Ocado Group plc

to the Ocado full year results presentation. There's a lot to celebrate in these results, but also what you're gonna hear, there's a lot of work that we still need to do. And it's only proper we should start with the successes. First, we've seen a 25% increase in the live modules, average live modules during the course of the year. The technology works and it works well. It's delivering at or exceeding targets wherever we apply it. We've added three more live CFCs in UK, Canada, Japan. So we extended the geographic spread and they're ramping up to target. Customers love our online grocery experience that our clients are delivering in their local markets. And the MPS scores are consistently very high. You look at the reimagined technologies. We're rolling those out. This is the first year they've been commercially available and they're already being deployed in the UK and in Sweden. We've expanded the partner success activity, some theme you'll see coming through quite extensively during this presentation, helping our clients to grow, to achieve long-term profitability. We really do know online grocery, and we are out there helping these clients grow. to get the most out of the Ocado smart platform and to find out better ways of filling their capacity and building new capabilities. Of course, it's the first year that we have secured a contract in outside of grocery with the Ocado Intelligent Automation. Of course, the first contract being McKesson in Canada which is the leading pharmaceutical distributor in the US. Ocado Retail is now on a good growth trajectory. It's adjusted to the post-COVID world and delivering on the perfect execution program that was introduced by Hannah Gibson, the CEO. And as you'll hear later, we have made considerable strides on cash flow and we can reiterate our target of becoming cash flow positive in the midterm. But there's work to do. You know, repeat orders of new modules are just not at the pace they need to be. Our partners' success will determine our success. And so it's encouraging to see the extent to which our teams are working very closely and very collaboratively with our client teams, really to think how to deliver on the potential, how to deliver the growth of the platform and the investment they've made in us. There's been a lot of progress during this year, but there's a lot that we still have to do and we must do. And you'll hear about that during the course of the presentation. This year, Coming year, we have to focus still on the partner success. We have to continue to roll out reimagined technologies. We have to get more efficiency, longevity out of our other technologies. And we need to go out and find more opportunities for the Ocado intelligent automation. But from what I know this company so far, I am totally convinced that the The intelligence, the resilience, the creativity of the Ocado people will deliver on the huge potential in terms of value add and the technology as a whole. And when you hear this, I hope you come away thinking as we do that we look forward to the future with great confidence together. So over to you, Tim.

Thanks, Rick. Okay. Where are we? Okay, so the key messages for today are are that we do continue to make financial, operational, and strategic progress. So we've had a strong year in that sense. The success, as Rick said, for our partners is our key focus right now. We want our partners to fill up their buildings, to draw down more modules, and to buy more buildings. And critically, they need to be successful with the capacity they've already downloaded. We continue to innovate and our past innovations, our current innovations and the pipeline of innovations are driving and will drive more opportunities and attractive returns for us and for our partners. We have got good financial discipline across the business and Stephen obviously will talk to the numbers, but as Rick said, the cash burn for the year was down substantially ahead of what we had targeted. And we have an attractive business model operating in multiple segments and I always think it's just so much easier to understand our business when you focus on each of those segments individually. So that's what I'm going to do today. In terms of the financial progress, we've seen strong revenue growth across all segments, positive adjusted EBITDA and improving cash flow across all businesses and Ocado Retail returning to profitability in line with guidance. We made operational progress. We've seen a significant growth in live modules, We have seen increasing productivity in terms of Ocado's productivity on delivering those live modules every day for our clients. We've seen cost efficiencies and we've started the deployment. In particular, OGRP is operating at quite a pace and a growing pace in Luton. It's quite something to see if you get the opportunity. And we have rolled out AFL a little bit here in the UK, but we're doing 100 percent of the loading in our client's facility in Stockholm with AFL and we expect to see more rollout of both of those products during the course of 24. Strategic progress, massive focus on partner success and obviously John's going to talk more about that and I don't want to steal his thunder. We did sign our first Ocado Intelligent Automation deal with McKesson We settled the auto store litigation, so a topic that we got to talk about for a couple of years quite extensively was not mentioned on my media call this morning for the first time. And we announced