REG - Ocado Group PLC - Half-year Report
18/07/2023 07:00
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RNS Number : 2949G Ocado Group PLC 18 July 2023
OCADO GROUP PLC
Interim results for the 26 weeks ended 28 May 2023
18 July 2023
Financial and operational progress across Ocado Group
Financial progress
● Group revenue £1.4bn, +9%: Technology Solutions +59%, Ocado
Logistics +2%, Ocado Retail +5%
● Group EBITDA*(1) of £17m: Technology Solutions EBITDA* positive;
Ocado Logistics flat; Ocado Retail small loss in the half; positive EBITDA*
throughout Q2
● Cost reductions across the Group: operational efficiencies and lower
support costs
● Underlying cash outflow*(2) of £(288)m; +£108m versus 1H22:
liquidity remains strong at £1.3bn (including £0.3bn revolving credit
facility)
● Group EBITDA of £17m is offset by depreciation & amortisation
and exceptional items to give a loss before tax of £(289)m
● FY23 guidance unchanged
Operational and strategic progress
● Technology Solutions: +35% growth in average live modules versus
1H22, increasing to 105 live modules at the end of the first half, +2 new CFCs
live; 25 sites now live (21 CFCs, 4 Zooms)
● CFC direct operating costs(3) down from 2.1% to 1.8% of sales
capacity
● Partner Success programme: delivering tangible results and improved
economics for OSP partners
● Ocado Intelligent Automation: proposition and business model well
advanced in attractive market
● Ocado Logistics: increasing productivity and efficiencies in
warehouse and delivery services for our UK partners
● Ocado Retail: continued strong customer acquisition growth, items
per basket has been stable since last October, improved customer focus and
efficiencies in all areas delivering positive EBITDA* throughout Q2
Tim Steiner, Chief Executive Officer of Ocado Group, said:
"Ocado Group has made good progress over the last six months. Technology
Solutions has continued to deliver our industry-leading Ocado Smart Platform
around the world and the opening of the first CFC for AEON, Japan's biggest
food retailer, in Chiba City, just outside Tokyo, is a landmark for the
grocery sector. It demonstrates that our proprietary AI and robotics can be
applied to businesses across the globe; Ocado Intelligent Automation is well
placed to sign its first deals to provide our automation solutions outside of
grocery; and we are pleased to report significant progress in our Partner
Success programme, where our partners such as Kroger are seeing tangible
improvements in their operational performance. The success of this programme
is important to our plans to deliver stronger growth in orders for new
capacity.
In the UK, Ocado Logistics had a steady, profitable first half and Ocado
Retail is making good progress, with a return to profitability in Q2. Our
operations in the UK remain an important demonstration of the potential for
our international ambitions, as we seek to transform the economics of online
grocery and expand into the wider automated storage and retrieval solutions
market.
At a Group level, I am pleased to see the operational and financial discipline
delivered by all our teams as we focus on driving cost efficiencies and cash
flow improvement. For these reasons, we look forward to delivering the full
potential of the business and continuing to create lasting value for all our
stakeholders."
Ocado Group 1H23 Income Statement
£m 1H23 1H22(6) £m change % change FY22(6)
Revenue(4)
Technology Solutions 198.2 124.7 73.5 58.9% 291.4
Ocado Logistics 335.2 329.7 5.5 1.7% 659.9
Ocado Retail 1,178.5 1,122.2 56.3 5.0% 2,203.0
Inter-segment eliminations (341.2) (314.2) (27.0) 8.6% (640.5)
Group 1,370.7 1,262.4 108.3 8.6% 2,513.8
EBITDA*(1)
Technology Solutions 5.9 (58.8) 64.7 110.0% (101.5)
Ocado Logistics 14.6 14.5 0.1 0.7% 33.6
Ocado Retail (2.5) 31.3 (33.8) (108.0)% (4.0)
Inter-segment eliminations (1.4) (0.6) (0.8) (133.3)% (2.2)
Group 16.6 (13.6) 30.2 222.1% (74.1)
Depreciation & amortisation (192.5) (157.3) (35.2) (22.4)% (348.6)
Finance expense (31.4) (41.6) 10.2 24.5% (64.6)
FX gains/(losses) (5.0) 8.2 (13.2) (161.0)% 16.4
Exceptional items(5) (77.2) (7.0) (70.2) (1,002.9)% (29.9)
Group loss before tax(5) (289.5) (211.3) (78.2) (37.0)% (500.8)
* These measures are Alternative Performance Measures, refer to note 16 in the
condensed financial statements.
Notes:
1. EBITDA* is a non-GAAP measure defined as earnings before net finance cost,
taxation, depreciation, amortisation, impairment and exceptional items.
2.Underlying cash flow* is the movement in cash and cash equivalents excluding
the impact of exceptional items, costs of financing, purchase of/investment in
unlisted equity investments and FX movements.
3.Direct operating costs as a % of site sales capacity reflects the exit rate
position for all OSP CFCs live at the period end. Direct operating costs
include engineering, cloud and other technology direct costs. The prior year
has been updated in line with this definition (previously 1H22 was 2.4%).
4. Revenue is a. Retail - online sales (net of returns) including charges for
delivery b. Technology Solutions - the fees charged to solutions clients and
c. Logistics - the recharge of costs and associated fees from Ocado Logistics
to our UK clients. Recharges from Technology Solutions & Ocado Logistics
to Ocado Retail are eliminated on consolidation.
5. Net exceptional costs of £77.2m primarily relates to £38.7m UK network
capacity review, £17.4m change in fair value relating to the revaluation of
the Marks and Spencer Group plc ("M&S") contingent consideration,
litigation costs of £9.1m (related to patent infringement litigation between
the Group and AutoStore Technology AS). Other exceptional items include costs
associated with Ocado Group Finance transformation costs, Organisational
restructuring costs and Ocado Retail IT systems transformation.
6. The Group has changed its segmental reporting for FY23 to reflect the
Group's three distinct business models of Technology Solutions, Ocado
Logistics and Ocado Retail. The FY22 prior year comparatives have been
restated on the new segment basis. A detailed exercise has been carried out to
ensure all costs are owned and managed within the appropriate segment. This
has resulted in a different cost allocation to that used in the preparation of
the pro forma numbers as presented in the 1H22 and FY22 results presentations
for Logistics and Technology Solutions; Ocado Group EBITDA* loss of £14m at
1H22 and £74m at FY22 remain unchanged.
The commentary is on a pre-exceptional basis to aid understanding of the
underlying performance of the business
1H23 Operational and Strategic Review
Technology Solutions
OSP capacity rollout is driving strong revenue growth and high profit
flow-through
Technology Solutions delivered strong operational execution with the rollout
of new capacity in both new and existing markets. In the first half, two
Customer Fulfilment Centres ("CFCs") and six new modules went live, taking the
total to 25 sites and 105 live modules at the end of the period. The first CFC
went live for AEON in Chiba City, just outside Tokyo, Japan in April and
Sobeys' third CFC went live in Calgary in March. These new CFCs were delivered
on time and on budget. Our equipment is performing well and the sites have
started ramping up their capacity according to plan.
We are pleased with the improving financial progress in Technology Solutions
as the number of live modules grows, reinforcing the dynamics of our business
model. Our first-half performance demonstrates this with revenue growth of
58.9% and contribution margin of 71% which, combined with cost efficiencies,
delivered strong profit flow-through and positive EBITDA*.
Our focus on efficiencies continues, support costs were £12m lower in the
period, falling from £101m to £89m, as a result of cost reduction measures
and the one-off profit of £5m from the sale of the Dartford spoke. We expect
further progress over the course of the year driven by headcount reduction
initiatives, discretionary cost expenditure actions, and specific project
efficiencies such as the new finance platform that is now in place.
OSP Partner Success programme delivering results
Since January, Ocado's Partner Success teams have been working with our
international OSP partners to more closely support them in delivering improved
operational and financial performance in their CFCs, webshop, and last-mile
delivery network, in order to maximise the power of OSP and help accelerate
orders for more modules versus the current rate which is currently towards the
lower end of our mid-term target.
For Kroger, initial results from our work with them in their first two CFCs
indicate significantly increased warehouse productivity (units picked per
labour hour within the facility ("UPH") +25%), waste reduction (-30%), drops
per van (+10%) and a lower operational cost per order (down 15%). Kroger is
now applying these operational learnings across other sites to ensure the best
performance is achieved from the OSP platform. There is still work to do and
we will continue to support our partners with these dedicated teams, working
together to make a sustainable difference to their economic returns in online
grocery.
Ocado Intelligent Automation is well placed for first contract wins;
acquisition of 6 River Systems
Ocado Intelligent Automation ("OIA") has been established to bring Ocado's
unique and proprietary technology to clients outside grocery. OIA will operate
a capital-light 'MHE sell' model designed so that upfront fees better match
Ocado's cash outflows and will largely leverage existing OSP technology.
Discussions are well-progressed with several potential clients across a range
of industries. Although cash will be received up-front when the MHE is sold,
we expect that revenue and profit will be recognised when the project goes
'live'.
On 30 June 2023, Ocado Group acquired 6 River Systems ("6RS") from Shopify for
$12.7m to support the technology roadmap for Ocado Intelligent Automation. 6
River Systems is a collaborative Autonomous Mobile Robot ("AMR") fulfilment
solutions provider to the logistics and non-grocery retail sectors, based in
Massachusetts, USA. Founded in 2015, it has developed an Autonomous Mobile
Robot product that provides automated assistance to pickers in a warehouse,
working collaboratively with human operators. 6 River Systems brings new
exciting possibilities to Ocado's IP and product set, as well as valuable
commercial and R&D expertise in the non-grocery sector. The business
acquired by Ocado Group has a good client list, is debt-free, cash flow
positive, and generates positive EBITDA.
Outlook for Technology Solutions - 2H23
● One further CFC (Luton) will go live in 2H23. The opening of the two
CFCs for Coles in Melbourne and Sydney, previously scheduled for 2H23 is under
review, and we are working closely with Coles on the revised timing.
● Continued implementation of our Partner Success programme is
expected to drive improved economics for our OSP partners and support the
rollout of further sites and modules.
● Further operating efficiencies and cost reductions will support
growth in profitability, including a gradual flattening of technology costs;
positive EBITDA* is expected for FY23.
Ocado Logistics
Our third-party logistics ("3PL") operation, supporting Ocado Retail and
Morrisons in the UK, continues to perform strongly and remains a good example
of our highly efficient 3PL distribution model. In the first half operational
costs grew by 0.6% driven by customer orders per week across our two partners
which grew +4.3% and by eaches delivered which declined by 2.6% driven by
fewer items per basket.
Inflation also affected operational costs, but this was well controlled by our
teams and offset by productivity improvements in our OSP CFCs which saw UPH
(units per labour hour picked) improve a strong 14%. Ocado Logistics is a
reliable cash generator and EBITDA* of £15m was flat in the period.
Outlook for Ocado Logistics - 2H23
● Continued improvement in productivity for our UK partners
● We expect Ocado Logistics EBITDA* of around £25m for the full year,
reflecting expected revenue growth and the cost-plus business model.
Ocado Retail
A return to profitability in the second quarter
Ocado Retail revenue grew by 5.0% in 1H23 driven by a mix of strong active
customer growth of +10.6% to 959k, growth in average orders per week of +4.0%
to 392k, and the average basket value increasing +1.5%. The basket value
increase was driven by ASP (average selling price) of +8.4% (net of product
mix effects), which was offset by smaller basket sizes which declined 6.3% to
45 items, and lower frequency of orders as customers managed their overall
basket spend. The number of items per basket over the last quarter has
stabilised at 44 items.
Ocado Retail's share of online grocery increased from 12.7% to 13.0% and
remained stable as a % of the overall UK grocery market during the period. ASP
inflation was well below UK grocery inflation of 12.8% (according to Nielsen)
and we continue to invest in price and broaden our range to ensure we
differentiate ourselves further alongside choice, service and experience. Our
Ocado Price Promise now matches over 10,000 like-for-like goods between
Ocado.com and Tesco. This is a key part of our strategy to support growth and
the retention of customers and the increase in the total active customer base
and mature customer base is indicating this strategy is delivering.
The total active customer base increased modestly, up 2,000 customers since
the end of Q1; however, the mature customer base (those customers who have
shopped 5 or more times with Ocado) continues to grow steadily and was up
14,000 customers over the same period, driven mainly by strong retention of
new customers.
The Ocado Retail "Perfect Execution" programme is driving improved customer
proposition and service levels, with on-time deliveries and order accuracy
back to pre-covid levels; "Perfect Orders", meaning on time and in full, with
no substitutions, increased by around 6 percentage points year on year. During
1H23 we introduced c.700 new Marks and Spencer Group plc ("M&S") grocery
lines, offering customers even more choice.
There was strong control of costs across the board which meant that combined
costs fell as a percentage of revenue. This includes productivity from
improved efficiency at our CFC sites, where UPH (units picked per hour)
improved by 13.8%, and marketing optimisation. This was offset by the
increased capacity and costs of operating 2 new Zoom sites but with the
announced closure of Hatfield CFC, we expect capacity used to reach greater
than 75% by the end of the year.
Profitability improved throughout the first half with the Retail business
delivering positive EBITDA* in each month of Q2. We see a clear pathway to
continue this positive EBITDA trend as the capacity utilisation of the CFCs
improves and the natural operational gearing within the business delivers
incremental profitability.
UK network capacity review supports greater efficiencies and a better customer
experience
The ceasing of operations at our oldest CFC in Hatfield, UK and the transfer
of a portion of Hatfield's capacity to a new robotic CFC in Luton, scheduled
to open in 2H23, will assist in the recovery of profitability for Ocado
Retail. There will be a natural reduction in excess capacity, coupled with the
more attractive economics of the latest generation of robotic CFCs. These CFCs
are consistently achieving over 200 units picked per labour hour within the
facility, compared to UPH of around 150 for our first-generation CFC in
Hatfield. The newest sites also have much lower energy usage and together this
will result in a reduction of fixed costs in FY24. With the benefit of Ocado
Re:Imagined, Ocado will continue to drive improvements in UPH (to exceed the
target of >300 UPH) and customer experience, including increased capacity
for same-day deliveries. We continue to identify opportunities to retain as
many of our Hatfield colleagues as possible within our other existing
operations, primarily to the soon-to-be-opened Luton CFC.
Outlook for Ocado Retail - 2H23
● Q323 customer and order numbers will reflect the tougher comparison
with significant customer acquisition actions in Q322.
● Volume-driven growth is expected to accelerate again in Q4.
● Ocado Retail is expected to be marginally EBITDA* positive in the
full year.
Ocado Group
Group cash flow
Underlying cash outflow* improved by £108m in 1H23, driven by revenue growth,
cost reductions and lower capital expenditure. The Group is on track to
deliver the guided £200m of underlying cash flow improvement in the full
year.
Group capital expenditure
Capital expenditure primarily comprises new site construction costs and
technology development costs to enhance OSP. Capital expenditure was £283.6m
in the period (1H22: £366.8m), a reduction of £83.2m, driven by a decrease
in the number of CFCs and new modules under construction. Capital expenditure
in H2 is expected to be lower than that in H1; full-year Group capital
expenditure is expected to be no more than £550m, in line with the full-year
guidance.
FY23 Guidance
The performance of our businesses in the first half gives us confidence in the
full-year financial outcome. In the second half, our priorities remain focused
on ongoing excellence in operational execution and financial discipline with
costs and cash flow. There is no change to the financial guidance given at
FY22 results on February 18th 2023.
Revenue EBITDA* Capital Expenditure
Technology Solutions +40% positive
Ocado Logistics broadly stable around £25m
Ocado Retail mid-single digit growth marginally positive
Total Group Capex - - £550m
AutoStore Litigation
On 30 March 2023 Ocado Group recorded a comprehensive victory in the patent
infringement suit brought by AutoStore at the UK High Court. His Honour Judge
Hacon held that the AutoStore patents were invalid and Ocado did not infringe
them. AutoStore had originally asserted six patents against Ocado in October
2020. Of these six patents, two were invalidated by the European Patent Office
before judgement was handed down, two were withdrawn by AutoStore shortly
before the hearing started and the remaining two patents were invalidated by
Judge Hacon in today's judgement. Judge Hacon decided that even if he had not
invalidated these remaining patents, Ocado's OSP did not infringe them. In
addition, he also found that Ocado's bots did not infringe the patents that
AutoStore had withdrawn from the case. AutoStore has subsequently been ordered
to pay Ocado £6.7m in costs.
This UK High Court decision follows Ocado's victory over AutoStore in the
International Trade Commission in the USA in 2022. Ocado's claims against
AutoStore for infringing Ocado's IP continue in Germany and New Hampshire,
USA.
Results Presentation
A results presentation will be available for investors and analysts at 9.30am.
This can be accessed online here
(https://www.lsegissuerservices.com/spark/OcadoGroupHatfield/events/b5005284-ca2d-4508-b7af-19d95708eb4e)
. Following the session there will be Q&A, also accessible via the
webcast.
