TIDMOCDO
RNS Number : 1306K
Ocado Group PLC
05 July 2017
OCADO GROUP PLC
Half year results for the 26 weeks ended 28 May 2017
Ocado delivers further growth in customer numbers, orders and
revenues
Continued investment in platform for licencing to retailers
5 July 2017
Financial and statutory highlights
26 weeks 24 weeks 26 vs 26 weeks 26
ended ended 15 24 weeks ended vs
28 May May 2016 29 May 26
2017 GBPmillion 2016* weeks*
GBPmillion GBPmillion
-------------------- ------------ ------------ ---------- ------------ --------
Revenue (Retail)
(1) 659.6 540.1 22.1% 586.2 12.5%
Revenue (Group)(2) 713.8 584.2 22.2% 634.4 12.5%
EBITDA(3) 45.2 40.4 12.0% 44.0 2.7%
Profit before
tax 7.7 8.5 (9.4%) 9.4 (18.1%)
Cash and cash
equivalents 37.8 52.7
Statutory net
debt 210.5 136.2
External net
debt(4) 102.4 14.6
-------------------- ------------ ------------ ---------- ------------ --------
*To aid comparability we have included an illustration of the
key 2016 performance measures for the first 26 weeks to enable a
better view of the underlying growth and performance.
Continued strong revenue growth and further investments
-- Retail revenue increased 12.5%(5) to GBP659.6 million,
gaining market share, due to strength of the offer to the
customer
-- EBITDA up 2.7%(5) to GBP45.2 million after gross margin
increase, driven by a reduction in unfunded promotional activity,
and improved operating efficiencies, offset by cost inflation,
impact of Andover CFC opening, and further investment in our
platform
-- Profit before tax of GBP7.7 million decreased by GBP1.7
million(5) , resulting from higher depreciation from Andover CFC
opening
-- Net debt up to GBP102.4 million due to significant capital
investment in innovation and capacity
-- New finance facility in place to support expansion plans (post period end)
Strong growth in customers and orders with brand enhancing
service levels
-- Order volumes grew by 15.6% to an average of 260,000 orders
per week (1H 2016: 225,000), with the highest number of orders
delivered in a week reaching 280,000
-- Average Ocado.com basket size value declined by 1.4% to
GBP108.45 (1H 2016: GBP109.94) impacted by the continued uptake of
Ocado Smart Pass and reduced multi-buy promotions
-- Active customers(6) increased 12.7%(5) year-on-year to over 600,000
-- Maintained superior customer service levels with on time
delivery at 95.0% (1H 2016: 94.9%) and order accuracy at 98.9% (1H
2016: 99.1%)
Focus on technology and innovation to deliver more capital and
operationally efficient solutions
-- Delivery efficiency improved to 180 DPV (1H 2016: 175 DPV),
due to enhancements to routing system and improved customer
density
-- Mature CFC(7) operational productivity improved to 164 UPH (1H 2016: 159 UPH)
-- Mature CFC(7) throughput up over 10% on last year with minimal capital expenditure
-- Andover CFC scaling in line with expectations
Progress in utilising our proprietary knowledge through
licensing
-- Announced first international partnership with a European
retailer post period end using Ocado Smart Platform (OSP)
-- Continued to enable growth of Morrisons' online grocery business
-- New store-pick solution now in live testing with Morrisons
-- Further conversations continuing with multiple retailers to adopt our solutions using OSP
-- Signed partnership agreement with Dobbies to launch their
online garden centre business in 2018
Tim Steiner, Chief Executive Officer of Ocado, said:
"I am pleased to announce another period of consistent customer,
revenue and order growth, as well as improved operating
efficiencies within our UK retail business. In addition, I am
delighted to have announced our first OSP agreement with a European
retailer.
"After several years of price deflation in the U.K., we have
seen this begin to ease in the period and, when combined with our
increasing scale and operational efficiencies, this trend will
support the continued profitable growth of our retail business.
"As the channel shift to online advances we continue to gain
share in a competitive U.K. market. We expect the trend for grocery
shopping online to continue as consumers become more tech savvy and
gain confidence in the online services available. Ocado will be a
natural beneficiary of that trend thanks to its industry-leading
customer offer. We continue to build new facilities in the U.K. in
order to meet the increasing demand we see.
"Meanwhile, we have invested further in our platform and
innovation to advance our technological leadership, as we continue
to grow our technology and engineering teams. With the scaling of
our Andover CFC and the store pick capabilities we have developed
for Morrisons, we are able to better demonstrate the quality of our
platform to current and future international customers.
"Grocery retailing is changing and we are ideally positioned to
enable other retailers to achieve their online aspirations. We
expect our recently announced international partnership to be the
first of many and look forward to helping more retailers provide a
high quality service to their customers in this rapidly evolving
market."
Results presentation
A results presentation will be held for investors and analysts
at 9.30 am today at the offices of Goldman Sachs, Peterborough
Court, 133 Fleet Street, London EC4A 2BE. Presentation material
will be available online at
http://www.ocadogroup.com/investors/reports-and-presentations/2017.aspx.
Contacts
Tim Steiner, Chief Executive Officer on 020 7353 4200 today or
01707 228 000
Duncan Tatton-Brown, Chief Financial Officer on 020 7353 4200
today or 01707 228 000
David Hardiman-Evans, Head of IR & Corporate Finance on 020
7353 4200 today or 01707 228 000
Michelle Clarke or Susanna Voyle at Tulchan Communications on
020 7353 4200
Notes
1. Revenue (Retail) is revenue excluding Morrisons recharges and fees.
2. Revenue is online sales (net of returns) including charges for delivery but excluding relevant vouchers/offers and VAT. The recharge of costs to Morrisons and fees charged to Morrisons are also included in revenue.
3. EBITDA is an alternative performance measure which we define
as earnings before net finance cost, taxation, depreciation,
amortisation, impairment and exceptional items. See note 5 of the
condensed financial statements.
4. External net debt is statutory net debt less amounts owing to
MHE JVCo of GBP108.1 million (1H 2016: GBP121.6 million).
5. Ocado now has a 5-4-4 week reporting model, with each quarter
representing a 13 week reporting period. Prior period comparative
numbers have been provided in some instances to help illustrate
like-for-like trends. 1H 2016 comparisons refer to the 24 week
period ending 15 May 2016.
6. Customers are classified as active if they have shopped on
Ocado.com within the previous 12 weeks.
7. A CFC is considered mature if it has been open for 12 months
by the start of the half year reporting period.
Financial Calendar
Our financial reporting calendar for the remainder of the year
will be a Q3 Trading Statement on 19 September 2017, a Q4 Trading
Statement on 14 December 2017 and a Full Year Results Statement on
6 February 2018.
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.
Chief Executive Officer's review
We are pleased to report another period of progress with steady
growth in our UK retail business, the signing of our first
agreement with an international partner and expansion of our UK
capacity, while continuing to invest in our platform to facilitate
future growth.
While we have started to see the return of modest inflation in
selling prices after several periods of sustained price deflation,
the market has remained competitive at a time of continuing cost
inflation. Notwithstanding, our results demonstrate the superior
nature of our operating model which has enabled us to preserve our
retail margins and continue to invest in our platform for our own
retail business as well as Morrisons and international
partners.
Progress against our strategic objectives--
We continued to deliver on our strategic objectives to drive
growth, maximise efficiency and utilise our proprietary knowledge.
Our continued strong order growth of over 15% demonstrates our
progress in a competitive market, with our active customer base
increasing to over 600,000. We believe that as the channel shift to
online continues, we are ideally positioned to benefit and further
capture market share.
To enable us to achieve our strategic objectives we focus on
five complementary actions. This helps us drive long term
shareholder value and provide a best in class service to our retail
and platform customers. These actions are to:
-- constantly improve our proposition to customers;
-- strengthen our brands;
-- develop ever more capital and operationally efficient infrastructure solutions;
-- enhance our end-to-end technology capabilities; and
-- enable our current and future partners' online businesses.
Constantly improve our proposition to customers
Within our retail business we aim to continually improve and
evolve our proposition to reflect changing consumer preferences and
habits. Critical to this is our focus on a high quality service and
user experience, a diverse range of products and competitive
prices.
We believe that consumers are attracted to the online channel
when they are offered a superior proposition compared to store
based alternatives. We aim to provide this by ensuring customers
can shop anywhere, anytime, across devices and between family
members in an intuitive and swift manner from check in to check
out. We constantly review and analyse the shopping experience to
ensure our customers remain loyal, encourage them to transfer more
of their weekly shop online, and to share their positive experience
of Ocado with their friends and family, and have recently
introduced new features such as Apple Pay and three day slot
viewing to further enhance and provide flexibility to the customer
experience.
