.9m (FY20: £1.0 million)

2. Of the share-based payment charges for the Group, £12.5 million is allocated out to other segments and £29.3 million remains in the Group segment.

3. Ventures relates to the profits and losses on our share of investments and joint ventures during 2021. The most significant is Jones Food Company where we recorded losses of £3.3 million (FY20: £2.1 million loss). The others are: Infinite Acres / 80 Acres, for which we recorded losses of £1.9m (FY20: £0.9 million loss); MHE JVCo, for which we recorded profits of £0.2 million (FY20: £0.5 million profit) and Karakuri, for which we recorded losses of £0.6 million (FY20: £0.5 million loss)

4. Other costs include residual amounts relating to the Fabled sale in 2019 and a small share of other support costs which are allocated to the Group segment.

5. Rental income totalling £10.3 million was received from MHE JVCo, a joint venture with Morrisons.

6. Research and development subsidies totalling £4.9 million were received in 2021. These are granted by HMRC as a fixed percentage on the value of qualifying R&D expenditure, payable as cash.

Exceptional items

1. During the period, the Group updated its policy on IAS 38 Intangible Assets following the IFRIC interpretation on accounting for configuration or customisation costs in cloud computing or SaaS arrangement. As a result of the Group's change in accounting policy, the prior period comparatives have been restated to derecognise previously capitalised SaaS related costs amounting to £8.3 million. This amount has been expensed in full and disclosed as an exceptional item. This restatement has decreased the Group's loss for the prior period by £8.3 million and a corresponding decrease in the net exceptional income for the same amount. The impact on the balance sheet is a decrease in non-current assets by £8.3 million.

Andover CFC

In February 2019 a fire destroyed the Andover CFC, including the building, machinery and all inventory held on site. The Group has comprehensive insurance and claims have been formally accepted by the insurers.

Insurance reimbursement

Insurance reimbursements of £78.6 million in the period (2020: £103.9 million) comprise of reconstruction and other incremental costs of £44.6 million and reimbursement for business interruption losses of £34.0 million. Total income recognised to date, including prior periods, is £206.3 million. The difference between the value of the claim that has been recognised to date, based on discussions with our insurers, of £206.3 million and the reimbursement received to date of £168.8 million has been recorded as accrued income of £37.5 million, of which £15.0 million has been received post year end and the balance relates to the property damage element of the claim.

The Group expects to receive further insurance reimbursement relating to reconstruction costs and business interruption losses. Claim negotiations are ongoing. It is expected that income will be recognised in the future as the costs of rebuilding the CFC and business interruption losses are incurred. The amounts recognised at FY21 year-end relates to the virtually certain amount as of that date.

Other exceptional costs

These include, but are not limited to, professional fees relating to the insurance claims process, business rates, temporary costs of transporting employees to other warehouses to work and redundancy costs.

Erith CFC

In July 2021, a fire in the Erith CFC resulted in the full closure of the site for a period of 2 weeks and a restriction on available capacity for the remainder of 2021. An independent report issued in October 2021 concluded that the initial cause of the fire was a highly unusual and unlikely collision, triggered by a specific set of circumstances that was the only outcome of its type over the course of the billions of moves made collectively by the 400 series of bots operating in Erith. The 400 series bot has now been modified and upgraded to remove the risk of recurrence of this type of incident. This collision would not be possible in Ocado's 500 series machines that have been in operation across our CFCs globally since October 2020.

Insurance reimbursement

As with the Andover CFC incident, the Group has comprehensive insurance and claims for building and stock damage with regards to the Erith CFC, and business interruption have been formally accepted by the insurers with a total income recognised to date of £2.0 million.

Other exceptional costs

The impact of stock and fixed asset write-offs and other incremental costs associated with the fire are estimated to be around £10 million. In addition, operating losses due to the business disruption, primarily lost orders, caused by the fire are estimated to be around £10 million. These losses have adversely impacted EBITDA for the current financial year.