Contacts
Tim Steiner, Chief Executive Officer on +44 20 7353 4200 today or +44 1707 228
000
Stephen Daintith, Chief Financial Officer on +44 20 7353 4200 today or +44
1707 228 000
David Shriver, Chief Reputation Officer, on +44 20 7353 4200 today or +44 1707
228 000
Martin Robinson at Teneo on +44 20 7353 4200
Financial Calendar
The schedule for Ocado Retail results for the remainder of the 2022 financial
year is for a Q3 Trading Statement on the 19th of September 2023 and a Q4
Trading Statement on the 16th of January 2024.
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
Headlines
Revenue increased by 8.6% to £1,370.7m (1H22: £1,262.4m):
● Technology Solutions delivered strong revenue growth, up 58.9% to
£198.2m (1H22: £124.7m) with an average of 101 modules live during the
period (1H22: 75). In the period we have added two new sites and six modules.
These include the first Customer Fulfilment Centre ("CFC") in the Asia-Pacific
region for AEON in Chiba City, just outside Tokyo, Japan; and the third CFC
for Sobeys in Calgary, Canada. We now have 25 live sites (1H22: 18 sites,
FY22: 23 sites) and 105 live modules (1H22: 86 live modules, FY22: 99 live
modules).
● Logistics revenue grew by 1.7% to £335.2m (1H22: £329.7m), this
primarily represents cost recharges to Ocado Retail and Wm Morrison
Supermarkets Limited ("Morrisons") of £318.5m (1H22: £317.3m), which grew by
0.4%. While orders per week increased by 4.3% to 512,000 orders per week
(1H22: 491,000) volumes, measured in eaches (individual items in the shopping
basket), declined by 2.6% primarily due to the decrease in basket sizes as
customers responded to the cost-of-living-crisis.
● Retail revenue increased by 5.0% year-on-year to £1,178.5m (1H22:
£1,122.2m) reflecting growth of 10.6% in active customers to 959,000 (1H22:
867,000, FY22: 940,000). Price inflation has continued, with the average item
price up 8.4% to £2.72 (1H22: £2.51). This has been partially offset by
smaller basket sizes, declining 6.3% to 45 individual items (1H22: 48 items),
as customers manage their overall basket spend. Orders per week have grown by
4.0% to 392,000 (1H22: 377,000), driven by the increase in active customers
and offset by lower frequency of orders.
EBITDA* for the period was £16.6m (1H22: loss of £13.6m), an improvement of
£30.2m driven by Technology Solutions, which generated positive EBITDA of
£5.9m, up £64.7m (1H22: loss of £58.8m) due to strong profit flow-through
from revenue growth. Logistics delivered EBITDA of £14.6m (1H22: £14.5m) on
its resilient cost-plus model. Retail generated a £2.5m EBITDA loss (1H22:
£31.3m profit) with a steadily improving trajectory toward full-year
profitability. The year-on-year movement was driven by a decline in gross
profit margin and the non-repeat of certain one-off benefits in 1H22.
Statutory loss before tax of £289.5m (1H22: £211.3m loss) includes
depreciation, amortisation and impairment charges of £192.5m (1H22:
£157.3m), net finance costs of £36.4m (1H22: £33.4m), and net exceptional
costs of £77.2m (1H22: £7.0m), which include the one-off costs relating to
the ceasing of operations at our oldest CFC in Hatfield and the change in the
fair value of contingent consideration receivable from Marks and Spencer Group
plc ("M&S").
Strong balance sheet, with cash and cash equivalents of £1,008.5m at the end
of the period (FY22: £1,328.0m) and liquidity of £1.3bn (FY22: £1.6bn)
(including the undrawn revolving credit facility ("RCF") of £0.3bn) to
support our UK and international growth plans. Net debt* at the end of the
period was £(900.7)m (1H22: £(758.8)m).
1H23 1H22
£m Pre- Exceptional items Total reported Pre- Exceptional items Total reported Pre-
exceptional* exceptional* exceptional change
Revenue 1,370.7 - 1,370.7 1,262.4 - 1,262.4 8.6%
Insurance proceeds - - - - 6.3 6.3 n/a
Operating costs (1,353.2) (56.8) (1,410.0) (1,275.5) (13.3) (1,288.8) 6.1%
Share of results from joint ventures and associates (0.9) - (0.9) (0.5) - (0.5) 80.0%
EBITDA* 16.6 (56.8) (40.2) (13.6) (7.0) (20.6) £30.2m
Depreciation, amortisation and impairment (192.5) (20.4) (212.9) (157.3) - (157.3) 22.4%
Net finance costs (36.4) - (36.4) (33.4) - (33.4) 9.0%
Loss before tax (212.3) (77.2) (289.5) (204.3) (7.0) (211.3) 3.9%
* These measures are alternative performance measures. Please refer to note 16
of the consolidated financial statements.
This commentary is on a pre-exceptional basis to aid understanding of the
performance of the business on a comparable basis. Following the change in the
reporting of the Group's operating segments during the period (as further
explained below), the Group has adopted a revised presentation of expenses in
the Income Statement, replacing Cost of sales, Distribution expenses and
Administrative expenses with a single line item for Operating costs.
The revised presentation provides an Income Statement that is more relevant
for the total Group. Our three reporting segments have different operating
models and costs, therefore, we have summarised the presentation of costs for
the consolidated Income Statement and provided relevant details by segment in
each section. This reflects the growing significance of the Technology
Solutions business and provides more reliable reporting by eliminating the
need for allocations between distribution and administrative expenses.
Revenue for the period increased by 8.6% to £1,370.7m (1H22: £1,262.4m).
Technology Solutions revenue increased by 58.9% from £124.7m to £198.2m with
the go-live of five sites in 2H22 including three for Ocado Retail (Bicester,
Leyton and Leeds) and two for Kroger in the US (Denver and Baltimore). In
1H23, two sites went live with Sobeys' third CFC in Calgary and our first CFC
for AEON in Chiba City, just outside Tokyo. The average number of live modules
is the key revenue driver for Technology Solutions and increased by 34.7% from
75 in 1H22 to 101 in 1H23. Logistics revenue increased by 1.7% to £335.2m
(1H22: £329.7m) and largely comprises cost recharges to its two UK customers,
Ocado Retail and Morrisons). Retail revenue increased by £56.3m from
£1,122.2m to £1,178.5m reflecting strong growth in active customers, growing
order volumes and continued price inflation (that has led to smaller basket
sizes, as customers manage their overall shopping basket spend).
Net cumulative invoiced fees to our Ocado Smart Platform ("OSP") partners that
are on our balance sheet and not yet recognised as revenue increased by
£37.9m from £390.3m at 1H22 to £428.2m at 1H23, driven by orders from our
newest partners Lotte, Auchan Poland and AEON.
Operating costs include all costs incurred in the continuing operations of the
Group. Operating costs increased by 6.1% to £1,353.2m (1H22: £1,275.5m).
Technology Solutions operating costs increased by 4.8% to £192.3m (1H22:
£183.5m) driven by an increase in the costs of operating live sites, driven
by the increase in average live modules and higher technology costs as we
continue to support and invest in the OSP. This was partially offset by a
reduction in Technology Solutions support costs of £12.1m to £88.5m (1H22:
£100.6m). Logistics operating costs increased by 1.7% to £320.6m (1H22:
£315.2m) due to a 4.3% growth in orders that was offset by lower basket sizes
and improved productivity across our OSP sites. Retail operating costs
increased by 8.3% to £1,181.0m (1H22: £1,090.9m) largely driven by the
growth in orders, continued inflation and incremental OSP fees year-on-year.
EBITDA* for the period was £16.6m (1H22: £13.6m loss) with the £30.2m
improvement driven by a £64.7m improvement in Technology Solutions to £5.9m
(1H22: £58.8m loss), offset by a £33.8m decline in Retail to £2.5m loss
(1H22: £31.3m profit). The improvement in Technology Solutions EBITDA* was
driven by the strong 88% flow-through of incremental revenue to EBITDA*,
improving contribution margin of 71% (1H22: 65%) and cost reductions in
support costs that were down 12.0% to £88.5m (1H22: £100.6m). Retail EBITDA*
decline was primarily driven by 1. increased OSP fees for new sites that are
not yet at full capacity; 2. investment in good value pricing to protect our
customers from high cost price inflation which resulted in a gross profit
margin decline from 34.3% to 33.1%; and 3. the one-off benefit in 1H22 from
the release of a long-term incentive plan provision.
Depreciation, amortisation and impairment increased by 22.4% to a charge of
£192.5m (1H22: £157.3m), primarily due to the increase in amortisation
relating to internally generated intangible assets (primarily the investment
in the Ocado Smart Platform) together with an increase in depreciation as a
result of the continuing roll-out of OSP hardware and software at our CFC
sites. At the end of the period, there were 25 live sites (1H22: 18 sites)
including 21 CFCs and 4 Zooms. Property, plant and equipment held on the
balance sheet was £1,832.9m (1H22: £1,495.8m). The increase largely relates
to the seven sites that have gone live in the last 12 months and the
amortisation of technology projects that have gone live in the same period.
Net finance costs of £36.4m increased by £3.0m (1H22: £33.4m) and include
finance costs related to our gross debt and lease liabilities, finance income
on our cash balances and foreign exchange and revaluation movements.
Exceptional costs of £77.2m (1H22: £7.0m cost) primarily relate to the
one-off costs related to the cessation of operations at the Hatfield site of
£38.7m, the change in fair value of the contingent consideration due from
M&S of £17.0m, litigation costs of £9.1m (primarily relating to the
patent infringement litigation between the Ocado Group and AutoStore
Technology AS) and organisational restructuring costs of £7.8m.
Statutory loss before tax of £289.5m (1H22: loss of £211.3m loss) reflects
an EBITDA profit of £16.6m (1H22: loss of £13.6m), depreciation,
amortisation and impairment of £192.5m (1H22: £157.3m), net finance costs of
£36.4m (1H22: £33.4m) and net exceptional costs of £77.2m (1H22: £7.0m).
Segmental summary
£m 1H23 1H22(1) Change
Revenue %
Technology Solutions 198.2 124.7 58.9%
Ocado Logistics 335.2 329.7 1.7%
Ocado Retail 1,178.5 1,122.2 5.0%
Inter-segment eliminations (341.2) (314.2) 8.6%
Group 1,370.7 1,262.4 8.6%
EBITDA* £m
Technology Solutions 5.9 (58.8) 64.7
Ocado Logistics 14.6 14.5 0.1
Ocado Retail (2.5) 31.3 (33.8)
Inter-segment eliminations (1.4) (0.6) (0.8)
Group 16.6 (13.6) 30.2
1. 1H22 has been restated to reflect the new reporting segments
Change in operating segments
For FY23, the Group has changed the reporting of its business segments to
better reflect the Group's three distinct business models Technology
Solutions, Ocado Retail and Ocado Logistics. From 1H23, the segmental
reporting has been changed to reflect the new operating structure and the
comparatives have been restated on this basis. The financial analysis for each
segment has been set out to reflect the key revenue and cost categories for
each business area. Further details on the components of each revenue and cost
category have been provided within the relevant segment. An overview of each
of our three business segments is provided below.
Technology Solutions is the global technology platform business providing the
Ocado Smart Platform ("OSP") as a managed service to currently 12 grocery
retail partners. This segment also includes the revenue and costs associated
with Ocado's non-grocery business, Ocado Intelligent Automation ("OIA"),
including Kindred, which was acquired in 2020.
Technology Solutions comprises 1. the revenue and direct operating costs of
the OSP and OIA businesses, 2. the commercial and technology costs to sustain
and grow these businesses, 3. the support costs for these businesses, such as
Finance, Legal, HR, Information Technology and Board costs.
Ocado Logistics is our third-party logistics business, providing services to
customers in the UK (Ocado Retail and Morrisons). The Logistics business
operates automated warehouses and provides the associated supply chain and
delivery services to our UK partners, and recharges these costs in full, with
an additional management fee. The business also generates revenue from capital
recharges relating to certain Material Handling Equipment ("MHE") assets used
to provide logistics services. The segment includes 1. revenue from the
management fees, cost recharges and capital recharges for operating all UK
sites, 2. the related CFC and delivery costs 3. technology costs directly
related to sites and any non-OSP customer platform technology costs, and 4.
costs relating to central functions to support the provision of the logistics
business.
Ocado Retail is the UK online grocery and general merchandise retail business
serving a broad range of shopper missions, from large weekly shops to
'dinner-for-tonight' top-up shops. Ocado Retail is a 50% owned joint venture
with Marks and Spencer Group plc ("M&S") and is fully consolidated into
the Group's results.
Inter-segment eliminations represent the elimination of inter-segmental
revenue and costs. These relate to transactions between Ocado Retail, and the
Technology Solutions and Logistics businesses. Technology Solutions and Ocado
Logistics each generate revenue from services provided to Ocado Retail, which
are included as costs within the Ocado Retail segment. For 1H23,
inter-segmental revenue eliminations were £341.2m (1H22: £314.2m). The
increase of £27.0m is primarily due to incremental OSP fees charged to Ocado
Retail by the Technology Solutions segment, due to an increase in the number
of live modules. Inter-segmental EBITDA eliminations relate to amortised
upfront fees paid by Ocado Retail to Technology Solutions, which are included
within revenue in Technology Solutions. Ocado Retail capitalises these fees
within fixed assets relating to the CFC assets; the associated depreciation is
reported outside EBITDA.
Technology Solutions
£m 1H23 1H22 Change
Fees invoiced(1) 202.8 144.0 40.8%
Revenue 198.2 124.7 58.9%
Direct operating costs (58.1) (43.6) 33.3%
Contribution 140.1 81.1 72.7%
Contribution % 71% 65% 6ppts
Technology costs (45.7) (39.3) 16.3%
Support costs (88.5) (100.6) (12.0)%
EBITDA* 5.9 (58.8) £64.7m
1. Fees invoiced represent design and capacity fees invoiced during
the period for existing and future site and in-store fulfilment (ISF)
commitments. These are recognised in the Income Statement in accordance with
IFRS 15 from the time when the site/ISF operation goes live.
Key performance indicators
The following table sets out a summary of selected operating information in
the period:
1H23 1H22 Change
No. of modules live(1,) 105 86 22.1%
Average modules live 101 75 34.7%
Cumulative no. of modules ordered(2,3) 232 221 5.0%
Direct operating cost (% of site sales)(4) 1.8% 2.1% (0.3)%
1. A module is considered live when it has been fully installed and
is available for use by our partner.
2. Ordered modules represent the maximum capacity of sites for
which a contractual agreement has been signed with a partner and an invoice
has been sent for the associated fees.
3. A module of capacity is assumed as approximately 5,000 eaches
picked per hour and circa £73m per annum of partner sales capacity.
4. Direct operating costs as a % of site sales capacity reflects
the exit rate position for all OSP CFCs live at the period end. Direct
operating costs include engineering, cloud and other technology direct costs.
The prior year has been updated in line with this definition (previously 1H22
was 2.4%).
As detailed above, the Technology Solutions segment now combines our UK and
International Solutions businesses. Comparatives have been restated on a
like-for-like basis.
During the first half of the year, the scale of our international operations
has grown further with the milestone of our first CFC going live in the
Asia-Pacific region for AEON in Chiba City, just outside Tokyo, and the third
CFC for Sobeys going live in Calgary. UK capacity for Morrisons increased
slightly within our existing facilities. We now have 25 live sites, comprising
21 CFCs and 4 Zooms, and building on the growth in the second half of FY22 the
number of modules live year-on-year has grown by 22.1% to 105 live modules
(1H22: 18 sites, 16 CFCs, 2 Zooms; 86 modules).
Fees and revenue
Fees invoiced increased by 40.8% to £202.8m (1H22: £144.0m). These fees
include 1. the design and access fees invoiced across a number of clients
relating to existing and future CFC and in-store fulfilment ("ISF")
commitments, and 2. the recurring capacity fees associated with the live
operations, primarily Ocado Retail, Kroger, Sobeys and Morrisons. Capacity
fees increased in line with the increase in revenue. Design and access fees in
1H23 were lower than the prior year as fewer sites are going live in FY23,
with two sites going live so far this year.
Under revenue recognition rules, design and access fees are not recognised as
revenue until a working solution is delivered to the partner, i.e. the site
goes 'live'. At the end of the period, cumulative fees not yet recognised as
revenue, but instead recorded on the balance sheet within contract liabilities
were £428.2m (FY22: £422.9m, 1H22: £390.3m).
Revenue in the period of £198.2m (1H22: £124.7m) includes ongoing capacity
fees of £174.8m (1H22: £108.3m) and £15.9m (1H22: £9.9m) relating to the
amortisation of design and upfront fees across our operational partners,
primarily Ocado Retail, Kroger, Morrisons and Sobeys. Ongoing capacity fee
revenue in Technology Solutions is driven by the average number of modules
live in the period. In 1H23 there were 101 average modules live (1H22: 75), a
growth of 34.7%. Revenue grew at a faster rate than live modules (+58.9%) due
to the increased number of live OSP modules, which generate a higher fee per
module of sales capacity (there are 29 legacy non-OSP modules within the 105
modules at the end of 1H23 that relate to Hatfield and Dordon and that
generate a lower fee per module than an OSP module). Revenue includes £6.2m
(1H22: £4.5m) relating to Kindred and equipment sales to retail partners of
£1.3m (1H22: £1.9m) recognised as revenue under IFRS 15 (the cost of this
equipment is recognised within direct operating costs).