Accuracy and punctuality are crucial elements to providing a
compelling service to our customers. We maintained what we believe
to be market leading levels of order accuracy of 98.9% (1H 2016:
99.1%) and orders delivered on time or early of 95.0% (1H 2016:
94.9%) in a one hour time slot.
The extensive range of SKUs we offer to customers is important
to enable them to select products that fit their preferences. Our
customers can buy Ocado and Waitrose own label products, their
favourite brands, general merchandise items and specialist and
international product ranges not typically found in supermarkets;
all in one shop. We also continued to expand our range of 'shop in
shops', now hosting over 60 different categories, including the
recently launched 'Harvey Nichols' shop.
To support this diversity of products we ran our third
'Britain's Next Top Supplier' competition, where we invited
entrants to pitch their products to the Ocado team. This year's
winner was Garlic Farm - a garlic inspired supplier, which produces
notable products such as garlic vodka and garlic sea salt which
will now be stocked at Ocado and receive marketing support to
establish its listing. This scheme helps us to support and access
niche and specialist suppliers that may not otherwise receive shelf
space at traditional supermarkets. Our previous winner, Hiver Beer,
has since seen sales grow five times faster than the rest of
Ocado's beer category in 2016.
Despite the intense price competition in the industry, in the
period around two thirds of our customers' baskets were already
cheaper at Ocado when checking our Low Price Promise ("LPP") basket
matching scheme against the market leader. We believe our price
following strategy enables us to remain price competitive, and LPP
demonstrates this to our customers.
We continue to see an uptake in our bundled benefit scheme,
Ocado Smart Pass, with well over 50% of sales now coming from Smart
Pass customers. The scheme provides many benefits, including free
delivery, samples and gifting and at least 10% off a range of
leading brands. Membership helps drive loyalty and consumer spend
as the 'sunk cost' of the scheme encourages customers to maximise
the opportunity to use online shopping as part of their weekly
routine.
Our General Merchandise revenues have grown strongly with
year-on-year growth of 40% against the comparable period, enabled
by the continued range extension within both our Ocado.com general
merchandise categories and our destination sites, principally Fetch
and Fabled, our speciality pet and premium beauty stores.
As we improve our retail proposition, this enhances the key
features we can apply to the technology embedded in our platform,
thus benefiting our existing and future corporate customers.
Strengthen brands
We continue to strengthen the value and awareness of our retail
brands Ocado, Fetch, Sizzle and Fabled through targeted marketing
activity.
In line with the grocery market, we reduced the amount of
multi-buy promotions, many of which had been for our Ocado own
label product, and as a result sales of this range were down 1%
over the period.
Our active customer base grew by 11.3% year-on-year to over
600,000, with more focus being placed on retention of newer
customers and reactivation of lapsed customers through targeted
marketing and voucher activity rather than absolute growth in new
customers.
While we saw the return of some selling price inflation in the
period following a sustained period of price deflation, customers'
average Ocado.com basket value still declined by 1.4% to GBP108.45
(1H 2016: GBP109.94). This resulted from a modest reduction in
average items in basket, due to the continued success of migrating
more customers to Smart Pass, increased shopping frequency and
reduced multi-buy promotions.
Develop ever more capital and operationally efficient
infrastructure solutions
Both of our mature CFCs in Hatfield and Dordon continued to
operate at what we believe are industry leading levels of
operational efficiency and accuracy. We typically measure
efficiency by using the units per labour hour ("UPH") metric, which
in our mature CFCs improved 3.2% over the period to 164 UPH (1H
2016: 159 UPH).
We saw robust growth in our order volumes of 15.6% to an average
of 260,000 orders per week ("OPW") (1H 2016: 225,000 OPW), with the
highest number of orders delivered in a week exceeding 280,000
during the period. This growth has been enabled by increasing the
throughput of our mature CFCs with minimal capital expenditure, and
the scaling of our latest CFC in Andover, Hampshire.
Our Andover CFC commenced operations at the end of last year and
we have made good progress in scaling operations in line with our
expectations. As we continue to add more capacity into the CFC we
are improving the resiliency and reliability of our software and
physical solutions, which will benefit both our own retail business
and that of our platform partners going forward. Developing and
taking live the proprietary physical fulfilment solution and
software systems within our Andover CFC was our biggest challenge
to date, but also our biggest technological step forward, and we
are pleased with the progress made in scaling the site.
We also continued to progress the fit out and development of our
fourth CFC in Erith, South East London, which is scheduled to open
in 2018. Once fully operational this site will increase our
potential capacity by 200,000 OPW, supporting the growth of both
ours and Morrison's online businesses.
Our average deliveries per van per week ("DPV") improved 2.7%
over the period to 180 (1H 2016: 175). This is a result of several
factors: improved drop density as we grew our customer base,
ongoing developments to our routing software allowing the most
effective routes to be planned and taken, and other operational
improvements in route planning, including an increase in Sunday
deliveries.
Enhance our end-to-end technology capabilities
Our proprietary IP, knowledge and ongoing technology are central
to our business and competitive edge. We strive to evolve and
innovate ahead of the market to provide both our retail and
platform customers with a market leading proposition with
attractive economics. We continue to protect our intellectual
property, and have filed patent applications covering over 50
different innovations to date, primarily relating to our
proprietary physical fulfilment solution.
To support this ongoing evolution we continued to grow our
technology team, and currently have approaching 1,000 software
engineers in our five technology hubs across Europe. Our technology
team is responsible for improving the customer experience,
particularly developments to the interfaces to support our
businesses and those of our current and future partners,
replatforming to improve speed of systems development and to enable
international expansion, and other projects to drive efficiency in
our operations. In addition, we have a significant engineering team
of over 200 qualified staff working on enhancements and value
engineering of our physical solutions.
Enable current and future partners' online businesses
Central to our retail business is our proprietary technology and
know-how. Through our solutions business we aim to create
significant value by commercialising these capabilities to enable
other retailers to launch or improve their online propositions.
Innovations and improvements to our own retail business also
benefit Ocado Smart Platform, enhancing the capabilities for our
current and future partners.
Since launching our first commercial partnership with
Morrisons.com in 2014, we have seen their sales grow significantly
highlighting the power of our platform proposition and technology
to retail customers. While Morrisons.com is now close to reaching
its original agreed capacity, it signed an agreement in the
previous period to take capacity in Erith CFC. In addition, we are
currently expanding their offer with a general merchandise range
sourced and fulfilled by Ocado, and are in final testing of a store
picking software solution to also enable Morrisons to service their
'harder to reach' catchment areas. The store pick functionality
also adds flexibility to our OSP solution, offering retailers a
quick route to market and flexible fulfilment option to service
online customers, which can be seamlessly combined (either
immediately or later) with our CFC fulfilment solution.
Within the period we signed a general merchandise partnership
with Dobbies, one of the U.K.'s biggest garden centres to help
launch their online business. We believe the partnership is a
testament to our technological and logistical experience in online
shopping and illustrates how transferable our knowledge can be
across retail segments.
Shortly after the period end, we announced our first
international partner for our solutions business using Ocado Smart
Platform. Under this agreement the partner will have access to our
full software platform, know-how and support services required to
create an efficient online grocery business. The partner will
initially operate from a manual warehouse, with the option to
progress to a full automation solution at a later date. This
agreement represents a significant step in the evolution of our
business and delivery of our strategy, demonstrating the
flexibility of our solutions, and we are confident that this will
be the first of many successful partnerships going forward.
We continue to progress conversations with multiple retailers
internationally to use the Ocado Smart Platform and believe that
recent industry developments such as the announced acquisition of
Whole Foods by Amazon will be a positive catalyst in advancing
these discussions.
People and Corporate Responsibility initiatives
With a net addition of 1,400 new employees year-on-year we
closed the period with close to 12,300 people. We continue to grow
and develop our talent pool to support the robust growth of both
Morrisons.com and our own retail businesses, as well as our
solutions business. This year we reviewed and improved our
Recruitment and Performance management processes to further enable
the growth of our business and development of our people and opened
our new head office, which brings together our corporate functions
under one roof and helps drive collaboration. We will continue
expanding our talent pool in the remainder of 2017, including the
addition of a further 150 software engineers and IT specialists in
the UK and across Europe.
