Ocado Group plc

Welcome to you all to the half-year results for Ocadoo in financial year 2023. As you will have seen from the R&S this morning, we have made good progress against all of our strategic objectives over the last six months. Tim and Stephen will focus this morning on the real tangible results that we've made and concrete progress against those strategic objectives. And in particular, we're going to focus on four areas where there's been particular discussion and debate in the markets. We'll look at the operational and financial results, and in particular, driving EBITDA, driving cash flow, driving down costs. And the second, really, I know a lot of you have interest in the the Partner Success Program that we've been driving to make sure that we can help our partners improve their results and what they get out of OSP. And then, of course, Ocado Intelligent Automation, prospective deals in the non-grocery sector. And then the recovery plans and the program for the Ocado retail results. So Tim and Stephen will cover those in a few minutes. You know, I've often spoken about really Ocado being a corner of creativity, and I say that it still remains very much that. I think as we work with our partners, help them deliver for their customers a gold standard online grocery, I mean, it really much is part of that, just as is a culture of collaboration. As I look around the company, it's very, very present, very necessary, particularly as we really think about how to draw on this pure play of online grocery where we have an enormous amount of experience. And when we look back at that, and Tim's going to focus on this a little bit from the outset, we are in the business of solving complex problems. We're in a high volume, low margin sector. And we just got to do this in a very smart way. And 20 years of knowledge and experience in this sector is coming through, particularly in this Partner Success Program. I think that's going to be very key to taking the results further and delivering what we promised you. And with that, I'm going to turn over to Tim and Stephen. Over to you.

Thanks, Rick. Okay. So I'm going to first of all just talk very, very briefly about our technology. As Rick says, we're in the business of solving complex problems for the largest grocery retailers in the world and beyond. Our solution today is without doubt the industry-leading end-to-end solution for grocery online. In terms of its levels of productivity, in terms of its end customer results, the NPS scores that we get from our clients' customers are outstanding. But our technology is applicable to all sectors outside grocery, to anybody that needs to receive, store, sort and ship goods. It is driven by extremely advanced technology and R&D in many areas, including artificial intelligence, machine learning, robotics, and vision systems. And today we are around 2,700 people, above 2,700 people, who are constantly working on this innovation and helping our ability to innovate at pace. And their productivity is accelerating at the moment. We talk a lot about IP and a lot about patents in this business, and we have a lot of unique and proprietary technology. And just to give you an update on those types of stats, our technology is currently protected by over 900 granted patents. There's another almost 1,500 filed patents behind those 900. Those are quite staggering numbers of IP protection out there. Almost 300 of those are in the areas that I know is a great area of focus at the moment of artificial intelligence and machine learning. Almost 300 of those 2,400 are in that area. It's obviously constantly growing and we're very successful in this space. Just talking about the overall first half highlights on financial progress, as we've talked about already this morning, we're seeing growing revenue, positive EBITDA, and most importantly, improving cash flow. Stephen is so strict with us at the moment, which is great, and it's a discipline that he has my 110% support on. And I've been delighted that he's picked up the mantle so much that he's already informed me that I have to get all of you out by 11 o'clock because that's how long the room has been paid for. And every minute you stay after that, it's going to cost me more money. And he's actually already told me that. Operational progress is great. And we are driving partner success. And this is the one area of Centre that has been growing this year. And it's because we have realised that our partners need more help to create the success that they can from our solution. And we're seeing strong growth in live modules, we're seeing improved productivity, and we're seeing cost efficiencies. In terms of their high-level strategic objectives, Ocado Intelligent Automation, the proposition, they're getting out there with that proposition and creating the business model and pursuing the client opportunities that we've already seen and progressing those towards signed contracts is making great progress. And we see a very large and very attractive market opportunity for Ocado Intelligent Automation. And Mark and his team are exceptionally busy. and it is a growing global team. Our first half performance gives us confidence for the full year, and so our financial guidance is unchanged. Just looking at some of the numbers, and obviously Stephen will take you through them in more detail, but our revenue in the first half is up 9% to 1.371 billion. Our EBITDA has gone from a loss of 14 million to a profit of 17 million, an improvement of 31%. Loss before tax is at 212 million, down 8 million. The underlying cash flow, which I think is an important number that I know