FY19 Results Ocado Group plc
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Ocado Group plc
FY19 Results
11th February 2020
1
The Chairman’s
Overview
Lord Rose
2
©2020 Ocado Group plc. All rights reserved.
Forward-looking statements
DISCLAIMER
This presentation contains oral and written statements that are or may be “forward-looking statements” with respect to certain of Ocado’s plans and its current goals and
expectations relating to its future financial condition, performance and results. These forward-looking statements are usually identified by words such as ‘anticipate’, ‘target’,
‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’ or other words of similar meaning. By their nature, all forward-looking statements involve risk and uncertainty because they
are based on current expectations and assumptions but relate to future events and circumstances which may be beyond Ocado’s control. There are important factors that could
cause Ocado’s actual financial condition, performance and results to differ materially from those expressed or implied by these forward-looking statements, including, among
other things, UK domestic and global political, social, economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies
and actions of regulatory authorities, the impact of competition, the possible effects of inflation or deflation, variations in commodity prices and other costs, the ability of Ocado to
manage supply chain sources and its offering to customers, the effect of any acquisitions by Ocado, combinations within relevant industries and the impact of changes to tax and
other legislation in the jurisdictions in which Ocado and its affiliates operate. Further details of certain risks and uncertainties are set out in our Annual Report for 2019 which can
be found at www.ocadogroup.com. Ocado expressly disclaims any undertaking or obligation to update the forward-looking statements made in this presentation or any other
forward-looking statements we may make except as required by law. Persons receiving this presentation should not place undue reliance on forward-looking statements which
are current only as of the date on which such statements are made.
3
©2020 Ocado Group plc. All rights reserved.
Introduction
Tim Steiner
CEO
4
©2020 Ocado Group plc. All rights reserved.
“We are pleased to report results which show strong momentum in the
business. Although statutory results reflected a combination of factors,
including the impact of the Andover fire, the underlying performance of Ocado
Retail and the successful growth of Ocado Solutions were very encouraging.
Our progress over the last twelve months, which includes signing our eighth
and ninth Solutions clients, Coles in Australia and Aeon in Japan, and
successfully maintaining strong growth post-Andover, has demonstrated many
of Ocado Group’s most important characteristics: resilience, innovation, focus
and execution. It is these qualities that will enable us to continue to develop
the Ocado Smart Platform to meet the evolving needs of our partners at the
cutting edge of online grocery retail.”
Tim Steiner, CEO
5
©2020 Ocado Group plc. All rights reserved.
Financial Review
Duncan Tatton-Brown
CFO
6 10
©2020 Ocado Group plc. All rights reserved.
Financial Summary
FY 2019 FY 2018 Var
£m Pre-exceptionals (%)
Group Revenue 1,756.6 1,598.8 9.9
Group EBITDA 43.3 59.5 (27.2)
Depreciation, amortisation, (136.1) (91.4)
impairment
Net Interest (27.6) (12.5)
Loss before tax (120.4) (44.4)
1. Revenue is online sales (net of returns) including charges for delivery but excluding relevant vouchers/offers and value added tax. The recharge of costs to our UK Solutions clients and International Solutions clients are also included in
revenue with the exception of recharges to Ocado Retail which are eliminated on consolidation 7
2. EBITDA excludes exceptional items. Group EBITDA in 2019 includes the EBITDA impact of IFRS 16 of £25.4m
©2020 Ocado Group plc. All rights reserved.
Reviewing exceptionals impact
Exceptionals
£m Impact
Loss before tax pre exceptionals FY 2019 (120.4)
Andover CFC (111.8) ● Write off of Andover CFC tangible assets, inventory and
additional operating costs
Insurance reimbursement 23.8 ● Insurance income recognised out of £74m received in the
period
Disposal of Fabled (1.1)
Joint Venture with M&S (3.4)
Litigation costs (1.3) ● proceedings against T0day and others for IP theft
Other (0.3)
Loss before tax post exceptionals FY 2019 (214.5)
8
©2020 Ocado Group plc. All rights reserved.