Our popular Code for Life programme, teaching children coding
skills with our free resource "Rapid Router", now has more than
97,000 users at more schools both here in the UK and overseas.
Our Donate Food with Ocado scheme continues to be popular with
customers and allows us to match fund donations made with
groceries. Customers have donated more than GBP422,000 to the
scheme to date. In November 2015, we began working with 'The Real
Junk Food Project' and believe we are the first UK retailer to
reduce wastage by sending edible food from customer-cancelled
orders (including fresh food with long sell by dates) straight to
charities to use. One of our other food bank partners, Fareshare,
has within only 9 months donated 100,000 meals from cancelled
customer orders, and we continue to support this and other food
banks, redirecting food that would otherwise be wasted.
The Ocado Foundation has purchased and donated five refrigerated
vans to food bank charities local to our CFCs. The vans have been
purchased with the funds generated by the 5p bag tax. The
introduction of refrigerated vans means these food banks are now
able to distribute fresh food, rather than being limited solely to
tinned and non-perishable produce, which is often what gets donated
by customers in collection bins.
Outlook and financing
We saw retail revenue growth of 12.5% over the first half of the
year, representing another robust period of growth. We expect to
continue to grow ahead of the online grocery market as more people
convert to shopping online for groceries, and believe we have a
superior customer proposition which will enable us to capture
market share.
As the channel shift to online continues and we see further
improvements in technology-enabling online propositions, we
anticipate that retailers will sharpen their focus on their online
strategies. From 17 years of ongoing development we believe we have
the best in class solution to enable these retailers to leapfrog
competition and provide a compelling and economically viable online
proposition to their customers. We remain confident in our ability
to sign multiple platform partnerships in the medium term.
Capital expenditure in 2017 is expected to be approximately
GBP175 million, encompassing expenditure for Andover CFC and Erith
CFC, and the increased costs of further developing our
infrastructure and technology solutions. Following a successful
refinancing shortly after the end of the period, involving a GBP250
million bond issuance and GBP100 million revolving credit facility
("RCF"), we now have over GBP250 million of cash and available
undrawn credit facilities in excess of our operating cash
requirement to support our future growth.
Chief Financial Officer's review
For the period, we maintained our double digit revenue growth in
what has remained a competitive environment. At group level, we
continued our robust growth driven by our retail business with the
balance coming from our agreement with Morrisons.
Growth in retail revenue was driven by further improvements in
the number of active customers in the period and higher order
frequency. Profitability in the period was adversely impacted by
the continuing inflationary pressure, the higher costs associated
with the opening of Andover CFC, our continued investment in a
number of strategic initiatives to aid the future growth of the
business and additional depreciation. This was offset in part by
more efficient operational fulfilment mainly at Dordon CFC and an
improvement in average deliveries per van per week.
For comparability purposes the financial statements below are
based on the 26 weeks ended 28 May 2017 ("1H 2017") and 24 weeks
ended 15 May 2016 ("1H 2016"), unless otherwise stated. This is
because in FY 2016 Ocado decided for financial years from FY 2017
onwards to move from a financial calendar comprising 13 four weekly
accounting periods to a financial calendar of 12 accounting periods
where each quarter comprises three periods of 5 weeks, 4 weeks and
4 weeks. As a result, an additional two weeks of trading activity
is included in 1H 2017 and is reflected in the variances unless
otherwise stated. This statement also includes certain financial
information relating to our Key Performance Indicators which is
also on this basis.
1H 2017 1H 2016 Variance
(26 weeks) (24 weeks)
GBPm GBPm
============================= ============ ============ =========
Revenue (1) 713.8 584.2 22.2%
Gross profit 247.8 199.4 24.3%
----------------------------- ------------ ------------ ---------
Other income 26.3 22.7 15.9%
----------------------------- ------------ ------------ ---------
EBITDA(2) 45.2 40.4 12.0%
----------------------------- ------------ ------------ ---------
Depreciation, amortisation
and impairment 33.2 27.6 20.3%
Operating profit before
share of result from joint
venture (2) 11.2 11.8 (5.1)%
Net Finance costs 4.2 4.3 (2.3)%
----------------------------- ------------ ------------ ---------
Share of results from joint
venture 0.8 1.0 (20.0)%
----------------------------- ------------ ------------ ---------
Profit before tax 7.7 8.5 (9.4)%
============================= ============ ============ =========
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 Morrisons and fees charged to
Morrisons are also included in revenue
2. EBITDA is stated before the impact of exceptional items
Revenue
1H 2017 1H 2016 Variance
(26 weeks) (24 weeks)
GBPm GBPm
===================== ============ ============ =========
Retail 659.6 540.1 22.1%
Morrisons recharges 44.2 35.2 25.6%
Morrisons fees 10.0 8.9 12.4%
Total revenue 713.8 584.2 22.2%
===================== ============ ============ =========
Revenue grew by over 22.2% to GBP713.8 million versus 1H 2016 of
GBP584.2 million. Revenue from retail activities was GBP659.6
million, an increase of 22.1%.
Retail revenue growth was driven by growing demand with total
average orders per week of 260,000 up from 225,000 in 1H 2016. The
average Ocado.com order size was down 1.4% from GBP109.94 in 1H
2016 to GBP108.45 in 1H 2017. This was primarily due to continued
reduction in the number of items per basket due to the increased
frequency of shop from our loyal customers base and reduced multi
buy promotional activity.
The Morrisons agreement contributed GBP54.2 million to revenue,
up from GBP44.1 million in 1H 2016. This comprised annual fees for
services, technology support, research and development, management
fees and a recharge of relevant operational variable and fixed
costs.
Gross profit
1H 2017 1H 2016 Variance
(26 weeks) (24 weeks)
GBPm GBPm
===================== ============ ============ =========
Retail 193.6 155.3 24.7%
Morrisons recharges 44.2 35.2 25.6%
Morrisons fees 10.0 8.9 12.4%
Total gross profit 247.8 199.4 24.3%
===================== ============ ============ =========
Gross profit was up 24.3% to GBP247.8 million, compared to 1H
2016 of GBP199.4 million. Gross margin was 34.7% of revenue (1H
2016: 34.1%), ahead of 1H 2016 principally due to the contribution
from Retail gross profit and additional gross profit attributable
to the Morrisons arrangement in the period, reflecting the
continued growth in the Morrisons.com business. Retail gross profit
increased to 29.4% of retail revenue (1H 2016: 28.8%) as a result
of reduced unfunded promotional activity, increases in selling
price offset by the increase in cost of goods.
Other income increased by 15.9% to GBP26.3 million (1H 2016:
GBP22.7 million) with supplier income increasing to GBP20.6 million
(1H 2016: GBP15.3 million) equivalent to 3.1% of retail revenue (1H
2016: 2.8%). Other income also included GBP4.5 million (1H 2016:
GBP5.6 million) arising from the leasing arrangements with
Morrisons for MHE assets and GBP1.2 million (1H 2016: GBP1.1
million) of rental income relating to the lease of Dordon CFC. This
income, for the MHE assets, is generated from charging MHE lease
costs to Morrisons and equates to the additional depreciation and
lease interest costs that we incur for the share of the MHE assets
effectively owned by Morrisons.
Operating profit
Operating profit before the share of result from joint venture
and exceptional items for the period was GBP11.2 million, compared
with GBP11.8 million in 1H 2016.
Distribution costs and administrative expenses include costs for
the Ocado and Morrisons fulfilment and delivery operations, as well
as head office costs. The costs directly relating to the Morrisons
operations are recharged and included in revenue. Total
distribution costs and administrative expenses including costs
recharged to Morrisons grew by 25.0% year-on-year. Excluding
Morrisons, costs grew by 24.5% year-on-year.
1H 2017 1H 2016 Variance
(26 weeks) (24 weeks)
GBPm GBPm
=============================== ============ ============ =========
Distribution costs (1,2) 142.8 114.1 25.2%
Administrative expenses (1,
2) 42.6 33.4 27.5%
Costs recharged to Morrisons
(3) 44.3 35.2 25.9%
Depreciation and amortisation
(4) 33.2 27.6 20.3%
Total distribution costs and
administrative expenses 262.9 210.3 25.0%
=============================== ============ ============ =========
1. Excludes chargeable Morrisons costs, depreciation, and
amortisation and impairment charges
2. 1H 2016 include a re-categorisation of GBP2.6 million of cost
from administrative expenses to distribution costs
3. Morrisons costs include both distribution and administrative expenses
4. Included within depreciation and amortisation for 1H 2017 is
GBP0.2 million (1H 2016: GBP0.1 million) of impairment charges
At GBP142.8 million, distribution costs increased by 25.2%
compared to 1H 2016. The increase in underlying distribution costs
was principally due to the increased number of employees in the CFC
and delivery operations and increased vehicle operating costs as a
result of the greater volume of orders and higher fixed and
variable costs associated with the scaling of Andover CFC. Mature
CFC UPH efficiencies continued to improve by 3.2% to 164. This
improvement in mature CFC UPH was driven mainly by the Dordon CFC
productivity, which regularly now exceeds 180 UPH over the period.