Direct costs
Direct operating costs relate to the day-to-day costs of operating our CFC and
Zoom sites, primarily engineering support, maintenance and spares, and the
costs of hosting the technology services for partners. These costs increased
by £14.5m (33.3%) to £58.1m (1H22: £43.6m) primarily driven by the 34.7%
growth in average live modules. The exit rate of direct operating costs as a
percentage of client sales capacity, a key measure of operational efficiency
across sites, improved from 2.1% in 1H22 to 1.8% as the business continues to
realise efficiencies through scale and optimisation initiatives. This led to
an improvement in contribution margin from 65% to 71%.
Technology and support costs
Technology costs comprise mainly the non-capitalised management time spent on
early-stage research projects, such as autonomous mobility, and maintaining
the Ocado Smart Platform (OSP) through ongoing client support. Other costs
include legal and professional fees and non-capitalised software costs.
Technology costs in 1H23 were £45.7m (1H22: £39.3m), an increase of £6.4m
mainly due to higher labour costs as we continue to invest in OSP. The
increase also includes higher legal and advisory fees relating to the
acquisition of 6 River Systems, announced in May 2023.
Support costs are costs incurred supporting the global operations of the
business. These include a number of different activities including Sales and
Partner Success, Finance, HR, IT and Legal. Costs reduced by £12.1m to
£88.5m (1H22: £100.6m) driven by cost reductions across almost all areas and
includes the one-off benefit of the sale of the Dartford Spoke site, which
generated a profit on disposal of £5.0m. Under the revised segmentation Board
costs of £13.3m (1H22: £15.3m) are included within Technology Solutions
Support costs, this includes £7.4m of share-based payments (1H22: £9.5m).
EBITDA*
Technology Solutions achieved a positive EBITDA* for the period of £5.9m
(1H22: loss of £58.8m), an improvement of £64.7m. The strong profit
flow-through from the £73.5m growth in revenue reflects the high contribution
margin of the OSP business and the benefit of cost reductions in Support
costs.
Ocado Logistics
£m 1H23 1H22 Change
Cost recharges 318.5 317.3 0.4 %
Fee revenue 16.7 12.4 34.7 %
Revenue 335.2 329.7 1.7 %
Other income 6.9 6.7 3.0 %
Operational costs (295.6) (293.7) 0.6 %
Technology and support costs (31.9) (28.2) 13.1 %
EBITDA* 14.6 14.5 £0.1m
Key performance indicators
The following table sets out a summary of selected operating information in
the period:
1H23 1H22 Change
Total eaches (million) 595.9 611.9 (2.6)%
Orders per week (000s) 512 491 4.3%
OSP CFC UPH(1,2) 206 181 13.8%
Average deliveries per van per week(3) 182 177 2.8%
1. Measured as units dispatched from the CFC per variable hour
worked by operational personnel.
2. OSP CFCs are all sites excluding Hatfield and Dordon.
3. Average deliveries per van per week represents Ocado Retail
only, total deliveries by the average number of vans in the fleet
Ocado Logistics is a wholly owned third-party logistics business operating
exclusively in the UK. This business manages and operates automated warehouses
and the related supply chain and online delivery services on behalf of our two
partners, Ocado Retail and Morrisons.
During the first half of FY23 average orders per week across our two partners
increased by 4.3% to 512,000 orders per week (1H22: 491,000). While orders
grew, the volume of eaches decreased by 2.6% to 596m (1H22: 612m). The decline
in eaches reflects the changes in customer shopping behaviours towards smaller
shopping baskets in the face of the high price inflation.
Revenue
This comprises 1. cost recharges, which are the recharge of variable and fixed
costs incurred to provide fulfilment and delivery services, which are
recharged to Ocado Retail and Morrisons, and 2. a 4% management fee charged on
rechargeable costs and 3. capital recharges to Ocado Retail for the use of
certain fixtures & fittings, and plant & machinery that were not
transferred to Ocado Retail on its formation.
Fee revenue of £16.7m (1H22: £12.4m) increased by 34.7%, £4.3m and includes
£11.6m of management fees (1H22: £11.7m) and £5.1m of capital recharges
(1H22: £(0.2)m). The £4.3m increase in fee revenue is primarily due to an
increase of £5.3m in capital recharges year-on-year due to the impact in 1H22
of a prior year adjustment. Management fees are around 4% of rechargeable
costs and are broadly flat period-on-period in line with the movement in cost
recharges.
Capital recharges of £5.1m (1H22: £(0.2)m) relate to charges to Ocado Retail
for the use of certain assets that are owned by the group and utilised by
Ocado Retail. For partner-shared sites (primarily Dordon and Erith) capital
recharges are accounted for within revenue as we are providing a service.
For sites that are used exclusively by Ocado Retail (primarily Hatfield,
Purfleet, Bristol and Andover), this income is included within finance income
(below EBITDA) as we are providing a finance lease.
Cost recharges of £318.5m (1H22: £317.3m) increased by 0.4%. These costs
represent the operational costs that are recharged to Ocado Retail and
Morrisons for the provision of third-party logistics services. The key cost
recharge driver is the volumes processed through the CFC sites. While orders
per week increased by 4.3%, total eaches declined by 2.6%. Despite the decline
in eaches, cost recharges increased by 0.4% due to labour and fuel price
inflation and the negative impact of the smaller shopping baskets (resulting
in fewer eaches delivered per van). These were partly offset by the improved
efficiency from higher average number of units picked per labour hour ("UPH")
in our OSP sites where UPH increased by 13.8% to 206 units per hour (1H22:
181). Cost recharges are greater than rechargeable costs as cost recharges
include lease income for lease costs in shared sites, where we are providing a
service, for which the cost is included below EBITDA.
Recharges and fees to Ocado Retail of £264.9m (1H22: £259.4m) included
within the £335.2m revenue (1H22: £329.7m) are eliminated on consolidation.
Other income
Other income of £6.9m (1H22: £6.7m) relates to Erith and Dordon property
rental income and MHE JVCo asset rental income. This is within Operating costs
in the Consolidated Income Statement.
Fulfilment and delivery costs
These costs comprise the costs of fulfilment and delivery operations which are
recharged to Ocado Retail and Morrisons. Total operational costs increased by
0.6% to £295.6m (1H22: £293.7m), against a reduction in eaches of 2.6% to
596m (1H22: 612m). However, orders per week grew by 4.3% to 512,000 (1H23:
491,000).
Costs increased, despite a reduction in the volume of eaches, due to the
inefficiencies resulting from smaller baskets, and inflation in fuel and
labour costs, partially offset by a year-on-year reduction in utilities unit
costs and productivity improvements.
Productivity improvements are demonstrated by the improvement in UPH in OSP
CFCs (Erith, Andover, Purfleet, Bristol and Bicester), which improved
year-on-year to 206 in the period (FY21: 181), exceeding our target of 200
UPH. These productivity improvements enabled increased throughput of eaches,
resulting in lower labour costs and partially offsetting the inefficiencies
generated by smaller basket sizes.
Technology and support costs
Technology and support costs comprise 1. head office and related costs to
operate the Logistics business, 2. technology costs related to the operating
of our pre-OSP grocery fulfilment platform, and 3. the non-capitalised element
of the programme costs to transition our UK partners from the pre-OSP
technology platform to OSP. This programme is expected to be largely completed
in 2024.
Technology and support costs increased by £3.7m to £31.9m (1H22: £28.2m)
primarily due to investment in the final phase of the Ocado Retail transition
to OSP. Head office costs and a portion of technology costs are recharged to
our partners as part of our contractual agreements. The cost of operating the
pre-OSP platform and the transition to OSP is not recharged to partners.
EBITDA*
EBITDA* for the period was £14.6m, an increase of £0.1m (1H22: £14.5m): the
£5.3m increase in capital recharges was offset by the increase in
non-recharged technology costs, as described above.
Ocado Retail
£m 1H23 1H22 Change
Revenue 1,178.5 1,122.2 5.0%
Gross profit 389.9 385.4 1.2%
Gross margin % 33.1% 34.3% (1.2)ppts
Fulfilment and delivery costs (237.7) (234.1) 1.5%
Marketing costs (20.1) (26.6) (24.4)%
Support costs (49.0) (31.3) 56.5%
Fees (85.6) (62.1) 37.8%
EBITDA* (2.5) 31.3 £(33.8)m
The results of the Ocado Retail Limited joint venture (referred to as either
"Ocado Retail" or "Retail") are fully consolidated in the Group. Costs in the
Ocado Retail Income Statement have been reclassified to add clarity.
Key performance indicators
The following table sets out a summary of selected Ocado.com operating
information in the period:
Ocado.com 1H23 1H22 Change
Active customers (000s)(1) 959 867 10.6%
Average orders per week (000s)(2) 392 377 4.0%
Average basket value (£)(3) 121.22 119.45 1.5%
Average selling price (£)(4) 2.72 2.51 8.4%
Average basket size (eaches) 45 48 (6.3)%
1. Active customers are classified as active if they have shopped
at Ocado.com within the previous 12 weeks.
2. Average orders per week (000s) is for Ocado.com only. 1H22 has
been restated to reflect this (under the previous approach 1H22 was 381,000,
like-for-like orders per week would be 401,000, +5.2%)
3. Average basket value (£) is defined as product sales divided by
total orders. 1H22 has been restated to reflect the update to no longer deduct
cancelled orders on the road from total orders and change from gross sales to
product sales (under the previous approach 1H22 was £120, 1H23: £122)
4. Average selling price (£) is defined as product sales divided
by total eaches. 1H22 has been restated to reflect the update to no longer
deduct cancelled orders on the road from total orders and change from gross
sales to product sales (under the previous approach 1H22 was £2.52, 1H23:
£2.73)
Revenue
Revenue increased by 5.0% to £1,178.5m (1H22: £1,122.2m) driven by growth in
Ocado.com, with 4.0% order growth to 392,000 orders per week (1H22: 377,000
orders per week) and 1.5% growth in basket value to £121.22 (1H22: £119.45).
We have continued to win new customers through vouchering and marketing
activity. We improved customer retention driven by our fair-value and
competitive price proposition. We continue to focus on consistent and strong
operational performance in key areas such as delivering on time and in full.
Active customers now stand at 959,000, up by 10.6% from 867,000 at 1H22 (FY22:
940,000). Ocado has grown its share of the online grocery market to 13.0%
(1H22: 12.7%) (Nielsen). As our customer base continues to grow, average
orders per week have grown by 4.0% to 392,000 (1H22: 377,000).
The average basket value has grown by 1.5% to £121.22 (1H22: £119.45) driven
by the increase in selling price of 8.4% to £2.72, partly offset by a
reduction in the number of items purchased. In the face of cost-of-living
pressures, shoppers are managing the overall value of their baskets and as a
consequence items per basket have reduced by 6.3% to 45 items (1H22: 48).
We remain committed to offering fair value to customers and have not passed
through the full impact of food price inflation to our customers; the average
selling price on Ocado.com has increased by 8.4%, well below UK grocery
inflation of 12.8% (according to Nielsen). In April 2022 we launched the Ocado
Price Promise ("OPP"), a key component of our fair value strategy to support
the growth and retention of our customers. OPP matches the price of
like-for-like goods between Ocado.com and Tesco on over 10,000 lines; we aim
for total baskets on Ocado.com to be the same price or less. Where this is not
the case we send the customer a voucher for the difference.
Gross profit
Gross profit increased by 1.2% to £389.9m (1H22: £385.4m). Growth is lower
than revenue growth as we invested in customer pricing to deliver fair value
by not passing on all cost price increases to customers and investing in sales
promotions. As a result of these dynamics, gross margin declined by 1.2
percentage points to 33.1% (1H22: 34.3%). The gross profit figure includes
supplier-funded media income of £40.5m (1H22: £39.6m) and the cost of
vouchers of £12.6m (1H22: £6.8m).
Fulfilment and delivery costs
£m 1H23 1H22 Change
CFC (93.4) (93.5) (0.1)%
Service delivery (130.2) (125.1) 4.1%
Utilities (14.1) (15.5) (9.0)%
Operational costs (237.7) (234.1) 1.5%
CFC costs primarily comprise labour costs in CFCs. These costs have remained
broadly flat at £93.4m (1H22: £93.5m) despite the 4.0% growth in average
orders per week. This improved efficiency has been achieved by again improving
the productivity of our CFC sites. Units picked per hour ("UPH") across the
network improved by 8.7% from 172 to 187. This has been offset by the costs of
operating new Zoom sites, with four Zoom sites now operational (1H22: 2, FY22:
4).
The OSP sites have shown robust improvements in productivity reaching an
average of 206 UPH (1H22: 181 UPH), an improvement of 13.8%. All of the mature
sites (Erith, Andover, Purfleet, Bristol) achieved over 200 UPH in the period.
Service delivery costs comprise labour, fleet, fuel and related costs to
enable the delivery of orders to customers. Costs have increased by 4.1% to
£130.2m (1H22: £125.1m), primarily driven by the increased number of orders
(+4.0%). Service delivery costs are driven by the productivity of each
delivery van, measured in eaches per van, which has reduced by (8.3)% to 934
eaches (1H22: 1,019), as a result of smaller basket sizes, reducing efficiency
in the fleet, and reflected in the service delivery costs growing at a higher
amount (+4.1%) than the growth in orders (+4.0%).
Utilities costs across CFCs and service delivery have reduced by 9.0% to
£14.1m (1H22: £15.5m) due to lower unit costs partially offset by an
increase in the volume of electricity used (driven by the increased number of
live modules year-on-year).
Marketing and support costs
Marketing costs comprise the cost of marketing activities to customers and
exclude vouchering costs, which are within revenue. Costs decreased by £6.5m
to £20.1m (1H22: £26.6m) as we optimised the marketing channel mix and
improved marketing spend efficiency. Activities were focused on driving
increased awareness of the Ocado value proposition. As a result, marketing
spend as a percentage of revenue decreased to 1.7% (1H22: 2.4%).
Support costs of £49.0m (1H22: £31.3m) comprise head office, customer
support and other overhead costs for Ocado Retail. The 1H22 costs of £31.3m
benefitted from the £15.6m accrual release of the long-term management
incentive provision. Excluding this, support costs have increased by £2.1m,
primarily due to the write-off of £2.5m costs incurred while exploring new
CFC or Zoom site opportunities that we have chosen not to pursue. We have held
support costs broadly flat and mitigated the impact of wage inflation through
headcount rationalisations.
Fees
Fees comprise 1. the OSP fees paid to Technology Solutions for the operation
of the Ocado Smart Platform and 2. logistics management fees and capital
recharges paid to Ocado Logistics. Fees of £85.6m (1H22: £62.1m) increased
by £23.5m, driven by the impact of new sites and additional modules opened in
FY22. Additions include the Bicester CFC, three Zooms (Leeds, Leyton and
Canning Town) and additional module capacity in Andover and Purfleet.
EBITDA*
EBITDA* for the Retail business was a £2.5m loss (1H22: £31.3m profit). The
primary drivers for the £33.8m period-on-period movement are the absence of
the one-off accrual release in 1H22 of the £15.6m costs of a management
incentive scheme, the increase in OSP fees for new capacity and the unabsorbed
fixed costs of excess capacity. Notwithstanding the £2.5m EBITDA loss in the
period, EBITDA is on an improving trend, with each of the last three months
delivering positive EBITDA.
Exceptional items
£m 1H23 1H22
UK network capacity review (38.7) -
Litigation costs (9.1) (11.1)
Organisational restructure (7.8) -
Ocado Group Finance transformation (3.5) (4.0)
Ocado Retail IT systems transformation (0.7) (3.2)
Changes in fair value of contingent consideration (17.4) 5.1
Andover CFC - (0.1)
Erith CFC - 6.3
Total exceptional items (77.2) (7.0)
UK network capacity review
In April 2023, the Group announced its intention to cease operations in its
CFC in Hatfield. This decision was made as part of a wider review of the total
UK network capacity. As a result, the Group has recorded provisions for
restructuring costs of £11.0m, onerous contracts of £4.1m and other costs of
£3.2m, as well as an impairment charge of £20.4m (RoU assets £13.3m;
PP&E £7.1m). These costs almost entirely relate to the ceasing of
operations at our Hatfield CFC, which is currently planned for September 2023.
Litigation costs
Litigation costs during the year were exclusively those costs incurred on the
patent infringement litigation between the Group and AutoStore Technology AS
("AutoStore"). The costs during the period were £9.1m (1H22: £11.1m). Please
note the Subsequent Event in respect of AutoStore litigation costs highlighted
at the end of this report.
Ocado Group Finance transformation
Following the Group's implementation of various Software as a Service ("SaaS")
solutions in 2H21, primarily the Oracle Fusion implementation, the Group is
carrying out a programme that focuses on optimising and enhancing the existing
SaaS solutions and related finance processes. This programme is expected to
complete in 1H24 and will deliver cost efficiencies across the business. The
cumulative 'finance transformation' costs expensed to date amount to £10.5m
and include £3.5m in 1H23 (1H22: £4.0m).