this morning the 13th OSP partner signing with Panda in Saudi Arabia. We also opened this year three new sites, and we now have over 1,000 stores live on our in-store fulfillment platform. So looking at the financial progress in summary in some numbers, Just going to head straight to the change column. Group revenue was up 10%. Adjusted EBITDA improved by £126 million from a loss of £74 million to a profit of £52 million. Our loss before tax improved by £53 million and the underlying cash flow improved by £356 million. So that was all on the back of a strong trading performance and a very rigorous focus on costs. Stephen has it all very tightly locked away. So these are the 13 world leading retailers currently on our platform. And between them, they have more than 250 billion pounds of annual sales. in grocery that we would look to see a portion of that moving online in the next few years. If you just took 20% of that online, you'd be talking about 50 billion pounds and you'd need to roll out north of 600 modules to achieve that level of volume. So let's have a little bit of look at the technology solutions in a bit more detail. If we move on here, hopefully you can all see that in better size than I can look in the other direction. What you can see here is the 232 announced modules, but you can see the breakdown here in terms of the blue being the live modules currently generating revenue up from 99 at year end 22 up to 111 at this year end. The green, the 49 modules are modules that can be drawn down in existing live sites. Right. So that's where we've built a seven module site in somewhere or other. And the clients using three or four, the remaining three or four are in that 49. They also are able to be drawn down with significantly reduced capex because the grid's already installed. In these early versions, we installed more of the kit up front. So the machines that take the customer boxes out of the hive boxes, they're already installed. A number of the pick stations are installed. We probably need some more robots. We have those robots ready to install in those sites. So that's what the 49 are. They are no new sites needed. We can grow by 49 modules. The 40 are modules that are in sites currently under construction, not yet being paid for. So they would include things like Sydney, Melbourne, Phoenix, Calgary, Busan, for example. That's where you get the 40. The 32 are announced sites by our clients that are not yet actually a live program. They've announced them, but they haven't come to us and said, we found the site. So they would be places like Miami and New York and Los Angeles, where our partner in the US has said and signed for something, but actually has paused, as you know, whilst we get the eight sites that are live working better. And then we'll restart those programs. But that's what the 32 represents. So easy to see that if we take the 160, the 200 of those modules, the 111, the 49 and the 40, no new site announcements, no new projects, no new finding sites. We can get to 200 modules like that. Obviously, what we want to do is get to hundreds of modules, as I was speaking about before. And we're confident that module growth will accelerate as the partner success delivers and We expect the reimagined and the AI driven enhancements to actually allow us to go back into these sites and say they're not actually 232 modules without you needing to build more as a client. We're going to take those up to 250, 260 modules. So what I mean there is clients said, I want a six module site. We designed with them a building. They built the building. We put the kit in. They've currently got six modules in there. They might be using two, three or four. We're coming then as they grow. We'll then sell them a fifth. We'll then sell them a six. Actually, we're now able to say to them, you know, that six module site. We've worked out through intelligence how to turn it into a seven module site. So if you want to draw down another module and pay us for another one, we can turn that into a seven module site. So our expectation is, is there are more than 250, 260 modules in those sites that we're referring to there. OK. So what does that look like in terms of moving forwards to 24, 25, 26? So what we try to show here is the dark grey are new committed openings. So the dark grey is where we will get to by just opening Phoenix now. opening in 24, 25, opening Charlotte, opening Sydney, opening Melbourne, et cetera. So the new site openings take us to around 120 and 130, right? The lighter shaded gray is how many of those other 60 modules get drawn down in that timeframe. And our view is that it is a kind of a J curve. More of them will get... taken down in 25 and will get taken down in 24. And so the way I look at that at the moment is a handful of those sites are close to a bumping up towards their capacity. They've currently drawn down and I would expect to see some drawdowns from some of those sites in 24. The key mission for partner success is not only to help accelerate the growth in those sites so they draw down some of those 60 modules, but is to get the other sites up to that level so that in 25 they then need to draw down more modules. The sites in the UK, with the exception of one, are operating at their full design module capacity. So as Ocado Retail grows, there is no drawdowns until we get to the point that they have filled up the design capacity and they then ask us to sell them the excess capacity that we can generate in those sites. So