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QUALITY NARRATIVE REPORTING OF OCADO GROUP PLC

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Analysis of Quality Narrative
Reporting

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QUALITY NARRATIVE REPORTING OF OCADO GROUP PLC

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Muhammad Sajid Saeed
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Table of Contents
Introduction......................................................................................................................................3
Quality of Narrative Reporting..................................................................................................3
Theoretical Aspects of Quality Narrative Reporting.................................................................4
Ocado Group Plc........................................................................................................................4
Ocado Quality of Narrative Reporting......................................................................................5
Business Model................................................................................................................................5
Ocado Business Model and Strategy.........................................................................................6
Online business Strategy and future Growth.............................................................................9
Corporate Social Responsibility....................................................................................................10
Governance Strategy......................................................................................................................11
Conclusion.....................................................................................................................................12
References......................................................................................................................................13

List of Figur

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Figure 1. Ingredients of Integrated Reporting.................................................................................5
Figure 2. Investor Section at Ocadogroup.com...............................................................................6
Figure 3. Determinants of Business model......................................................................................7
Figure 4. Chairman of Ocado Group...............................................................................................7
Figure 5. Delivery Productivity.......................................................................................................8
Figure 6. Chief Financial Officer Review.......................................................................................9
Figure 7. Key Performance Indicators.............................................................................................9
Figure 8. Activities in 2011...........................................................................................................10
Figure 9. Priorities and Risk Involved...........................................................................................11
Figure 10. Attendance of Directors...............................................................................................13
Figure 11. Directors' Remuneration Report...................................................................................14
Figure 12. Foundation for the Integrated Report...........................................................................14

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Introduction
The main objective of narrative reporting is to provide a mechanism, which helps a firm
to create more attractive commercialize picture of the business, which is in line with the better
understanding of stakeholders. It generates good governance, effectiveness and better
understanding (Pricewaterhousecoopers, 2007). For many organizations it is considered
mandatory to report as it is the legal requirements impose on the company. companies should
provide voluntary information and should consider it as the source of communication between
company and stakeholders (Adelopo, 2011).
It is important to focus on the strategy of the organization in terms of good governance,
performance and future performance of the organization. The integrated reporting creates the
sustainable dimension for the organization to operate according to the social, environmental and
commercial context.
Using Ocado Plc, company listed in FTSE 350, this report with the help of the previous
academic literature and Ocado’s annual report provide the brief evidence about the business
model of Ocado. It highlights the value creation for its employees, customers, and investors.
Quality of Narrative Reporting
The quality reporting for shareholders and stakeholders i.e. Employees, Bankers,
Regulators, and society are important activity on the part of management of the company. User
friendly narrative reporting and financial disclosure was first introduced in the form of operating
and financial review (Yeoh, 2010). A quality reporting contains the transparency of information
on the part of the organization. in the global economy the awareness of the reader has increased
and the expectations of the annual reports has also increase so more you disclose more the
comfort to reader. But quality of reporting is more important than quantity (Sarkar, 2011).
Accounting information is the need but the investors and shareholders need further quality
information from the company to evaluate their future risk involved (Abraham & Cox, 2007).
International Integrated Reporting Committee (IIRC) has introduced the integrated
reporting system where the business provided the brief explanation for the firm value.

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Figure 1. Ingredients of Integrated Reporting

Source: (KPMG, 2012)
Above figure show that the business report should create short, medium and long term
value with the help of reporting of better and integrated information about strategy and model of
the business, operating context of the business, current and past performance highlights and how
this reflect the aim of the organization, also business should provide the future outlook of the
business to grow and provide better communication about the governance and remuneration of
the board and executives of the organization.
Theoretical Aspects of Quality Narrative Reporting
Most of the previous study elaborates that the disclosures theories play the important role
in explain the narrative quality. The signaling theory specifies the reduction in information
asymmetry with the help of information disclosure. The managers convey more information to
convey more information to their current and potential customers (Haniffa & Cooke, 2002). On
the other agency theory plays the important role in narrative disclosure (Healy & Palepu, 2001).
Firm management discloses quality narrative information to avoid agency problem of
management with the shareholders and with the debt holders. The quality narrative disclosure
also helps to reduce the conflicts between shareholders and debt holders.
Ocado Group Plc
Ocado Plc has established in 2000 and by now it has become the best online grocery store
in UK. It has listed in London Stock Exchange in 2010. The business has grown significantly and
it proved to be more fun and fast than conventional old fashioned traditional shopping.