Ocado Retail IT systems transformation
In FY21, Ocado Retail Limited ("Retail") initiated its IT Roadmap programme,
which focuses on delivering IT systems and services that will enable Retail to
meet its obligation to transition away from Ocado Group IT services, tools and
support. The IT Roadmap programme which is expected to run until the end of
FY23, includes the development of both on-premises and SaaS solutions. The IT
Roadmap programme costs that meet assets recognition criteria will be
recognised as intangible assets, and implementation costs that do not meet
assets recognition will be expensed. The cumulative costs expensed to date
amount to £9.3m. These costs have been classified as exceptional because they
are expected to be significant and result from a transformational activity
which is considered only incremental to the core activities of the Group.
Change in fair value of contingent consideration
In FY19, the Group sold Marie Claire Beauty Limited ("Fabled") to Next plc and
50% of Retail to Marks and Spencer Group plc ("M&S"). Part of the
consideration for these transactions was contingent on future events. The
Group holds contingent consideration at fair value through profit or loss and
revalues it at each reporting date. A loss on revaluation of £17.4m (1H22:
gain of £5.1m) is reported through exceptional items and is due to a £17.0m
reduction in the estimated contingent consideration receivable from M&S.
Refer to note 9 for further details.
Organisational restructure
During the period, the Group partially reorganised its head office and support
functions, resulting in redundancies of around 250 heads and related costs of
£7.8m. This followed an initial reorganisation in 2H22 which incurred costs
of £3.0m, with net cumulative costs to date of £10.8m. These costs have been
classified as exceptional on the basis that the aggregate costs are considered
to be significant and resulted from a strategic restructuring which is only
incremental to the normal operating activities of the Group.
Tax impact on exceptional items
The change in fair value of contingent consideration receivable is not subject
to tax. The remaining exceptional items are taxable or tax deductible and give
rise to a tax credit of £13.8m of which £nil (1H22: £0.6m) has been
recognised. The tax credit has not been recognised as it relates to tax losses
which are not recognised for deferred tax purposes.
Other items below EBITDA*
Depreciation, amortisation and impairment
Total depreciation, amortisation and impairment costs were £192.5m (1H22:
£157.3m), an increase of £35.2m, or 22.4% year-on-year. This includes 1.
depreciation of property, plant and equipment of £95.8m (1H22: £76.6m), 2.
depreciation of right-of-use assets of £35.5m (1H22: £33.9m), 3.
amortisation expense of £59.7m (1H22: £46.4m) and 4. impairment costs of
£1.5m (1H22: £0.4m).
The increase was primarily driven by the full-year depreciation of seven sites
that went live within the previous 12 months and the annualisation of seven
sites that went live during 1H22 (£16.5m; including right-of-use leases). The
other key driver of the movement was the amortisation of technology projects
going live in the last 12 months (£12.4m). The balance relates to impairments
and module draw-down in existing CFC sites.
Net finance costs
Net finance costs of £36.4m increased by £3.0m (1H22: £33.4m). Net finance
costs include Finance costs of £56.0m (1H22: £43.5m) and Finance income of
£19.6m (1H22: £10.1m).
Finance costs of £56.0m (1H22: £43.5m) mainly comprise:
● Interest expense on borrowings of £33.3m (1H22: £29.5m), which
increased by £3.8m primarily due to 1. incremental fees on the RCF (agreed in
June 2022) and 2. interest expense on the shareholder loan from M&S to
Ocado Retail.
● Interest expense on lease liabilities of £13.1m (1H22: £13.5m).
● A revaluation of financial assets of £4.0m (1H22: £nil) as the
Group's warrants held in Karakuri and loan notes to Karakuri have been written
off as Karakuri has entered into administration
● Net foreign exchange losses of £5.0m (1H22: £8.2m gain), largely
in respect of USD balances held.
Total borrowings at the end of the period were £1,393.2m (1H22: £1,315.7m).
Total lease liabilities at the end of the period were £516.0m (1H22:
£525.8m).
Share of results from joint ventures and associates
The Group has accounted for a £0.9m loss (1H22: £0.5m loss) for the share of
results from joint ventures and associates.
The group has two joint ventures (Ocado Retail and the MHE JVCo) and one
associate (Karakuri). The results of the Ocado Retail joint venture are fully
consolidated within the Ocado Group.
● MHE JVCo is a 50/50 joint venture with Morrisons and holds the
Dordon CFC MHE assets which Ocado Retail and Morrisons use to service their
online businesses. The Group's share of MHE JVCo loss after tax in the period
amounted to £0.1m (1H22: £nil).
● Karakuri Limited is an associate and the Group's 26.3% interest in
Karakuri contributed a loss of £0.8m in the period (1H22: £0.5m loss).
Karakuri appointed administrators in June 2023 and the £0.8m share of losses
in the period resulted in the remaining investment of £0.8m being written
down to £nil value. The £4.0m revaluation of equity investments (above) is
in respect of other assets related to Karakuri but not recorded directly in
investments in associates.
Statutory loss before tax
Statutory loss before tax of £289.5m (1H22: loss of £211.3m) reflects an
EBITDA* profit of £16.6m (1H22: loss of £13.6m), depreciation, amortisation
and impairment of £192.5m (1H22: £157.3m), net finance costs of £36.4m
(1H22: £33.4m) and net exceptional costs of £77.2m (1H22: £7.0m costs).
Taxation
The Group reported a total tax credit in the Income Statement for the period
of £14.1m (1H22: £0.8m). This amount includes a UK corporation tax charge of
£0.4m (1H22: credit of £3.1m) in respect of overseas entities. A deferred
tax credit of £14.5m (1H22: charge of £3.9m) was recognised in the period).
Deferred tax assets decreased due to the derecognition of losses mainly in
Ocado Retail. Deferred tax liabilities decreased due to the removal of
deferred tax on consolidation following an intercompany transfer of intangible
assets from Haddington and Kindred to Ocado Innovation Ltd.
At the end of the period, the Group had £1,165.6m (1H22: £904.7m) of
unutilised carried-forward tax losses.
Dividend
During the period, the Group did not declare a dividend (1H22: £nil).
Loss per share
Basic and diluted loss per share were (28.65)p (1H22: (28.67)p).
Capital expenditure
Capital expenditure was £283.6m in the period (1H22: £366.8m), a reduction
of £83.2m, primarily driven by a decrease in the number of CFCs and new
modules under construction. Capital expenditure primarily comprises new site
construction costs and technology development costs to enhance OSP.
An analysis of capital expenditure by key categories is presented below:
£m 1H23 1H22 Change
CFC sites 142.6 195.7 (27.1)%
Technology 102.6 86.3 18.9%
Group support and other 21.5 29.1 (26.1)%
Technology Solutions 266.7 311.1 (14.3)%
Logistics 6.6 9.7 (32.0)%
Retail 12.7 61.8 (79.4)%
Eliminations (2.4) (15.8) (84.8)%
Group capital expenditure 283.6 366.8 (22.7)%
Technology Solutions
CFC sites capital expenditure relates to the construction of new CFCs and Zoom
sites and was £142.6m in the period, a decrease of £53.1m (1H22: £195.7m).
The investment predominantly relates to the launch of the two CFCs which went
live in 1H23 together with five further sites under construction. The
reduction in site capital expenditure is driven by the number of sites in
construction reducing from 12 at the end of 1H22 to 5 at the end of 1H23.
Technology development spend of £102.6m (1H22: £86.3m) was driven by the
continued investment in OSP with a focus on delivering the Re:Imagined product
innovation announced in January 2022. Re:Imagined includes seven key
innovations: the 600 series bot, the 600 grid and optimised site design,
Automated Frameload, On-Grid Robotic Pick, Ocado Orbit, Ocado Swift Router and
Ocado Flex.
Technology headcount grew slightly in the period from around 2,600 heads to
around 2,700 heads. We continue to focus on enhancing our customer proposition
to deliver world-class end-to-end grocery ecommerce and fulfilment solutions.
OSP includes ecommerce, order management, forecasting, routing and delivery,
automated storage and retrieval systems (ASRS), dexterous robotics and other
material handling elements.
Group support and other capital expenditure comprise projects relating to
support costs systems and infrastructure and includes capital expenditure in
our venture businesses. Capital expenditure of £21.5m is £7.6m lower than
last year (1H22: £29.1m) as we have now completed several key investments in
support function systems and infrastructure. The single largest item within
the total spend of £21.5m is the £11.9m incurred in respect of Jones Food's
second vertical farm, based in Lydney, Gloucestershire and that went live in
June 2023 (Jones Food for 1H22: £4.6m). Jones Food results are fully
consolidated within the results of the Group.
Logistics
Capital expenditure of £6.6m (1H22: £9.7m) largely relates to technology
system development of £6.6m (1H22: £8.9m).
Retail
Capital expenditure of £12.7m (1H22: £61.8m) largely comprises CFC
construction costs recharged from Ocado Group, along with design and set-up
fees for new sites and IT project costs. Design and set-up fees of £2.4m
(1H22: £15.8m) charged in the period to Ocado Retail from Technology
Solutions are eliminated on consolidation of the Group and principally relate
to Zoom sites. This has reduced year-on-year as no new sites have opened or
been committed to in the period.
Capital expenditure in Retail decreased by £49.1m due to a reduction in new
CFC investment following the opening in FY22 of the Bicester CFC and the Zoom
sites in Leeds and Leyton. During the period CFC investment was primarily
related to building the new Luton CFC which is expected to go live in the
second half of FY23.
Eliminations
The elimination of capital expenditure comprises the design and set up fees
charged to Ocado Retail by Technology Solutions (those fees charged to Ocado
Retail are eliminated on consolidation of the Group).
Cash flow
£m 1H23 1H22
EBITDA* 16.6 (13.6)
Movement in contract liabilities 23.7 43.1
Other working capital movements (9.5) 22.9
Finance costs paid (28.1) (27.3)
Taxation received/(paid) 1.4 (0.5)
Insurance proceeds relating to business interruption - 10.0
Exceptional items (21.1) (18.3)
Other non-cash items 0.6 (10.6)
Operating cash flow (16.4) 5.7
Capital expenditure (288.8) (387.8)
Insurance proceeds relating to rebuilding Andover CFC - 5.0
Net proceeds from interest-bearing loans and borrowings 4.3 -
Repayment of lease liabilities (32.1) (23.1)
Proceeds from share issues 1.3 1.8
Other investing and financing activities 18.5 0.7
Movement in cash and cash equivalents (excl. FX changes) (313.2) (397.7)
Effect of changes in FX rates (6.3) 11.8
Movement in cash and cash equivalents (incl. FX changes) (319.5) (385.9)
The movement in cash and cash equivalents (including FX changes) was a
reduction of £319.5m (1H22: reduction of £385.9m). There was an improvement
in cash outflow of £66.4m year-on-year.
EBITDA* (as explained above) improved by £30.2m to £16.6m (1H22: loss of
£13.6m).
Operating cash flow reduced by £22.1m to an outflow of £16.4m (1H22: inflow
of £5.7m). The key drivers of this decline are explained below:
● Contract liabilities: cash inflow of £23.7m (1H22: £43.1m inflow)
relating to upfront design and access fees paid by partners. Design fees are
typically paid in instalments during the CFC construction process. The cash
inflow is lower than the prior year primarily due to the timing of design fee
instalment payments and fewer CFCs going live in the period.
● Working capital: cash outflow of £9.5m (1H22: £22.9m inflow)
primarily driven by lower trade and other payables of £(36.4)m mainly due to
the timing of payroll run at the period-end (in the prior period last year the
monthly payroll run was after the period-end and the payment was accrued).
This was partially offset by a reduction in inventories of £16.0m reflecting
the reduction of Ocado Retail stock after the busy Christmas period, in
combination with the seasonal decline in stock levels ahead of the summer
holiday period. The reduction also reflects an improvement in Ocado Retail
stock forecasting and active management of stock levels. Trade and other
receivables have been reduced by £10.9m.
● Finance costs: cash outflow of £28.1m (1H22: £27.3m outflow)
comprise £15.0m interest and charges on borrowings (1H22: £13.8m) and
£13.1m for the interest element of assets held under finance leases (1H22:
£13.5m).
● Taxation: cash inflow of £1.4m (1H22: outflow of £0.5m) reflects a
tax refund received by Ocado Retail, partially offset by taxation payments by
foreign subsidiaries. No UK tax was paid in the period.
● Exceptional items: cash outflow of £21.1m (1H22: outflow of
£18.3m) relates to cash-settled exceptional items and comprise the following:
o £9.1m (1H22: £11.1m) in relation to litigation costs;
o £7.8m (1H22: £nil) organisational restructuring costs;
o £3.5m (1H22: £4.0m) Finance transformation and SaaS implementation
costs;
o £0.7m (1H22: £3.2m) Ocado Retail IT systems transformation costs.
● Other non-cash items: inflow of £0.6m (1H22: outflow of £10.6m)
relates to adjustments for the following non-cash elements of EBITDA:
o £(13.1)m (1H22: £(12.7)m revenue recognised from long-term contracts;
o £16.1m (1H22: £21.1m) of share-based payments;
o £0.4m (1H22: £nil) non-cash write off of property, plant and equipment;
o £(5.0)m (1H22: £nil) gain on the disposal of property, plant and
equipment. The proceeds from the disposal are included in other investing and
financing activities;
o £0.9m (1H22: £0.5m) share of losses from joint ventures and associates;
o £1.2m (1H22: £(19.6)m) movement in provisions. The movement in the prior
year reflects the release of the Ocado Retail long-term management incentive
plan.
The movements above result in an operating cash outflow of £16.4m (1H22: cash
inflow £5.7m). The following movements explain the overall movement in cash
and cash equivalents outflow of £319.5m (1H22: outflow of £385.9m):
● Capital expenditure of £288.8m (1H22: £387.8m) primarily relates
to the continued investment in OSP and in new CFCs in the UK and
internationally. Capital expenditure also includes investment in group support
activities. The year-on-year reduction of £99.0m is primarily driven by the
reduced number of sites in construction; currently, five sites are under
construction (1H22: 12 sites under construction).
● Net proceeds from interest-bearing loans and borrowings of £4.3m
(1H22: £nil) primarily reflect 1. £10.0m shareholder loan from M&S to
Ocado Retail, 2. £(10.0)m RCF repayment by Ocado Retail, and 3. £4.3m loan
drawn down by Jones Food.
● Lease liability repayments of £32.1m (1H22: £23.1m), an increase
of £9.0m year-on-year driven by an increase in motor vehicle leases, new site
leases and two new Ocado Zoom sites in Leeds and Leyton. The increase also
includes a number of rent reviews.
● Net proceeds from share issue of £1.3m (1H22: £1.8m) are in
respect of employee share schemes.
● Other investing and financing activities £18.5m (1H22: £0.7m)
include £18.2m (1H22: £0.7m) of interest received on treasury deposits,
£9.4m (1H22: £nil) proceeds from the disposal of assets held for sale and
£0.9m (1H22: £nil) cash contingent consideration received in respect of the
sale of Fabled to Next plc. This was offset by investments in Oxbotica of
£10.0m (1H22: £nil).
● Effect of changes in FX rates of £(6.3)m (1H22: £11.8m) relates to
the FX loss (reported under net finance costs) and translation FX on cash
balances (predominantly USD cash balances held to fund the expansion of our
Technology Solutions business in the USA).
Underlying cash outflow* is £287.7m (1H22: £396.2)m and improved by £108.5m
year-on-year. Underlying cash flow is the movement in cash and cash
equivalents excluding the impact of exceptional items, costs of financing,
investment in unlisted equity investments and FX movements.
£m 1H23 1H22
Movement in cash and cash equivalents (319.5) (385.9)
Exceptional items 21.1 18.3
Insurance proceeds relating to business interruption - (10.0)
Insurance proceeds relating to rebuilding Andover CFC - (5.0)
Financing (5.6) (1.8)
Investment in unlisted equity investments 10.0 -
Effect of changes in FX rates 6.3 (11.8)
Underlying cash outflow* (287.7) (396.2)
Net Assets
£m 1H23 1H22 FY22
Assets
Goodwill 161.8 152.6 164.7
Other intangible assets 413.6 385.4 377.2
Property, plant and equipment 1,832.9 1,495.8 1,777.8
Right-of-use assets 460.8 481.7 493.9
Investment in joint venture and associates 14.6 26.0 15.6
Trade and other receivables 308.9 324.7 329.3
Cash and cash equivalents 1,008.5 1,082.7 1,328.0
Other financial assets 194.8 218.2 185.4
Inventories 85.7 78.9 106.8
Other assets 7.2 29.6 34.5
Total assets 4,488.8 4,275.6 4,813.2
Liabilities
Contract liabilities (428.2) (390.3) (422.9)
Trade and other payables (456.7) (412.8) (508.2)
Borrowings (1,393.2) (1,315.7) (1,372.8)
Lease liabilities (516.0) (525.8) (532.3)
Other Liabilities (48.2) (62.4) (42.7)
Total liabilities (2,842.3) (2,707.0) (2,878.9)
Net assets 1,646.5 1,568.6 1,934.3
Assets
Goodwill of £161.8m (FY22: £164.7m) represents the future benefit to Ocado
Group from the prior acquisitions of Kindred Systems Inc., Haddington Dynamics
Inc., Myrmex Inc. and Jones Food Company. This future benefit derives from the
development of new technology, the ability to attract new customers and cost
synergies. Goodwill decreased by £2.9m in the year due to the foreign
exchange impact of the revaluation of the goodwill (predominantly
USD-denominated).