As above, amounts recovered under our insurance cover, net of deductibles, will be treated as exceptional income. The resulting net cost to Ocado, not covered by insurance, is currently estimated to be around £10 million.

Implementation of SaaS accounting guidance

During the fiscal year, the Group implemented various Software as a Service "SaaS" solutions across the business (the primary one being Oracle Cloud Fusion as our finance platform). Given the IFRS Interpretations Committee ("IFRIC") agenda decision, we have chosen to update our accounting treatment and policy for IAS38 Intangible Assets accordingly.

We have determined that £13.3 million of SaaS related costs (incurred and capitalised during FY21) no longer meet the criteria for recognition as an asset under IAS 38. Accordingly, this amount has been expensed in full and has been disclosed as an exceptional item because it arises from the one off introduction of interpretations to accounting guidance, and is material in scale. A total of £5.9 million of SaaS costs are retained on the balance sheet as an intangible asset.

As a result of the Group's change in accounting policy following the IFRIC's agenda decision in relation to SaaS arrangements, the prior period comparatives have been restated to derecognise previously capitalised SaaS related costs amounting to £8.3 million. This amount has been expensed as an exceptional item.

Gain on disposal of Speciality Stores Limited ("Fetch")

On 31 January 2021, Ocado Retail Limited completed the sale of the entire share capital of Specialty Stores Limited, its wholly-owned pets business trading as Fetch, to Paws Holdings Limited ("Paws Holdings") resulting in a gain on disposal of £1.0 million in the year.

Gain on disposal of investment in Infinite Acres Holdings B.V.

In October 2021, the Group sold its 33.3% interest in Infinite Acres Holding B.V. ("Infinite Acres") to 80 Acres Urban Agriculture Inc. ("80 Acres") in exchange for 2.5% of 80 Acres' issued share capital, resulting in a gain on disposal of £5.0 million. 80 Acres was one of the three joint venture partners in Infinite Acres. The company builds and operates vertical farms.

Litigation costs and litigation settlement

Litigation costs principally related to patent infringement litigation between the Group and AutoStore Technology AS. Litigation costs also include the costs of legal proceedings brought by the Group against Jonathan Faiman, Jonathan Hillary and Project Today Holdings Limited "T0day", in relation to misappropriation and unlawful use of the Group's confidential information and intellectual property. These costs are considered to be material and one-off in nature and are therefore treated as exceptional items.

In June 2021, the proceedings against Jonathan Faiman, Jonathan Hillary and T0day were settled. The defendants gave commitments to Ocado and the Court to refrain from using Ocado confidential information and IP, to destroy c.500 files under the supervision of an independent party, and to pay compensation to Ocado. They paid £1.75 million to the Group as part of the settlement, in addition to the £0.4 million previously recovered from Mr. Hillary under the malus and clawback provisions of the Group's incentive scheme.

Litigation costs of £27.9 million have been incurred during the year in connection with the Autostore litigation, which have been recorded as an exceptional expense. Further updates are captured in the subsequent events section below. Given the ongoing nature of this litigation, the outcome is currently uncertain and not quantifiable at this time, and so the Group has not recognised a contingent asset or liability in respect of the action.

Change in fair value of contingent consideration

In 2019 the Group completed two transactions. In August 2019 the Group completed the sale of 50% of Ocado Retail Limited to Marks and Spencer Group plc ("M&S") and in July 2019 the Group completed the sale of Marie Claire Beauty Limited (trading as "Fabled") to Next plc. Part of the consideration agreed for each of these transactions was contingent on future events. The Group holds contingent consideration at fair value, and revalues it through the profit and loss account at each reporting date. This resulted in a gain of £16.9 million (FY2020: £7.4 million), principally in respect of the unwind of the discount on the present value of these balances, recognised as a credit against exceptional administrative expenses during the period.

Development of ORL IT systems

This relates to the £4.6 million of costs incurred in respect of one-off development and introduction of ORL IT systems linked to its obligation to transition away from Ocado Group IT services tools and support. This was considered an exceptional cost due to its nature and its materiality.