Segmental Summary
Revenue1 EBITDA2
Var
FY 2019 FY 2019 FY 2018
Var %
FY 2019 FY 2018 Post Pre
% Pre
£m IFRS16 IFRS16
IFRS16
Retail 1,617.5 1,466.6 10.3 35.0 20.2 30.1 (33.0)
UK Solutions & 583.2 541.1 7.8 84.8 74.2 67.5 10.0
Logistics
International Solutions 0.5 0.5 - (62.1) (62.1) (28.4) -
Other 9.8 9.2 6.5 (14.4) (14.4) (9.7) -
Total 1,756.6 1,598.8 9.9 43.3 17.9 59.5 (69.9)
1. Group totals include eliminations
2. EBITDA excludes exceptional items and excludes the impact of IFRS 16
9
©2020 Ocado Group plc. All rights reserved.
Cash fees show progress building International Solutions
Var
FY 2019 FY 2018
%
Revenue 0.5 0.5 -
EBITDA (62.1) (28.4) -
Fees invoiced 81.4 58.8 38.4
● Fees invoiced from international partners up significantly
● Immaterial revenue recognised under IFRS 15
● Cumulative unrecognised cash fees of around £140m of by end of 2019
● Significant growth in costs to support client requirements
10
©2020 Ocado Group plc. All rights reserved.UK Solutions: progress in underlying efficiencies
Var
FY 2019 FY 2018
%
Revenue 583.2 541.1 7.8
EBITDA* 74.2 67.5 10.0
● Revenue growth lower due to part year of Morrisons “holiday”
● Improvement in underlying efficiencies:
○ DPV1 up to 196, approaching new target of 200
○ Mature UPH improved to 168, with Erith UPH now regularly above Hatfield
● Full year of fixed costs at Erith
● Significant progress in engineering costs; average cost per order down by a third across the
year, with the new generation robot to come
* Pre-IFRS16 impact
1. DPV is for Ocado Retail only 11
©2020 Ocado Group plc. All rights reserved.Ocado Retail: growth to bring improving efficiencies
10.3% growth in active With growth in orders coming Which will drive material CFC
customers drives order volumes through new generation facilities efficiency increases (UPH) at scale
795k 325k 200+
721k 294k
Erith >70k OPW 168
Robotic
+10.7%
picking to
growth in
bring
big basket
efficiency
order
gains
volumes
beyond this
Mature CFCs
target
Erith CFC
Andover CFC
2018 2019 2018 2019 2019 Erith target
Mature CFCs at maturity
Note: Chart detailing order volumes growth is shown on a full year basis. The Andover fire occurred 6th February 2019. As a result, some of the capacity growth achieved in 2019 occurred before this date
12
©2020 Ocado Group plc. All rights reserved.Wastage: technology drives continuous operational improvement
Wastage1 is a huge operational OSP enables market
challenge for the grocery industry leading performance... ...and is still improving
2.0-3.0% unprecedented accuracy,
efficiency and resilience
Hurdles impact of:
Scale
Improved AI and ML
Forecasting Better predictive capabilities driven forecasting
Inventory supply Perfect FIFO system
Customer demand Strong visibility of customer
behaviour
Inventory
management 0.8%
Imperfect FIFO
0.4%
Storage
Incorrect method
or extended time
Industry 2018 2019
average range Ocado Retail Ocado Retail
13
1. Food items not sold as a % of sales Food that goes to landfill is only 0.02% of sales
©2020 Ocado Group plc. All rights reserved.Ocado Retail performance
20191,2 20181,2
Var
(% Retail (% Retail
(%)
Revenue) Revenue)
Gross margin 32.9 33.0 (0.1)
Trunking and delivery costs (12.2) (12.4) 0.2 Continued underlying progress,
fixed costs of Erith
CFC costs (8.9) (8.4) (0.5)
Other operating costs (0.6) (0.7) (0.0) Increased marketing costs following
Andover fire and with offline trial
Marketing costs (1.3) (0.9) (0.4)
Fees (5.1) (5.0) (0.1) Fees paid to Ocado Group for the
OSP and logistics solutions to
Operating contribution 4.8 5.6 (0.8) operate online offer
Admin costs (3.5) (3.5) 0.0
EBITDA 1.3 2.1 (0.8)