Other intangible assets of £413.6m increased by £36.4m (FY22: £377.2m)
primarily due to capitalised internal development costs relating to the
build-out of our technology capabilities for our partners, across our CFC,
Zoom and ISF solutions, along with the capitalisation of software costs.
Property, plant and equipment net book value increased by £55.1m to
£1,832.9m (FY22: £1,777.8m) and comprise fixtures, fittings, plant and
machinery of £1,636.0m (FY22: £1,577.2m), land and buildings of £193.5m
(FY22: £197.5m) and motor vehicles of £3.4m (FY22: £3.1m).
● Fixtures, fittings, plant and machinery predominantly comprise the
material handling and other operating equipment within our sites.
o This increased by £58.8m to £1,636.0m driven by £169.6m of additions
(FY22: £489.9m) primarily relating to the go-live of two sites for our client
partners including AEON and Sobeys.
o Internal development costs of £17.2m were capitalised related to OSP
technology development and deployment.
o These increases were partly offset by depreciation of £94.5m, net foreign
exchange movements of £26.9m, impairment of £8.5m and other smaller
movements.
● Land and buildings comprise CFC and Zoom sites in the UK, spokes and
offices. The net book value decreased by £4.0m to £193.5m due to the
reclassification of certain assets to fixtures, fittings, plant and machinery.
● Motor vehicles primarily comprise the vehicles owned by Ocado Group
in relation to CFC and head office operations.
Right-of-use assets of £460.8m (FY22: £493.9m) represents the asset value of
assets held under long-term leases, comprising land and buildings of £388.0m
(FY22: £415.0m), motor vehicles of £61.0m (FY22: £63.1m) and fixtures,
fittings, plant and machinery of £11.8m (FY22: £15.8m). During the year the
Group entered into new leases for assets of £17.5m, which comprise land and
buildings of £5.8m, motor vehicles of £9.1m and fixtures, fittings, plant
and machinery of £2.6m. The depreciation charge for the period was £(35.6)m
and an impairment charge of £(13.3)m was recognised in relation to the
closure of the Hatfield CFC.
Investment in joint ventures and associates includes the Group's 50%
investment in MHE JVCo and the Group's 26.3% investment in Karakuri (both no
change in percentage holding from the prior year). During the period, the
Group's investment in Karakuri was reduced from £1.8m to £nil with the
carrying amount at the end of the period of £14.6m relating solely to the
investment in MHE JVCo.
Trade and other receivables reduced by £20.4m to £308.9m (FY22: £329.3m).
The balance comprises the following:
● Trade receivables (net of expected credit loss allowance) of £83.2m
(FY22: £124.2m), which predominantly comprise balances due from Solutions
customers and commercial and media income in Retail. The decrease of £41.0m
is mainly driven by the timing of media and promotional invoices raised that
is offset by the increase in accrued income (as detailed below) and cash
receipts from our partners.
● Other receivables of £65.7m (FY22: £82.7m). Other receivables
largely comprise tax refunds due and receivables expected from contract
manufacturers for components sourced on their behalf. The decrease of £17.0m
is mainly driven by corporation tax and VAT refunds and tax credit receipts in
respect of research and development.
● Prepayments of £85.7m (FY22: £76.5m). Prepayments typically
include CFC components, software maintenance payments and vehicle maintenance
payments. The £9.2m increase is mainly driven by prepaid rates, utilities,
insurance premiums and software maintenance. This is offset by a reduction in
prepaid CFC components.
● Accrued income of £74.3m (FY22: £45.9m) primarily relates to
accrued income for media and promotions, solutions capacity fees, and
volume-related rebates. The increase is mainly driven by accrued media and
promotional income and accrued fee income from our partners.
Cash and cash equivalents were £1,008.5m (FY22: £1,328.0m) at the end of the
period. Gross debt (including lease liabilities) at the period end was
£1,909.2m (FY22: £1,905.1m), with net debt* at the period-end of £(900.7)m
(FY22: £(577.1)m). In May, the Group renegotiated the covenant terms on the
RCF with its banking group in order to provide additional flexibility around
access to the facility. Current borrowing facilities mature in FY26 and FY27
with repayment due in December 2025 (£600m convertible bond), October 2026
(£500m Senior Unsecured Notes) and January 2027 (£350m convertible bond).
These facilities are expected to be refinanced on a timely basis to maintain
appropriate liquidity.
Other financial assets of £194.8m (FY22: £185.4m) comprise mainly the
contingent consideration receivable from M&S on the 50% sale of Ocado
Retail and unlisted equity investments held by the Group in Oxa Autonomy Ltd
("Oxa Autonomy"), previously Oxbotica Limited, Wayve Technologies and 80
Acres.
The increase of £9.4m is primarily due to the increase in the Group's
investment in Oxa Autonomy. In December 2022, Oxa Autonomy successfully
completed its Series C Fundraising, which resulted in the Group's warrants
being exercised to acquire 21,934 series-B shares for £10.0m. Following the
exercise of the warrants, the Group now holds a 12.2% interest in Oxa
Autonomy. At 1H23, the unlisted equity investment in Oxa Autonomy totals
£66.2m (FY22: £36.8m; 1H22: £10.3m). The fair value of the warrants prior
to the transaction was £19.4m, which together with the exercise cost of
£10.0m comprises the £29.4m increase in the Group's equity investment in Oxa
Autonomy.
We have re-estimated the fair value of the contingent consideration due from
M&S at the balance sheet date based on the probability weighting of a
series of scenarios that consider the current market uncertainty in the
grocery sector and Retail's current trading performance. As a result of this
assessment, we have reduced the value of the contingent consideration by
£17.0m to £78.0m (FY22: £95.0m).
Inventories of £85.7m (FY22: £106.8m) reduced by £21.1m and comprised
mainly goods held for resale (largely Retail grocery inventory) which
decreased by £21.3m to £67.9m (FY22: £89.2m).
Other assets of £7.2m (FY22: £34.5m) relate primarily to share warrants that
have a carrying value of £5.8m (FY22: £27.4m), and which have decreased by
£21.6m mainly due to the exercise of share warrants for Oxbotica of £19.4m
and impairment of Karakuri warrants of £2.1m.
Liabilities
Contract liabilities of £428.2m (FY22: £422.9m) primarily relate to the
consideration received in advance from Technology Solutions customers. Revenue
is then recognised when the performance obligation is satisfied, typically
when a site goes live. Contract liabilities reflect amounts invoiced to
partners for their contracted contribution towards the initial MHE investment
made in a site, and increased by £18.8m during the year (1H22: £24.5m). This
was partly offset by £13.5m (1H22: £12.7m) in respect of prior receipts
recognised as revenue in the year. The current contract liabilities balance of
£32.0m (FY22: £29.1m) represents amounts due to be recognised as revenue
within 12 months of the year-end.
Trade and other payables of £456.7m (FY22: £508.2m) reduced by £51.5m,
mainly due to the timing of the monthly payroll run and reduced accruals for
capital expenditure.
Borrowings of £1,393.2m (FY22: £1,372.8m) comprise the liability element of
the two unsecured convertible bonds, the senior unsecured bond and the
shareholder loan provided by M&S (the non-controlling interest) to Ocado
Retail. The increase of £20.4m due to 1. £16.4m accrued interest on bonds
held at amortised cost, 2. £10.0m shareholder loan provided by M&S (the
non-controlling interest) to Ocado Retail, 3. £4.3m loan drawn by Jones Food,
and 4. £(10)m repayment of RCF by Retail.
Lease liabilities of £516.0m (FY22: £532.3m) comprise land and buildings of
£439.2m (FY22: £441.4m), motor vehicles of £63.2m (FY22: £65.5m) and
fixtures, fittings, plant and machinery of £13.6m (FY22: £25.4m). New lease
liabilities of £18.3m were entered into during the year (1H22: £24.4m) and
largely comprised motor vehicles and land and buildings. Lease liabilities
decreased by payments made of £45.2m (1H22: £36.9m) and £(2.5)m of other
movements, partly offset by £13.1m of accrued interest (1H22: £13.5m).
Lease liabilities of £516.0m (FY22: £532.3m) include £9.0m (FY22: £17.5m)
payable to MHE JVCo, a company in which the Group holds a 50% interest.
Other liabilities of £48.2m (FY22: £42.7m) comprise:
● Provisions of £46.4m (FY22: £26.4m). The £20.0m increase in
provisions mainly reflects exceptional costs in relation to the closure of the
Hatfield CFC
● Derivative financial liabilities of £1.8m (FY22: £1.6m).
● Deferred tax liabilities of £nil (FY22: £14.7m). The £14.7m
decrease is due to the removal of deferred tax on consolidation following an
intercompany transfer of intangible assets from Haddington and Kindred to
Ocado Innovation Ltd
Subsequent events
Acquisition of 6 Rivers Systems
On 4 May 2023 the Group announced the agreement with Shopify Inc. to acquire 6
River Systems LLC ("6RS"), a collaborative Autonomous Mobile Robot ("AMR")
fulfilment solutions provider to the logistics and non-grocery retail sectors,
based in Massachusetts, USA. 6RS was founded in 2015 and has developed an
Autonomous Mobile Robot product called 'Chuck' that provides automated
assistance to pickers in a warehouse, working collaboratively with human
operators. Chuck robots are currently deployed in over 100 warehouses
worldwide, with more than 70 customers. The acquisition was completed on 30
June 2023 for a cash consideration of £10.0m (US$12.7m). 6RS will become part
of Ocado Intelligent Automation and its results reported within Technology
Solutions.
AutoStore litigation cost recovery
Following Ocado's victory in the UK High Court as part of the ongoing
litigation with AutoStore, on 29 June 2023 the UK High Court issued a formal
order stating that Ocado infringes none of the AutoStore patents and that
AutoStore bot patents are invalid and revoked. The UK High Court also ordered
that AutoStore pay Ocado £6.7m in costs in relation to the UK High Court
trial. As is usual in patent cases, AutoStore has been given the option to
appeal.
Condensed Consolidated Financial Statements
Condensed Consolidated Income Statement
for the 26 weeks ended 28 May 2023
26 weeks ended 28 May 2023 (unaudited) 26 weeks ended 29 May 2022 (unaudited) - (restated(1))
Before exceptional items Exceptional items Total Before exceptional items Exceptional items Total
(Note 5) (Note 5)
Notes £m £m £m £m £m £m
Revenue 4 1,370.7 - 1,370.7 1,262.4 - 1,262.4
Insurance proceeds - - - - 6.3 6.3
Operating costs (1,545.7) (77.2) (1,622.9) (1,432.8) (13.3) (1,446.1)
Operating loss before results from joint ventures and associate (175.0) (77.2) (252.2) (170.4) (7.0) (177.4)
Share of results from joint ventures and associate (0.9) - (0.9) (0.5) - (0.5)
Operating loss (175.9) (77.2) (253.1) (170.9) (7.0) (177.9)
Finance income 7 19.6 - 19.6 10.1 - 10.1
Finance costs 7 (56.0) - (56.0) (43.5) - (43.5)
Loss before tax (212.3) (77.2) (289.5) (204.3) (7.0) (211.3)
Taxation 14.1 - 14.1 (1.4) 0.6 (0.8)
Loss for the period (198.2) (77.2) (275.4) (205.7) (6.4) (212.1)
Attributable to:
Owners of Ocado Group plc (233.7) (212.5)
Non-controlling interests (41.7) 0.4
(275.4) (212.1)
Loss per share Pence Pence
Basic and diluted loss per share 6 (28.65) (28.67)
1. During the period, the Group changed the presentation of its expenses.
Consequently, the prior year comparatives have been restated. See Note 3 for
the details of the restatement.
Earnings before interest, taxation, depreciation, amortisation, impairment and
exceptional items (EBITDA(*))
26 weeks ended 26 weeks ended
28 May 2023 29 May 2022
£m £m
Note (unaudited) (unaudited)
Operating loss (253.1) (177.9)
Adjustments for:
Exceptional items* 5 77.2 7.0
Amortisation of intangible assets 59.7 46.4
Impairment of intangible assets 0.1 -
Depreciation of property, plant and equipment 95.8 76.6
Impairment of property, plant and equipment 1.4 0.4
Depreciation of right-of-use assets 35.5 33.9
EBITDA(*) 16.6 (13.6)
* See Alternative performance measures in Note 16 for further information.
Condensed Consolidated Statement of Comprehensive Income
for the 26 weeks ended 28 May 2023
26 weeks ended 26 weeks ended
28 May 2023 29 May 2022
£m £m
(unaudited) (unaudited)
Loss for the period (275.4) (212.1)
Other comprehensive income:
Items that may be reclassified to profit or loss in subsequent years:
(Loss)/gain arising on cash flow hedges (1.0) 4.6
Foreign exchange (loss)/gain on translation of foreign subsidiaries (28.8) 43.6
Net other comprehensive (expense)/income that may be reclassified to profit or (29.8) 48.2
loss in subsequent periods
Items that will not be reclassified to profit or loss in subsequent periods:
Gains on equity instruments designated as fair value through other - 0.2
comprehensive income
Net other comprehensive income that will not be reclassified to profit and - 0.2
loss in subsequent periods
Other comprehensive (expense)/income for the period, net of tax (29.8) 48.4
Total comprehensive expense for the period (305.2) (163.7)
Attributable to:
Owners of Ocado Group plc (263.5) (164.1)
Non-controlling interests (41.7) 0.4
(305.2) (163.7)
Condensed Consolidated Balance Sheet
as at 28 May 2023
28 May 2023 29 May 2022 27 November 2022
£m £m £m
Notes (unaudited) (unaudited) (audited)
Non-current assets
Goodwill 161.8 152.6 164.7
Other intangible assets 413.6 385.4 377.2
Property, plant and equipment 1,832.9 1,495.8 1,777.8
Right-of-use assets 460.8 481.7 493.9
Deferred tax assets 1.4 8.9 1.9
Costs to obtain contracts - 0.7 -
Other financial assets 9 193.3 217.3 181.6
Investment in joint ventures and associates 14.6 26.0 15.6
Derivative financial assets 10 5.8 10.5 27.4
3,084.2 2,778.9 3,040.1
Current assets
Inventories 85.7 78.9 106.8
Contract assets - 0.1 -
Costs to obtain contracts - 0.1 -
Trade and other receivables 308.9 324.7 329.3
Derivative financial assets 10 - 4.9 0.8
Other financial assets 9 1.5 0.9 3.8
Cash and cash equivalents 8 1,008.5 1,082.7 1,328.0
1,404.6 1,492.3 1,768.7
Asset held for sale - 4.4 4.4
1,404.6 1,496.7 1,773.1
Total assets 4,488.8 4,275.6 4,813.2
Current liabilities
Trade and other payables (456.3) (412.3) (506.3)
Borrowings 8 (0.4) - (10.2)
Contract liabilities (32.0) (25.3) (29.1)
Lease liabilities 8 (59.4) (61.3) (58.6)
Provisions 12 (20.0) (1.1) (1.0)
Derivative financial liabilities 10 (1.8) - (1.6)
(569.9) (500.0) (606.8)
Net current assets 834.7 996.7 1,166.3
Non-current liabilities
Contract liabilities (396.2) (365.0) (393.8)
Borrowings 8 (1,392.8) (1,315.7) (1,362.6)
Lease liabilities 8 (456.6) (464.5) (473.7)
Provisions 12 (26.4) (29.8) (25.4)
Trade and other payables (0.4) (0.5) (1.9)
Deferred tax liabilities - (31.5) (14.7)
(2,272.4) (2,207.0) (2,272.1)
Net assets 1,646.5 1,568.6 1,934.3
Equity
Share capital 16.5 15.0 16.5
Share premium 1,940.6 1,373.8 1,939.3
Treasury shares reserve (112.9) (113.0) (112.9)
Other reserves 134.2 118.3 164.0
Retained earnings (385.2) 51.9 (169.0)
Equity attributable to owners of Ocado Group plc 1,593.2 1,446.0 1,837.9
Non-controlling interests 53.3 122.6 96.4
Total equity 1,646.5 1,568.6 1,934.3
Condensed Consolidated Statement of Changes in Equity
for the 26 weeks ended 28 May 2023
Attributable to owners of Ocado Group plc
Share capital Share premium Treasury shares reserve Other reserves Retained earnings Total Non- Total equity
controlling interests
£m £m £m £m £m £m £m £m
Balance at 27 November 2022 (audited) 16.5 1,939.3 (112.9) 164.0 (169.0) 1,837.9 96.4 1,934.3
Loss for the period - - - - (233.7) (233.7) (41.7) (275.4)
Other comprehensive expense - - - (29.8) - (29.8) - (29.8)
Total comprehensive expense for the period ended 28 May 2023 (unaudited) - - - (29.8) (233.7) (263.5) (41.7) (305.2)
Transactions with owners:
- Issue of ordinary shares - 1.1 - - - 1.1 - 1.1
- Allotted in respect of share option schemes - 0.2 - - - 0.2 - 0.2
- Share-based payments charge (net of tax) - - - - 16.1 16.1 - 16.1
- Additional investment in Jones Food Company Limited(1) - - - - 1.4 1.4 (1.4) -
Total transactions with owners - 1.3 - - 17.5 18.8 (1.4) 17.4
Balance at 29 May 2023 (unaudited) 16.5 1,940.6 (112.9) 134.2 (385.2) 1,593.2 53.3 1,646.5
Attributable to owners of Ocado Group plc
Share capital Share premium Treasury shares reserve Other reserves Retained earnings Total Non- Total equity
controlling interests
£m £m £m £m £m £m £m £m
Balance at 28 November 2021 (audited) 15.0 1,372.0 (113.0) 69.9 244.3 1,588.2 121.2 1,709.4
(Loss)/profit for the period - - - - (212.5) (212.5) 0.4 (212.1)
Other comprehensive income - - - 48.4 - 48.4 - 48.4
Total comprehensive income/(expense) for the period ended 29 May 2022 - - - 48.4 (212.5) (164.1) 0.4 (163.7)
(unaudited)
Transactions with owners:
- Issue of ordinary shares - 1.2 - - - 1.2 - 1.2
- Allotted in respect of share option schemes - 0.6 - - - 0.6 - 0.6
- Share-based payments charge (net of tax) - - - - 21.1 21.1 - 21.1
- Reduction in investment in Jones Food Company Limited(2) - - - - (1.0) (1.0) 1.0 -
Total transactions with owners - 1.8 - - 20.1 21.9 1.0 22.9
Balance at 29 May 2022 (unaudited) 15.0 1,373.8 (113.0) 118.3 51.9 1,446.0 122.6 1,568.6
1. In April 2023, the Group exercised warrants in Jones Food Company Limited
("Jones Food Company") to acquire 2.3 million shares for £3.7m and therefore,
the Group's shareholdings in Jones Food Company is 54.6%. The Group retains
control of Jones Food Company.