Rowan's been focused on, is an improvement of 108 million to negative 288 million. So the revenue up 9% is really coming from the underlying growth in technology solutions. So there we've seen revenue grow by 59%, logistics up 2%, and Ocado retail up 5%. In terms of EBITDA, what you've seen in technology solutions is an incredible conversion. We'll have a look at that in more detail in a moment. But the increased contributing margin and going EBITDA positive for the first time. And it's worth remembering, it's a relatively new business. Technology Solutions opened its first international client, CFC, only in those first months of COVID in 2020. And so it's a business with an enormous amount of development behind it, 2,700 developers working on code. We on average put about a third of that straight through the EBITDA in terms of operational costs. And so to see that business turning EBITDA positive is good news. Ocado Retail is delivering improved profitability through the period, and Ocado Logistics is continuing to deliver stable returns. As I mentioned before, we've got great financial discipline, a very strong focus on costs. We're being very good at delivering tangible results in this efficiency space. And we are running this business on cash. And so we're very much not winner. We are looking at EBITDA. We are looking at profitability. But there is an incredible focus on cash that this business did not have before and was probably over-focused in the last few years on EBITDA and not on cash. As a result, we've got 108 million improvement in cash flow, which is both because of cost reductions, but also because of lower capex. Our liquidity remains strong. We have cash of a billion pounds and liquidity of 1.3 billion pounds. So if we look at the main business sector of technology solutions, we've got an increasing in live modules is what's driving the recurring fee growth. We can now have 25 sites live around the world. We now have more sites live internationally than we do in the UK. We now have 105 modules are now live and being paid for around the world. That's a 35% increase in the average live modules. And I think the key there is what that's doing in terms of revenue growth, revenue growth going from 125 million. You can see on the right hand side that up to 198 million, 59 percent increase. But if we look at that absolute numbers, that is 73 million pounds in absolute numbers of revenue growth. But that's 73 million pounds. is dropping down to a 65 million increase in EBITDA in that segment. And so you're seeing an incredible conversion of that increased revenue into EBITDA, which is both because the business naturally has a high conversion rate. Once you get to zero, it has a high conversion rate. And secondly, because of the improvements in operating costs of those 105 modules around the world. So we've seen a drop off from, I think it was 2.1 to 1.8% from memory of those modules. So high operating leverage as the top line grows and the reduction operating costs and lower support costs. And so this is really reinforcing the business model and hopefully giving you a guide as to what happens as we continue to grow, as we continue to roll out more modules for clients, and as clients continue to draw down modules in their existing facilities as they grow. And that really highlights why it's so important for us to help our clients to achieve the most from those sites so that they can grow their volumes and then draw down more modules in the live sites. And so the one area of business that we've been putting more money in, and I think the number was three million pounds in the last half alone in terms of the increase in operating costs, is partner success. And I think it was, I guess, a mistake early on to believe that if we brought these solutions to our partners, our partners were going to be brilliant at running facilities with hourly paid staff inside them, at driving vehicles around, at marketing, retention, supply chains and stuff like that. And they are. They are amazing at doing that in their existing businesses. But it's all subtly and slightly different when you try and apply it to online. And therefore, we're out now helping our clients in these areas. And so we're working closely with our partners. We're embedding our 20 plus years of experience and know-how into our partner operations across a number of aspects of OSP to help them get the very best out of the platform. We have a combination of on-site, in-region and central teams in partner success. So we've got global excellence teams based here in the UK that are supporting on-site and regional teams working directly with our clients. And sometimes those centers of excellence teams are actually traveling to our clients as well. I got on a connecting flight a couple of months ago in the U.S., and I was sitting in one of the small regional jets, and I'm sitting there like this, and I can see this group of people coming in, and they were looking at me, and I'm thinking, they've all got British passports. I think I recognize a couple of them. And it was a supply chain team from Ocado on their way out to Kroger, who did extraordinary things in helping reduce the waste that we're going to talk about in terms of Kroger's both high levels of availability, low levels of waste, by just teaching them how we operate things and helping their supply chain teams to create better results. But it was a coincidence to bump into them on a flight out to Cincinnati. The main areas of support are in fulfillment. That can be in areas such as labor planning and warehouse processes, in last mile, in how many sites you have, where