1. Excluding exceptionals and pre-IFRS16.
2. The costs of Ocado Retail’s operation in 2018, and in 2019 prior to the formation of the joint venture with M&S, have been allocated between the Retail Segment and UK & Logistics segment in order to be
broadly comparable to the current contractual arrangements now in place
14
©2020 Ocado Group plc. All rights reserved.Ocado Retail: considerations versus other partners
20191,2
P&L (% Retail Revenue) Consideration v. client P&L
Gross margin 32.9 Includes Waitrose sourcing fee and without scale advantages
Trunking and delivery costs (12.2)
CFC costs (8.9) Lower efficiency due to legacy assets
Other operating costs (0.6)
Marketing costs (1.3) Includes impact of Andover fire and without benefit of existing brand
Fees (5.1) Includes 3PL fees but lower OSP fee reflecting lower efficiency assets
Operating contribution 4.8
Admin costs (3.5) Higher admin fees due to set up and smaller scale
EBITDA 1.3
Client business with higher EBITDA margin at scale and low capital costs
1. Excluding exceptionals
2. The costs of Ocado Retail’s operation in 2019 prior to the formation of the joint venture with M&S, have been allocated between the Retail Segment and UK & Logistics segment in order to be broadly comparable to
the current contractual arrangements now in place. 15
©2020 Ocado Group plc. All rights reserved.Group net cash flow development
£m
FY18 Cash position 411
EBITDA 43
Strong operating Working Capital 50
cash flow offset
Insurance proceeds 74 ● proceeds received to date
by settlement
of GIP GIP settlement (80) ● GIP cash settlement offset in
part by share sales
Finance costs + other (36) ● Majority finance costs including
interest element of IFRS 16
Capex split1
M&S deal proceeds 558
104
Proceeds from Capex1 (260)
M&S deal and 71
convertible Finance obligations (65) 47
38
support strong
funding position Share sales 60
for future (4)
Other UK Int. Platform Other
growth
● £600m convertible bond CFCs CFCs Dev
FY19 Cash position 751 1351 issuance post year end
1. Variance is the difference between accrued capital expenditure and cash capital expenditure 16
©2020 Ocado Group plc. All rights reserved.Outlook for 2020
● Revenue growth:
○ Retail 10‐15%
○ UK Solutions & Logistics below Retail reflecting full year impact of Morrisons’
“holiday” from Erith
○ International Solutions expected to be 40% growth
17
©2020 Ocado Group plc. All rights reserved.Outlook for 2020 (continued)
● EBITDA:
○ Retail above revenue growth, reflecting improved operating margins as Erith scales
○ UK Solutions and Logistics to decline due to Morrisons’ “holiday” from Erith, with insurance
benefits recorded in exceptionals
○ International solutions to decline due to continued investment in build of the business and
increased support costs with launch of initial CFCs
● Continued insurance receipts
○ Partly funds UK CFCs
○ Both rebuild and business interruption recognised as exceptional income
● Capex forecast £600m
○ International CFCs - £225m
○ UK CFCs - £225m; Andover (c.40% of total) to be funded from insurance proceeds
○ Development and other - £150m
18
©2020 Ocado Group plc. All rights reserved.Financial Review
Duncan Tatton-Brown
CFO
19 10
©2020 Ocado Group plc. All rights reserved.Groupe Casino: Fleury-Mérogis, France
Propose this picture as something
simulation related - visual way to remind
people of the importance of the software
element of the platform
Building for
tomorrow, at pace Sobeys: Vaughan, Ontario, Canada
Tim Steiner
CEO
20
©2020 Ocado Group plc. All rights reserved.Four key elements to the Ocado story in 2020
1. Developing the Ocado Smart Platform
2. Managing greater velocity in the business
3. Enhancing the customer experience at Ocado Retail
4. Creating the future, today: transformative innovation in the pipeline
21
©2019 Ocado Group plc. All rights reserved.1 OSP: reliably providing the best customer outcomes...