Depreciation, amortisation and impairment

Total depreciation, amortisation and impairment costs were £238.4 million (2020: £168.9 million), an increase of 41.1% year-on-year, and includes depreciation of property, plant and equipment of £84.4 million (2020: £57.2 million), depreciation of right-of-use assets of £65.6 million (2020: £57.3 million), amortisation expense of £78.0 million (2020: £49.0 million), and impairment costs of £10.4 million (2020: £5.4 million).

The increase was principally driven by the annualisation of CFCs going live in the prior period as well as CFCs going live in 2021 in the UK and internationally (£30.3 million including right-of-use leases). The remaining movement is driven by amortisation of technology projects following the go-live of CFCs in the period (£22.7 million) and our investment in Kindred & Haddington (£7.5 million).

Net finance costs

Net finance costs of £42.3 million reduced by £10.5 million (2020: £52.8 million) largely reflecting unrealised foreign exchange gains in the year of £19.3 million (2020: £(2.4) million loss) on foreign currency denominated cash and intercompany balances. This was partly offset by the costs incurred with the issue of a £350.0 million unsecured Convertible Bond in June 2020 and the issue of £500.0 million of Senior Unsecured Notes in October 2021 offset by the redemption of the existing £225.0 million Senior Secured Notes. Gross debt increased as a result to £1,828.4 million at the end of the period (2020: £1,405.2 million). The majority of the additional costs are non-cash items relating to the effective interest rate of these instruments and accrued interest.

Share of results from joint ventures and associates

The Group has accounted for the share of results from joint ventures and associates. MHE JVCo holds Dordon CFC assets, which Ocado uses to service its and Morrisons' online business and is owned jointly by Ocado and Morrisons. The Group's share of MHE JVCo profit after tax in the period amounted to £0.2 million (2020: £0.5 million). The Group's interest in Infinite Acres Holdings BV contributed a loss of £(1.9) million to the Group's results in the period (2020: £(0.9) million). The Group's interest in Karakuri Limited contributed a loss of £(0.6) million in the period (2020: £(0.5) million loss).

Loss before tax

The loss before tax for the period was £(176.9) million (2020 - restated: loss of £(52.3) million) after including the impact of depreciation, amortisation and impairment costs of £238.4 million (2020: £168.9 million), and net finance costs post-exceptionals of £42.3 million (2020: £52.8 million).

Taxation

The Group's reported total tax charge for the period was £8.8 million (2020: £25.6 million reported tax charge). This charge includes a UK corporation tax charge of £7.7 million (2020: £18.3 million) in respect of the Retail business. The reduction in the tax charge in Retail is due to availability of higher capital allowances on our investment in fixed assets. A deferred tax charge of £0.4 million (2020: £6.6 million) was recognised in the period arising from the future change in the UK corporate tax rate from 19% to 25% with effect from 1 April 2023, and from expected overseas tax credits. At the end of the period, the Group had £677.7 million (2020: £407.4 million) of unutilised carried forward tax losses.

Dividend

During the period, the Group did not declare a dividend (2020: nil).

Loss per share

Basic and diluted loss per share were (30.18)p (2020 - restated: (18.70)p).

Capital expenditure

Capital expenditure totalled £680.4 million in the year (2020: £525.6 million) as we continued to develop new CFCs both in the UK and with our International retail partners. We also continued to invest in technology to support our OSP growth ambitions, and also within our Group support functions.