your sites are, how you draw up zones, how many vehicles to put in, when to release those vehicles or not release those vehicles, how you plan it, how you route it, the proposition that you might offer in those geographies. Lots of areas in Last Mile. Last Mile is the biggest operating cost for all our clients after the COGS. After the costs of the groceries that they sell, Last Mile is the big number. And then in e-commerce, whether that's in monetization, i.e. how do we get the media platform monies that we get in, about 4% of sales, about £100 million a year at Ocado Retail, how do we generate that money? whether that's about how do you do marketing and acquisition, how do you do nursery journey, taking those first-time customers and turning them into loyal customers, different acquisition channels, and whether it's about merchandising and various other things there as well. And what's interesting when I look at our clients is they don't all need as much help everywhere. Some need more help in customer acquisition. Some are doing great in customer acquisition and need more help in their operations. Some operate the warehouses brilliantly but need some help in the last mile. It's slightly different everywhere, which is how we're developing. This will improve the economics for our partners, and as a result of improving their economics, will support our long-term growth. I think a few people have asked the question, which is, is this just another big cost line that we now need to think about in the business? And I think the way that we're thinking about it is this is an area that's going to operate very similarly to most enterprise software and enterprise hardware businesses. With an amount of sales, you get some free credits. Your free credits, you can use them wherever you need to use them. So if you need more help in the warehouse, use your credits there. If you need more help in understanding customer acquisition, use them there. Beyond that, you can buy more help. And today, our largest client who is receiving the most help and has at times a dozen or two dozen people actually live on the site helping them, they pay for that assistance. And so don't expect some kind of large new expense area inside the business. So just to talk a little bit about an example of this. So we've been running some programs with Kroger that are known between ourselves as Project Endeavor, working very closely with Kroger and their teams to drive operational performance. We set out initially a single 12-week program. We are currently in the second 12-week program. The initial focus was on CFCs, what they call one and three, that were actually at the first two that opened, the two that opened early. In 21, that's Ohio and Florida. We completed phase one. We're onto the second phase. We're cementing the initial progress and driving it forward. We're addressing other additional opportunities. And Kroger now, and we're supporting Kroger in working out how they can successfully apply those learnings across the other live sites and how they can make sure that those learnings are taken into account in the sites that aren't yet live. There's two Kroger's in build due to go live. And just to give you a highlight of what that first program achieved, units per hour improved by more than 25%. That's the key metric in the warehouse. How many units do I ship from? for how many labor hours I pay for. That's an extraordinary achievement in a 12-week program. Drops per van improved by 10%. That falls straight down to your bottom line. Food waste, as I mentioned before, whilst improving availability, food waste went down by over 30%, an operational cost reduction of over 15%. There's a lot more to go after. But some of those stats are starting to get pretty good. And then overall with growth, they will show and help Kroger to get to a very attractive operating metrics. So that was the first project endeavor. Looking at our own operational progress here in the UK, we're seeing improving productivity in warehouses and in our delivery stats. Let me just talk you through those one at a time. So if we start off with the OSP UPH, so that's the UPH in the OSP warehouses, up to 206, up 14%. It continues to improve. I think some of the most interesting, the most interesting stat I've seen there actually was we started getting Bristol, which is our smallest warehouse. It's operating at about 20 something thousand orders a week at the moment, low 20s. We've got it up at 215, 216 UPH. which is really something to show our partners what is possible to do, not just in a six-module warehouse running at 80% of productivity and beyond, what's possible to do in a two to three-module warehouse or a six-module warehouse, frankly, when it's operating only using two modules or less, that it's possible to achieve these levels of productivity. And that's before Ocado reimagined. That's before we take the benefits of AFL, automated frame loading, of on-grid robotic PIC, and the other enhancements. And there's a lot more enhancements to come. There's a lot of things we can do to drive this productivity even higher in those warehouses. But we're seeing a strong continuing trend. Now, what you can see on the other side is a bit more of a mixed picture there, where you can see that we hit 200 drops per van per week coming into COVID, which then dropped down to 175 and has only improved now to 182. It's running at about 189 at the moment. The exit rate there was 194. What's happened there is actually that stat is made up of two numbers, but publicly for the last 15 years or whatever it is that we've been a public company, we decided to