Range Service Ease of Use Price
58,000 SKUs 95% of orders Order through app, Flexibility to price our
delivered on time website, and on range so that we
8 products1 in
chosen device offer the most value
average basket 99% order accuracy
for customers
only at Ocado Always improving
A market leading customer offer
1. Meaning any third party branded product that cannot be found elsewhere, including entire brands or different versions of a given product
22
©2030 Ocado Group plc. All rights reserved.1 ...while producing the best economics
Centralised fulfilment has That drive economic Typical micro Leveraged in
fundamental characteristics benefits fulfilment centre our Zoom model
1. Large scale, centralised Margin benefit (long tail)
operations
Inbound
Improved
Picking
efficiencies
Waste
2. Reduced supply chain Minimal supply chain cost
3. Use of own, purpose-built Flexibility to pursue iterative
technology and IP and step change innovation ?
Operating cost result Best in channel Materially higher Slightly higher
23
©2030 Ocado Group plc. All rights reserved.1 The last mile
● Strategic spoke network enables improved last mile
Scaled, centralised efficiency, including disbenefit of longer stem time
1 ● We estimate that central planning brings an
planning drives benefits
operating benefit of around 0.5% of sales
● The theoretical ‘gain’ to be made from closer start
Trunking is a small part
2 location to customer
of delivery expense ● Trunking costs 1.2% of sales for Ocado Retail
● A store can service a limited amount of online sales
Operating click & collect is ● Needs staff to operate; more required as scales
3 ●
not ‘free’ for a retailer We estimate click and collect could cost 3-4%
of sales to operate
The benefit of proximity alone is minimal in the context of the operational benefits of the CFC model
24
©2030 Ocado Group plc. All rights reserved.1 The OSP ecosystem
An illustrative example size
Key Module Primary mission
(sq ft)
immediacy
same day Standard Full basket shop; large direct
1 1 200k+
next day CFC and spoked catchment
2
Full grocery shop; shorter lead
Mini
2 times or to connect lower 50-160k
CFC
3 density areas to network
2 3 MFC Immediacy 5-25k
4
Store pick
Work underway to leverage the 4 Best fulfilment in remote areas n/a
software
ecosystem to reduce cost even further
OSP has the flexibility to develop bespoke networks to serve the unique needs of each market
25
©2030 Ocado Group plc. All rights reserved.1 Ocado Zoom: next steps in immediacy
FY19 Ongoing Future
The consumer trial Proving the model Roll out with OSP
Install our solution Micro fulfilment
Validated real market
opportunity in immediacy Focus on operational solution to serve
efficiencies e.g. waste immediacy missions
Increased confidence in markets globally
we can deliver the best
Explore options to further
offer and economics Continue to evolve
optimise technology
Working on plans for second site
26
©2020 Ocado Group plc. All rights reserved.1 Exploring the benefits of being a ‘member of the club’
1. Increased innovation
4. Future optionality as Ocado Group scales,
with increased resources
and footprint
3. Global view 2. Share learnings
of consumer trends to keep
ahead of peers in local markets Quarterly meetings to discuss
build, launch and scaling in
home markets
A collaborative and future-focused network for forward-looking retailers
27
©2030 Ocado Group plc. All rights reserved.2 Managing greater velocity in the business
Continued growth of Launch of global Strong funding FY20+
technology and systems; HR, finance, position
support services product management for commitments and
future opportunities
+350 Internal restructure to
technology colleagues +£600m FY19
mission-focused teams
convertible bond
London development Upgrading support
centre opened teams and systems
