Stuart Rose
"Investment in new technology, innovation and customer growth are keys to the creation of long-term shareholder value for Ocado."

Lord Rose


It has been a year of great change at Ocado with continued profitable growth of the Retail business in the UK, significant development of the Ocado Solutions business and ongoing investment in and advancement of our platform.

We aim to provide our retail and commercial customers with an advanced online grocery shopping solution. The Ocado Solutions business took some exciting steps in delivering this strategy with the signing of three international customers. Ocado signed agreements to provide OSP to Groupe Casino in France and Sobeys in Canada to allow them to grow and develop their online food businesses. We secured another agreement with a regional European retailer to help build its online grocery business using the Ocado Smart Platform. These significant commitments, although having limited financial impact in 2017, are expected to create significant long-term value.

These partnerships and continued progress made in discussions with other international grocery retailers are due in part to more dedicated focus being placed on the Ocado Solutions business, including in particular the recruitment of Luke Jensen to lead this business. This, coupled with the ongoing development and improved performance of OSP and tailoring of the OSP offering to international retailers’ specific requirements, has helped make Ocado Solutions more successful in 2017.

Our Retail business continues to grow profitably, on the back of continued investments in the customer proposition and despite rising input costs experienced across the grocery retail sector. We expect to see ongoing challenges for the Retail business both with respect to customer numbers and margins, particularly given the modest growth forecasts for the UK grocery market. The business will need to address these market challenges as well as the shift in market dynamics towards increased shopping frequency, greater convenience and short delivery lead times. Given the market context and recent performance we believe our retail strategy is still the right one, namely to focus on growth by broadening our addressable market and differentiating on service and range, while price following the market leader. As well as improving the customer experience, we aim to maximise efficiency by focusing on technology innovation and operational improvements. These changes help to decrease the costs per order and increase the Group's overall profitability and to offset the impact of some of the wider market headwinds, namely rising labour rates.

The Andover and Erith CFCs will allow our business to continue growing. One of the biggest challenges facing the Group is ensuring that capacity is made available in time to meet our expected growth in customers. Scaling capacity at the Andover CFC continues as the reliability and resiliency of software and material handling equipment improve. Ongoing investment in our technology and engineering capabilities should help ensure we advance towards our operational efficiency targets, though as experienced in 2017, we do not expect this progress to be without difficulties in the future.

The increase in UK capacity and development of our proprietary platform have required significant expenditure. The Group increased the funding available to support this investment during the period. The Group diversified its sources of funding with its first public debt market fundraising. The increase in funding available will allow Ocado to grow the business, including expansion of the Andover and Erith CFCs and further development of our platform, fulfilment and technology capabilities.

Investment in new technology, innovation and customer growth are keys to the creation of long-term shareholder value for Ocado. The management team is aware that as the business grows, the objective of retaining and recruiting quality people becomes ever more important. Growing headcount in specialist areas of information technology and engineering is crucial to meeting our innovation and development plans. We remain focused on this and ensuring that available resources are allocated effectively and prioritised on the Group's most important strategic objectives.

Looking forward, our efforts will be focused on continuing to successfully develop our online grocery shopping solution both for our retail customers and our commercial partners in the UK and internationally. We look forward to delivering this and pursuing many more successful collaborations with leading retailers across the globe.

Lord Rose


6 February 2018

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