try and condense it and just give one number, the drops per van per week. The more important number actually is what we call internally in our business DP8, which is the drops that we make for every eight hours of driver time that we pay for, every full shift of driver time. And then the other stat there that's critical is how many shifts and how many times the vans go out every week. And what you're actually seeing there is we are at a record DP8. So the underlying productivity is at a record. We have more vans than we need at current volumes. That means that the van turn is not as fast as it would be because we have vans originally for intended higher volumes. So we will see that number continue to rise and exceed the 200 peak that we've seen before. And as I say, we're up at well over 22 in terms of the numbers of drops that a driver does on their shifts. And so that's together with overall high-level tight cost control on the other costs in the warehouses and the central costs and the operating teams is driving improved performance. Moving on to Ocado Retail, we're making really strong progress. That's not to say it hasn't been challenging because obviously Ocado Retail had a huge surge over COVID. It was extremely profitable over COVID. A number of its suppliers started operating at service levels that would never have been acceptable pre-COVID. A lot of experience got lost in the whole industry generally. And we came out of COVID not in as strong a position as we wanted to be in. And I think the key thing that Hannah has been doing with the team at Ocado Retail is a back to basics, is perfect execution. And we are seeing really positive results from that already. And we can see it in the customer perception. So we're seeing markedly market improvements in our customers perception. across value, service, and range. So our value NPSs have improved materially since Hannah reintroduced a price matching scheme that we had successfully ran for over 10 years before it was turned off. Turning it back on again and pushing it to customers has really been reinforcing our value credentials. as well as the actual hard investments in margin, in pricing. And you can see our inflation numbers in the 8% kind of totally different to what we read in the newspaper about high teens inflation in food. We're running at less than half the stated inflation in food in terms of our average selling price. And only a small amount of that is to do with product shifting. The majority of that is that our prices are not rising at that level. So we've got very, very strong customer metrics. But at the same time, we're improving the economics. And so at the same time, as we are increasing our volumes quarter on quarter, and we have got our eachs up, and we have got all the customer numbers in terms of retention up, retention in terms of conversion from first shop to fifth shop is at record numbers at the moment. But we have improved the operational leverage. We have brought down the break-even point per week. And we brought that down through strict cost discipline that was not applied as it could have been during COVID when it really was just take on any cost you can as long as it will improve volumes because it was just all about volumes, volumes, volumes with unlimited demand in that period. and so we've had to kind of go back in and imply a lot of cost discipline to that business which has driven down the the weekly break-even points and leaves us in a good position for the rest of the year productivity across the board is up uh and up to 212 in in q2 So we have a very clear pathway to full year positive EBITDA. And we also have a very clear pathway to getting back to the kind of high single digit EBITDA margins that we expect that business to generate in the long term. It's a plan that we've all bought into. It's a clear strategy. We agree it. We agree with the management. We agree with our joint venture partners. And so I think everybody knows where this business is going. Just looking at some of the impacts of COVID and the operational progress, what you can see here, just to kind of understand the numbers that we've been talking about, you can see the basket size. So it was running in at 46 into COVID. It went up to 57 for a half. It actually peaked at over 70. And that was basically some of a subset of our existing customer base that wanted to spend a lot of money, increased frequency and increased basket size from us. So what you could see with those increases in sales and the each is shipped, if you see each is shipped as the green line here that went from here and shot up to there, in theory above our capacity, was driven by a combination of increase in frequency and basket size that actually meant that our active customers had to drop that far. So we saw a steep drop in active customers. We couldn't let them in the shop. We made a conscious decision to give the capacity that our best clients wanted from us. And so you can see the challenge that we've been in now, which is basically saying that we kind of lost three halves of growth. Right, we lost this half, this half and this half of growth. So if it hadn't been for COVID and you took those out and you shifted all this back and you kept going, we would be at the numbers that we wanted to be at now to generate the profitability we want to be at now. But it's just a question of keeping going at the moment. And I think that's the critical thing to understand. Management made decisions. They were probably the right decisions to make at the time. Otherwise, you disappoint everybody. But we just basically had a problem that our most loyal customers