UPH in the Hatfield CFC also improved versus last year.
Deliveries per van per week have risen to 180 (1H 2016: 175) as
customer density improved, Sunday delivery slots increased and
continued enhancements to our routing system. We benefited from the
opening of two new spokes in the prior year (Crawley and
Peterborough), but no new spokes were opened in the period.
Total administrative expenses excluding depreciation,
amortisation and costs recharged to Morrisons increased to GBP42.6
million, a 27.5% increase from 2016. Marketing costs excluding
voucher spend increased from GBP4.4 million to GBP6.1 million and
0.9% as a percentage of retail revenue (1H 2016: 0.8%).
1H 2017 1H 2016 Variance
(26 weeks) (24 weeks)
GBPm GBPm
=============================== ============ ============ =========
Central costs - other
(1,2) 33.3 26.3 26.6%
Central costs - share
based management incentives 3.2 2.7 18.5%
Marketing costs (excluding
vouchers) 6.1 4.4 38.6%
Total administrative expenses 42.6 33.4 27.5%
=============================== ============ ============ =========
1. Excluding chargeable Morrisons costs, depreciation and amortisation
2. 1H 2016 include a re-categorisation of GBP2.6 million of cost
from administrative expenses to distribution costs
The increase in underlying administrative expenses was primarily
due to continued investment in our strategic initiatives to support
future growth, including increased costs associated with our new
head offices.
Total depreciation and amortisation costs were GBP33.2 million
(1H 2016: GBP27.6 million), an increase of 20.3% year-on-year. The
increase year-on-year in costs was driven principally due to the
commencement of operations at Andover CFC and increased vehicle
numbers in line with business growth.
1H 2017 Comparatives
To aid comparability we have illustrated the key 2016
performance measures for the first 26 weeks to enable
a better view of the underlying growth and performance.
Adjusted Variance
(1)
1H 2017 1H 2016
(26 weeks) (26 weeks)
================================== ============ ============ =========
Retail Revenue (GBPm) 659.6 586.2 12.5%
Gross profit (% of retail
revenue) 29.4 28.8 0.6
Supplier income (% of retail
revenue) 3.1 2.9 0.2
Distribution costs ex. Morrisons
(% of retail revenue) (21.5) (20.9) (0.6)
Marketing (non voucher)
costs (% of retail revenue) (0.9) (0.8) (0.1)
Operating Contribution (%
of revenue) 10.1 10.0 0.1
---------------------------------- ------------ ------------ ---------
Operating Contribution(2)
(GBPm) 66.5 58.6 13.5%
---------------------------------- ------------ ------------ ---------
1. 26 weeks ended 28 May 2017 ("1H 2017") and 26 weeks
ended 29 May 2016 ("Adjusted 1H 2016")
2. Operating contribution is an alternative performance
measure, refer to notes for further information
Retail revenues increased by 12.5% year-on-year to
GBP659.6 million. Retail operating contribution increased
ahead of revenue by 13.5% to GBP66.5 million. Retail
operating contribution as a percentage of revenue
improved by 0.1 percent to 10.1% versus prior year.
This was mainly driven by improved margins and supplier
income offset by the higher costs associated with
the initial stages of growing volumes at Andover CFC
and inflationary pressure on key cost lines.
Adjusted Variance
(1)
1H 2017 1H 2016
(26 weeks) (26 weeks)
============ ============ =========
Morrisons fees & MHE JVCo
Income (GBPm) 15.2 16.7 (8.9)%
---------------------------- ------- ------- -------
Central costs (2,3) (GBPm) (36.5) (31.3) 16.6%
---------------------------- ------- ------- -------
EBITDA(4) (GBPm) 45.2 44.0 2.7%
---------------------------- ------- ------- -------
1. 26 weeks ended 28 May 2017 ("1H 2017") and 26 weeks
ended 29 May 2016 ("Adjusted 1H 2016")
2. Excluding chargeable Morrisons costs, depreciation
and amortisation
3. 1H 2016 include a re-categorisation of GBP2.6 million
of cost from administrative expenses to distribution
costs
4. EBITDA is stated before the impact of exceptional
items.
Total administrative expenses grew above the rate
of revenue as we continued investment in a number
of strategic initiatives to aid the future growth
of the business and as we incurred higher rate of
costs primarily due to increasing people costs and
the associated office costs.
---------------------------------------------------------------------------------
Share of result from joint venture
MHE JVCo Limited ("MHE JVCo") holds Dordon CFC assets, which
Ocado uses to service its and Morrisons' online business and is
owned 50% by Ocado and 50% by Morrisons. The Group share of MHE
JVCo profit after tax in the period amounted to GBP0.8 million (1H
2016: GBP1.0 million).
Net finance costs
Net finance costs were GBP4.2 million, versus GBP4.3 million in
1H 2016. Excluded from this amount are costs of GBP1.1 million (1H
2016: GBP0.4 million) which have been capitalised in the period in
relation to the GBP210 million RCF.
Profit before tax and exceptional items
Profit before tax and exceptional items for the period was
GBP7.8 million (1H 2016: GBP8.5 million).
Taxation
Due to the availability of capital allowances and Group loss
relief, the Group does not expect to pay corporation tax during the
period. No deferred tax credit was recognised in the period. Ocado
had approximately GBP268.6 million (1H 2016: GBP287.8 million) of
unutilised carried forward tax losses at the end of the period.
Earnings per share
Basic earnings per share were 1.26p (1H 2016: 1.45p) and diluted
earnings per share were 1.23p (1H 2016: 1.40p).
Capital expenditure
Capital expenditure for the period:
1H 2017 1H 2016
(26 weeks) (24 weeks)
GBPm GBPm
=================================== ============ ============
Mature CFCs 0.8 1.5
New CFCs 29.5 17.1
Delivery 7.2 13.7
Technology 19.8 13.3
Fulfilment Development 10.2 5.8
Other 6.2 1.9
=================================== ============ ============
Total capital expenditure(1,
2) (excluding share of MHE JVCo) 73.7 53.3
=================================== ============ ============
Total capital expenditure(3)
(including share of MHE JVCo) 74.2 55.0
=================================== ============ ============
1. Capital expenditure includes tangible and intangible
assets
2. Capital expenditure excludes assets leased from MHE JVCo
under finance lease arrangements
3. Capital expenditure includes Ocado share of the MHE JVCo
capex in 2017 of GBP0.5 million and in 1H 2016 of GBP1.7
million
Capital expenditure in the Hatfield CFC was GBP0.8 million which
mainly related to a number of small projects to improve the
capacity and resiliency of this site.
We incurred GBP29.5 million of costs in the period for our new
CFCs. Andover CFC commenced operations at the end of 2016 and has
steadily increased volumes during 2017, with a potential eventual
capacity above 65,000 OPW. The fit out of the next CFC located in
Erith, South East London continued according to plan and this site
is expected to open in 2018 with a potential eventual capacity
above 200,000 OPW.
Total expenditure on new vehicles in the period was GBP6.1
million (1H 2016: GBP8.9 million), lower than the prior year mainly
due to timing of purchases between the first and second half of
2017. This expenditure enabled business growth and replacement of
vehicles that have reached or exceeded their five year useful
life.
Ocado continued to develop its own proprietary software and
incurred GBP16.2 million (1H 2016: GBP10.0 million) of internal
development costs in the period on Technology, with a further
GBP3.6 million (1H 2016: GBP3.3 million) spent on computer hardware
and software. We expanded our technology total headcount to
approaching 1,000 staff at the end of the period (FY 2016: over 850
staff) as increased investments were made to support our strategic
initiatives. The main areas of investment were replatforming of our
technology and the greater use of public or private cloud services,
improvements in the efficiency of our routing systems, enhancements
to our customer proposition, developing a store pick solution for
implementation by Morrisons and support for the growth of Andover
CFC.