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Ocado Quality of Narrative Reporting
For the narrative reporting the author has used 2011 annual report and some website
information. The narrative reporting of the Ocado is quite clear its technological knowhow is
unique. It has communicated most of its activities on its corporate website. Figure 2 show the
regulatory news page in investor center at Ocado Group Plc (2013) website. The figure shows
the full disclosure of information and user friendly interface, where user can easily access the
current and previous prospects of the company using the check boxes and also the information
given in the list.
Figure 2. Investor Section at Ocadogroup.com

Source: (Ocado Group Plc, 2013a)
Business Model
A business model of a firm is the strategic process in which a business wants to establish
a reliable and sustainable value for itself and for its stakeholders. A lot of external factors
influence the business model of the firm and it is also depend upon the relationship with
stakeholders and the availability of resources such as financial capital, human capital,
manufacturing capital, social capital and natural capital.

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Figure 3. Determinants of Business model

Source: (IIRC, 2013)
The above figure shows the determinants of business model.
Ocado Business Model and Strategy
Ocado provide the diverse platform to their customers while offering the wider range of
grocery items online. It reduces the traffic on the roads and also safe time to go to the
supermarket for shopping of grocery.
Figure 4. Chairman of Ocado Group

Source: (Ocado Group, 2011)
According to the annual report the chairman looked quite confident about the future
prospects of the company. According to the letter presented in the annual report, quality of

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services and company’s corporate social responsibility, compliance with governance code of UK
and future performance of firm provide the positive and reliable image of the firm.
Establishing the strong foundation for the human skills, Ocado gives importance to the
existing employees and appreciates the commitment and energy of 6000 employees.
Figure 5. Delivery Productivity

Source: (Ocado Group, 2011)
Above figure show the delivery productively as per van for Ocado. It show the better
expected performance with the increase in capacity in Costumer fulfillment center 1 (CFC1) and
construction of CFC2
Figure 6 shows the overlook of financial performance of Ocado from the chief financial
officer. This gives the overview of the financial performance in the eye of the chief financial
officer which gives good sentiment to the stakeholders.
Figure 6. Chief Financial Officer Review

Source: (Ocado Group, 2011)

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The review of chief financial officer is the plus point for the stakeholder as it gives more
precise evaluation of the organization and the better future prospects.
Figure 7. Key Performance Indicators

Source: (Ocado Group, 2011)
According to the chief financial officer review there is a growth in orders per week with
18.6% and company is fare about the decrease in order size by 1.7%. The report also shows the
increase of signing up of costumers with Ocado group which give the sentiment of business
growth. Number of active costumers has increased to 298000 in year 2011. The business also
explains the decrease in gross margin with the decrease in order income per delivery. Also
operating efficiency is briefly explained in the chief financial officer review (Ocado Group,
2011).
Ocado made significant increase in the capital investment during 2011. It expand the
CFC1 capacity and also invested £72.6 million in capacity building of CFC2 for more capacity
and better operational activities the report also illustrate the completion if CFC2 in 2013 which
provide good sentiment to readers of report.

QUALITY NARRATIVE REPORTING OF OCADO GROUP PLC

Figure 8. Activities in 2011

Source: (Ocado Group, 2011)
Figure 8 above shows the better view for the readers about the manufacturing
performance of Ocado its key achievement and calculations of KPIs.
Online business Strategy and future Growth
Ocado offers unique online grocery business strategy and annual report also illustrate
challenges associated with these online strategy. In Technological innovation the Ocado
introduces new mobile application for windows, iphones and android phones, which tend to
increase the customer base for Ocado.

