For the period to 3 December 2017, we maintained solid sales growth in a competitive environment while progressing our business further across many fronts.

Duncan Tatton-Brown

Chief Financial Officer

Revenuem)

Revenue Final

EDITDA (£m)

EBITDA

For the period to 3 December 2017, we maintained solid sales growth in a competitive environment while progressing our business further across many fronts.

The Group secured two international partnership deals and continued to deliver double digit revenue growth despite a shortage of capacity limiting our UK growth potential. Profit before tax for 2017 was £1.0 million (2016: £12.1 million). Profitability in the period was adversely impacted by the wage increases partly impacted by increased national living wage, higher costs associated with the opening of Andover CFC, our continued investment in a number of strategic initiatives to aid future growth, and additional depreciation.

The current period results comprise 53 weeks ended 3 December 2017. For comparability purposes 52 week data, which excludes the final trading week of the 2017 financial year, is used (“2017”) for comparison to the 52 weeks ended 27 November 2016 (“2016”), unless otherwise stated.

FY 2017
(53 weeks)
£m
FY 2017
(52 weeks)A
£m
FY 2016
(52 weeks)
£m
Variance
(52 weeks)
Revenue11,463.81,432.91,271.012.7%
Gross profit504.3494.3435.313.6%
Other income61.059.552.912.5%
Distribution and administrative costs480.9471.3406.016.1%
Share of results from joint venture31.61.62.1(23.8%)
EBITDAA286.084.384.30.0%
Depreciation, amortisation and impairment371.071.060.317.8%
Net Finance costs13.713.59.542.1%
Exceptional itemsA0.30.32.487.5%
Profit/(Loss) before tax1.0(0.5)12.1(104.1)%
  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 and other solutions clients are also included in revenue
  2. EBITDAA is stated before the impact of exceptional itemsA
  3. Depreciation, amortisation and impairment and share of results from joint venture are based on a 53 weeks basis

Revenue grew by over 12.7% to £1,432.9 million in comparison to 2016 revenue of £1,271.0 million. This was driven by an increase in the average number of orders a week and fees earned from our partnerships. Gross profit increased by 13.6% year-on-year, a higher rate than revenue primarily driven by faster growth in Solutions revenue with currently higher gross profit margins compared to Retail.

EBITDAA of £84.3 million was in line with the prior year. This was maintained by cost savings achieved by operational efficiencies in the CFCs and delivery, offset by an increase in head office headcount and fixed costs.

Depreciation, amortisation and impairment increased by 17.7% to £71.0 million, driven primarily by the annualised impact of the opening of the Andover CFC and the associated software.

Net finance costs increased from £9.5 million to £13.5 million year-on-year. This was primarily driven by the fees incurred on the successful issue of Senior Secured Notes of £250 million during the year and a renegotiated revolving credit facility (“RCF”).

Trading review by segment

Retail Performance

FY 2017
(53 weeks)
£m
FY 2017
(52 weeks)A
£m
FY 2016
(52 weeks)
£m
Variance
(52 weeks)
Revenue1,346.11,317.41,171.612.4%
Gross profit386.6378.9335.912.8%
Other income50.449.241.219.3%
Distribution and administrative costsA1356.1348.8301.415.7%
EBITDAA281.079.275.84.5%
  1. Distribution and administrative costs excludes depreciation, amortisation and impairment for the period
  2. EBITDAA does not include the impact of exceptional itemsA

Retail revenue growth was driven by a 14.3% year-on-year increase in orders per week to 263,000 (2016: 230,000). The average basket at Ocado.com of £107.22 decreased by (0.8)% compared to 2016. This was primarily driven by an increased frequency of shop from our loyal customers base, an increase in average price per item offset by a strategic decision to reduce multi buy promotional activity and a reduction in the number of items per basket.

Gross Profit

Gross profit was up 12.8% to £378.9 million, compared to 2016 gross profit of £335.9 million. The rate of growth, ahead of sales, was due to reduced unfunded promotional activity and increases in selling price offset by the increase in cost of goods.

Other Income

Other income increased by 19.3% to £49.2 million (2016: £41.2 million) with supplier income increasing year-on-year by 20.6% to £46.5 million (2016: £38.6 million) equivalent to 3.5% of retail revenue (2016: 3.3%).

Distribution and Administrative Costs

FY 2017
(53 weeks)
£m
FY 2017
(52 weeks)A
£m
FY 20161
(52 weeks)
£m
Variance
(52 weeks)
CFC117.9115.795.121.7%
Trunking and Delivery167.8164.0143.514.3%
Other operating costs10.09.89.53.6%
Marketing214.113.711.717.1%
Head office costs46.345.641.69.6%
Total retail distribution and administrative costsA3356.1348.8301.415.7%
  1. 2016 include a re-categorisation of £0.9 million of cost from administrative expenses to distribution costs
  2. Marketing expenditure excludes voucher costs
  3. Retail distribution and administrative costs excludes depreciation, amortisation and impairment

Distribution and administrative costs consist of costs for the fulfilment and delivery operations of the business as well as head office costs. Total distribution and administrative costs increased by 15.7% year-on-year.