hopefully that makes some sense. Just sticking there for a moment, a few more parts there. There is another accelerant that is going to hit us in the beginning of 25. And I'm going to talk about it on the next slide, not quite yet, which is called Swift Router, which we talked about at the Reimagine conference. And the combination of partner success, helping our partners to get better at every aspect of running their business where it's different to stand a grocery business together with Swift Router, which will dramatically increase the addressable market from these warehouses is what's going to drive that growth. The two last points I want to make is the drawdown of those remaining modules is much cheaper in capex. We spoke about that already. And the second one is that future sites are also at lower capex. But future sites also can be, we have worked out how to build them now so that we can put a lot less capex in up front and allow our partners to start sites with less modules. So most of our sites have started with between about 35% and 60% of their max capacity at go-live. We could now, going forwards, allow our partners to start at lower numbers, and then you'll see more constant drawdown, because as they're growing, they'll be drawing down. At the moment, a partner might have taken a seven-module site, they might have started at four. Initially, they're using one, then they're using two, then they're using three. Until they're using four, we're not going to see them draw down five. In the future, a partner might buy a six or a ten-module site and start with one, and then they can draw down as they're going because we've changed the way we can phase the CapEx through reimagined and site designs into those warehouses to allow us to do that with no susceptibility on our side to their ramp, right, zero. So it doesn't matter that we build a ten-module site And we go in at one that one module is a profitable module for us and then we can add them on as we go right let's move on to the next one. So what is swift route and we know we've spoken about it before but let me just re emphasize what we're doing here today we do route completion route finalization we work out which customers are going on which route we're sending out and we complete that and then we put that bunch of work into the warehouse. And we do that because historically warehouses work as a downstream process. So you start here, you work your way, and then eventually the order pops out the other side and needs to leave. You can't have the orders finished and not ready to go on a van because they would build up and block the warehouse. But when we moved to OSP grids, we've broken that challenge. We can store completed orders in the OSP grid, But the software still required us to send a completed order, completed order of a completed route into the warehouse for processing. Some of the substantial work that we're doing this year is breaking that link so that our warehouse can work on orders that have not even been completed, let alone assigned to a specific route. Now, what that then allows us to do, and the core part of the functionality, is it allows us to be picking and be ready to load stuff so a route that we want to leave at let's say 10 o'clock we could now at 9 46 decide which orders are going to go on that route that's leaving at 10 o'clock they could be orders that were completed yesterday and they could be orders from customers who only came in our shop 15 minutes ago we can process them in 15 minutes then decide to put them on the same van, load them onto a van at 10 o'clock, and be dropping them at a customer's house at 10.30. That's what we're going to be technically capable of doing. Now, that comes with a challenge. Some of our clients already have a new thing to manage. They have to manage routes. They have to manage driver shifts. They have to manage understanding whether they're offering availability or not offering availability live. And that's quite complex. So this year, we are also developing AI co-pilots. And we're doing that because this is going to get significantly more complex without it when you have continuously dispatching routes all through the day. That can put any orders on whether those orders were placed yesterday three days ago or half an hour before and you want to reserve the front part of those routes. for the orders that you expect you're going to take in the hour or two hours before the route goes out to enable those that capacity on each van to be doing short lead time deliveries under four hour deliveries you want to be able to use part of the rest of that route to be able to do the orders that you took earlier in the day for later the same day dispatch and you also want to use it for orders that you took the day before and you want to be doing clever things to do with pricing of those slots you want to be doing clever things to do with which ones are going on which routes, and you want to be advising the clients what they need to be doing in terms of shift patterns for the next day, the next week, the next month, in terms of learning from the data as to what the customers want, when they want these slots, and all this type of stuff. There's a lot of data there, and we need to be very clever with it, and we need to help our partners to run this thing really, really, really simply. So building the AI co-pilots to run Swift Router with continuous dispatch. Why are we doing all of this? We're doing all of this because we can go