Fulfilment development capital expenditure includes GBP10.2
million of investment in developing our next generation fulfilment
solutions, which will be used in our new CFCs and for those of our
business partners.
In the period, we incurred our share of the capital expenditure
relating to MHE JVCo of GBP0.5 million (1H 2016: GBP1.7 million) to
improve operational capacity and efficiency of the Dordon CFC and
various minor improvement projects.
Other capital expenditure of GBP6.2 million in the period,
included GBP3.1 million of capital expenditure related mainly to
our head office move. In addition to this, we spent GBP2.8 million
on our general merchandise business to support growth in capacity
in our existing general merchandise facility and the associated
development costs for our second general merchandise distribution
centre.
At 28 May 2017, capital commitments contracted, but not provided
for by the Group, amounted to GBP41.8 million (FY 2016: GBP34.4
million; 1H 2016: GBP18.6 million). We expect capital expenditure
in 2017 to be approximately GBP175 million which mainly comprises
the continuing investment in our infrastructure and technology
solutions, roll out of our new CFCs and additional investment in
new vehicles to support business growth and the replacement of
vehicles coming to the end of their five year financing
contracts.
Cash flow
Net operating cash flow after finance costs increased to GBP48.1
million, down 1.4% from GBP48.8million in 1H 2016 as detailed
below:
1H 2017 1H 2016
(26 weeks) (24 weeks)
GBPm GBPm
========================================= ============ ============
EBITDA(1) 45.2 40.4
Working capital movement 5.3 9.9
Other non-cash items 2.0 1.1
Finance costs paid (4.4) (2.6)
========================================= ============ ============
Operating cash flow 48.1 48.8
Capital investment (88.7) (44.9)
Increase/(Decrease) in net debt/finance
obligations 27.0 2.5
Proceeds from share issues net
of transaction costs 0.5 0.5
========================================= ============ ============
Movement in cash and cash equivalents (13.1) 6.9
========================================= ============ ============
1. EBITDA is stated before the impact of exceptional items
Operating cash flow decreased by GBP0.7 million during the year
driven by an increase in finance costs paid and a reduction in
working capital, offset by an increase in EBITDA. The working
capital inflow of GBP5.3 million is driven by an increase in trade
payables and accruals of GBP21.6 million and a reduction in
inventories of GBP3.4 million, offset by an increase in trade and
other receivables of GBP19.7 million.
During the period GBP88.7 million of capital expenditure was
paid in cash as the Group continues to invest for future growth
comprising investments in new CFCs, development of our next
generation fulfilment solutions and spend on new vehicles and spoke
sites. This was significantly higher than the reported capital
expenditure of GBP73.7 million because a number of large asset
purchases accrued for at FY 2016 have now been received and paid
for.
Net financing cash flows in the period were GBP27.5 million
comprising GBP27.0 million of new net debt and financing
obligations and GBP0.5 million of proceeds from the issue of new
share capital following the exercise of employee share options.
Balance sheet
The Group had cash and cash equivalents of GBP37.8 million at
the end of period versus GBP50.9 million as at 27 November
2016.
Gross debt at the period end was GBP248.3 million (FY 2016:
GBP215.8 million) and external gross debt, excluding obligations
under finance leases owing to MHE JVCo, was GBP140.2 million (FY
2016: GBP107.1 million). The increase in net external debt is due
to the level of investment in improving our platform and additional
UK capacity being ahead of cash generation. Net external debt at
the period end was GBP102.4 million (FY 2016: GBP56.1 million). The
increase of GBP46.3 million was mainly driven by a further drawdown
of GBP35.0 million on the RCF (excluding capitalised transaction
fees of GBP2.2 million), during the period which is currently used
for funding our capital investment. The balance was a result of
GBP13.1 million decline in cash, GBP7.0 million of additional
vehicle and property debt, offset by net repayments of GBP7.8
million of borrowings.
Trade and Other Receivables includes GBP38.7 million (1H 2016:
GBP30.3 million) of amounts due from suppliers in respect of
commercial income. GBP18.3 million (1H 2016: GBP16.1 million) is
within trade receivables, and GBP20.4 million (1H 2016: GBP14.2
million) within accrued income.
Included within property, plant and equipment is capital
work--in--progress for land and buildings of GBP35.2 million (1H
2016: GBP33.4 million) and capital work--in--progress for fixtures,
fittings, plant and machinery of GBP22.0 million (1H 2016: GBP85.9
million), the decrease relating to Andover CFC and associated
software going live in 2H 2016.
Increasing financing flexibility
At the period end the Group had an existing unsecured RCF of
GBP210 million with an expiry of July 2019. We had utilised GBP87.5
million of this facility at the period end.
Post the end of the current period we announced the successful
placing of GBP250 million Senior Secured Notes due 2024 at a coupon
of 4% bond as well as an amendment and extension to our current RCF
which was reduced to GBP100 million and extended to June 2022. This
refinancing will be used for the continued growth of our UK retail
business and further development of our platform.
Key performance indicators
The following table sets out a summary of selected unaudited
operating information for 1H 2017 and 1H 2016:
1H 2017 1H 2016 Variance
(26 weeks) (24 weeks)
============================= ============ ============ =========
Average orders per week 260,000 225,000 15.6%
Average order size (GBP)(1) 108.45 109.94 (1.4)%
Overall CFC efficiency
(units per hour)(2) 164 159 3.2%
Average deliveries per
van per week (DPV/week) 180 175 2.7%
Average product wastage
(% of retail revenue)(3) 0.7% 0.8% 0.1%
Items delivered exactly
as ordered(4) 98.9% 99.1% (0.2)%
Deliveries on time or early 95.0% 94.9% 0.1%
----------------------------- ------------ ------------ ---------
Source: the information in the table above is derived from
information extracted from internal financial and operating
reporting systems and is unaudited
1. Average retail value of goods a customer receives (including
VAT and delivery charge) per order from Ocado.com
2. Measured as units dispatched from the CFC per variable hour
worked by Hatfield CFC and Dordon CFC operational personnel. We
consider a CFC to be mature if it had been open 12 months by the
start of the half year reporting period
3. Value of products purged for having passed Ocado's "use by"
life guarantee divided by retail revenue
4. Percentage of all items delivered exactly as ordered, i.e.
the percentage of items neither missing or substituted
Condensed consolidated income statement
for the 26 weeks ended 28 May 2017
26 weeks 24 weeks 52 weeks
ended ended ended 27
28 May 15 May November
2017 2016 2016
Notes GBPm GBPm GBPm
========================= ====== ============ ============ =================
(unaudited) (unaudited) (audited)
Revenue 6 713.8 584.2 1,271.0
Cost of sales (466.0) (384.8) (835.7)
========================= ====== ============ ============ =================
Gross profit 247.8 199.4 435.3
Other income 26.3 22.7 52.9
Distribution costs (208.1) (163.6) (365.7)
Administrative expenses (54.8) (46.7) (100.6)
========================= ====== ============ ============ =================
Operating profit before share
of result from joint venture
and exceptional items 11.2 11.8 21.9
Share of result from joint
venture 0.8 1.0 2.1
Exceptional items (0.1) - (2.4)
========================= ====== ============ ============ =================
Operating profit 11.9 12.8 21.6
Finance income 7 0.2 0.1 0.2
Finance costs 7 (4.4) (4.4) (9.7)
========================= ====== ============ ============ =================
Profit before tax 7.7 8.5 12.1
Taxation - 0.1 (0.1)
Profit for the period 7.7 8.6 12.0
========================= ====== ============ ============ =================
Earnings per share Pence Pence Pence
========================= ====== ============ ============ =================
Basic 10 1.26 1.45 2.02
Diluted 10 1.23 1.40 1.96
========================= ====== ============ ============ =================
Alternate performance measure: Earnings before interest,
taxation, depreciation, amortisation, impairment and exceptional
items (EBITDA)
26 weeks 24 weeks 52 weeks
ended ended ended
28 May 15 May 27 November
2017 2016 2016
GBPm GBPm GBPm
================================ ============ ============ =============
(unaudited) (unaudited) (audited)
Operating profit 11.9 12.8 21.6
Adjustments for:
Depreciation of property,
plant and equipment 26.1 21.7 47.0
Amortisation expense 6.9 5.8 12.6
Impairment of property,
plant and equipment - - 0.3
Impairment of intangibles 0.2 0.1 0.4
Exceptional items - impairment
of property, plant and
equipment - - 0.7
Exceptional items - head
office relocation - - 0.8
Exceptional items - other 0.1 - 0.9
EBITDA* 45.2 40.4 84.3
================================= ============ ============ =============
*EBITDA is an Alternate performance measure, refer to note 5 for
further information.