1. Capital expenditure includes tangible and intangible assets

2. Capital expenditure excludes assets leased from MHE JVCo under lease liability arrangements

3. Capital expenditure includes MHE JVCo capital expenditure in 2021 of £2.8 million and in 2020 of £3.4 million

4. 2020 reflects changes in the allocation of certain expenditure between UK Operations, International CFCs and Technology, Fulfilment Development and Innovation to support appropriate comparison with 2021

In the period we invested £250.0 million in our UK operations (2020: £205.8 million), of which £166.8 million (2020: £161.3 million) relates to our CFCs in the UK. This includes £48.7 million for Andover and £53.9 million on Purfleet CFC which went live in the second half of 2021. Capital expenditure on Andover represents the gross costs to Ocado Group and is offset by the insurance proceeds received to date or anticipated in the future, and which is recognised as exceptional income as capital expenditure is incurred. A new CFC in Bicester will go live in 2022 which will increase total available capacity across both our UK retail partners to 800,000 orders per week at maturity. The remaining £83.2 million of UK operations capital expenditure includes the costs associated with the Erith fire of £7.8 million that are the subject of a Group insurance claim, delivery vehicles £3.9 million, and investment of £14.1 million to upgrade some of our core office systems to support international expansion, including new finance, procurement and supply chain ERP systems.

Investment in developing international CFCs for our partners continues to accelerate as our committed pipeline grows. In the period our capital expenditure on international CFCs was £273.2 million (2020: £190.6 million), including £190.9 million related to the CFCs in North America, £14.8 million in Asia-Pacific and £52.6 million in Europe where our first CFC with ICA Gruppen went live in January 2022, together with further development and capacity expansion of Groupe Casino's first CFC in Paris. At the end of 2021, a total of 21 CFCs across the Group were in development or construction phase, including 7 for Kroger in the US.

We also continue to invest in the development of our own technology, particularly around the further development of the Ocado Smart Platform ('OSP'). We expanded technology and engineering headcount to over 2,600 staff as we increased investments to support the business' strategic initiatives. Total technology expenditure in the year was £255.0 million, of which £147.8 million was capitalised. The main areas of investment continue to be the greater use of public and private cloud services, improvements in the efficiency of our routing systems, enhancements to our customer proposition, and existing partners' future CFCs. Within this CFC-focussed investment, £49.8 million relates to retrieval and handling robotics (for which total cash spend, including operating expenditure, in the period was £65.2 million), where we see a significant opportunity to drive further improvements in online grocery economics for Ocado, and our clients globally.

Investment in the development of fulfilment equipment totalled £11.8 million (2020: £10.0 million), enhancing our next generation fulfilment solutions for CFCs and delivery operations for all our Solutions partners, further reinforcing our 'lowest cost operator' pursuit.

1. EBITDA* is stated before the impact of exceptional items

Operating cash flow during the year was £(16.0) million, a reduction of £241.4 million compared with the prior year (2020: £225.4m). This year-over-year movement was primarily driven by a large working capital outflow (excluding movement in contract liabilities) during the year of £134.5 million compared to a working capital inflow of £32.1 million in 2020.

EBITDA of £61.0 million (2020: £73.1 million) reflects strong Retail trading performance, growth in International Solutions revenues, offset by investment in new capabilities and capacity. Cash received from our Solutions partners, excluding tax (shown in 'movement in contract liabilities') was £107.0 million (2020: £97.5 million). The increase is due to the on-going growth in the International Solutions business as the Group continues to receive stage payments across a number of clients as new CFC build programs continue to progress.

There was a net increase in other working capital (representing a net cash outflow) in the period of £134.5 million (2020: net decrease/cash inflow of £32.1 million). Driving this movement was an increase in inventories of £55.2 million (net cash outflow), which includes a reduction in inventory accruals of £30.1 million (2020: increase of £38.5 million) and additional investment in stock due to the go-live of three new CFCs for Ocado Retail during the year. Trade and other receivables increased by £77.6 million (2020: £59.2 million) which was principally due to prepayments for the purchase of long lead items of capital expenditure required for CFCs under construction and additional accrued income in relation to supplier promotional activity in Ocado Retail. There was a small decrease in Trade payables of £1.8 million (net cash inflow), (2020: increase of £52.8 million) driven by the expansion of International Solutions activity, offset by a reduction in amounts owed to suppliers of Ocado Retail due to an exercise to improve payment terms.