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Figure 9. Priorities and Risk Involved

Source: (Ocado Group, 2011)
The above figure show the future plan of Ocado, its possible effect on KPIs and also the
risk that Ocado may face when going for these future plans. These narrative measures provide
implication for Ocado growth.
Corporate Social Responsibility
“Being Green” an environmental initiative taken by Ocado in order to contribute to
society. The report communicates the brief contribution of Ocado group in different activities

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such as Responsible bag recycling, Reducing food wastage, meat free Monday. Also to preserve
the natural resources Ocado took initiative to use electric vans for delivery and started
warehouse’s efficient energy project (Ocado Group Plc, 2013b).
Governance Strategy
With 12 board of directors Ocade’s statement of corporate governance is quite clear about
the role and responsibilities of the board, the board commitment policy, the board effectiveness,
the framework for risk management, internal control, relations with the shareholders and AGMs.
Also its illustrates the difference in responsibilities of CEO and Chairman, also ensure the
contribution and relationship of non-executive directors. Underline board role and also provide
brief understanding of board activities.
Figure 10. Attendance of Directors

Source: (Ocado Group, 2011)
The above figure shows the attendance of directors to committee meetings.
Board performance mechanism and conflicts resolutions are briefly discussed in the
report which gives the considerable confidence to the reader. Report also explains the rights and
duties of nomination committees, in which the appointment of non-executive directors and
directors are clearly mentioned.

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The responsibilities, duties and principle activities of remuneration committee are also
clearly defined to determine the base salary, the entitlement of long-term and annual incentives
and pension plans of board’s chairman, company secretary and executive directors.

Figure 11. Directors' Remuneration Report

Source: (Ocado Group, 2011)
Figure 11 shows the audited report of directors’ remuneration, benefits and annual bonus.
Other information which is narrated by the annual report is the directors’ pension plans.
The share capital of each director, report provides clear responsibility for the disable employees
and their involvement in equal opportunity. For shareholder the price of stock, dividend policy
and valuation of rights is also illustrated briefly in this report.
Conclusion
The quality narrative disclosure of the firm has the ability to communicate the strong
foundations on which the organization is based.
Figure 12. Foundation for the Integrated Report

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Source: (IIRC, 2013)
According to the report of Ocade Strategic, their objectives look strong. The report
provides all the information, which is considered important for the stakeholders. Ocado online
business model is quite clear and understandable to the readers. It also creates connectivity and
signals better future prospects for the company. Assessment and identification of risk factors and
provision of mitigation plan is also a strong point of the report. Future prospects of Ocado group
plc are clear and provide long term interest for stakeholders. The report also identifies the
barriers in the way but strong foundations for growth are also elaborated in the report. Report
also provides the proof of inclusiveness of shareholders and stake holders with answers to their
question from CEO of the company. Ocado CSR projects communicate it responsibility toward
its environment. It’s also significantly reports the performance and remuneration of its governing
body. Overall information provided by the Ocado ensures reliability and its value.
References
Abraham, S., & Cox, P. (2007). Analysing the determinants of narrative risk information in UK
FTSE 100 annual reports. The British Accounting Review, 39(3), 227–248.
doi:10.1016/j.bar.2007.06.002
Adelopo, I. (2011). Voluntary disclosure practices amongst listed companies in Nigeria.
Advances in Accounting, 27(2), 338–345. doi:10.1016/j.adiac.2011.08.009

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Haniffa, R., & Cooke, T. (2002). Culture, corporate governance and disclosure in Malaysian
corporations. Abacus, 38(3), 317–349.
Healy, P., & Palepu, K. (2001). Information asymmetry, corporate disclosure, and the capital
markets: a review of the empirical disclosure literature. Journal of Accounting and
Economics, 31(1), 405–440.
IIRC. (2013). The International < IR > Framework, 1–51. Retrieved from www.theiirc.org
KPMG. (2012). Integrated Reporting: Performance Insight Through Better Business Reporting.
Retrieved from kpmg.com/integratedreporting
Ocado Group. (2011). Supporting Future Growth Welcome to Ocado Group plc.
Ocado Group Plc. (2013a). No Title. Retrieved from www.ocadogroup.com
Ocado Group Plc. (2013b). The Ocado Way. Retrieved from
http://www.ocado.com/theocadoway/being green/index.html
Pricewaterhousecoopers. (2007). Narrative Reporting: Give yourself a head start. Retrieved
from www.corporatereporting.com
Sarkar, P. (2011). Disclosures in Corporate Annual Reports — A Case Study of Some Selected
Public Limited Companies in India, (October), 572–578.
Yeoh, P. (2010). Narrative reporting: the UK experience. International Journal of Law and
Management, 52(3), 211–231. doi:10.1108/17542431011044652