Summary

  • Ocado was established in the UK in 2000 and listed on the London Stock Exchange in July 2010.
  • The company's combined expertise and capabilities underpin the continued evolution of the Ocado Retail Limited platform.
  • The Ocado Smart Platform (OSP) is its proprietary solutions for operating online grocery businesses.
  • The company offers OSP as a managed service to leading grocery retailers around the world.

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Company Overview

Ocado (LSE:OCDO,OTC:OCDGF) was established in the UK in 2000 and listed on the London Stock Exchange in July 2010.1

The company is a pioneer in the online grocery market, the company increasing presence in digital world, both leading and benefiting from the fast-increasing consumer shift to online shopping.

The company continuously evolving Ocado Retail platform, to become the biggest grocery retailer of its kind in the world.

Ocado Group is now taking those same unique qualities to help its partners, through its Ocado Solutions business.

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Ocado Smart Platform (OSP)

The Ocado Smart Platform (OSP) is its proprietary suite of solutions for operating online grocery businesses.

Built to change the nature of grocery ecommerce globally, its custom-designed solutions are uniquely capable of meeting the complex and developing expectations of shoppers, while driving better productivity, greater flexibility, and higher margins for grocery retailers online. The company's solutions have been built in-house by its dedicated technology and engineering experts. The company has been innovating for 20 years, designing ways to maximise the efficiency of the entire grocery delivery process.

OSP combines Ocado Group’s proprietary end-to-end software systems with its physical fulfilment assets, enabling grocery retailers to capture and expand market share in the world’s fastest growing retail channel.

It offers retailers a flexible, faster, more cost-efficient and lower-risk way to develop an online grocery business, with limited capital investment. These achievements have been proven in one of the world’s busiest markets for grocery online.

The company offers OSP as a managed service to leading grocery retailers around the world, with ten partnerships across North America, Europe, Asia and Australasia. By partnering with Ocado Solutions, retailers combine their own scale, skills and unique attributes with its world-class solutions and Ocado Group's expertise in grocery ecommerce.

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Financial Overview

Group revenue for the year ended 28 November 2021, increased by 7.2% to £2,498.8 million (2020: £2,331.8 million) and was 42.3% higher than in 2019. Retail continued its strong trading momentum, albeit average order size began to return towards pre-Covid levels at the end of the period as lockdown restrictions eased. The International Solutions business recognised an increase in revenue contribution of £50.0 million with the go-live of two new CFCs for Kroger in the US and the continued ramping-up of sales through the previously opened sites for Groupe Casino (France) and Sobeys (Canada). Total invoiced fees across all international partners were £143.0 million, an increase of 15.4% compared to the prior period. Cumulative fees not yet recognised as revenue amounted to £337.6 million at the end of the period.2

Gross profit and other income grew strongly to £1,040.0 million (2020: £887.6 million), with Retail gross margin of 35.9% (2020: 33.6%), benefiting from higher order volumes, improved product mix, changes in sourcing arrangements, and cost savings.

Distribution and administrative costs grew by £163.1 million to £976.7 million (2020: £813.6 million) as the company expand both in the UK and internationally. The total costs of £976.7 million include £562.1 million of distribution costs (increase of 4.2%); (2020: £539.2 million) and £83.3 million of administrative costs (increase of 12.4%); (2020: £74.1 million) in UK Solutions & Logistics. UK costs increased ahead of the growth in reaches shipped per week of 3.6%, reflecting higher engineering costs due to inefficiencies incurred given the relative immaturity of the three CFCs that went live during the year (Bristol, Andover and Purfleet) and inflationary pressures on costs of labour, particularly for LGV and delivery drivers where Ocado has introduced measures to attract and retain employees. Distribution and administrative costs in the international segment grew by 90.8% to £177.4 million as a result of increased engineering and technology costs to support the go-live of operations for the first two CFCs with Kroger, and continued investment in the development of its Ocado Smart Platform (OSP) as the company build its capabilities for its partners, across both CFC and in-store fulfilment solutions. In total, technology costs have increased from £77.1 million to £107.2 million reflecting an increase in technology headcount from 2,100 to 2,600 over the year. These costs are allocated to the UK Solutions and Logistics and International Solutions segments.

EBITDA for the period was £61.0 million (2020: £73.1 million). Strong revenue growth in Retail, UK Solutions & Logistics and International Solutions delivered gross profit and other income of £1,040.0 million, up by 17.2% (2020: £887.6 million), and a gross margin of 41.6% (2020: 38.1%). In order to support its ambitious plans for growth in both the UK and internationally, the company continue to reinvest much of its gross margin in its technology and support functions, scaling and improving the Ocado Smart Platform for its clients. The majority of the costs of this investment are reflected in the International Solutions results.