wanted to spend between 50% and 100% more money with us than they did before. They didn't want to shop anywhere else. They didn't go on holiday. They didn't eat out. They had nothing else to spend their money on. And so they wanted to buy food, buy lots of it. They wanted to bake and not even eat the cakes in some instances. So we had to serve them, but it has caused us some pain coming out. What you can see on the far right is in the purple bars is the underlying theoretical capacity of our warehouses. And so we came in to 19 with a bit of capacity. By 20 in the early parts of COVID, we were actually shipping out more eachs than the theoretical capacity of our warehouses. You'll remember I explained how we did that at the time because we were able to ship on a Tuesday what we had the capacity for to do on a Friday. And normally Tuesday is smaller than a Friday. So by doing seven Fridays in a week, we were able to ship more capacity than we theoretically had. We then built an added capacity. You can see that in the purple bars going up. But at the same time, as we were seeing this effect and the slowdown in frequency, meant that overall we were shipping less eachs than we were at peak COVID, but more than we came into COVID with. That's the green line over here. And now with the closure of Hatfield and the opening of Luton combined, we end up on the blue line and we'll be over 75% of capacity utilization capacity. at the end of the second half. And of course, that significantly helps ORL's profitability. It is still bearing costs. It is still bearing costs to Group for the infrastructure and its current contract On Hatfield, it is still bearing costs in terms of property costs for Hatfield, but nevertheless, it still is a material improvement in its profitability, but will be better once it's kind of disposed of that site and bought some more capacity to replace the current contract it has with Group. Moving on. So great progress in Ocado Intelligent Automation. Not yet signed contracts with names of clients that I know that everybody's waiting for, but that will come. But nevertheless, let's just be clear what the model is. The model is a capital light model. Fees upfront to offset the cash outflows. Obviously, those fees are not recognized until the sites are delivered. So you won't see recognized revenue until sites are delivered, thanks to my friends at the IFRS board. but you will actually see the cash coming in in advance as the contracts are signed and as we build out those facilities. So we don't expect it to need to utilize balance sheet. It leverages our existing OSP technology. There is a limited extra R&D investment that's ongoing at the moment. And then obviously based on the success of that business and the requirements of the customers, we'll decide how much that investment should be into the future. And as I say, so the profit is only recognized at the go-live of those contracts. We are talking, as I said before, to several prospective clients in a large range of industries. And as I say, it's really anywhere where people need to receive, store, or even manufacture, and then store, sort, and ship goods. Our OSP hives are extremely space efficient. They are capable of extremely high throughput and they are capable of being extremely efficient from a pick, sortation and storage perspective. We think unmatched in their efficiency. And so there are lots of markets outside non-food. A lot of people always say, oh, it's general merchandise. I think the view of general merchandise online retail is a small, well, not small, but is a fraction of that market. There are lots of other areas of store-based replenishment, of spare parts, of storage of other goods, of all kinds of things that this is very interesting for. And it is becoming increasingly interesting to, and the market for this kind of automation is really growing very rapidly based on global labor shortages in developed markets and the increasing scarcity of people to do these jobs manually. It's no longer just a question of trying to understand, do I want to put the capital in and how long does it take me to get the capital back? It is also how do I make sure my business can function, given the fact that I am finding it harder and harder to hire people to do what was just something that I assumed got done in the back. Sometimes these businesses, it's not the most important thing. They don't think about it that much. It's not like our warehouses that have always been centre to our business. It's the thing that replenishes the stores. It's the thing that gets the spare parts to the manufacturing facilities. And actually, if they don't function, it's a major problem for these businesses. productivity in very small warehouse footprints. So if I just thought about one of the projects that we're working on closely, they found us quite late in the game. So they've already commissioned a site, built a site to put someone else's solution in, which they're considering putting ours in instead. And we just, to do the throughputs that they needed compared to another project very high, very well known brand name kind of automation solution, we need a fraction of the space. So it's now kind of we're not going to use the whole building if they put our solution in which just go to show significant savings for clients going forward, as they can right size those buildings to what they actually need with our very dense and high throughput solutions. So in summary, we have a first half of clear progress where we're delivering results across all our key objectives. Our KPIs continue to progress across all segments. We're seeing