Condensed consolidated statement of comprehensive income
for the 26 weeks ended 28 May 2017
26 weeks 24 weeks 52 weeks
ended ended ended
28 May 15 May 27 November
2017 2016 2016
GBPm GBPm GBPm
======================================= ============ ============ =============
(unaudited) (unaudited) (audited)
Profit for the period 7.7 8.6 12.0
Other comprehensive (expense)/income:
Items that may subsequently
be reclassified to profit
or loss:
Cash flow hedges:
- Gains arising on forward
contracts - - 0.1
- Gains arising on commodity
swaps 0.4 - 0.9
- Losses arising on commodity
swaps (0.4) - (1.1)
Less: amounts reclassified
to profit or loss (0.4) - 0.8
Foreign exchange gains
on translation of foreign
subsidiary 0.2 (0.1) 0.3
======================================== ============ ============ =============
Other comprehensive (expense)/income
for the period, net of
tax (0.2) (0.1) 1.0
======================================== ============ ============ =============
Total comprehensive income
for the period 7.5 8.5 13.0
======================================== ============ ============ =============
Condensed consolidated balance sheet
as at 28 May 2017
28 May 15 May 27 November
2017 2016 2016
Notes GBPm GBPm GBPm
================================== ====== ============ ============ ============
(unaudited) (unaudited) (audited)
Non-current assets
Intangible assets 96.0 62.4 79.7
Property, plant and equipment 421.9 346.6 397.3
Deferred tax asset 14.3 10.1 14.2
Financial assets 0.4 2.9 2.6
Investment in Joint Venture 57.8 63.0 57.1
590.4 485.0 550.9
================================== ====== ============ ============ ============
Current assets
Inventories 35.7 28.4 39.1
Trade and other receivables 80.2 68.3 59.4
Derivative financial instruments - - 0.3
Cash and cash equivalents 37.8 52.7 50.9
153.7 149.4 149.7
Total assets 744.1 634.4 700.6
================================== ====== ============ ============ ============
Current liabilities
Trade and other payables (206.0) (180.1) (205.6)
Borrowings 9 (86.6) (11.4) (52.9)
Obligations under finance
leases 9 (37.0) (34.6) (29.8)
Derivative financial instruments (0.4) (0.1) (0.2)
Provisions (0.4) (1.9) (2.4)
(330.4) (228.1) (290.9)
Net current liabilities (176.7) (78.7) (141.2)
================================== ====== ============ ============ ============
Non-current liabilities
Borrowings 9 (5.6) (6.8) (6.1)
Obligations under finance
leases 9 (119.1) (136.1) (127.0)
Provisions (9.1) (5.6) (7.3)
Deferred tax liability (6.8) (2.6) (6.9)
(140.6) (151.1) (147.3)
Net assets 273.1 255.2 262.4
================================== ====== ============ ============ ============
Equity
Share capital 12.6 12.6 12.6
Share premium 257.4 256.2 256.9
Treasury shares reserve (48.0) (48.1) (48.0)
Reverse acquisition reserve (116.2) (116.2) (116.2)
Other reserves - 0.2 (0.2)
Retained earnings 167.3 150.5 156.9
Total equity 273.1 255.2 262.4
================================== ====== ============ ============ ============
Condensed consolidated statement of cash flows
for the 26 weeks ended 28 May 2017
26 weeks 24 weeks 52 weeks
ended ended ended
28 May 15 May 27 November
2017 2016 2016
Notes GBPm GBPm GBPm
================================ ====== ============ ============ =============
(unaudited) (unaudited) (audited)
Cash flow from operating
activities
Profit before tax 7.7 8.5 12.1
Adjustments for:
- Depreciation, amortisation
and impairment losses 33.2 27.6 61.0
- Movement in provisions (0.3) (1.3) 0.6
- Share of profit in joint
venture (0.8) (1.0) (2.1)
- Share-based payments
charge 3.2 3.4 6.4
- Net finance costs 7 4.2 4.3 9.5
Changes in working capital:
- Movement in inventories 3.4 1.5 (9.2)
- Movement in trade and
other receivables (19.7) (7.4) 2.5
- Movement in trade and
other payables 21.6 15.8 25.2
================================ ====== ============ ============ =============
Cash generated from operations 52.5 51.4 106.0
Interest paid (4.4) (2.6) (9.1)
Net cash flows from operating
activities 48.1 48.8 96.9
================================ ====== ============ ============ =============
Cash flows from investing
activities
Purchase of property,
plant and equipment (63.5) (30.3) (85.3)
Purchase of intangible
assets (25.2) (14.7) (38.6)
Dividend received from
joint venture - - 8.4
Interest received - 0.1 0.2
Net cash flows from investing
activities (88.7) (44.9) (115.3)
================================ ====== ============ ============ =============
Cash flows from financing
activities
Proceeds from the issue
of ordinary share capital
net of transactions costs 0.5 0.5 1.1
Proceeds from borrowings 57.5 10.0 61.3
Repayments of borrowings (22.5) (0.8) (11.5)
Repayments of obligations
under finance leases (7.6) (6.8) (26.4)
Payment of financing fees (0.4) (0.2) (1.2)
Settlement of cash flow
hedges - 0.3 0.2
Net cash flows from financing
activities 27.5 3.0 23.5
================================ ====== ============ ============ =============
Net (decrease)/increase
in cash and cash equivalents (13.1) 6.9 5.1
Cash and cash equivalents
at the beginning of the
period 50.9 45.8 45.8
Cash and cash equivalents
at the end of the period 37.8 52.7 50.9
================================ ====== ============ ============ =============
Condensed consolidated statement of changes in equity
for the 26 weeks ended 28 May 2017
Treasury Reverse
Share Share shares acquisition Other Retained Total
capital premium reserve reserve reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============== ============== ========= ========= ========= ============ ========== ========== ========
Balance at 27 November
2016 12.6 256.9 (48.0) (116.2) 0.2 156.9 262.4
Profit for the period - - - - - 7.7 7.7
Other comprehensive
income:
Currency translation
differences - - - - - (0.5) (0.5)
Cash flow hedges
(Losses)
arising on
hedging
- contracts - - - - (0.4) - (0.4)
Translation of foreign
subsidiary - - - - 0.2 - 0.2
================================ ========= ========= ========= ============ ========== ========== ========
Total comprehensive income
for the period - - - - (0.2) 7.2 7.0
================================ ========= ========= ========= ============ ========== ========== ========
Transactions with
owners:
Issue of
ordinary
- shares - 0.5 - - - - 0.5
Movement in - - - - - - -
- treasury
shares
Share-based
payments
- charge - - - - - 3.2 3.2
============== =============== ========= ========= ========= ============ ========== ========== ========
Total
transactions
with owners - 0.5 - - - 3.2 3.7
========= ========= ========= ============ ========== ========== ========
Balance at 28 May
2017 12.6 257.4 (48.0) (116.2) - 167.3 273.1
=============================== ========= ========= ========= ============ ========== ========== ========
Treasury Reverse
Share Share shares acquisition Other Retained Total
capital premium reserve reserve reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============== ============== ========= ========= ========= ============ ========== ========== ========
Balance at 29 November
2015 12.6 258.7 (50.9) (116.2) (0.8) 138.5 241.9
Profit for the period - - - - - 8.6 8.6
Other comprehensive
income:
Cash flow hedges
Gains arising
on forward
commodity
- contracts - - - - 0.8 - 0.8
Gains - - - - - - -
- transferred to
property, plant
and
equipment
Translation of foreign
subsidiary - - - - 0.2 - 0.2
Total comprehensive income
for the period - - - - 1.0 8.6 9.6
================================ ========= ========= ========= ============ ========== ========== ========
Transactions with
owners:
Issue of
ordinary
- shares - 0.4 - - - - 0.4
Movement in
treasury
- shares - (2.9) 2.8 - - - (0.1)
Share-based
payments
- charge - - - - - 3.4 3.4
============== =============== ========= ========= ========= ============ ========== ========== ========
Total
transactions
with owners - (2.5) 2.8 - - 3.4 3.7
========= ========= ========= ============ ========== ========== ========
Balance at 15 May
2016 12.6 256.2 (48.1) (116.2) 0.2 150.5 255.2
=============================== ========= ========= ========= ============ ========== ========== ========
Notes to the condensed consolidated interim financial
information
1 General information
Ocado Group plc (hereafter "the Company") is incorporated and
domiciled in England and Wales (registration number 07098618). The
address of its registered office is Buildings One & Two,
Trident Place, Mosquito Way, Hatfield, AL10 9UL. 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 2017
(prior period 24 weeks ended 15 May 2016; prior financial year 52
weeks ended 27 November 2016).