Depreciation, amortisation and impairment increased by 41.1% to £238.4 million (2020: £168.9 million), primarily due to an increase in depreciation and amortisation costs relating to its investment and rollout of OSP hardware and software at live CFC locations. At the end of the period the company had 6 live UK sites, 4 live international sites and 21 sites in development or under construction.

Net finance costs decreased from £52.8 million to £42.3 million, largely reflecting unrealised foreign exchange gains in the year of £19.3 million (2020: £(2.4) million loss) on foreign currency denominated cash and intercompany balances. This was partly offset by £9.4m of incremental interest cost arising from a full year’s interest charge on the £350.0 million unsecured Convertible Bond issued in June 2020 and from a higher interest cost on the issue of £500.0 million of Senior Unsecured Notes in October 2021 following the redemption of the existing £225.0 million Senior Secured Notes. Gross debt increased as a result to £1,828.4 million at the end of the period (2020: £1,405.2 million). The majority of the additional costs are non-cash items relating to the effective interest rate of these instruments and accrued interest.

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Retail

2021 saw Ocado Retail build on the exceptional performance of 2020, growing sales and delivering strong margins. Retail Revenue grew by 4.6% year-on-year (underlying growth of 6.3% adjusted for the disposal of Fetch) and was 41.5% higher than 2019 pre-pandemic levels

EBITDA increased from £148.5 million in 2020 to £150.4 million in 2021 (2019: £40.6 million), driven by continued strong demand for online grocery and enabled by increased capacity, strong customer acquisition and operational efficiencies. However, during the second half of the year Ocado has seen some customer behaviours begin to return to pre-pandemic trends, whilst EBITDA was also impacted by an increase in labour costs and lower labour availability in a challenging post-lockdown UK labour market.

Three new CFCs opened in the year in Bristol, Andover and Purfleet, which will add capacity of around 170,000 orders per week at maturity, and will bring total capacity for Ocado Retail to over 600,000 orders per week. Andover and Purfleet saw the fastest ramp-up of orders of any CFC built to date, taking advantage of continued strong customer demand. As lockdown restrictions eased throughout 2021, Ocado Retail has not been immune to the challenges in the UK labour market leading to constraints on available capacity. However, with strong customer demand and additional capacity from its new CFC in Bicester, the company expects continued strong revenue growth in 2022.

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UK Solutions & Logistics

UK Solutions & Logistics saw a good performance in the period, with customer fee revenue (from Ocado Retail and Morrisons) increasing by 27.8% to £149.7 million as 9 modules of additional sales capacity went ‘live’ during the year bringing total year-end 2021 ‘live’ modules to 49 compared with 40 at year-end 2020. Total throughput in CFCs grew by 3.6% to 1.27 billion eaches picked, an average of 462,000 orders per week across Ocado Retail and Morrisons. With the addition of three new CFCs in Bristol, Andover and Purfleet, live CFCs at the end of the period will have a total capacity of around 750,000 orders per week at maturity (on a pre-Covid basket basis).

Cost recharges to its UK partners increased by 4.4% to £560.7 million. The higher rate compared to volume throughput reflects the higher costs as its new sites ramp up to full efficiency, and the investments made in the period to strengthen its operational employee value proposition to respond to the challenges of the UK labour market throughout the second half of 2021. This impact is partially offset by improvements in CFC efficiency for its more established CFCs.

EBITDA increased from £44.4 million to £68.5 million as a result of the increase in fees from Ocado Retail and Morrisons. The growth in EBITDA accelerated faster than the growth in fee revenue driven by the higher proportion of additional capacity fees relating to the three new CFCs that went live in the period yet to ramp up in cost and utilisation, partially offset by the continuing investment in, and rollout of, its Ocado Smart Platform (“OSP”) software.

References

  1. ^ https://www.ocadogroup.com/about-us/who-we-are/
  2. ^ https://www.ocadogroup.com/media/qwlchfvz/ocado-group-annual-report-2021-full.pdf
Created by Asif Farooqui on 2022/03/31 14:15
     

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  622. US:VAPE
  623. US:VBLT
  624. US:VCEL
  625. US:VDQSF
  626. US:VPCO
  627. US:VSTM
  628. US:WIT
  629. US:WLDFF
  630. US:WLL
  631. US:WMIH
  632. US:WMT
  633. US:WPM
  634. US:WPP
  635. US:WSPOF
  636. US:XGTI
  637. US:XON
  638. US:XTNT
  639. US:XXII
  640. US:ZGNX
  641. US:ZSAN
  642. US:ZYNE
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