2. In January 2022, Jones Food Company issued new shares to three individuals,
which resulted in the Group's shareholdings in Jones Food Company decreasing
to 48.1%. The Group retained control of Jones Food Company following this
transaction.
Condensed Consolidated Statement of Cash Flows
for the 26 weeks ended 28 May 2023
26 weeks ended 26 weeks ended
28 May 2023 29 May 2022
£m £m
Note (unaudited) (unaudited)
Cash generated from operations 13 10.3 23.5
Corporation tax refund/(paid) 1.4 (0.5)
Interest paid (28.1) (27.3)
Insurance proceeds relating to destroyed inventory and business interruption - 10.0
Net cash flows (used in)/from operating activities (16.4) 5.7
Cash flows from/(used in) investing activities
Insurance proceeds relating to rebuilding Andover Customer Fulfilment Centre - 5.0
("CFC")
Purchase of property, plant and equipment (194.8) (305.8)
Purchase of intangible assets (94.0) (82.0)
Purchase of unlisted equity investment at FVTOCI (10.0) -
Proceeds from disposal of asset held for sale 9.4 -
Interest received 18.2 0.7
Net cash flows used in investing activities (271.2) (382.1)
Cash flows from/(used in) financing activities
Proceeds from issue of ordinary share capital 1.1 0.6
Proceeds from allotment of share options 0.2 1.2
Proceeds from interest-bearing loans and borrowings 14.3 -
Repayment of borrowings (10.0) -
Repayment of lease liabilities (32.1) (23.1)
Cash received in respect of contingent consideration receivable 0.9 -
Net cash flows used in financing activities (25.6) (21.3)
Net decrease in cash and cash equivalents (313.2) (397.7)
Cash and cash equivalents at the beginning of the period 1,328.0 1,468.6
Effects of changes in foreign exchange rates (6.3) 11.8
Cash and cash equivalents at the end of the period 1,008.5 1,082.7
Notes to the condensed consolidated interim financial information
1. General information
Ocado Group plc (hereafter the "Company") is incorporated in the United
Kingdom under the Companies Act 2006 (company number: 07098618). The address
of its registered office is Buildings One & Two Trident Place, Mosquito
Way, Hatfield, Hertfordshire, AL10 9UL, United Kingdom. The condensed
consolidated interim financial information (hereafter "Financial Information")
comprises the results of the Company and its subsidiaries (hereafter the
"Group").
The financial period represents the 26 weeks ended 28 May 2023. The prior
financial periods represent the 26 weeks ended 29 May 2022 and the 52 weeks
ended 27 November 2022.
2. Basis of preparation
This condensed consolidated interim financial report for the half-year
reporting period ended 28 May 2023 has been prepared in accordance with the
UK-adopted International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of the UK's
Financial Conduct Authority.
The Financial Information does not amount to full statutory accounts within
the meaning of Section 434 of the Companies Act 2006 and does not include all
of the information and disclosures required for full annual financial
statements. It should be read in conjunction with the Annual Report and
Accounts of Ocado Group plc for the 52 weeks ended 27 November 2022 which was
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 UK-adopted International Financial
Reporting Standards ('IFRS'), including the interpretations issued by IFRS
Interpretation Committee ('IFRIC'). This report is available either on request
from the Company's registered office or at www.ocadogroup.com. The Independent
Auditor's Report on these accounts was unqualified, did not contain an
emphasis of matter paragraph and did not contain any statement under Section
498 of the Companies Act 2006.
The Financial Information is presented in pounds sterling, rounded to the
nearest hundred thousand unless otherwise stated. It has been prepared under
the historical cost convention, as modified by the revaluation of financial
asset investments and certain financial assets and liabilities, which are held
at fair value.
Going concern
The Directors are satisfied that the Group has sufficient resources to
continue in operation for the foreseeable future, a period of not less than 12
months from the date of this report. Accordingly, they continue to adopt the
going concern basis in preparing the condensed consolidated financial
statements.
In assessing going concern, the Directors take into account the Group's cash
flows, solvency and liquidity positions and borrowing facilities. At the end
of the period, the Group had cash and cash equivalents of £1,008.5m (27
November 2022: £1,382.0m) and net current assets of £834.7m (27 November
2022: £1,166.3m), which the Directors believe would be sufficient to maintain
the Group's liquidity over the going concern period, including continued
investment to meet existing financial commitments and to deliver future
growth.
The Directors considered a range of scenarios as part of their assessment,
each of which showed positive cash headroom throughout the 18-month period
from the balance sheet date that has been considered in the assessment. In
addition, the Directors considered mitigating actions available in the event
of a deterioration in trading performance, notably the ability to reduce
capital expenditure in the short term or to make cost efficiencies where
appropriate.
Taking these factors together, the Directors believe that it is appropriate to
continue to adopt the going concern basis in preparing the condensed
consolidated financial statements.
3. Significant accounting policies
Accounting policies
The accounting policies applied by the Group in these interim financial
statements are consistent with those applied by the Group in its consolidated
financial statements for the 52 weeks ended 27 November 2022.
Judgements and estimates
The preparation of interim financial information requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income
and expense. Actual results may differ from these estimates. In preparing
these interim financial statements, the critical accounting judgements made by
management in applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the Annual
Report and Accounts for the 52 weeks ended 27 November 2022.
New standards, amendments and interpretations
The following new standards, interpretations and amendments to published
standards and interpretations are relevant to the Group and have been deemed
to have an immaterial effect on these interim financial statements:
Effective date
IAS 16 Property, Plant and Equipment - proceeds of intended use 1 January 2022
IAS 37 Onerous Contracts - costs of fulfilling a contract 1 January 2022
IFRS 3 Reference to the Conceptual Framework 1 January 2022
Annual Improvements to IFRS, 2018-2020 Cycle Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 1 January 2022
Change in presentation of expenses in the condensed consolidated income
statement
Following the change of the Group's operating segments during the period (see
Note 4 for details), the Group has also adopted a revised presentation of
expenses in the Income Statement, replacing Cost of Sales, Distribution
Expenses and Administrative Expenses with a single line item for Operating
Costs, resulting in 1H22 previously reported amounts of £777.7m, £418.8m and
£285.2m respectively aggregating to a 1H22 restated amount of £1,481.7m. The
revised presentation provides an Income Statement that is more relevant for
the Group, reflecting the increased impact of the Technology Solutions
business where the nature of the associated costs, does not have the typical
cost of sales, distribution and administrative expenses. In addition, the
revised presentation also provides more reliable reporting by removing any
allocations between distribution and administrative expenses.
In addition, the Group has reassessed the classification of certain items
which were previously reported as Other Income and which are now being
reported within operating costs. The prior period comparatives have been
restated on this basis, with £48.9m now being recorded within the restated
Operating expenses of £1,446.1m.
4. Segmental reporting
In accordance with IFRS 8 "Operating Segments", an operating segment is
defined as a business activity whose operating results are reviewed by the
chief operating decision-maker ("CODM") and for which discrete information is
available. Operating segments are reported in a manner consistent with the
internal reporting provided to the CODM, as required by IFRS 8. The CODM, who
is responsible for allocating resources and assessing performance of the
operating segments, has been identified as the Board. The Board assesses the
performance of all operating segments on the basis of EBITDA(*).
To better reflect the structure of the Group's businesses, commencing FY23,
the Group changed the reporting structure of its operating segments to align
with the three underlying business models: Retail, Logistics and Technology
Solutions:
● The Retail segment provides online grocery and general merchandise
offerings to customers within the United Kingdom and relates entirely to the
Ocado Retail joint venture.
● The Logistics segment provides the CFCs and logistics services for
customers in the United Kingdom (Wm Morrison Supermarkets Limited and Ocado
Retail Limited).
● The Technology Solutions segment provides end-to-end online retail
and automated storage and retrieval solutions for general merchandise to
corporate customers both in and outside of the United Kingdom.
The 2023 segmental disclosures have been prepared to reflect the above
structure, with the prior period comparatives restated on this basis.
Inter-segment eliminations relate to revenues and costs arising from
inter-segment transactions and are required to reconcile segmental results to
the consolidated Group results.
Any transactions between the segments are subject to normal commercial terms
and market conditions. Segmental results include items directly attributable
to a segment as well as those that can be allocated on a reasonable basis.
The Group is not currently reliant on any major customer for 10% or more of
its revenue.
Retail Logistics Technology Solutions Inter-segment eliminations Total
Segmental revenue and EBITDA(*) £m £m £m £m £m
26 weeks ended 28 May 2023 (unaudited)
Segmental revenue(*) 1,178.5 335.2 198.2 (341.2) 1,370.7
Segmental EBITDA(*) (2.5) 14.6 5.9 (1.4) 16.6
26 weeks ended 29 May 2022 (unaudited) - restated
Segmental revenue(*) 1,122.2 329.7 124.7 (314.2) 1,262.4
Segmental EBITDA(*) 31.3 14.5 (58.8) (0.6) (13.6)
52 weeks ended 27 November 2022 (audited) - restated
Segmental revenue(*) 2,203.0 659.9 291.4 (640.5) 2,513.8
Segmental EBITDA(*) (4.0) 33.6 (101.5) (2.2) (74.1)
* See Alternative performance measures in Note 16 for further information.
No measure of total assets and total liabilities is reported to each
reportable segment, as such amounts are not provided to the CODM.
5. Exceptional items*
Exceptional items*, as disclosed on the face of the Consolidated Income
Statement, are items that are considered to be significant due to their size
and/or nature, not in the normal course of business or are consistent with
items that were treated as exceptional in prior periods or that may span
multiple financial periods. They have been classified separately in order to
draw them to the attention of the readers of the financial statements and
facilitate comparison with prior periods to assess trends in financial
performance more readily. The Group applies judgement in identifying the items
of income and expense that are recognised as exceptional.
26 weeks ended 26 weeks ended
28 May 2023 29 May 2022
£m £m
Ref. (unaudited) (unaudited)
Andover CFC
- Other exceptional costs - (0.1)
Erith CFC
- Insurance reimbursement - 6.3
Ocado Group Finance transformation A (3.5) (4.0)
Litigation costs B (9.1) (11.1)
Ocado Retail IT systems transformation C (0.7) (3.2)
Change in fair value of contingent consideration D (17.4) 5.1
Organisational restructure E (7.8) -
UK network capacity review F (38.7) -
Net exceptional costs (77.2) (7.0)
* Exceptional items are alternative performance measures. See Note 16 for
further information.
A. Ocado Group Finance transformation
Subsequent to the Group's implementation of various Software as a Service
("SaaS") solutions in 2H21, the Group has undertaken a multi-year programme
which focuses on optimising and enhancing the existing SaaS solutions and
related finance processes to improve efficiency across the business. This
programme is expected to complete in 1H24. The cumulative finance
transformation costs expensed to date amount to £10.5m and include £3.5m in
1H23 which largely relate to spend on external consultants and contractors.
These amounts have been disclosed as exceptional items because the total costs
associated with this programme are significant and arise from a strategic
project that is not considered by the Group to be part of the normal operating
costs of the business.
B. Litigation costs
Litigation costs are costs incurred on patent infringement litigation between
the Group and AutoStore Technology AS ("AutoStore"). The net cumulative costs
to date amount to £66.7m and include £9.1m in 1H23.
C. Ocado Retail IT systems transformation
In FY21, Ocado Retail initiated its IT Roadmap programme which focuses on
delivering IT systems and services that will enable ORL to meet its obligation
to transition away from Ocado Group IT services, tools and support. The IT
Roadmap programme which is expected to conclude in FY23 includes the
development of both on-premises and SaaS solutions. IT Roadmap programme costs
that meet assets recognition criteria will be recognised as intangible assets,
and implementation costs that do not meet assets recognition will be expensed.
The cumulative costs expensed to date amount to £9.3m. These costs have been
classified as exceptional because they are expected to be significant and
result from a transformational activity which is considered only incremental
to the core activities of the Group.
D. Change in fair value of contingent consideration
In 2019, the Group sold Marie Claire Beauty Limited ("Fabled") to Next plc and
50% of ORL to Marks and Spencer Group plc ("M&S"). Part of the
consideration for these transactions was contingent on future events. The
Group holds contingent consideration at fair value through profit or loss, and
revalues it at each reporting date. As at 28 May 2023, the value of the
contingent consideration was £80.1m (FY22: £98.3m). A loss on revaluation of
£17.4m (1H22: £5.1m gain) is reported through exceptional items, primarily
driven by the reduction in the contingent consideration receivable from
M&S. Refer to Note 9 for details.
E. Organisational restructure
During the period, the Group undertook a partial reorganisation of its head
office and support functions resulting in redundancy and related costs of
£7.8m. This followed an initial reorganisation in 2H22 which incurred costs
of £3.0m, with net cumulative costs to date of £10.8m. These costs have been
classified as exceptional on the basis that the aggregate costs are considered
to be significant and resulted from a strategic restructuring which is only
incremental to the normal operating activities of the Group.
F. UK network capacity review
On 25 April 2023, the Group announced the plan to cease operations at its
Customer Fulfilment Centre ("CFC") in Hatfield as part of a wider review of UK
network capacity.
As a result, the Group has recorded provisions for restructuring costs of
£11.0m, onerous contracts of £4.1m and other costs of £3.2m, as well as an
impairment charge of £20.4m (RoU assets £13.3m; PP&E £7.1m).
These costs have been classified as exceptional on the basis that they are
expected to be material and relate primarily to a site where no ongoing
trading activities will take place.
Tax impact on exceptional items
The change in fair value of contingent consideration receivable is not subject
to tax. The remaining exceptional items are taxable or tax deductible and
give rise to a tax credit of £13.8m of which £nil (1H22: £0.6m) has been
recognised. The tax credit has not been recognised as it relates to tax
losses which are not recognised for deferred tax purposes.
6. Loss per share
Basic loss per share is calculated by dividing the loss attributable to equity
holders of the Company by the weighted average number of ordinary shares in
issue during the period, excluding ordinary shares held pursuant to the
Group's Joint Share Ownership Scheme ("JSOS"), and linked jointly-owned equity
("JOE") awards under the Ocado Group Value Creation Plan ("Group VCP"), which
are accounted for as treasury shares.
The diluted loss per share is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume conversion or vesting of all
dilutive potential shares. The Company has five classes of instruments that
are potentially dilutive: share options, share interests held pursuant to the
Group's JSOS, linked JOE awards under the VCP, shares under the Group's staff
incentive plans and convertible bonds.
There was no difference in the weighted average number of shares used for the
calculation of basic and diluted loss per share as the effect of all
potentially dilutive shares outstanding was anti-dilutive.
The basic and diluted loss per share has been calculated as follows:
26 weeks ended 26 weeks ended
28 May 2023 29 May 2022
(unaudited) (unaudited)
Million Million
Weighted average number of shares at the end of the period 815.8 741.1
£m £m
Loss for the period attributable to the owners of Ocado Group plc (233.7) (212.5)
Pence Pence
Basic and diluted loss per share (28.65) (28.67)
7. Finance income and costs
26 weeks ended 26 weeks ended
28 May 2023 29 May 2022
£m £m
(unaudited) (unaudited)
Interest income on cash balances 19.1 0.7
Interest income on loans receivable 0.5 0.4
Gain on revaluation of financial assets designated at FVTPL - 0.8
Foreign exchange gain - 8.2
Finance income 19.6 10.1
Borrowing costs:
- Interest on lease liabilities (13.1) (13.5)
- Interest and other charges on borrowings (33.3) (29.5)
Loss on revaluation of financial assets designated at FVTPL (4.0) -
Foreign exchange loss (5.0) -
Unwinding of discounting of provisions (0.6) (0.5)
Finance costs (56.0) (43.5)
Net finance cost (36.4) (33.4)
8. Movements in net debt(*)
Net debt(*) is calculated as cash and cash equivalents less total debt
(borrowings and lease liabilities).
