FY19 Results Ocado Group plc
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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.
“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 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 29
3 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.
Cash 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 ©2020 Ocado Group plc. All rights reserved.
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