improved profitability. We're seeing our cash outflows reducing. I think our first half performance reinforces the outlook for the full year. Our priorities for the second half remain operational execution for us and our partners, remain financial discipline, including getting you all out in 59 minutes, cost reductions and focus on cash flows, and then obviously mark strategic growth on capitalizing the non-grocery opportunities. And obviously, the partner success is underlying all of this. Partner success, partner success, partner success. I spend an inordinate amount of my time at the moment working with our partner success teams and working with our partners to help them to get the best out of OSP, to drive long-term profitable business growth from their OSP sites so they need more of them, so they fill them, and so we can grow our business. And so on that note, I will hand over to Stephen. Thank you, Tim. We've got less than 48 minutes here.

I'm on it. Thank you, everybody. So good morning. Right, before I get into the numbers, I just want to sort of say a couple of words about the new segmentation. Because I think there are three key layers, I think, of benefits to the way we're going to be looking at the business over the next half an hour or so. I think one more is, well, one is, I think for you, visibility around three distinct businesses with three distinct business models. and the financial economics and drivers of each of those three businesses. I think previously our accounts may have been a little more difficult to understand given we kind of joined together one or two businesses and we hadn't presented solutions business on its own. So I think first of all, visibility really important. I think secondly, and this is an internal one, management. We have three distinct businesses. We have three distinct management teams now. We did not previously have a distinct management team for technology solutions. We now meet every Monday afternoon for between two and three hours, and we go through the business from top to bottom. Each management team has its very clear goals and priorities. And that helps enormously. And in fact, it's a big deliverer of the third aspect for me, which is important, is that cost discipline approach that Tim mentioned. Costs are owned in the right place by the right management teams. They're accountable for it. They have their budgets. They have their targets. It's a much clearer way of working within the organization and already delivering results. You can see those results in the half year numbers. and there's more to come as well. We've put in the appendix a reconciliation between the pro forma numbers for fiscal 22 that you saw in the various events that we held last year with the four-year results in March of this year, and now the reported numbers that you're seeing today. Okay, so that's in the appendix if you need to go through that. when you see the comparatives. So the financial review. I won't go through this slide in great detail because Tim's talked about many of the numbers up at the top there. The revenue growth, the EBITDA growth, 9% revenue growth, EBITDA improvement by £31 million. Below the line, depreciation and amortisation is probably the key number that gets you down to that group loss before tax, post-exceptionals. That number will settle down, I think, at around sort of on a full year basis between 450 to 500. That will be its peak level as it starts to decline as we gradually fully depreciate certain assets, depending on course, of course, on CapEx rollout over the next few years. Exceptional items, just two items really in the exceptional items to talk about. There is a breakdown in the appendix. First of all, the UK network capacity review that's taken place following the closure of Hatfield. designed to, first of all, introduce war OSP into the model in the UK, replacing the old Hatfield site through Luton, and a big driver of the profitability, the growth in profitability of Ocado Retail as we cover those fixed costs from the excess capacity that we've been running with over the last 12, 18 months or so. And there's been a small reduction in the deferred consideration due from Marks and Spencer as well of £17 million. Those are the two key numbers in exceptional items, getting us to our group loss number. So technology solutions. We're going to start with technology solutions. Revenue growing by 59%. The key driver there, as Tim has explained, that growth in average live modules. That's the key driver of revenue growth. The contribution margin improving from 65% to 71%. The direct operating costs, two key components, the local engineering costs, that's Ocado people supporting our partners overseas, maintaining the bots, replacing parts that need replacing and so on. That's improving as a cost as a percentage of sales capacity. Tim mentioned that earlier. and a very high contribution margin of 71%. Technology costs of 46 million pounds in the first half and now at peak levels. You will see technology costs flatten if not decline into 24. Support costs already reducing and expected to reduce further. I think going back to my earlier comments around the visibility of the cost base, putting costs in the right place, strict financial discipline, adherence to budgets. These are behaviors that are now pretty much across Ocado and very helpful in delivering these outcomes. I've pretty much gone through those statements down there and then delivering that positive EBITDA flow through that we talked about. Very high profit flow through. KPIs are improving across the technology solutions business. Ordered site modules