Net taxation paid of £26.2 million (2020: £18.4 million) mainly reflects tax paid by Ocado Retail as a result of continued strong profitability (Retail EBITDA in the year was £150.4 million, (2020: £148.5 million)) and following the utilisation of all Retail carried forward tax losses in 2020.

Cash outflow for capital expenditure in 2021 amounted to £690.7 million (2020: £451.8 million) as the Group continues to invest for future growth, incurring additional investment in new CFCs both in the UK and internationally, developing next generation fulfilment solutions, and investing in our central support capabilities. The acquisition of Kindred and Haddington at the beginning of 2021 was financed from internal cash resources and was an outflow of £189.7 million.

Net debt and financing cash flow for the period was £218.0 million (2020: £881.6 million), primarily reflecting the proceeds of the £500.0 million of Senior Unsecured Notes issued in October 2021 offset by the redemption of £225.0 million of Senior Secured Notes and associated fees. During the year £370.0 million was transferred from short-term deposits to Cash (2020: £260.0 million transferred to short-term deposits from Cash).

The inflow from other investing and financing activities of £10.6 million (2020: outflow £3.7 million) includes the receipt of £33.9 million in respect of contingent consideration and the receipt of £20.0 million from a new investment partner into Jones Food Company, a vertical farming company whose results are fully consolidated in Ocado Group. This was offset by investments of £10.0 million in each of Oxbotica and Wayve, two leading autonomous vehicle software companies, with an ambition to enable our partners that use the Ocado Smart Platform to reduce the costs of last-mile delivery and other logistics operations.

Goodwill increased by £140.1 million to £144.8 million as a result of the acquisitions of Kindred Systems Inc. and Haddington Dynamics Inc. Goodwill represents the future benefit of new technology, the ability to attract new customers, and future synergies through Ocado Group plc cost savings. Goodwill arising on these acquisitions has been allocated to the UK Solutions & Logistics and International Solutions segments. After testing the recoverability of the goodwill, no impairment charge has been recognised.

Property, plant and equipment, and intangible assets (excluding goodwill) increased by £586.8 million to £1,603.0 million (2020: £1,016.2 million). Included within property, plant and equipment and intangible assets is capital work-in-progress of £482.3 million (2020: £339.2 million) where depreciation has not yet commenced. The increase year-on-year relates to international CFCs, predominantly Kroger sites not yet live, alongside our second Sobeys CFC, and the various UK CFCs that are in progress.

Trade and other receivables increased by £119.6 million to £324.4 million (2020: £204.8 million) driven by a growth in prepayments relating to a number of initiatives relating to the manufacture of capital assets such as advance payments, prepayments for long lead items and a virtual warehouse to hold some assets prior to delivery to CFCs under construction. There were also increases in the amounts owed by Solutions clients and an increased tax debtor for Ocado Retail. Included in trade and other receivables is £70.7 million (2020: £73.8 million) of amounts due from suppliers in respect of commercial and media income, of which £50.9 million (2020: £56.3 million) is within trade receivables, £19.8 million (2020: £17.5 million) within accrued income.

The Group had cash and cash equivalents totalling £1,468.6 million (2020: £2,076.8 million including treasury deposits) at the end of the period. Gross debt (including lease liabilities) at the period end was £1,828.4 million (2020: £1,405.2 million), with net debt at the period-end of £(359.8) million (2020: £671.6 million net cash). We believe that the year-end cash and cash equivalents provide sufficient liquidity to support investment in capital expenditure to meet existing financial commitments, and deliver future growth in the short to medium term. As we implement our growth plans, we expect further funding will be required in time to deliver additional CFC investments.

Total contract liabilities of £378.5 million (2020: £299.3 million) relates to Solutions contracts, payments made for performance-based delivery, or progress payments on ongoing service delivery. Where invoicing is greater than the revenue recognised at the end of a period, a contract liability is recognised for the difference. Within accrued income, £0.2 million (2020: £1.6 million) is due from our Solutions customers.

