Ocado Group PLC (LON:OCDO) has today announced its full year results for the 52 weeks ended 1 December 2019.
• 10.3% Retail Revenue growth, making Ocado Retail the fastest growing grocer in the UK, despite capacity lost with Andover fire
• Fees invoiced to International Solutions partners of £81.4 million, up over 38%, bringing the total to around £140m of unrecognised fees by the end of the year
• Group EBITDA was £43.3 million, reflecting the combined impacts of the Andover fire, the adoption of IFRS 16, and the costs of share schemes, broadly in line with consensus
• Loss before tax was £214.5 million
• Funding position strengthened to £751 million. A further £600 million was raised through a convertible bond issuance after the year end
• We continue to invest for further growth; in facilities for our clients, and in improving our platform and capabilities
Key milestones in 2019
Ocado Solutions, the business which helps grocers around the world develop on-line grocery services through the application of technology, robotics and AI, has made strong progress over the year, preparing existing partners for launch and signing new partners.
Building our global technology-led platform business
• Over the last twelve months we have brought three major international retailers into the unique group of grocers powering their ecommerce with Ocado’s Solutions. These are Coles in Australia, Aeon in Japan, and our joint venture with M&S, Ocado Retail Limited (“Ocado Retail”)
• Coles, one of Australia’s largest retailers, will initially open two Customer Fulfilment Centres (“CFCs”) in Sydney and Melbourne. These facilities are expected to go live by the end of 2023
• The agreement with Aeon, one of Asia’s largest retailers, plans for the development of a national fulfilment network to serve the whole of the Japanese market, with expected sales capacity for Aeon of approximately 1tn JPY by 2035
• The joint venture with M&S creates a new client for Ocado Group and, going forward, Ocado Retail will continue to use the platform provided by Ocado Solutions, as well as Group’s logistics capabilities, to bring the Ocado service to its fast growing customer base, numbering already almost eight hundred thousand customers
• The combined revenue of our global partners is now £210bn
Delivering outstanding execution
• Preparations are well advanced for the opening of our first international CFCs, for Groupe Casino in Paris and for Sobeys in Toronto. We expect both facilities to go live in H1 2020. Further sites, including in the US and the UK, one in Sweden and a further CFC in Canada are currently in various stages of construction
• As these two facilities are our first overseas sites to open, we plan to operate them initially with more support on the ground than we expect to need at future sites, to ensure as smooth as possible a launch and early ramp up in capacity
• We have added 1,300 colleagues in the period, of whom over 650 are in Technology and Engineering, to allow us to meet the needs of our partners and to create new and innovative technology which will mean that the Ocado Smart Platform remains the benchmark for customer outcomes and sustainable economics
• We are adapting our internal structures and processes to meet the requirements of growing at a greater velocity. These changes include reorganising the business around missions rather than functions, bringing together “like” activities and reducing silos and duplication in order to best service our clients, strengthening our management teams and investing in new global support systems
Investing in innovation to future proof the platform for our partners
• Ocado Zoom, our new immediacy service which offers delivery within one hour of ordering, has proven very popular with customers. It is now delivering over 3,000 orders per week from our first site in Chiswick, West London, and we are working on plans for a further site
• We have announced plans to open our first mini-CFC, which will be located in Bristol. The facility will have the capacity for 30,000 orders per week compared to 65,000+ orders per week in a standard-sized CFC. Despite its smaller size, we expect the Bristol mini-CFC to achieve competitive rates of productivity close to a standard CFC
• In developing a mix of different sizes of facility, Ocado is creating a unique and flexible ecosystem. This provides long-term network benefits that will enable Ocado Retail and other Solutions partners to reach ever more households, while catering to the wide and growing range of shopping missions that customers expect to be served through online grocery
• Robotic arms are now assisting in the fulfilment of live customer orders in our latest CFC in Erith, South-East London. We are continuing our development of vision systems, tactile gripper technology and machine-learning to enable robotic picking to fulfil a greater proportion of customer orders and are making encouraging progress. When this rolls out, we would expect material improvements to economics to be available to our partners
• Four recent venture investments, including taking a majority stake in Jones Food Co., Europe’s largest vertical farm, and taking a stake in Karakuri, a potential leader in the use of robotics for the assembly of ready-to-eat meals, represent value creation opportunities for Ocado Group shareholders as well as additional opportunities for our partners to improve the service they offer their customers
Ocado Retail continues to perform well. The business, now a 50:50 JV between Ocado Group and M&S, is currently the fastest growing grocer in the UK.