capacity now at 232 modules. What this represents is that sites that have been ordered at full capacity. So sites ordered by our partners that you will have read about, those announcements have been made across our various international partners, the most recently being the Lotte order. Live modules are up by 22% since the first half of 2022 at 105 live modules. And then here's the direct operating costs down to 1.8% from a peak of 2.7% of sales capacity. We expect this cost to reduce further, as we've said previously. Technology solutions. So what's the swing in profitability for EBITDA of tech solutions? The key number here first, of course, is the revenue growth and the contribution margin flow through, that 71% number. We then have a small increase in technology costs that you saw on the previous slide. To Tim's earlier comments, we are investing in sales and partner success. The return on capital from that investment, there are strong arguments for that number to grow. Don't be surprised if it does. we know we'll see great returns from that investment with extra orders, new orders from our existing partners. There's been a £12 million net reduction in support costs, £10 million reduction in support costs. Again, I believe there's more to come. And then we benefit from the sale of the Dartford Spoke, a £5 million benefit there, getting us to that £6 million first half EBITDA number. I've mentioned this in my earlier comments, technology investment is now at peak levels in fiscal 23. A lot of our technology investment over the last couple of years has been on these innovations here on the right-hand side of this slide. We announced these in January of last year. Auto frame load is now live in two sites. On-grid robotic PIC is progressing well. It will cover over half of our range, covering ambient and chill. It's on track for target of 300 plus units per hour. More on this later as we get ready to go live. The 600 bots prototypes are ready now for live testing. and we're aiming for full production by the end of the year. The lighter bot on the lighter grid, that's on track for installation in fiscal 24. My point here is that having invested a lot in technology over the last couple of years, the outcomes are close to delivery if not being delivered already. So there'll be a natural wind down, therefore, of our technology spend, unless, of course, we find other exciting things to do. But at this stage, that's the guidance that we're giving on technology cost. Just want to highlight here, the hosting cost optimisation, that's the single largest contributor to the client contribution margin improvement. Hosting costs, that's cloud costs per module, have reduced by over 30% since the end of fiscal 22. Now, support costs. £101 million last year, £89 million this year in the first half. And we put here on the right-hand side the breakdown of those costs, what's included. A key point to make here, these costs are fully costed. There are no costs outside of the divisional spend. Group and other, last time around it was a distinct cost. The technology solutions business largely takes on those group and other costs. Sales and account management, partner success, you know about those teams. Supply chain operations, finance, legal, HR, group IT, real estate, and then finally board costs are all fully costed within technology solutions. So the key drivers, and I'm going to talk about these actually. So we have invested in partner success and account management, but costs now are directly owned by the appropriate owners. Really important discipline. It sounds obvious, but it's proving incredibly valuable and wasn't always as it should be. Continuous improvement of our operating model. What do I mean by this? Ocado grew a lot over 2020, 21, bit of 19 as well. As we expanded internationally, we set up teams overseas, a payroll team, a finance team, engineering teams. We've learned a lot about our operating model as our business has evolved over the last couple of years. We've identified ways of doing things less expensively, more efficiently, effectively than our initial foray into the wider world. We're getting leaner and tighter on cost management. Efficiencies from investments. You'll recall we put in an example from my patch from finance. We put in Oracle Fusion in October 21. That has proved to be a big deliverer of a reduction in cost base for us, not just in giving sort of numbers that we can rely upon more easily. and a better platform from the R12 version we had for Oracle, but at the same time delivering headcount efficiencies. Headcount reductions I've talked about generally, going back to my comment around how our operating model has evolved and certain teams that we believe we can do either without or reduce numbers. key driver of the reduction in costs. Tight management of discretionary spend. Again, simple example, a review of contracts that were in place on a retainer basis, often advisory, opportunities to terminate those because maybe their value has run the course. A key part, again, of cost reduction. And then just highlighting that the reduction does benefit from that one-off benefit from the sale of a Dartford Spoke. Whoops. So that's technology solutions. Our logistics business remains a safe, reliable generator of EBITDA and cash flow. As a reminder, it's cost plus business. So the important line here is cost because there's always a markup on costs. We recharge pretty much all of our costs to our two clients in the UK, Ocado Retail and Morrisons. Cost grew by 2%. Orders were at 4%, but each is with 4.3%. each is down 2.6%. The impacts of wage inflation was offset