Trade and other Payables decreased by £29.7 million to £393.2 million due to decreases in supplier payables.

Borrowings increased to £1,300.0 million (2020: £997.4 million) following the successful raise of £500 million of Senior Unsecured Notes in October 2021, of which part of the proceeds were used to repay the remaining £220.8 million balance from the £225.0 million senior secured notes that were raised in June 2017.

Lease liabilities increased to £528.4 million (2020: £407.8 million) driven by growth in CFCs and necessary vehicles to support our expanding network.

Net deferred tax moved by £21.5 million from a net asset of £4.3 million to a net liability of £17.2 million mainly due to the recognition of a deferred tax liability on the fair value adjustment for intangible assets arising on new business acquisitions in the US. UK deferred tax assets have reduced due to the net impact of the capital allowance super-deduction and the future UK corporate tax rate change, both announced in the March 2021 Budget, while overseas deferred tax assets have increased due to recognising deferred tax on some tax losses. 

Subsequent events

Autostore litigation

On 1 October 2020, AutoStore Technology AS ("AutoStore"), a Norwegian company then owned by the United States private equity firm Thomas H. Lee Partners, L.P., filed patent infringement claims against the Group in the High Court in England, the United States International Trade Commission, and the United States District Court for the Eastern District of Virginia. The Group initially learned of the filing of these claims through the media. Once the position had been examined we notified the market that we did not believe Ocado has infringed any valid patent rights of AutoStore.

Later that month AutoStore applied to the United Kingdom Intellectual Property Office claiming ownership of several of the Group's patents relating to elements of the OSP system. The UK IPO declined to hear the entitlement application, with the consent of both parties, and Autostore subsequently filed the same claim in the High Court. No directions hearing has yet taken place in respect of that claim, and we do not expect it to come to trial before 2023.

The Group's initial analysis on patent infringement still holds true. Ocado is confident in the merits of its defences and in the integrity of its existing portfolio of IP, together with the disciplined approach taken to building its capabilities over the last 20 years. It is taking appropriate action to defend against these claims and to protect its own intellectual property rights.

The Group has subsequently brought two separate proceedings against AutoStore in the United States: the first a patent infringement claim; the second an antitrust claim. In the antitrust claim, the Group has alleged, based on the evidence available, that four of the five AutoStore patents on which AutoStore has based its case were procured fraudulently from the United States Patent and Trademark Office.

The Group filed Opposition proceedings in the EPO against all six of the Autostore patents asserted against us in the UK Proceedings. Three of the six patents have thus far been revoked by the EPO, two have been maintained (one only on condition that narrowing amendments were made) and the final patent will not be considered until the end of 2022. On 21 January 2021, proceedings by AutoStore and another party to declare invalid the Ocado's European patent for its Single Space Bot (part of the OSP system) was rejected by the European Patent Office, and the patent was declared to be novel, inventive and valid. A further attempt by Autostore to invalidate an Ocado patent on an element of the OSP system failed in June 2021.

On 13 December 2021, the judgment of the Chief Administrative Law Judge in the International Trade Commission was delivered in favour of Ocado. He held that three of the four AutoStore patents asserted against Ocado were invalid, and the fourth patent was not infringed. A fifth patent was abandoned by AutoStore on the eve of the hearing. The judge's findings have been appealed to the ITC. The final ITC decision will not be issued until April 2022, however Ocado continues to have faith in the merits of its position and the correctness of the judge's findings. Separately, Ocado actively continues to pursue its claims against AutoStore for infringement of Ocado's patents in both the United States and Europe.

AutoStore's 1 October 2020 infringement claim was based on 6 patents asserted against Ocado, covering three different inventions (patent families). On 14 January 2022, AutoStore abandoned their infringement claim in relation to two of their three patent families (three of the six patents). Ocado's counterclaim in relation to all six patents however remains in the case. In addition we will be seeking to recover our wasted costs in relation to the abandoned part of their claim, which are expected to be several million pounds.