2 Basis of preparation
The financial information has been prepared in accordance with
IAS 34 'Interim Financial Reporting' as adopted by the European
Union and the Disclosure Rules and Transparency Rules of the UK
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 2016 which was prepared in
accordance with IFRS as adopted by the European Union and were
filed with the Registrar of Companies. This report is available
either on request from the Company's registered office or to
download from www.ocadogroup.com. The 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 sterling, rounded to
the nearest hundred thousand unless otherwise stated. It has been
prepared under the historical cost convention, except for
derivative financial instruments, which have been measured at fair
value.
The directors are satisfied that the Company 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 period end, the Group had cash and cash
equivalents of GBP37.8 million (1H 2016: GBP52.7 million) and net
current liabilities of GBP176.7 million (1H 2016: GBP78.7 million).
Since the period end, the Group has issued GBP250.0 million of
senior secured notes with a coupon rate of 4% and renegotiated its
revolving credit facility.
3 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 2016. During the current financial period, the Group has
not been required to adopt any new accounting standards.
Taxes on income in the interim periods are accrued using the tax
rate that would be applicable to expected total annual
earnings.
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 and liabilities, income and expense. Actual
results may differ from these estimates. In preparing these interim
financial statements, the significant judgements made by management
in applying the Group's accounting policies and the key sources of
estimation were the same as those that applied to the Annual Report
and Accounts for the 52 weeks ended 27 November 2016.
4 Segmental reporting
The Group's principal activity is grocery retailing and the
development of Intellectual Property ("IP") and technology used for
the online retailing, logistics and distribution of grocery and
consumer goods for our UK business and other partners. The Group is
not reliant on any major customer for 10% or more of its
revenue.
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 and for which
discrete information is available. Operating segments are reported
in a manner consistent with the internal reporting provided to the
chief operating decision-maker, as required by IFRS 8. The chief
operating decision-maker, who is responsible for allocating
resources and assessing performance of the operating segments, has
been identified as the Executive Directors.
The principal activities of the Group are currently managed as
one segment. Consequently, all activities relate to this
segment.
The chief operating decision-maker's main indicator of
performance of the segment is EBITDA, which is reconciled to
operating profit below the income statement.
5 Alternative performance measures
We assess the performance of the Group 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 we
use are as follows:
Gross Sales
Gross Sales is a measure of reported revenue before excluding
value added tax and relevant vouchers and offers. Gross Sales is a
common measure used by investors and analysts to evaluate the
operating financial performance of companies within the retail
sector.
Exceptional Items
The Group's condensed consolidated income statement separately
identifies 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. The Group
applies judgement in identifying significant non-recurring 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
Operating contribution
Operating contribution is equal to the sum of Revenue (Retail)
and supplier income less cost of sales, distribution costs (other
than depreciation and amortisation), and non-voucher marketing
costs (which are within administrative expenses).
EBITDA
In addition to measuring financial performance of the Group
based on operating profit, we also measure performance based on
EBITDA. EBITDA is defined as the Group earnings before
depreciation, amortisation, impairment, net finance expense,
taxation and exceptional items. EBITDA is a common measure used by
investors and analysts to evaluate the operating financial
performance of companies. We consider EBITDA to be a useful measure
of our operating performance because it approximates the underlying
operating cash flow by eliminating depreciation and amortisation.
EBITDA is not a direct measure of our liquidity, which is shown by
our cash flow statement, and needs to be considered in the context
of our financial commitments.
Net debt
Net debt consists of loans and other borrowings (both current
and non-current), less cash and cash equivalents. Loans and other
borrowings are 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 that provides an indicator
of the overall balance sheet strength. It is also a single measure
that can be used to assess the combined impact of the Group's cash
position and its indebtedness. The use of the term 'net debt' does
not necessarily mean that the cash included in the net debt
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 loans and other borrowings
(current and non-current) and cash and cash equivalents.
6 Gross sales
26 weeks 24 weeks 52 weeks
ended ended ended
28 May 15 May 27 November
2017 2016 2016
GBPm GBPm GBPm
==================== ============ ============ =============
(unaudited) (unaudited) (audited)
Revenue 713.8 584.2 1,271.0
VAT 55.1 44.2 98.9
Marketing vouchers 10.1 7.4 16.8
===================== ============ ============ =============
Gross sales 779.0 635.8 1,386.7
===================== ============ ============ =============
7 Finance income and costs
26 weeks 24 weeks 52 weeks
ended ended ended
28 May 15 May 27 November
2017 2016 2016
GBPm GBPm GBPm
=========================== ============ ============ =============
(unaudited) (unaudited) (audited)
Interest on cash balances 0.2 0.1 0.2
Finance income 0.2 0.1 0.2
============================ ============ ============ =============
Borrowing costs
- Obligations under
finance leases (4.1) (4.2) (9.4)
- Borrowings (0.3) (0.2) (0.3)
Finance costs (4.4) (4.4) (9.7)
============================ ============ ============ =============
Net finance costs (4.2) (4.3) (9.5)
============================ ============ ============ =============
8 Capital expenditure and commitments
During the period the Group acquired property, plant and
equipment of GBP50.9 million (FYE 2016: GBP118.0 million, 1H 2016:
GBP41.4 million). During the period, the Group acquired intangible
assets of GBP2.9 million (FYE 2016: GBP4.9 million, 1H 2016: GBP1.8
million) and internal development costs capitalised were GBP20.4
million (1H 2016: GBP13.4 million).
In the period the Group disposed of property, plant and
equipment with a net book value of GBP0.1 million (1H 2016:
GBPNil). At 28 May 2017, capital commitments contracted, but not
provided for by the Group, amounted to GBP41.8 million (FYE 2016:
GBP34.8 million, 1H 2016: GBP18.6 million).
9 Borrowings and obligations under finance leases
26 weeks 24 weeks 27 November
ended ended 2016
28 May 15 May
2017 2016
GBPm GBPm GBPm
=========================== ============ ============ ============
(unaudited) (unaudited) (audited)
Current liabilities
Borrowings 86.6 11.4 52.9
Obligations under finance
leases 37.0 34.6 29.8
============================ ============ ============ ============
123.6 46.0 82.7
=========================== ============ ============ ============
Non-current liabilities
Borrowings 5.6 6.8 6.1
Obligations under finance
leases 119.1 136.1 127.0
============================ ============ ============ ============
124.7 142.9 133.1
=========================== ============ ============ ============
Total Group borrowings
and finance leases 248.3 188.9 215.8
============================ ============ ============ ============
10 Earnings per share
Basic earnings per share is calculated by dividing the profit
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 which are accounted for as treasury shares.
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all potentially dilutive shares. The Company has
three categories of potentially dilutive shares, namely share
options, shares held pursuant to the Group's Joint Share Ownership
Scheme and shares under the Group's staff incentive plans.
Basic and diluted earnings per share have been calculated as
follows:
26 weeks 24 weeks 52 weeks
ended ended ended
28 May 15 May 27 November
2017 2016 2016
million million million
(unaudited) (unaudited) (audited)
============================== ============ ============ =============
Number of shares
Issued shares at the
beginning of the period 598.8 590.6 590.6
Weighted average effect
of share options exercised
in the period 0.2 0.8 2.5
Weighted average effect
of treasury shares disposed
of in the period - 0.5 1.3
------------------------------- ------------ ------------ -------------
Weighted average number
of shares at the end
of the period for the
purposes of basic earnings
per share 599.0 591.9 594.4
Potentially dilutive
share options and shares 15.7 26.9 19.1
------------------------------- ------------ ------------ -------------
Weighted average numbers
of diluted ordinary shares 614.7 618.8 613.5
=============================== ============ ============ =============
Earnings GBPm GBPm GBPm
============================== ============ ============ =============
Profit for the period 7.7 8.6 12.0
=============================== ============ ============ =============
pence pence pence
Basic earnings per share 1.26 1.45 2.02
Diluted earnings per
share 1.23 1.40 1.96
=============================== ============ ============ =============
11 Related party transactions
Key management personnel
Only the Executive and Non-Executive Directors are deemed to be
key management personnel. It is the Board which has responsibility
for planning, directing and controlling the activities of the
Group. Save for key management personnel remuneration, related
party transactions with key management personnel made during the
period related to the purchase of professional services and
amounted to GBP1,800 (1H 2016: GBP750). All transactions with
Directors are on an arm's length basis and no period end balances
have arisen as a result of these transactions.