+£558m
M&S deal
New corporate website US office opened
A global team of top
Business transformation Financial flexibility
technology talent
First two international CFCs to open in 1H20, with over 30 operational in the next few years
28
©2030 Ocado Group plc. All rights reserved.2 First CFCs opening - creating a template for execution
Pre-launch Launch and Growth
Preparation Go-live and ramp according to
responsibilities each partner’s strategic plan
People
Recruit and train Roll out and drive proposition
Partner (drivers, CFC staff) phasing, marketing, pricing, range
Complete site
Software Project management Relationship management
Development and testing assist on early execution share feedback, refine, grow
Hardware ----------------------------
Installation and testing Support: online retail expertise, technical service
People 24/7 on the ground and remote
Recruit and train Collaboration and innovation
(PMs, engineers) Leveraging shared learnings for all current and future sites
Enabling our partners to grow on their own terms, in and across markets
293 Enhancing the customer experience at Ocado Retail
And together, we will improve
the customer offer even further
1. Food innovation with
sourcing at scale
2. Working on Creating new
We are well integrated CRM To grow faster
placed to lead opportunities
Current
More data and
Fastest growing geographies
1.Develop insights to act on
grocer in UK and missions
commercial and
marketing abilities Unparalleled offer
Award-winning New geographies
proposition 2.strengthening GM More missions
New missions
served
1.Leading fulfilment operations with
continuous technology upgrades
2.New, profitable, immediacy and same
day models
Preparing for faster growth after near term capacity constraints ease
30
©2030 Ocado Group plc. All rights reserved.4 Creating the future, today
Pursuing constant
innovation
Vertical farming
Robotic picking
In the Core
● picking is c.50% of Further increasing the
CFC labour cost competitive advantage that
● Aspire to equal OSP drives in grocery
performance of
human for portion of Ventures
Automated
the range by FY20 A growing portfolio, leveraging
meal prep
our technological know-how
and participating in innovation
in other adjacencies
3D printing
Parallel streams of innovation creating future value for the medium to long term
31
©2030 Ocado Group plc. All rights reserved.Conclusions
● OSP is a flexible model, with leading economics, that will help our partners
to win in online grocery across all missions and markets
● The model is always evolving and improving
● We are ready to work at even higher velocity
● Ocado Retail is poised for even faster growth in the UK
● We are innovating to drive future value, in grocery and beyond
32
©2020 Ocado Group plc. All rights reserved.Q&A
33
©2020 Ocado Group plc. All rights reserved.Appendix
34Cash Position
2019 (£m)
Cash and cash equivalents FY18 411
Net cash flow (218)
Proceeds from creation of JV with M&S 558
Cash and cash equivalents 751
Existing undrawn RCF 100
Total headroom 851
>£1.4bn in total headroom inclusive of £600m convertible bond issued after year end
35
©2020 Ocado Group plc. All rights reserved.Capital expenditure1
FY 2019 (£m) FY 2018 (£m)
Mature CFCs 5 6
New CFCs 42 80
International CFCs 71 11
Delivery 17 22
Technology development 71 55
Fulfilment development 33 21
Other 21 18
Total 260 213
1. Capex excludes assets leased from MHE JV Co under finance lease arrangements 36
©2020 Ocado Group plc. All rights reserved.Impact of IFRS 16 on FY19
IFRS 16 Impact FY 2019 (£m)
Ocado Retail 14.8
UK Solutions & Logistics 10.6
International Solutions -
Other -
EBITDA 25.4
Depreciation, amortisation and impairment (19.8)
Net Finance Costs (14.9)
Total (9.3)
37
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