CFC costs increased from £95.1 million to £115.7 million, an increase of 21.7% year-on-year. This was primarily due to the annualised impact of the Andover CFC which is not yet operating at full capacity and is running at lower productivities as it scales its operations. The remaining underlying increase was principally due to a higher number of employees in the CFC as a result of greater volumes and continuing inflationary pressure in key cost lines.

Mature CFC UPH efficiencies continued to improve by 2.4% to 164 which partially offset the aforementioned costs. This improvement in mature CFC UPH was driven mainly by the Dordon CFC productivity, which regularly exceeded 180 UPH in the period. UPH in the Hatfield CFC also improved year-on-year.

Trunking and delivery costs increased by £20.5 million to £164.0 million, an increase of 14.3% year-on-year (2016: £143.5 million). This was due to increases in wage-related and vehicle costs as a result of greater order volumes and inflationary cost pressures.

Deliveries per van per week have risen by 3.2% to 182 (2016: 176) as customer density improved, Sunday delivery slots increased, and we made continued enhancements to our routing system.

Head office costs increased by 9.6% year-on-year from £41.6 million to £45.6 million. This was driven by wage inflation, from the growth in the general merchandise business, and increased costs associated with our new head offices.

Marketing costs excluding voucher spend increased from £11.7 million to £13.7 million, 1.0% as a percentage of retail revenue and in line with the prior period.

EBITDAA

EBITDAA excluding exceptional items for the retail business grew from £75.8 million in 2016 to £79.2 million.

Solutions Performance

FY 2017
(53 weeks)
£m
FY 2017
(52 weeks)A
£m
FY 2016
(52 weeks)
£m
Variance
(52 weeks)
Revenue117.7115.599.416.2%
Distribution and administrative costsA115.1112.793.920.0%
EBITDAA2.52.75.5(50.9)%

Revenue

The revenue from the Solutions business was £115.5 million, up from £99.4 million in 2016. This comprised of fees from our arrangement with Morrisons, for services rendered, technology support, research and development, management fees, and a recharge of relevant operational variable and fixed costs and also for the new Store Pick implementation. We also recognised an element of upfront fees relating to international partnerships that were signed in the period.

Distribution and Administrative Costs

FY 2017
(53 weeks)
£m
FY 2017
(52 weeks)A
£m
FY 2016
(52 weeks)
£m
Variance
(52 weeks)
Distribution Costs88.686.976.713.3%
Administrative costs26.525.817.250.0%
Total Solutions distribution and administrative costsA115.1112.793.920.0%
  1. Solutions distribution and administrative costs excludes depreciation, amortisation and impairment

Distribution and administrative costs predominantly consist of fulfilment and delivery operation costs for the Morrisons business and the costs of employees developing solutions for, and supporting, our partnership agreements. These costs grew 20.0% year-on-year primarily as a result of an increase in headcount.

EBITDAA

EBITDAA from our Solutions activities was £2.7 million, a decrease of £(2.8) million.

Group Performance

FY 2017
(53 weeks)
£m
FY 2017
(52 weeks)A
£m
FY 2016
(52 weeks)
£m
Variance
(52 weeks)
Depreciation, amortisation and impairment71.071.060.317.9%
Net Finance costs13.713.59.542.1%
Share of results from joint venture1.61.62.1(23.8)%
Profit/(Loss) before tax1.0(0.5)12.1(104.1)%

Depreciation, Amortisation and Impairment

Total depreciation and amortisation costs were £71.0 million (2016: £60.3 million), an increase of 17.9% 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

Net Finance Costs

Net finance costs were £13.5 million, an increase of 42.1% in comparison to the prior year (2016: £9.5 million). The increase in finance costs are due to the issuance of a £250 million in senior secured notes during the period and renegotiated revolving credit facility (“RCF”) of £100 million. This resulted in an increase in finance costs and £1.9 million of transaction fees in relation to the RCF. This amount was offset by cost savings as a result of debt expiring or being repaid with the proceeds of the senior secured notes.

£4.4 million of interest costs have been capitalised in the period in relation to the senior secured notes and the RCF in accordance with the relevant accounting standards (2016: £0.7 million).

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 jointly by Ocado and Morrisons. The Group share of MHE JVCo profit after tax in the period amounted to £1.6 million (2016: £2.1 million).

Loss before tax

Loss before tax for the period was (£0.5) million (2016: profit of £12.1 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 £183.6 million (2016: £268.6 million) of unutilised carried forward tax losses at the end of the period.

Dividend

During the period, the Group did not declare a dividend.

Earnings Per Share

Basic earnings per share were 0.16p (2016: 2.02p) and diluted earnings per share were 0.16p (2016: 1.96p).