At the end of the period, key management personnel did not owe
the Group any amounts (1H 2016: GBPnil). There were no other
material transactions or balances between the Group and its key
management personnel or members of their close family.
Investment
The Group holds a 25% interest in Paneltex Limited whose
registered office is at Paneltex House, Somerden Road, Hull, HU9
5PE. The Group's interest in Paneltex Limited has not been treated
as an associated undertaking as Ocado does not have significant
influence over Paneltex Limited. The following direct transactions
were carried out with Paneltex Limited:
26 weeks 24 weeks 52 weeks
ended ended ended
28 May 15 May 27 November
2017 2016 2016
GBPm GBPm GBPm
=================== ============ ============ =============
(unaudited) (unaudited) (audited)
Purchase of goods
- Consumables 0.2 0.2 0.5
Sales of goods - - 0.1
0.2 0.2 0.6
=================== ============ ============ =============
Indirect transactions, consisting of the purchase of plant and
machinery through some of the Group's finance lease counterparties,
were carried out with Paneltex Limited to the value of GBP3.3
million (1H 2016: GBP3.6 million).
At period end, the Group owed GBP6,000 to Paneltex and is owed
GBP7,000 from Paneltex (1H 2016: the Group owed GBP45,000 to
Paneltex and was owed GBP6,000 from Paneltex).
Joint Venture
The following transactions were carried out with MHE JVCo, a
joint venture company in which the Group holds a 50% interest:
26 weeks 24 weeks 52 weeks
ended ended ended
28 May 15 May 27 November
2017 2016 2016
GBPm GBPm GBPm
================================ ========= ========= =============
Sale and Leaseback Transaction
Capital contributions
made to MHE JVCo - - 1.1
Dividend received from MHE
JVCo - - 8.4
Reimbursement of supplier
invoices paid on behalf
of MHE JVCo 0.1 3.5 4.9
Lease of assets from
MHE JVCo - 3.1 3.1
Capital element of finance
lease instalments paid
to MHE JVCo 0.6 - 13.8
Interest element of finance
lease instalments accrued
or paid to MHE JVCo 2.6 2.7 5.8
================================= ========= ========= =============
Included within trade and other receivables is a balance of
GBP6.5 million owed by MHE JVCo (1H 2016: GBP5.3 million). Included
within trade and other payables is a balance of GBP15.7 million
owed to MHE JVCo (1H 2016: GBP3.9 million). Included within
obligations under finance leases is a balance of GBP108.1 million
owed to MHE JVCo (1H 2016: GBP121.6 million).
No other transactions that require disclosure under IAS 24 have
occurred during the current financial period.
12 Analysis of net debt
Net debt
28 May 15 May 27 November
2017 2016 2016
GBPm GBPm GBPm
=========================== ============ ============ ============
(unaudited) (unaudited) (audited)
Current assets
Cash and cash equivalents 37.8 52.7 50.9
---------------------------- ------------ ------------ ------------
37.8 52.7 50.9
=========================== ============ ============ ============
Current liabilities
Borrowings (86.6) (11.4) (52.9)
Obligations under finance
leases (37.0) (34.6) (29.8)
============ ============ ============
(123.6) (46.0) (82.7)
=========================== ============ ============ ============
Non-current liabilities
Borrowings (5.6) (6.8) (6.1)
Obligations under finance
leases (119.1) (136.1) (127.0)
============================ ============ ============ ============
(124.7) (142.9) (133.1)
=========================== ============ ============ ============
Net debt (210.5) (136.2) (164.9)
============================ ============ ============ ============
Net debt is calculated as total debt (obligations under finance
leases and borrowings as shown in the condensed consolidated
balance sheet), less cash and cash equivalents.
Reconciliation of net cash flow to movement in net debt
26 weeks 24 weeks 52 weeks
ended ended ended
28 May 15 May 27 November
2017 2016 2016
GBPm GBPm GBPm
=============================== ============ ============ =============
(unaudited) (unaudited) (audited)
Net (decrease)/increase
in cash and cash equivalents (13.1) 6.9 5.1
Net decrease/(increase)
in debt and lease financing (25.5) (2.2) (23.4)
Non-cash movements:
- Assets acquired under
finance lease (7.0) (13.9) (19.6)
================================ ============ ============ =============
Movement in net debt in
the period (45.6) (9.2) (37.9)
Opening net debt (164.9) (127.0) (127.0)
Closing net debt (210.5) (136.2) (164.9)
================================ ============ ============ =============
13 Financial instruments
The Group has commodity swap contracts to manage its exposure to
fuel prices. The commodity swap is classed in level two of the
financial instruments hierarchy. Level two fair value measurements
are those derived from inputs other than quoted pries that are
observable for the asset or liability, either directly or
indirectly.
The directors consider that the carrying value amounts of
financial asset and financial liabilities recorded at amortised
cost in the financial statements are approximately equal to their
fair values.
14 Post balance sheet events
Since the period end, the Group has issued GBP250.0 million of
senior secured notes with a coupon rate of 4%. There were no other
events after the balance sheet date which require adjustment to, or
disclosure in, the financial information.
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 has identified the following principal
risks and uncertainties to the successful operation of the
business. These risks, along with the events in the financial
markets and their potential impacts on the wider economy, remain
those most likely to affect the Group in the second half of the
year. The principal risks and uncertainties are consistent with
those set out in Ocado Group plc's Annual Report and Accounts for
the 52 weeks ended 27 November 2016.
-- Failure to maintain competitive pricing position
-- A risk of decline in high service levels
-- Failure to develop retail proposition to appeal to broader
customer base and sustain growth rates
-- Failure to develop sufficient management and technology
capability or bandwidth to deliver on all our strategic
priorities
-- Risk of not signing multiple OSP deals in the medium term
-- Risk of negative implications caused by final Brexit terms
such as increase in import costs or difficulty in hiring
employees
-- A risk of delays in the implementation of new capacity for both Ocado and Morrisons
-- Technological innovation supersedes our own and offers
improved methods of food distribution to consumers
-- Failure to protect our IP
-- Failure to ensure that our technology can be freely operated
without infringing a third party's IP
-- A risk of a food or product safety incident
-- A risk of changes in regulations impacting our retail
business model or the viability of OSP deals
-- Risk of major cyber-attack or data loss
-- Business interruption
More information on most of 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 2016 on pages 36 to
37, a copy of which is available on the Group's corporate website,
www.ocadogroup.com.
INDEPENT REVIEW REPORT TO OCADO GROUP PLC
We have been engaged by the Ocado Group plc (the "Company") to
review the set of condensed consolidated financial statements in
the half-yearly financial report for the 26 weeks ended 28 May 2017
which comprises the condensed consolidated income statement, the
condensed consolidated statement of comprehensive income, the
condensed consolidated balance sheet, the condensed consolidated
statement of cash flows, the condensed consolidated statements of
changes in equity, and the related notes 1 to 14. We have read the
other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. 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.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. 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 Ireland) 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.
Conclusion
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
2017 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London
5 July 2017
Statement of Directors' responsibilities
The Directors confirm that, to the best of their knowledge, this
condensed set of consolidated financial statements have been
prepared in accordance with IAS 34 ('Interim Financial Reporting')
as adopted by the European Union, and that the interim management
report includes a fair review of the information required by DTR
4.2.7R and DTR 4.2.8R of the Disclosure Rules and Transparency
Rules.
The Directors of Ocado Group plc as at the date of this
announcement are as follows:
Executive Directors
Tim Steiner, Chief Executive Officer;
Neill Abrams, Group General Counsel & Company Secretary;
Duncan Tatton-Brown, Chief Financial Officer;
Mark Richardson, Chief Operations Officer;
Non-Executive Directors
Lord Rose, Chairman;
Alex Mahon, Senior Independent Director;
Ruth Anderson;
Jörn Rausing;
Douglas McCallum;
Andrew Harrison; and
Emma Lloyd
Approved by the Board and signed on its behalf by
Duncan Tatton-Brown
Chief Financial Officer
Neill Abrams
Group General Counsel & Company Secretary
5 July 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
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