The trial is scheduled to begin in the High Court in two parts, on 18 March and 28 March respectively. Autostore applied in late January to add two more patents to their claim, one being a further member of the last remaining patent family in the case and the other being an unrelated patent. These two patents will be heard in a much later trial, which we expect will not take place until 2023.

Ocado filed claims against three Autostore companies in Germany, alleging infringement by them of Ocado Utility Model intellectual property rights (a form of IP that exists in Germany but not in the UK). The German system is bifurcated in that the question of validity of IP rights is adjudicated separately from the question of infringement of those rights. Our infringement claims have been stayed pending the determination of the validity hearing.

Legal and other costs have been incurred to defend against AutoStore's claims and to file the Group's claims.

Given the ongoing nature of this litigation and its multiple forums, the outcome is uncertain and the financial impact is not currently quantifiable, and so the Group has not recognised a contingent asset nor contingent liability.

Update on Convertible loan note with Wayve Technologies Limited

On 7 January 2022, Wayve Technologies Limited ("Wayve"), a company in which the Group holds a minority interest, successfully completed its Series B Fundraising. This resulted in the Group's convertible loan note converting into equity. There is no impact on the Group's warrants in Wayve. Following the conversion of the notes, the Group holds 2.17% of the total issued share capital of Wayve.

Consolidated Income Statement for the 52 weeks ended 28 November 2021

Earnings before interest, taxation, depreciation, amortisation, impairment and exceptional items (EBITDA)*

1. See note 1.3 for the details of the restatements.

The notes on pages 35 to 67 form part of these financial statements.

* See Alternative Performance Measures on pages 68 to 71

Consolidated Statement of Comprehensive Income for the 52 weeks ended 28 November 2021

1. See note 1.3 for the details of the restatements.

The notes on pages 35 to 67 form part of these financial statements.

Consolidated Balance Sheet as at 28 November 2021

 1. See note 1.3 for the details of the restatements.

The notes on pages 35 to 67 form part of these financial statements.

Consolidated Statement of Changes in Equity for the 52 weeks ended 28 November 2021

1. See note 1.3 for the details of the restatements.

The notes on pages 35 to 67 form part of these financial statements.

Consolidated Statement of Cash Flows for the 52 weeks ended 28 November 2021

The notes on pages 35 to 67 form part of these financial statements.Notes to the consolidated financial statements

Section 1 - Basis of preparation

1.1 General information

Ocado Group plc (hereafter the "Company") is a listed company, limited by shares, incorporated in England and Wales under the Companies Act 2006 (company number: 07098618). The Company is the parent and the ultimate parent of the Group. The address of its registered office is Buildings One & Two Trident Place, Mosquito Way, Hatfield, Hertfordshire, United Kingdom, AL10 9UL. The financial statements comprise the results of the Company and its subsidiaries (hereafter the "Group"). The financial period represents the 52 weeks ended 28 November 2021. The prior financial period represents the 52 weeks ended 29 November 2020.

1.2 Basis of preparation

The financial statements have been prepared in accordance with the Listing Rules and the Disclosure Guidance and Transparency Rules of the United Kingdom Financial Conduct Authority (where applicable), International Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards ("IFRS") adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, including the interpretations issued by IFRS Interpretation Committee. The accounting policies applied are consistent with those described in the Annual Report and Accounts for the 52 weeks ended 29 November 2020 of the Group, unless otherwise stated.

The financial information set out in this announcement does not constitute the Group's statutory accounts for the 52 weeks ended 28 November 2021 or the 52 weeks ended 29 November 2020. The financial information for the 52 weeks ended 29 November 2020 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under s498(2) or (3) of the Companies Act 2006. The audit of the statutory accounts for the 52 weeks ended 28 November 2021 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's annual general meeting.