Demonstrating the resilience of the UK business, growing the customer base, and winning market share
• Despite losing approximately 10% of sales capacity in the Andover fire in February 2019, and a further 10% of sales capacity that we expected to grow into, sales grew 10.3%
• Market share in online grocery increased by 0.8%, reflecting growth in active customers6 of 10.3% and a broadly stable average basket
• Key KPIs, illustrating underlying efficiency within fulfilment and in the last mile, both improved. Units picked per labour hour (“UPH”) in mature CFCs was 168, up 1.8% on FY18 and deliveries per van per week (“DPV”) was 196, approaching our new target of 200
• Ocado Retail has substantially reduced food waste (the proportion of food that is not sold because it is past its best-by date) from 0.8% to 0.4%. We believe that this is the lowest wastage number in the industry
Continuing to improve the offer for Ocado Retail’s customers
• Ocado Retail has grown the range by 7%, to 58,000 items, the largest of any food retailer in the UK
• It has also led consumer trends, adding to the ‘free from’ and organic aisles over 1,000 and over 500 products respectively
• Consumers continue to experience high levels of consistency in terms of customer service. On-time delivery remained above 95%, with order accuracy of 99%
JV now established and preparations for M&S switchover progressing well
• The JV is now a separate legal entity with its own management team. Melanie Smith, who brings extensive experience from McKinsey and more recently M&S, joined as CEO in September and has been building her leadership team
• Ocado Group’s joint venture deal with M&S, which closed in August, secured a long term sourcing agreement to replace our former agreement with Waitrose which was up for renewal, thereby removing any possible disruption from Ocado Retail being left without a sourcing partner
• Preparations for the September switchover from Waitrose to M&S products are well underway. The range review has been completed, confirming that we believe M&S has substitutes at the same price or lower, and of the same quality or better, for the majority of those currently supplied by Waitrose (which represent under 4,000 products out of the total range of 58,000). This is the first time that M&S food will be available to customers online, together with the full supermarket assortment of popular household brands already available on Ocado.com
• Ocado Retail anticipates adding many more additional M&S lines to the range to give customers even greater choice than before
Outlook statement
• Revenue growth:
○ Retail revenue growth of 10-15%
○ UK Solutions & Logistics below Retail, reflecting full year impact of Morrisons’ “holiday” from Erith
○ International Solutions is expected to be less than £10m, as under IFRS 15 fees start to be recognised at go-live, with initial CFC sites in France and Canada only operational for part of the year
• International Solutions fees invoiced growth of 40% or more
• EBITDA:
○ Retail above revenue growth, reflecting improved operating margins as Erith scales
○ UK Solutions & Logistics to decline, primarily due to full year impact of Morrisons’ “holiday” from Erith, with corresponding insurance benefits recorded in exceptional income
○ International Solutions to decline due to continued investment in building the business, and increased support costs with launch of initial CFC sites
• Insurance proceeds related to Andover fire to be received over time; expect business interruption losses to be covered. Our insurers have accepted our claim and £74m has been received by the end of the period with £24m recognised in the income statement. Further insurance proceeds will be received over time and be recognised as exceptional income when the related capital expenditure or business interruption costs are incurred
• Total capital expenditure for the Group is expected to be around £600m with the majority of the increase reflecting the additional capital to meet the needs of our Solutions customers’ growth in the UK and internationally
• Continue to target further Solutions deals which would generate additional cash fees but would negatively impact short term profits
Results presentation
A results presentation will be held for investors and analysts at 9.30am today at Numis, 1 Paternoster Square, London EC4M 7LT. Presentation material and webcast link will be available online athttp://www.ocadogroup.com/investors/reports‐and‐presentations/2019.aspx shortly before the presentation starts.
Tim Steiner, Chief Executive Officer of Ocado Group, said:
“We are pleased to report results which show strong momentum in the business. Although statutory results reflected a combination of factors, including the impact of the Andover fire, the underlying performance of Ocado Retail and the successful growth of Ocado Solutions were very encouraging.
Our progress over the last twelve months, which includes signing our eighth and ninth Solutions clients, Coles in Australia and Aeon in Japan, and successfully maintaining strong growth post-Andover, has demonstrated many of Ocado Group’s most important characteristics: resilience, innovation, focus and execution. It is these qualities that will enable us to continue to develop the Ocado Smart Platform to meet the evolving needs of our partners at the cutting edge of online grocery retail.
The first half of this year will see a new milestone for Ocado Group; the opening of the first customer fulfilment centres for our international partners. These state-of-the-art robotic facilities are a core part of an end-to-end solution embracing automated fulfilment, an intuitive and easy to use webshop, and hyper-efficient last-mile delivery which will enable Sobeys and Groupe Casino to deliver the same outstanding customer experience to consumers in Canada and France as Ocado Retail does today here in the UK.
The landscape of grocery retailing globally is changing. We are excited to be able to play a leadership role through Ocado Retail, our joint venture with M&S, and through our Solutions partnerships, as we fulfil our mission of “changing the way the world shops”.