by those productivity improvements that Tim talked about, units per hour improving, and also a reduction in unit utility costs that are off the highs that we saw in fiscal 22, principally for electricity. Productivity, I've just talked about, EBITDA of 15 million pounds in the first half of the year, and in line with the number we saw last year. card and retail and again we've pretty much gone through the key messages here revenue growing by five percent gross margin declining somewhat as we've invested in price so our price inflation has been well below that of published national inflation um we've seen therefore that reduction in gross margin but also impacting gross margin by an increase in our vouchering spend activities And you'll see that in this line here around cost optimisation in marketing spend, £7 million lower, but we've pretty much reinvested that number back into vouchering to grow customer numbers. Strong customer growth up 11%, orders per week up 4%, and the basket value is up 1.5% to £121. Gross margin I've talked about. I've talked about fulfillment and delivery costs. These are pretty much passed through for my logistics business. Marketing costs I've mentioned. Now, support costs are up £18 million. It should highlight that last year's numbers benefited from a one-off £16 million release of a management incentive accrual. So really, one could look at that as a net £2 million increase in support costs. Finally, EBITDA is in line with guidance. We've had improving EBITDA as the half has progressed and we've been positive throughout Q2. So the second half of the year, we'll see a growth in customer numbers, a growth in orders and increasing profitability as we cover that excess capacity that Tim mentioned in his slide a little while ago. Okay, I think you're all familiar with those drivers of how we get to our revenue number. Orders per week up, average basket value up. Average selling price up 8.4%. Nielsen's number is around 13% grocery inflation in the UK over the same period. So well below national grocery price inflation. Ocado Group, cash flow. Tim mentioned it, and thank you, Tim, for highlighting that point, that moving the business onto a cash flow understanding. Cash flow is not a particularly well understood financial term. People are used to revenue and EBITDA, and it still surprises me, you'll still hear occasionally, well, we don't need to worry about that number. It goes through CapEx. It doesn't affect EBITDA. And you may have heard it from other businesses that you've talked to, but it does get so repeated. But moving on to cash flow is critical. Cash true economics, and understanding and appreciation of cash flow. And so cost management is around cash management at the same time. Underlying cash flow has improved by 108 million pounds, the first half of last year versus the first half of this year, driven by that EBITDA growth, but also capex reductions, fewer sites under construction at the moment versus where we were this time last year. And you'll see that on the next slide. We remain in a very healthy liquidity position of 1.3 billion pounds. That's a billion pound of cash and the 300 million pound undrawn revolving credit facility. Here's our debt profile in the bottom left-hand corner here. The convertible bond still over two years away from maturity. The unsecured note of 500 and then another convertible in January 27. Just reiterating our guidance as an unchanged on cash flow to improve by around £200 million year over year. CapEx, CapEx materially down from £367 million to £284 million first half versus first half. Key driver of that, the site CapEx is lower. And again, we highlight at the top there that... A year ago, first half 22, we had 12 sites under construction. We've got five under construction at the moment. Key driver of the site CFC capex. As a reminder, most of the in-year capex is in respect of sites going live the following year, if not the year after. Having that visibility of those outer years is a key driver of capital expenditure. So there's our first half summary. KPIs improving across all our operating divisions. Technology solutions turning EBITDA positive for the first time. We're continuing to improve productivity and logistics. Retail that improving profitability on track for that full year positive EBITDA. Cost control and financial discipline in place. Still room for opportunity there. And we expect to deliver more. cash flow improving, and liquidity remains strong. On the guidance, our guidance remains unchanged. The one that we gave six months or so ago, you can go through that. Technology solutions, Luton's gonna open the second half. The two coal CFCs, scheduled for 23, we're now working closely with Coles on the revised timing for those. Further efficiencies and cost reductions I've talked about. Similarly, in the logistics, EBITDA outturn of around £25 million. And again, you're familiar now with these messages for Ocado Retail. Growth, revenue growth, customer growth, order growth, plus efficiencies to deliver positive EBITDA. Just to highlight that the customer growth will be slower in Q3 of the second half when we give you our trading update for Ocado Retail for Q3. We had a big marketing drive in the comparative quarter of the previous year, so look out for that one. The volume-driven growth is expected to accelerate in Q4, possibly a bit dire for the full year, reiterating that earlier guidance. There you are. There's a summary of it, just as a reminder of what we said with our failure results back in March. All of these on track. That's it. Got us back on time and ready for your Q&A. Thank you.