from facilities that are 90 plus percent today, today for tomorrow. And we can move those facilities to something that looks more like one third under four hours, one third same day, and one third next day. And that's more like what the average facility can look like in 2025 versus what it looks like today. And that's a very, very significant change. And what's amazing is that we can create that level of earlier lead time deliveries, but without compromising on the operating hours of the warehouse, without compromising on the operational efficiencies of the warehouses or the operational efficiencies of the routes that we operate. OK, so the ability to do 22 drops on a route type of thing. And so with those economics, we can dramatically grow the market. We think this is a very important and significant growth enabler in all of our markets. But let's be aware there are some markets in the world that emerged differently to others and they emerged with more expensive services that had one significant benefit being that they delivered earlier. Otherwise, they were just more expensive and they trained customers to expect earlier deliveries. And therefore, in those markets, we expect this change to more than double the addressable market. And this change is coming live at the end of this year, beginning of end of 24, beginning of 25. This will be live and available to all our customers across all our markets. Right. So overall, our platform continues to scale. So if we look at the history here, pre-OSP, the platform is scaling at 17 percent CAGR. We had just the warehouses here in the UK. We turned two warehouses live in that five year, six year period. from 12 to 17 inclusive. And in the next six year period, we've now ended up with 26 sites globally. So we opened 24 sites. I think unless that includes the sites that were open pre-12, but something along those lines. And we have taken up the capacity of the live sites and the drawn modules. So the drawn modules in the live sites are now a capacity of 8 billion pounds. And the the 200 and the 200 modules of the sites that we showed before not including the announced but not draw once to 32 would take us up to 20 billion pounds of capacity we spoke before about 20% of our current clients got their business online we'd need 50 billion but you can see where we're trying to go to and you can see in that slide sorry the split was the green and the blue was the split between the UK and international and Right, John, over to you.

Thank you very much and good morning, everybody. Partner Success, which I'm going to talk about this morning, what is it and why are we doing it? Partner Success is just a team of very experienced and specialist resources in Ocado Solutions. It is 100% focused on helping our partners to grow quickly and grow profitably. We've appointed a really experienced team of business leaders to lead Ocado Solutions in our three regions. You can see those on the screen with the number of partners. Each of those importantly now has resources dedicated specifically to each of our partners so that we can work as closely as we can with those partners on a day-to-day basis. And you see along the bottom, we've got central resources. That is a bit of an understatement. Many of these people are very experienced managers in Ocado. Very often they've got really great experience of Ocado retail and Ocado logistics going back years and some of them decades. And they've got really good understanding of the planning, the controls, the operations, the tools that have made Ocado retail so successful. We've also included there in those central resources, we've recruited a number of deep subject matter experts in areas like e-com marketing. customer acquisition and retention, retail media from outside the company. And finally, we also have a very effective analytics function where we can identify with our partners what the best opportunities are. I come on board in September. I have visited every country now where we have operations, and I should share a few observations with you. Firstly, all the CFCs that I have visited have The grids, the bots, the peripherals, our latest automation, it operates absolutely as it was designed to and as it's meant to. Our technology does work really well. Tim mentioned we talked a lot historically about reimagined technologies. And these are being rolled out now much more widely to improve efficiency, to improve safety and to lower cost on partner sites. The most transformational technology, I think, is going to be OGRP. We expect that when it is rolled out, that's going to save several millions per year at each facility, and it'll lower our partners' exposure to expensive labour costs and also to staff churn. ISF, we've got quite a number of partners using OSP in store or dark store environments. And that might be used to service less densely populated areas, or to create demand in advance of opening a CFC. And in some other areas, it might be used in lower labour cost countries. Whatever, our partners are using this to really great effect now. And our ISF solution has been rolled out now to more than 1,000 stores. Ocado is very strongly aligned now around that clear objective. which is to help our partners accelerate profitable growth. Very importantly, from my point of view, if you look at the last bullet on this chart, our partners are fully engaged with us. We're sharing best practice data on productivity, on customer satisfaction, on finances, efficiency, operations, organisational