Non-cash movements
Cash flows Net new lease liabilities Foreign exchange 28 May
27 November £m £m £m 2023
2022 Unwinding of interest £m
£m £m
Cash and cash equivalents 1,328.0 (313.2) - (6.3) - 1,008.5
Liabilities from financing activities:
Borrowings (1,372.8) (4.3) - - (16.1) (1,393.2)
Lease liabilities (532.3) 32.1 (15.7) (0.1) - (516.0)
Gross debt* (1,905.1) 27.8 (15.7) (0.1) (16.1) (1,909.2)
Net debt* (577.1) (285.4) (15.7) (6.4) (16.1) (900.7)
Non-cash movements
Cash flows Net new lease liabilities Foreign exchange 29 May
28 November £m £m £m 2022
2021 Unwinding of interest £m
£m £m
Cash and cash equivalents 1,468.6 (397.7) - 11.8 - 1,082.7
Liabilities from financing activities:
Borrowings (1,300.0) - - - (15.7) (1,315.7)
Lease liabilities (528.4) 23.1 (20.5) - - (525.8)
Gross debt* (1,828.4) 23.1 (20.5) - (15.7) (1,841.5)
Net debt* (359.8) (374.6) (20.5) 11.8 (15.7) (758.8)
* Gross debt and net debt are alternative performance measures. See Note 16
for further information.
9. Other financial assets
Other financial assets comprise contingent consideration receivable, unlisted
equity investments, loans receivable and contributions towards dilapidations
costs receivable.
28 May 2023 29 May 2022 27 November 2022
£m £m £m
(unaudited) (unaudited) (audited)
Non-current assets
Contingent consideration receivable 78.6 161.1 96.3
Unlisted equity investments held at FVTOCI 99.2 39.5 69.8
Unlisted equity investments held at FVTPL - 0.9 -
Loans receivable held at FVTPL 0.5 1.9 0.6
Loans receivable held at amortised cost 14.3 13.2 14.2
Contribution towards dilapidation costs receivable 0.7 0.7 0.7
193.3 217.3 181.6
Current assets
Contingent consideration receivable 1.5 0.7 2.0
Loans receivable held at FVTPL - 0.2 1.8
1.5 0.9 3.8
Contingent consideration receivable
Total contingent consideration receivable at the balance sheet date is £80.1m
(FY22: £98.3m; 1H22: £161.8m), and comprises two amounts: £78.0m (FY22:
£95.0m; 1H22: £158.9m) due from Marks and Spencer Holdings Limited
("M&S") relating to the part-disposal of Ocado Retail Limited ("Ocado
Retail") in August 2019; and £2.1m (FY22: £3.3m; 1H22 £2.9m) due from Next
Holdings Limited ("Next") relating to the disposal of Marie Claire Beauty
Limited ("Fabled") in July 2019.
Contingent consideration due from M&S
Under the contractual terms of the part-disposal of Ocado Retail during 2019,
there is a contingent consideration due from M&S to Ocado Group of
£190.7m (£156.3m plus interest of £34.4m) that is payable in cash by no
later than August 2024.
This payment is dependent on certain contractually defined Ocado Retail
performance measures ("the Target") being achieved during the 2023 financial
year. The outcome is a binary one, meaning should the Target be achieved, this
will trigger the payment in full of £190.7m. Conversely, should the Target
not be achieved, no consideration would be payable by M&S.
The contractual arrangement with M&S expressly provides for the Target
performance measures to be adjusted for actions taken by management since the
date of the part-disposal that were not included in the business case which
underpinned the sale transaction.
Whilst the contractual outcome is binary, i.e the payment is either made in
full or is a zero payment, under the terms of IFRS9 (Financial Instruments)
and IFRS13 (Fair Value Measurement) the Group is required to determine the
fair value of the contingent consideration receivable from M&S at each
reporting date.
This fair value exercise has been carried out as at the period end and
determined a fair value of £78.0m, a decrease of £17.0m from the fair value
of £95.0m recorded at the end of the prior period.
The fair value of £78.0m has been estimated using the expected present value
technique and is based on a number of probability-weighted scenarios and
applying an appropriate discount rate to reflect the timing of the possible
payment. In arriving at this valuation, a range of scenarios were considered,
taking into account Ocado Retail's current and forecast trading performance.
The valuation also considered current market conditions and the impact of
adjustments to the Target as permitted under the terms of the part-disposal
agreement.
There remains significant uncertainty in this estimate of fair value. Given
the binary nature of the contractual agreement, it is reasonably possible that
the actual amount received at the point of settlement will be materially
different to the fair value currently recorded. Given the uncertainty in the
determination of the post-adjustment Target performance measures, there is
also a possibility that the contingent consideration may be agreed through a
negotiated settlement between the two shareholders.
Unlisted equity investments held at FVTOCI
The Group holds a number of long-term, strategic investments that are
accounted for as fair value through other comprehensive income ("FVTOCI").
In December 2022, Oxa Autonomy Ltd ("Oxa Autonomy"), previously Oxbotica
Limited, successfully completed its Series C Fundraising, which resulted in
the Group's warrants being exercised to acquire 21,934 B shares for £10.0m.
Following the exercise of the warrants and the Series C fundraising, the Group
now holds a 12.2% interest in Oxa Autonomy. At 1H23, the unlisted equity
investment in Oxa Autonomy totals £66.2m (FY22: £36.8m; 1H22: £10.3m). The
fair value of the warrants prior to the transaction was £19.4m, which
together with the exercise cost of £10.0m comprises the £29.4m increase in
the Group's equity investment in Oxa Autonomy.
Refer to Note 10 for further details on the valuation techniques and key
inputs utilised in the fair value measurement of the financial instruments.
10. Financial instruments
Financial assets and liabilities at fair value
Financial instruments carried at fair value on the Condensed Consolidated
Balance Sheet comprise contingent consideration, unlisted equity investments
and the derivative assets and liabilities. The Group uses the following
hierarchy for determining and disclosing the fair value of these financial
instruments:
● quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1);
● inputs other than quoted prices that are observable for the asset or
liability, either directly or indirectly (level 2); and
● inputs for the assets or liabilities that are not based on
observable market data (level 3).
The Group's derivative financial assets and liabilities are classified as
level 2. The contingent consideration and unlisted equity investments are
classified as level 3.
Set out below is an analysis of all financial instruments at fair value:
28 May 2023 29 May 2022 27 November 2022
£m £m £m
(unaudited) (unaudited) (audited)
Financial assets held at fair value
- Contingent consideration receivable Level 3 80.1 161.8 98.3
- Unlisted equity instruments Level 3 99.2 40.4 69.8
- Loans receivable held at FVTPL Level 3 0.5 2.1 2.4
- Derivative assets: warrants Level 3 5.8 10.4 27.4
- Derivative assets: commodity swaps Level 2 - 4.9 0.8
Total financial assets held at fair value 185.6 219.8 198.7
Financial liabilities held at fair value
Derivative financial liabilities Level 2 (1.8) - (1.6)
Total financial liabilities held at fair value (1.8) - (1.6)
There were no transfers between the levels of the fair value hierarchy during
the period. There were also no changes made to any of the valuation techniques
during the period.
The following table provides information about how the fair values of
financial instruments classified as level 3 are determined:
Description Valuation techniques and key inputs Significant unobservable inputs
Contingent consideration receivable ● Discounted cash flows. Discount rate of 10.0%.
● Expected cash inflows are estimated based on the terms of the Expected cash inflows of £193.0m.
share purchase agreements and the probability weighting of possible scenarios
of meeting financial and operational targets. Adjustments to the Target performance measures available to the shareholder
for actions taken by management that were not included in the original
business case.
Unlisted equity investments and derivative assets ● Probability weighted expected return method ("PWERM"). Probabilities of expected revenue in a number of different scenarios.
● Forecasted revenue, revenue multiples, exit date, discount
rate and probabilities.
Probabilities of various future valuations.
● Option pricing model
● Market approach along with a capitalisation of earnings
approach.
● Forecasted EBITDA, EBITDA multiples and discount rates.
● Undiscounted, estimate-based valuation.
11. Capital expenditure and commitments
During the period, the Group acquired property, plant and equipment of
£171.3m (1H22: £264.7m, FY22: £588.5m) and intangible assets of £15.3m
(1H22: £20.2m, FY22: £27.4m). Internal development costs of £97.0m (1H22:
£87.1m, FY22: £181.4m) were capitalised. Capital expenditure relates to CFCs
in the UK, investment in international CFCs and technology expenditure.
At 28 May 2023 capital commitments contracted, but not provided for by the
Group, amounted to £187.4m (1H22: £387.2m, FY22: £275.5m).
12. Provisions
During the period, the Group recorded a net increase of provisions of £20.0m
(1H22: net release of provision of £19.4m), the majority of which relates to
the provision of costs related to the closure of the Hatfield CFC as a result
of the UK network capacity review (refer to Note 5).
13. Analysis of cash flows given in the cash flow statement - cash generated from operations
26 weeks ended 26 weeks ended
28 May 2023 29 May 2022
£m £m
Note (unaudited) (unaudited)
Loss before tax (289.5) (211.3)
Adjustments for:
- Depreciation, amortisation and impairment losses(1) 213.0 157.3
- Property, plant and equipment write off 0.4 -
- Gain on disposal of asset held for sale (5.0) -
- Movement in provisions 19.5 (19.6)
- Share of results from joint ventures and associate 0.9 0.5
- Revenue from long-term contracts (13.1) (12.7)
- Other income from insurance proceeds - (6.3)
- Share-based payments charge 16.1 21.1
- Net finance cost 7 36.4 33.4
- Other non-cash exceptional items 17.4 (5.1)
Changes in working capital:
- Movement in inventories 16.0 12.0
- Movement in trade and other receivables 10.9 (22.4)
- Movement in trade and other payables (36.4) 33.3
- Cash received from contract liabilities (upfront fees) 23.7 43.1
- Movement in contract assets - 0.2
Cash generated from operations 10.3 23.5
(
) (1) Included within depreciation, amortisation and impairment losses is an
exceptional impairment charge of £20.4m relating to the UK network capacity
review. Refer to Note 5 for further details.
14. Related party transactions
Key management personnel
Only members of the Board (the Executive and Non-Executive Directors) are
recognised as being key management personnel. It is the Board which has
responsibility for planning, directing and controlling the activities of the
Group.
With the exception of remuneration, there were no related party transactions
with key management personnel (1H22: none). At the end of the period, there
was £nil (1H22: £nil) owed by key management personnel to the Group.
Joint venture
The following transactions were carried out with MHE JVCo Limited ("MHE
JVCo"), a company incorporated in the United Kingdom in which the Group holds
a 50% interest:
26 weeks ended 26 weeks ended 52 weeks ended
28 May 2023 29 May 2022 27 November 2022
£m £m £m
(unaudited) (unaudited) (audited)
Dividend received from MHE JVCo - - 8.0
Reimbursement of supplier invoices paid on behalf of MHE JVCo 0.8 - 1.1
Capital element of lease liability instalments accrued or paid to MHE JVCo 8.6 9.5 16.5
Interest element of lease liability instalments accrued or paid to MHE JVCo 0.3 0.9 1.3
Included within trade and other receivables is a balance of £1.9m (1H22:
£0.5m; FY22: £2.3m) owed by MHE JVCo. Included within trade and other
payables is a balance of £12.5m (1H22: £12.0m; FY22: £1.8m) owed to MHE
JVCo. Included within lease liabilities is a balance of £9.0m (1H22: £25.9m;
FY22: £17.5m) owed to MHE JVCo.
Associate
During a prior period, the Group loaned £1.7m to Karakuri Limited
("Karakuri"), a company in which the Group holds a 26.3% interest. The loan is
held at fair value through profit or loss within other financial assets,
however following Karakuri entering into administration in 1H23, a write-down
of £1.9m was recognised and hence its carrying amount at 28 May 2023 is £nil
(1H22: £1.9m, FY22: £1.8m). During the period, £0.1m (1H22: £0.1m) of
interest income was recognised within finance income.
No other transactions that require disclosure under IAS 24 "Related Party
Disclosures" have occurred during the current financial period. There are no
changes in the related party transactions described in the last annual report
that could have a material effect on the financial position or performance of
the group in the first six months of the current financial year.
15. Post-Balance Sheet events
Acquisition of 6 River Systems
On 4 May 2023, the Group announced that it has reached an agreement with
Shopify Inc. to acquire 6 River Systems LLC, a collaborative autonomous mobile
robot ("AMR") fulfilment solutions provider to the logistics and non-grocery
retail sectors, based in the United States of America. The acquisition was
completed on 30 June 2023 for an initial cash consideration of US$12.7m
(£10.0m).
Autostore litigation cost recovery
On 29 June 2023, the UK High Court issued a formal order following Ocado's
victory in the UK part of the litigation in March 2023. The order states that
none of the Autostore patents are infringed by Ocado, and that the Autostore
bot patents are invalid and revoked. The UK High Court also ordered that
Autostore pay Ocado £6.7m in costs in relation to the UK High Court trial. As
usual in patent cases, Autostore has been given the option to appeal.
16. Alternative performance measures
The Group assesses its performance using a variety of alternative performance
measures, which are not defined under IFRS and are therefore termed "non-GAAP"
measures. These measures provide additional useful information on the
underlying trends, performance and position of the Group. The non‑GAAP
measures used by the Group are as follows:
● EBITDA;
● Exceptional items;
● Gross debt and external gross debt
● Net debt
● Technology Solutions fees invoiced; and
● Underlying cash outflow
Reconciliations of these non-GAAP measures to the nearest measures prepared in
accordance with IFRS are presented below. The alternative performance measures
used may not be directly comparable with similarly titled measures used by
other companies.
EBITDA
In addition to measuring its financial performance based on operating profit,
the Group measures performance based on EBITDA. EBITDA is defined as the
Group's earnings before depreciation, amortisation, impairment, net finance
cost, taxation and exceptional items. EBITDA is a common measure used by
investors and analysts to evaluate the operating financial performance of
companies. A reconciliation of operating profit to EBITDA can be found on the
face of the Condensed Consolidated Income Statement.
The Group considers EBITDA to be a useful measure of its operating performance
because it approximates the underlying operating cash flows by eliminating
depreciation and amortisation. EBITDA is not a direct measure of liquidity,
which is shown by the Condensed Consolidated Statement of Cash Flows, and
needs to be considered in the context of the Group's financial commitments.
The financial performance of the Group's segments is measured based on EBITDA,
as reported internally. A reconciliation of the EBITDA of the Group with the
EBITDA for the segments is disclosed in Note 4.
Exceptional items
The Group's Condensed Consolidated Income Statement identifies separately
trading results before exceptional items. The Directors believe that
presentation of the Group's results in this way is relevant to an
understanding of the Group's financial performance. This presentation is
consistent with the way that financial performance is measured by management
and reported to the Board and assists in providing a meaningful analysis of
the trading results of the Group. This also facilitates comparison with prior
periods to assess trends in financial performance more readily. Exceptional
items are disclosed in Note 5.
The Group applies judgement in identifying significant exceptional items of
income and expense that are recognised as exceptional to help provide an
indication of the Group's underlying business. In determining whether an event
or transaction is exceptional in nature, management considers quantitative as
well as qualitative factors such as the frequency or predictability of
occurrence.
Examples of items that the Group considers exceptional include, but are not
limited to corporate reorganisations, material litigation, multi-year
transformation programmes and any material costs outside of the normal course
of business as determined by management.
Gross debt and external gross debt
Gross debt is calculated as borrowings and lease liabilities as disclosed in
Note 8. External gross debt is calculated as gross debt less lease liabilities
payable to joint ventures of the Group. External gross debt is a measure of
the Group's indebtedness to third parties which are not considered related
parties of the Group. A reconciliation of gross debt with external gross debt
is set out below:
26 weeks ended 26 weeks ended 52 weeks ended
28 May 2023 29 May 2022 27 November 2022
£m £m £m
Note (unaudited) (unaudited) (audited)
Gross debt 8 1,909.2 1,841.5 1,905.1
Lease liabilities payable to joint ventures (9.0) (25.9) (17.5)
External gross debt 1,900.2 1,815.6 1,887.6
Net debt
Net debt is calculated as cash and cash equivalents less gross debt. Total
debt is measured as the net proceeds raised, adjusted to amortise any discount
over the term of the debt.
Net debt is a measure of the Group's net indebtedness, and provides an
indicator of the overall strength of the Condensed Consolidated Balance Sheet.
It is also a single measure that can be used to assess the combined effect of
the Group's cash position and its indebtedness. The use of the term "net cash"
does not necessarily mean that the cash included in the net cash calculation
is available to settle the liabilities included in this measure.
Net debt is considered to be an alternative performance measure as it is not
defined in IFRS. The most directly comparable IFRS measure is the aggregate of
borrowings and lease liabilities and cash and cash equivalents. A
reconciliation of these measures with net debt is disclosed in Note 8.