Capital Expenditure

Capital expenditure for the period:

FY 2017
(53 weeks)
£m
FY 2016
(52 weeks)
£m
Mature CFCs3.13.4
New CFCs69.764.6
Delivery16.520.6
Technology42.834.3
Fulfilment Development15.519.7
Other10.610.5
Total capital expenditure1, 2(excluding share of MHE JVCo)158.2153.1
Total capital expenditure3 (including share of MHE JVCo)160.3156.9
  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 £2.1 million and in 2016 of £3.9 million

Capital expenditure in the Hatfield CFC was £3.1 million which mainly related to a number of small projects to improve the capacity and resiliency of these sites.

We incurred £69.7 million of costs in the period for our new CFCs. The 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 over 200,000 OPW.

Total expenditure on new vehicles in the period was £14.6 million (2016: £16.5 million). 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 £35.7 million (2016: £26.8 million) of internal development costs in the period on technology, with a further £7.1 million (2016: £7.5 million) spent on computer hardware and software. We expanded our technology total headcount to nearly 1,100 staff at the end of the period (2016: over 950 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 and private cloud services, improvements in the efficiency of our routing systems, enhancements to our customer proposition, developing a store pick solution for implementation by our solutions partners and support for the growth of the Andover CFC.

Fulfilment development expenditure of £15.5 million was spent in developing our next generation fulfilment solutions which will be used in our latest CFCs and our relevant Solutions partners.

In the period, we incurred our share of the capital expenditure relating to MHE JVCo of £2.1 million (2016: £3.9 million) to improve operational capacity and efficiency of the Dordon CFC and various minor improvement projects.

Other capital expenditure of £10.6 million was incurred in the period, of which £6.4 million related to our general merchandise business. This was to support growth in capacity of our existing general merchandise distribution centre and to fund development costs for our second general merchandise distribution centre opening in 2018.

At 3 December 2017, capital commitments contracted, but not provided for by the Group, amounted to £45.0 million (2016: £34.4 million). We expect capital expenditure in 2018 to be approximately £210 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. This includes capex requirements related directly to our new Solutions’ customers.

Cash Flow

Net operating cash flow after finance costs increased to £106.8 million, up 10.2% from £96.9 million in 2016 as detailed below:

FY 2017
(53 weeks)
£m
FY 2016
(52 weeks)A
£m
EBITDAA186.084.3
Working capital movement30.618.5
Exceptional itemsA(0.3)(1.7)
Other non-cash items4.64.9
Finance costs paid(14.1)(9.1)
Operating cash flow106.896.9
Capital investment(169.4)(123.9)
Dividend from joint venture7.68.4
Increase in net debtA/finance obligations152.422.2
Proceeds from share issues1.51.1
Other investing and financing activities0.20.4
Movement in cash and cash equivalents99.15.1
  1. EBITDAA is stated before the impact of exceptional itemsA

Profit/(loss) before tax and exceptional itemsm)

Profit Loss

capital expenditure

Capital Expenditure

Mature CFCs

New CFCs

Delivery

Technology

Fulfilment development

Other

Operating cash flow increased by £9.9 million during the year driven by an increase in working capital and EBITDAA, offset by an increase in finance costs. The increase in working capital inflow of £12.1 million is driven by an increase in trade and other payables of £19.4 million and in inventories of £5.4 million, offset by a decrease in trade and other receivables of £12.7 million.

During the period there was £169.4 million of capital expenditure 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.

Net financing cash flows in the period were £153.9 million comprising £152.4 million of new net debtA and financing obligations and £1.5 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 £150.0 million at the end of the financial year versus £50.9 million as at 27 November 2016.

Gross debt at the period end was £378.0 million (2016: £215.8 million) and external gross debtA, excluding obligations under finance leases owing to MHE JVCo, was £283.9 million (2016: £107.1 million). The increase in net external debt is due to the level of investment in improving our platform and adding UK capacity being ahead of our current cash generation. Net external debt at the period end was £133.9 million (2016: £56.2 million). The increase of £77.7 million was mainly driven by the capital investment activities.

Trade and Other Receivables includes £12.2 million (2016: £5.9 million) of amounts due from suppliers in respect of commercial income. £1.0 million (2016: £5.9 million) is within trade receivables, and £8.6 million (2016: £10.8 million) within accrued income.

Included within property, plant and equipment is capital work‐in‐progress for land and buildings of £37.2 million (2016: £27.4 million) and capital work‐in‐progress for fixtures, fittings, plant and machinery of £61.6 million (2016: £22.9 million), the increase relating to the Erith CFC and the second non-food distribution site under development.

Increasing Financing Flexibility

In the period we announced the successful placing of £250 million Senior Secured Notes due 2024 at a coupon of 4%, as well as an amendment and extension to our current RCF which was reduced to £100 million, from £210 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 FY 2017 and FY 2016:

FY 2017
(53 weeks)
FY 2017
(52 weeks)A
FY 2016
(52 week)
Variance
(52 weeks)
Average orders per week264,000263,000230,00014.3%
Average order size (£)1107.28107.22108.13(0.8)%
Overall CFC efficiency (units per hour)21641641602.4%
Average deliveries per van per week (DPV/week)1821821763.2%
Average product wastage (% of retail revenue)30.7%0.7%0.7%

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

See Alternative Performance Measures

Persian Chicken