design, and we're doing that very openly and very collaboratively and comprehensively with them. What are we focused on today? Firstly, customer acquisition. So revenue growth here, customer acquisition, retention, driving basket size. Our partners have made this investment with us with the specific goal of taking market share in e-commerce and providing an unbeatable customer experience in that online grocery retail space. We've got a dedicated team within our partner success team. focused on supporting our partners to grow and also to maximise income from sources that might not be available offline, such as retail media. Secondly, the second box here, operational efficiency. To get the most out of our CFCs, it needs good planning. It needs disciplined execution and dynamic integration with marketing. Our most successful operators are also maximising the proportion of direct inbound deliveries, and they're constantly looking at reducing waste. Last mile operations account for a large part of the cost base. Careful management of slots and route optimisation makes a really material difference to the P&L. And thirdly, product development, as Tim touched on here. I won't say too much about it today, but we are working with our partners, and this is a two-way process. We need to understand what developments they want us to make to help them gain market share. And also, we need to make sure that we are taking them through the latest capabilities that our tech team has developed to make sure that they get the best use out of the platform. The significant investment that we make in the platform, that I'm sure Stephen's going to touch on, that is a really significant factor for our partners because They know they've invested in an industry leading solution and they want that to remain ahead of the market. And fourthly here, just under toolkit, we have got very powerful analytics and really good tools. We're continuing to develop a playbook which allows us to share critical success factors with our partners from organisational design through to specific operating methods and reports. I did just want to touch on, if you look at this chart here, the five boxes on this chart, they represent five sort of categories of the P&L. When we're going through these with the partners, the reason we've anchored it on the P&L is it gives them a really clear view of the materiality of the levers that they can pull. For each KPI and each P&L line, Now, we've got a really good view, which we share with them, of what good and great performance looks like based on best practice across our 22 live sites. Let me give you a flavor of the way that we've been going about partner success by just touching on a few of the projects that we've done. We work with two of our partners on a project to analyze the checkout walk that will improve conversion and optimize the basket size. Customers want to be able to check out quickly and simply, but there is also a value in allowing customers to keep the basket open as late as possible. So we're able to do A-B testing to assess the impact of different proposed changes on customer behavior. In another assignment, we worked with a group of partners to measure the cost of customer acquisition, we call CPA, and to identify the conversion of customers at each stage of the customer journey to make sure that we haven't got customers dropping out at a certain point. And that helps partners understand how much to invest in marketing overall, how much to invest in customer acquisition, and how much to invest in retention. In another project, our team did an in-depth review of the marketing for a specific customer banner. And that identified opportunities to drive performance of weaker landing pages and to improve search capabilities. And in that, we worked with the partners agency to review spend and traffic by channel. If you don't get it right, waste is a very significant cost for our partners. Products approaching their sell-by date can be cleared by flash sales. and our demand forecasting system can instantly impact future order quantities to build in learning. Project that I'm referring to here, waste charges at the sites were reduced on an annualised basis by several million pounds per year. We've been requested by a number of partners to review their organisational design, which might come as a surprise, but we have, and that helps us share with them our view of what critical roles and responsibilities they need to adopt to make a real success out of these facilities. And lately, we've completed a project to review a partner's detailed shift patterns to help them improve productivity and slot availability. I mentioned in-store fulfilment. We've consulted several partners on using our ISF tools And we do detailed store audits to optimize the pick walk and improve customer fulfillment rates. Finally, as they grow, most of our partners are focused on improving last mile productivity. As I said before, that's fundamental to achieving good economics. Our last mile team has been helping show our partners how to monitor slot availability and to optimize route fill sharing methodologies and determining which geographical areas it's most advantageous to serve. using our OSP functionality to rezone and rebalance between the service offering and route fill. I hope that just gives an idea, it gives a glimpse of the type of work that we've been doing to accelerate our partners' growth and improve their profitability. Thank you.