Technology Solutions fees invoiced
Technology Solutions fees invoiced is used as a key measure of performance of
the Technology Solutions business as an alternative to revenue and represent
design and capacity fees invoiced during the period for existing and future
CFC and in-store fulfilment commitments.
Underlying cash flow
Underlying cash flow is the movement in cash and cash equivalents excluding
the impact of exceptional items, costs of financing, purchase of unlisted
equity investments and foreign exchange movements. A reconciliation of the
movement in cash and cash equivalents to underlying cash outflow is detailed
within the Financial Review: 1H23.
Principal risks and uncertainties
The Group faces a number of risks and uncertainties that may have an adverse
impact on the Group's operation, performance or future prospects.
The Board regularly assesses and monitors the principal risks of the business.
Set out in the Group's Annual Report and Accounts for the 52 weeks ended 27
November 2022 were details of the principal risks and uncertainties for the
Group and the key mitigating activities used to address them, applicable at
that time.
Since year-end, the impact on the Ocado business of certain geopolitical and
economic risks has remained significant and although our principal risks
remain unchanged in substance, inflationary pressures, interest rate rises and
the general economic backdrop mean that many of our principal risks remain
elevated. The Group continues to take cost mitigation measures to protect
liquidity in FY23, but it has limited mitigations for some costs including the
increasing commodity, freight and utility costs (aside from some diesel,
electricity and FX hedging). The Group continues to carefully monitor its cash
flows and financing requirements and the changing external environment for
financing.
As part of the ongoing risk management process, emerging risks are identified
and assessed. These risks are deemed to be significant but are not listed as
one of the Group's principal risks. The business will bring additional focus
to these emerging risks and look at actions for addressing them. The Group's
Annual Report and Accounts for the 52 weeks ended 27 November 2022 contains a
description of the emerging risks for the Group.
The Board considers that the principal risks and uncertainties have not
changed, and remain relevant for the remaining six months of the 2023
financial year.
● Talent & Capability - Difficulty in filling key positions, a
loss of top performers and an inability to embed diversity could undermine
business operations and growth plans.
● Cyber Security - Disruption or loss of critical assets and sensitive
information as a result of a cyber attack, insider threat or a data breach
within our Group network or our supply chain, could result in business
disruption, reputational damage and regulatory impacts, for us and our
clients.
● Fire & Safety - Fire, or harm to a worker or customer, caused by
product design or operating failures could result in business disruption, loss
of assets and reputational loss.
● Regulatory & Compliance - Failure to comply with local and
international regulations could lead to loss of trust, penalties, and
undermine our ability to operate.
● Geopolitical & Economic Uncertainty - Global economic and
political crises may undermine customer demand, our access to skills and our
supply chain. This could impair operations and delivery of new capacity.
● Product Commercial Proposition - Our OSP offer, pricing and
contractual terms may not provide adequate and sustainable returns for us and
our shareholders and an attractive commercial proposition for our clients.
● Product Performance - Failure to provide clients with timely,
consistently reliable performance at a level of quality to meet the needs of
their end customers. Partners may not have the necessary knowledge, guidance,
or capabilities to operate OSP efficiently and cost-effectively. These issues
could lead to increased costs, reduced revenue or penalties for Ocado and its
clients.
● Product Innovation - Failure to respond to emerging technology or
disruptive business models could undermine our ability to attract and retain
clients.
● Intellectual Property - Third party IP infringement or failure to
protect our own IP could result in loss of use of the Group's assets,
financial damages or harm to the Company's reputation or relationships.
● Supply Chain - Disruption in our extended and complex supply chain
may adversely affect product availability and responsible sourcing. This could
result in increased costs and fines, delays to contractual commitments and
loss of revenue.
● Climate - Extreme weather events and climate-related regulation
could disrupt our supply chain, operations and demand for our product.
Principal risks and uncertainties (continued)
This principal risks section should be read in conjunction with the rest of
this statement as the impact of the current market conditions and trading
patterns on the business are explained there and help provide an understanding
of the risks and opportunities facing Ocado.
More information on these principal risks and uncertainties together with an
explanation of the Group's approach to risk management is set out in Ocado
Group plc's Annual Report and Accounts for the 52 weeks ended 27 November
2022, a copy of which is available on the Group's corporate website,
www.ocadogroup.com.
Independent Review Report to Ocado Group plc
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the 26 weeks ended 28 May
2023 which comprises the income statement, statement of comprehensive income,
the balance sheet, the statement of changes in equity, the cash flow
statement, and related notes 1 to 16.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the 26 weeks ended 28 May 2023 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim
financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410; however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the company a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our Conclusion, including our
Conclusion Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with ISRE (UK) 2410.
Our work has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, UK
18 July 2023
Statement of Directors' Responsibilities
The Directors confirm that, to the best of their knowledge:
● the condensed set of financial statements gives a true and fair view
of the assets, liabilities, financial position, and profit or loss of the
issuer, or undertakings included in the consolidation, as required by DTR
4.2.4R and prepared in accordance with UK adopted IAS 34 "Interim Financial
Reporting";
● the interim management report includes a fair review of the
information required by DTR 4.2.7R, namely:
o an indication of important events that have occurred during the first six
months and their impact on the condensed set of financial statements; and
o a description of the principal risks and uncertainties for the remaining
six months of the financial year;
● the interim management report includes a fair review of the
information required by DTR 4.2.8 R, namely:
o material related party transactions that have taken place in the first six
months of the financial year and that have materially affected the financial
position or performance of the enterprise during that period; and
o any material changes in the related party transactions described in the
last annual report and that could have a material effect on the financial
position or performance of the enterprise in the first six months of the
current financial year.
The Directors of Ocado Group plc as at the date of this announcement are as
follows:
Executive Directors
Tim Steiner, Chief Executive Officer
Luke Jensen, Chief Executive Officer, Ocado Solutions
Stephen Daintith, Chief Financial Officer
Neill Abrams, Group General Counsel and Company Secretary
Mark Richardson, Chief Operations Officer
Non-Executive Directors
Richard Haythornthwaite, Chairman
Andrew Harrison, Senior Independent Director
Jörn Rausing
Emma Lloyd
Julie Southern
John Martin
Nadia Shouraboura
Julia M. Brown
Approved by the Board and signed on its behalf by:
Stephen Daintith
Neill Abrams
Chief Financial Officer
Group General Counsel and Company Secretary
18 July 2023
Person responsible for arranging the release of this announcement:
Neill Abrams
Group General Counsel and Company Secretary
Ocado Group plc
Buildings One & Two, Trident Place, Mosquito Way,
Hatfield, Hertfordshire AL10 9UL
Fax: +44 (0)1707 227 997
email: company.secretary@ocado.com
Ocado Group plc LEI: 213800LO8F61YB8MBC74
Glossary
Active customer (ORL) - means a customer who has shopped at Ocado.com within
the previous 12 weeks.
AEON - means Aeon Co., Ltd., a company incorporated in Japan, whose registered
office is at 1-5-1 Nakase, Mihama-ku, Chiba-shi, Chiba, 261-8515.
Alcampo - means Alcampo S.A., a company incorporated in Spain under registered
company number C.I.F. A-28581882 whose registered office is at Madrid, c/
Santiago Compostela Sur, s/n (Edificio de Oficinas la Vaguada) CP.28029
Madrid.
ASRS - means Automated Storage Retrieval Systems.
Auchan Polska - means Auchan Polska Sp. z.o.o., a company incorporated in
Poland, whose registered office is at ul. Puławska 46, 05-500 Piaseczno.
AutoStore - means AutoStore Technology AS, a company incorporated in Norway,
whose registered office is at Stokkastrandvegen 85, 5578, Nedre Vats,
Rogaland, Norway.
Average basket value - means the average amount spent by shoppers in one
transaction, calculated as product sales divided by total orders.
Average number of modules live - means the weighted average number of modules
that were fully installed and available for use by our client partners during
the period.
Average orders per week (ORL) - means the average number of Orders per week
processed within CFCs.
Average selling price - means product sales divided by total eaches.
Board - means the Board of Directors of the Company or its subsidiaries from
time to time as the context may require.
Bon Preu - means Bon Preu SA, a company incorporated in Spain, whose
registered office is at Carrer C, 17, 08040 Barcelona.
Client Partner - means a client of Ocado Group that has purchased the Ocado
Smart Platform Solution or part of the OSP Solution to deliver their
operations.
CMA - means the Competition and Markets Authority.
Coles - means Coles Supermarkets Australia Pty Ltd, a company incorporated in
Australia, whose registered office is at 800 Toorak Road, Hawthorn East, VIC
3123.
Companies Act - means the Companies Act 2006.
Company - means Ocado Group plc, a company incorporated in England and Wales
with company number 07098618, whose registered office is at Buildings One
& Two Trident Place, Mosquito Way, Hatfield, Hertfordshire, United
Kingdom, AL10 9UL.
Contribution - means Technology Solutions revenue less Technology Solutions
direct operating costs.
Corporate website - means www.ocadogroup.com.
Customer Fulfilment Centre or CFC - means a dedicated, highly automated
warehouse used for the operation of the business.
Deloitte - means Deloitte LLP, the Group's statutory auditor and advisor in
respect of non-audit services.
Direct operating cost (% of CFC sales capacity) - means the direct operating
costs of running the CFC estate; includes engineering support, maintenance and
spares, and the costs of hosting and technology services for partners.
Directors - means the Directors of the Company, whose names and biographies
are set out on pages 106 to 109 of the 2022 Annual Report, or the Directors of
the Company's subsidiaries from time to time as the context may require.
Disclosure Guidance and Transparency Rules or DTR - means the disclosure
guidance and transparency rules made under Part VI of the Financial Services
and Markets Act 2000 (as amended).
DPV - means deliveries per van.
EBITDA - means the non-GAAP measure which Ocado has defined as earnings before
net finance cost, taxation, depreciation, amortisation, impairment and
exceptional items.
eNPS - means employee Net Promoter Score.
ESG - means Environmental, Social, and Corporate Governance.
Exceptional items - means items that due to their material and/or not in the
normal course of business nature have been classified separately in order to
draw them to the attention of the reader of the financial statements.
Fabled or Fabled.com - means the Group's premium beauty online store in
collaboration with Marie Claire and Time Inc., sold to Next Holdings Limited
in 2019.
FCA - means the Financial Conduct Authority.
FRC - means the Financial Reporting Council.
GAAP - means generally accepted accounting principles.
GDPR - means General Data Protection Regulation.
GMDC - means the General Merchandise Distribution Centres in Welwyn Garden
City and Erith, dedicated, highly-automated warehouses used for the operation
of the business.
Group - means Ocado Group plc, its subsidiaries, significant undertakings and
affiliated
companies under its control or common control.
Groupe Casino or Casino - means Casino Guichard Perrachon SA, a company
incorporated in France, whose registered office is at 24 Rue de la Montat,
Saint-Etienne.
GSCOP - means Groceries Supply Code of Practice.
Haddington Dynamics - means Haddington Dynamics Inc., a company incorporated
in Nevada, United States of America, acquired by the Group on 21 December
2020.
IAS - means International Accounting Standards.
ICA - means ICA Gruppen AB, a company incorporated in Sweden, whose registered
office is at Svetsarvägen 16, Solna.
IFRIC - means International Financial Reporting Standards Interpretations
Committee.
IFRS - means International Financial Reporting Standards.
Infinite Acres - means Infinite Acres Holding B.V., a company incorporated in
the Netherlands, whose registered office is Oude Delft 128, 2611 CG Delft,
Netherlands.
Inkbit - means Inkbit Corporation, a company incorporated in Delaware, United
States of America, whose business address is 200 Boston Ave #1875, Medford,
MA, 02155.
IP - means Intellectual Property.
ISA (UK & Ireland) - means International Standard on Auditing in the
United Kingdom and Ireland.
ISF - means in-store fulfilment.
Jones Food Company or JFC - means Jones Food Company Limited, a company
incorporated in England and Wales with company number 10504047, whose
registered office is at Phase 2 Celsius Parc, Cupola Way, Scunthorpe, England,
DN15 9YJ.
Karakuri - means Karakuri Limited, a company incorporated in England and Wales
with company number 11228129, whose registered office is at Unit 2 Hammersmith
Studios, 55a Yeldham Road, London, England, W6 8JF.
Kindred Systems - means Kindred Systems Inc., a company incorporated in
Delaware, United States of America, acquired by the Group on 15 December 2020.
KPI - means key performance indicator.
Kroger - means The Kroger Co., a company incorporated in the United States of
America, whose registered office is at 1014 Vine Street, Cincinnati, Ohio.
LGV - means large goods vehicle.
Listing Rules - means the Listing Rules made by the UK Listing Authority under
Part VI of the Financial Services and Markets Act 2000 (as amended).
Liquidity - means the sum of cash and cash equivalents and undrawn facilities
available for use by the Group.
Lotte - means Lotte Shopping Co., Ltd, a company incorporated and registered
in the Republic of Korea with registered number 5298500774 whose registered
office is at Lotte World Tower, 26th floor, 300, Olympic Street, Songpagu,
Seoul, Republic of Korea.
Marks and Spencer or M&S - means Marks and Spencer Group plc, a company
incorporated in England and Wales with company number 04256886, whose
registered office is at Waterside House, 35 North Wharf Road, London, W2 1NW.
Mature customer - means a customer who has shopped on Ocado.com 5 or more
times
MHE - means mechanical handling equipment.
MHE JVCo - means MHE JVCo Limited, a company incorporated in England and Wales
with company number 08576462, jointly owned by Ocado Holdings and Morrisons,
whose registered office is at Buildings One & Two Trident Place, Mosquito
Way, Hatfield, Hertfordshire, United Kingdom, AL10 9UL.
Module of capacity - is assumed as approximately 5,000 eaches picked per hour
(dependent on the specific metrics of a partner) and £73m pa of sales
capacity (FY22: £70m of sales capacity)
Morrisons - means Wm Morrison Supermarkets Limited, a company incorporated in
England and Wales with company number 00358949, whose registered office is at
Hilmore House, Gain Lane, Bradford, West Yorkshire, BD3 7DL.
Morrisons.com - means Morrisons' online retail business.
Myrmex - means Myrmex Inc., a company incorporated in Delaware, United States
of America, whose business address is 2350 Mission College Boulevard, Suite
495, Santa Clara, CA, 95054.
Net finance cost - means finance costs less finance income.
NPS - means net promoter score.
Number of live modules - means modules that are fully installed and available
for use by our partners.
Number of modules ordered - means the maximum module capacity of sites for
which a contractual agreement has been signed with a partner and an invoice
has been sent for the associated fees
Ocado.com - means the Group's online retail business operated via Ocado.com
(excludes Ocado Zoom).
Ocado Holdings - means Ocado Holdings Limited.
Ocado Operating - means Ocado Operating Limited.
Ocado Re:Imagined or Re:Imagined - means a series of innovations and changes
to the technology powering our Ocado Smart Platform (OSP).
Ocado Retail - means Ocado Retail Limited, a joint venture between Ocado
Holdings and Marks and Spencer Holdings Limited, which is incorporated in
England and Wales, and whose registered office is at Apollo Court, 2 Bishop
Square, Hatfield Business Park, Hatfield, Hertfordshire, United Kingdom, AL10
9EX.
Ocado Smart Platform or OSP - means the end-to-end solution for operating
online in the grocery market, which has been developed by the Group.
Technology Solutions - means the Group's Technology Solutions business.
Ocado Ventures - means the Group's Ventures business.
Ocado Zoom - means Ocado Zoom, the Group's immediacy delivery offering.
OECD - means the Organisation for Economic Co-operation and Development.
OSP Leadership Club - means the collective group of Ocado Group and its global
Solutions Partners.
Operating costs - means all costs incurred in the continuing operations of the
Group.
R&D - means research and development.
RCF - means revolving credit facility.
Retail VCP - means the Ocado Retail Value Creation Plan for the senior
leadership team of Ocado Retail.
ROI - means return on investment.
Senior unsecured notes or notes - means the Company's offering of £500m
senior unsecured notes due 2026.
Senior unsecured convertible bonds or convertible bonds - means the Company's
offerings of £600m senior unsecured convertible bonds due 2025 at a coupon of
0.875% and an issue price of 100.0%, and of £350m senior unsecured
convertible bonds due 2027 at a coupon of 0.750% and an issue price of 100.0%.
Shareholder - means a holder for the time being of ordinary shares of the
Company.
SKU - means stock-keeping unit; that is, a line of stock.
Smart Pass (previously Saving Pass) - means the Ocado pre pay membership
scheme which includes the delivery pricing scheme previously known as Delivery
Pass and the discount membership scheme formerly known as Saving Pass.
Sobeys - means Sobeys Inc., a wholly-owned subsidiary of Empire Company
Limited incorporated in Canada, whose registered office is at 115 King Street,
Stellarton, Nova Scotia.
Spoke - means the trans-shipment sites used for the intermediate handling of
customers' orders.
UPH - means average units processed per labour hour.
VCP - means the Value Creation Plan.
Webshop - means the customer-facing internet-based virtual shop accessible via
the website www.ocado.com.
6 Rivers Systems - means 6 Rivers Systems LLC, a company incorporated in
Massachusetts, United States of America, acquired by the Group on 30 June
2023.
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