The financial statements are presented in pounds sterling, rounded to the nearest hundred million unless otherwise stated, and have been prepared under the historical cost convention, as modified by the revaluation of financial asset investments and certain other financial assets and liabilities, which are held at fair value.

The Directors consider it appropriate to adopt the going concern basis of accounting in preparing the financial statements of the Group.

New standards, amendments and interpretations adopted by the Group

The Group has considered the following new standards, interpretations and amendments to published standards that are effective for the Group for the period beginning 30 November 2020, and concluded either that they are not relevant to the Group or that they would not have a significant effect on the Group's financial statements other than on disclosures:

The amendment to IFRS 16 "Leases" in relation to Covid-19-related rent concession does not have any impact on the Group.

1.2 Basis of preparation (continued)

IFRS 3 "Business Combinations"

During the year, the Group adopted IFRS 3 "Business Combinations (amendments)", which is effective for annual periods beginning on or after 1 January 2020. The guidance of the amendment has been applied to these financial statements when evaluating whether acquisitions in the year to 28 November 2021 should be deemed to be asset acquisitions or business combinations.

IFRIC Agenda Decision - Configuration or customisation costs in a cloud computing arrangement

During the year, the Group updated its policy on IAS 38 Intangible Assets following the International Financial Reporting Interpretations Committee's ("IFRIC") interpretation on accounting for configuration or customisation costs in cloud computing or software as a service ("SaaS") arrangement. The interpretation resulted in a charge of £13.3 million to administration expenses as an exceptional item in the period. As a result of the change in accounting policy following the IFRIC's agenda decision in relation to SaaS arrangements, the prior period comparatives have been restated to derecognise previously capitalised SaaS related costs amounting to £8.3 million. This amount has been expensed in full and disclosed as an exceptional item.

New standards, amendments and interpretations not yet adopted by the Group

The following new standards, interpretations and amendments to published standards and interpretations that are relevant to the Group have been issued but are not effective for the period beginning 30 November 2020, and have not been adopted early:

These standards, interpretations and amendments to published standards and interpretations are not expected to have a material effect on the Group's financial statements.

1.3 Restatement of prior year

The prior period comparatives have been restated to reflect the impact of the following:

1. During the period, the Group updated its policy on IAS 38 Intangible Assets following the IFRIC interpretation on accounting for configuration or customisation costs in cloud computing or SaaS arrangement. As a result of the Group's change in accounting policy, following IFRIC's agenda decision in relation to SaaS arrangements, the prior period comparatives have been restated to derecognise previously capitalised SaaS related costs amounting to £8.3 million. This amount has been expensed in full and disclosed as an exceptional item. This restatement has increased the Group's loss for the prior period by £8.3 million and a corresponding decrease in the net exceptional income for the same amount. The impact on the balance sheet is a decrease in non-current assets by £8.3 million.

2. During the period, the Group implemented a new Enterprise Resource Planning ("ERP") system, a business analytics solution used for analysis, reporting and collaboration. As part of the implementation process, the Group reviewed the categorisation of certain prior year costs and made the following reclassifications: cost of sales (£13.9 million increase), distribution costs (£29.7 million decrease) and administrative expenses (£15.8 million increase).  The impact on periods prior to FY2020 has been assessed and is not material. There is no impact on the Group's balance sheet.

3. During the period, an adjustment of £4.2 million was identified relating to the part-disposal of ORL. The impact on the balance sheet is an increase of £4.2 million in current assets and a corresponding increase in opening reserves.

4. During the period, the Group updated its approach to netting deferred tax assets and liabilities and the prior period comparatives have been restated. The impact on the balance sheet is a reduction in deferred tax liabilities of £19.3 million and a corresponding reduction in deferred tax assets. There is no impact on net assets.

1.3 Restatement of prior year (continued)

The effect of the above restatements on the Consolidated Balance Sheet is as follows:

The effect of the above restatements on the Consolidated Income Statement is as follows:

1.3 Restatement of prior year (continued)

The below table shows the impact of the restatements affecting the exceptional items: