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Ocado CEO statement confirms ' transformation journey' under way with increased earnings

Ocado CEO statement confirms ' transformation journey' under way with increased earnings

Tue 5 Feb 2019 07:46 by ukcitymedia.co.uk about : operational news, trading updates - 0 Comments - 4555 words


Tim Steiner, Chief Executive Officer of Ocado, said:

"Our performance last year was the result of many years of focus, dedication and perseverance: what we have called our "18-year overnight success". Our growth story, however, is only just beginning. We now have in place a platform for significant and sustainable long-term value creation as the leading pure-play digital grocer in the UK, a world-leading provider of end-to-end ecommerce grocery solutions, and as an innovative and creative technology company applying our proprietary knowledge to a range of challenges.

"Our transformation journey is well under way with increased cash fees earned and greater investment as we execute on behalf of our partners.  Creating future value now will involve us continuing to scale the business, enhancing our platform, enabling our UK retail business to take advantage of all its opportunities for growth, and innovating for the future. We look forward to fulfilling these opportunities with excitement and determination".

Key milestones

2018 was a transformative year for Ocado.

Adding partners to the Ocado Smart Platform

•      Over the year we signed international partnerships with Sobeys, ICA and Kroger to develop the Ocado Smart Platform ("OSP") in Canada, Sweden and the United States respectively, utilising both our proprietary software and algorithms as well as our robotic infrastructure solutions

•      We are making good progress with all our partners. Bon Preu launched its online offer in Catalonia in November; Groupe Casino continues its building work on its first Customer Fulfilment Centre ("CFC") in the south of Paris; Sobeys has begun building its first CFC site in the Greater Toronto area and is making good progress; ICA has identified the location of its first site in Stockholm: and Kroger has committed for its first three CFCs out of a total of 20 within the first three years. In the UK, we have begun to fulfil customer orders for Morrisons from our state-of-the-art facility at Erith ("CFC4") and we continue to support their roll out of a store-pick based solution

•      Cash fees from Solutions partners in 2018 were £200.1 million (2017: £146.1 million)

•      We continue to engage with multiple retailers in a variety of markets with a view to adding more partnerships to our platform

Innovating in technology

•      Headcount in Ocado Technology has increased by 76% in the last three years, including 300 programmers hired in FY18

•      To protect our intellectual property we have increased the number of filed patent applications from 73 to 395 over the last three years, now covering 80 separate innovations across a broad and deep technology estate including real-time control systems, robotics, machine learning and AI and routing systems

•      We have been testing robotic picking in our Andover CFC and are targeting to start using in live production over the coming months

Scaling the business to drive faster growth

•      We have been able to meet the demand from new retail customers by adding capacity to our network, most notably by opening our fourth CFC in Erith, South London. At full capacity of £1.2bn, this will be the largest automated grocery fulfilment centre in the world

•      We have successfully ramped up capacity at Erith and are now processing over 30,000 orders per week. In its first three weeks it reached the same volume it took us 32 weeks to achieve at Andover

•      Our dedicated transformation team is in place and focused on preparing the business to open 23 CFCs for our Solutions partners in the coming years. Our strong order book gives us good visibility, long lead times, and an ability to phase execution

Improving the experience for Ocado's retail customers

•      We continue to lead the market for delivery punctuality at 94.9% (2017: 95.0%) and order accuracy at 98.8% (2017: 98.8%)

•      Ocado offers the widest range of any UK grocer and we continue to make shopping easier, adding this year both low plastic and no-added sugar aisles

•      We went paperless with our receipts, saving over 20 million sheets of paper every year

•      Our general merchandise continued to grow strongly. All the products on our Sizzle destination site are now available on our webshop and we also launched a new range of Ocado own brand household products to give customers even more choice

•      In 2018 we won numerous awards including The Grocer's "Online Supermarket of the Year", validating the progress we have been making improving the customer experience

Increasing efficiency in our retail operations

•      Mature6 CFC operational productivity remained stable at 164 UPH (2017: 164 UPH)

•      Delivery efficiency improved further to an average of 194 DPV (2017: 182 DPV)

•      Food waste7 was reduced to 0.02%, or just 1 in 6,000 items 

 

Growing the customer base and winning market share

•      We grew active customers 11.8% in the year to 721,000 (2017: 645,000)

•      Total order volumes increased 12.1% to an average of 296,000 orders per week (2017: 264,000)

•      Average hypermarket basket value was slightly lower at £106.85 (2017: £107.28) driven by an increase in average price per item offset by a decrease in the average basket size

•      Customer loyalty remained strong and we continued to grow orders in the double digits across all our catchment areas

 

Outlook statement

•      Assuming economic conditions remain broadly stable, we remain confident in achieving revenue growth in our Retail business of between 10‐15% in the 2019 financial year as we increase our fulfilment capacity and grow market share in the UK

•      As volumes grow, and we expand utilisation of our new CFCs, we will continue to find efficiencies in our business and as such we expect further growth in Retail EBITDA*

•      Solutions Revenue* under IFRS 15 will only be recognised once a customer's first CFC is opened, but we will still have to recognise the build costs. With no CFCs expected to open in 2019, whilst we expect Solutions revenue* growth well ahead of Retail growth, we expect a decline in EBITDA* given the £15-20m additional in operating costs necessary to prepare the CFCs and to provide features on the platform

•      We continue to target further Solutions deals, which would generate additional cash fees but would impact short term profits

•      Total capital expenditure for the group is expected to be £350m, with the increase reflecting the additional capital required to fulfil our obligations to our Solutions customers

Results presentation

A results presentation will be held for investors and analysts at 9.30am today at the offices of Goldman Sachs, River Court, 120 Fleet Street, London EC4A 2BE. Presentation material will be available online at http://www.ocadogroup.com/investors/reports-and-presentations/2019.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 Shriver, Director of Communications, on 020 7353 4200 today or 01707 228 000

Martin Robinson at Tulchan Communications on 020 7353 4200

 

Notes

1.         Gross sales* include VAT and marketing vouchers and is used in the calculation of average basket value

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 a non-GAAP measure which we define as earnings before net finance cost, taxation, depreciation, amortisation, impairment and exceptional items*

4.         External net debt* is the statutory net debt less amounts owing to MHE JVCo of £74.5 million (2017: £94.1 million)

5.         Customers are classified as active if they have shopped on ocado.com within the previous 12 weeks

6.         The definition of mature had been changed to refer to CFC1 and CFC2 only.  A CFC is considered mature if it has been open for 12 months by the start of the half year reporting period

7.         Food waste refers to inedible food that cannot be sold to customers or redistributed through our Food Partners or Company Shop

8.         Reference to balance sheet figures for FY2017 are all stated on a 53 week basis

* These measures are Alternative Performance Measures

Financial Calendar

Our expected financial reporting calendar for the remainder of the year will be a Q1 Trading Statement on 19 March 2019, a Half Year Results Statement on 9 July 2019, a Q3 Trading Statement on 17 September 2019 and a Q4 Trading Statement on 12 December 2019.

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 Financial Officer's review

 

For the period to 2 December 2018we maintained significant sales growth in a competitive environment while progressing our business further across many fronts. 

 

The Group secured three international partnership deals and continued to deliver double digit revenue growth. Profitability in the period was impacted by the investments in our platform to deliver future growth for both our existing and future partners. It was also impacted by share-based senior management incentive charges following the significant share price increase in the year and by additional depreciation following the opening of the Erith CFC.  As a consequence the loss before tax for the period was £44.4 million (2017 restated: loss of £9.8 million).

 

IFRS 15

 

Ocado Group PLC has early adopted IFRS 15, the new revenue recognition standard, and this report on our performance in 2018 against the comparative period in 2017 is under the new standard. The adoption of the standard has impacted our underlying results, specifically the Solutions business in relation to the timing of recognition of certain initial and upfront fees.

 

•      The impact on FY 2017 results is a £9.3 million reduction in Revenue and EBITDA*.

•      The estimated impact on FY 2018 compared to previous internal forecasts, on an unaudited basis, is a £15.2 million reduction in Revenue and £14.4 million decrease in EBITDA*.

 

We have adopted IFRS 15 from 3 December 2017 using the full retrospective method, thereby restating the 2017 comparatives, to provide investors with clarity on the impact of the new accounting standard to aid transparency of the financial results reported.

 

The adoption of IFRS 15 will change the timing of revenue and cost recognition but does not impact upon the cash flow of contracts or the expected lifetime profitability of contracts, nor does it have any impact on our Retail segment. The main changes for the Group are the accounting treatment of its long-term contracts, specifically the existing Morrisons arrangement, along with the more recent contracts with Bon Preu, Casino, Sobeys, ICA and Kroger.

 

For a typical arrangement, the recognition of Revenue commences when a working solution is delivered to our partners which is typically when a CFC or Store Pick goes live. Prior to this, no revenue is recognised. The period in which revenue is recognised is dependent on management's view of the estimated customer life as the contract typically has no defined period. The balance sheet will now include contract fulfilment assets and a significant amount of deferred income in relation to contracts where payments have been received from partners to undertake work prior to the recognition of revenue and planned outcomes being delivered. The net impact of the recognition of contract liabilities, contract costs and other movements has resulted in the Group reducing consolidated net assets at 2 December 2017 by £(23.1)million to £247.6 million (previously 2017: £270.7 million).

 

The adoption of IFRS 15 means that for the current Ocado Solutions arrangements, Ocado will recognise losses in the early years due to the recognition of non-capitalised costs for these arrangements and no revenue recognised for the cash fees received. The shortfall in revenue in early years will be compensated for with higher revenue recognised in future years than previously expected.  To aid shareholders' understanding, we will provide information on the fees invoiced for Ocado Solutions for each accounting period.  Note 1.5 to the consolidated financial statements outlines the relevant adjustments to the prior year Balance Sheet.

 

The current period results comprise 52 weeks ended 2 December 2018. For comparability purposes 52 week data to 3 December 2017, which excludes the final trading week of the 2017 financial year, is used ("2017") for comparison to the 52 weeks ended 2 December 2018 ("2018"), unless otherwise stated.



These articles are summaries / highlights and dont always include all financial news updates. Check at company website INVESTORS INFORMATION for full published results.


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