Ocado Group plc

Very good. Good morning, everyone. Welcome to Ocado's first half results. Tim and Stephen are going to lead you through the operational and the financial milestones of the period, and then we'll go on shortly thereafter to talk about the progress that we've made in improving cash flow and growing profitability. not only in technology solutions but in retail as well, and then how we've been improving in the rolling out of CFCs around the world. What we're pleased to be able to say, again, is that online is the fastest-growing grocery retail channel. And, you know, as Ocado, as you well know, we have... Proven technology, constant innovation that we can feed into clients, those clients looking to find solutions for growing e-commerce. As a board, what we've been particularly encouraged to see over the past half year and before that is the work we are doing to help our clients manage that tough but crucial transition to being a growing, profitable, multi-channel retailer. And that transition actually requires incredibly patient and close collaboration. And as you all know, we've taken some very significant organizational and process steps that are absolutely essential to help manage that transition. As a result, we actually have a very high conviction that it's going to pay off, that we will see accelerating growth and profitability over time. Meanwhile, I think from a Cardo standpoint, we still bring the cash and the cost discipline, and you combine that along with the economics of the CFCs that are in existence, we have a growing confidence of a clear trajectory to cash flow break-even in the second half of 2026. And with that, Tim, I'm going to hand over to you to take us through the results.

Thanks, Rick. Okay, so let's move on to the highlights. Clicker, here we go. Thank you. And right, so financial progress, strong. Group revenues up 13%. EBITDA nearly tripled up at 71 million, up 55 million year on year. Strong revenue and EBITDA growth has come across all the divisions. Strong cost and capital discipline in the group. underlying cash flow up 101 million in the first half. With guidance raised, we had guided to 100 million for the year. We've now increased that guidance to 150 million. That is following from 356 million, if my memory serves me right, last year. So 500 million improvement over financial years 23 and 24. Um, that is on the back of operational progress to technology solutions, uh, driven by the resilient recurring revenue growth and increasing cost efficiently cost efficiency. So obviously the cost efficiency is improving at a faster rate than we had, uh, suggested. Um, the three CFCs we have going live in the second half of this year, um, And our build for McKesson in Mark's area is also on track. And Ocado Retail has resumed its mantle as the UK's fastest growing grocer and building back its EBITDA. We're making strategic progress. Our partners' success focus. We're doing work with a lot of our clients. We've put investment into resources. We've put resources in country. Our reimagined technologies are successfully starting their early deployment. I can see a few faces in the room that have seen the robots picking in Luton. Our OIA pipeline, Mark will talk more about, is growing strongly, and as are ongoing discussions with potential future OSP partners. So overall, a strong first half. At this point, I'll hand over to Stephen, who's going to run us through the numbers, and I'll come back and talk after that.

Thank you, Tim. And morning, everybody. So thank you for joining us for today's first half results for Ocado. So it's been an encouraging first half, I think. Revenue grew by 13%, group revenue, up to £1.5 billion. Group adjusted EBITDA trebled from £16 to £71 million. So very good progress there, more than trebled in fact. Underlying cash flow improved by £101 million. Tim just referenced that, already slightly ahead of our guidance on a full year basis. And we're raising that on the full year guidance. And then liquidity remains strong. We've got £747 million of cash in the bank and an undrawn accessible revolving credit facility of £300 million. The growth stream by tech solutions up 22% and Ocado retail up 11%. An improving trend in Ocado retail Q2 versus Q1. Important narrative and we expect that to continue in the second half. We have three resilient operating models. in technology solutions, contracted modules, visibility around module rollout, and a high margin business model, as we'll see shortly with tech solutions. Similarly with Ocado Retail, over a million active customers now. shopping regularly with Ocado, and growing customer numbers at the same time. And then we have Ocado Logistics, which is a cost-pass-through business, relatively modest EBITDA, but reliable, consistent EBITDA, and generator of cash flows for the group. So there's the £101 million underlying cash flow improvement, driven by EBITDA growth, capex reductions, that's unit capex reductions, not just capex itself and less activity, and cost control, as you'll see in the numbers. That's how it all adds up to the profit before tax number. After adjusting items, £154 million. It is less than half that it was this first half last year. So whilst it's a loss, it's an improving trend. We do get asked a lot about this by the media, and we do expect to turn EBT positive sometime within the next four or five years or so. Next slide, technology solutions. I'll start with average live modules. An important number, it's live modules that drive a majority of the revenue in that revenue line. Around 84% of that £240 million first half revenue is ongoing recurring revenue. That's linked to the average number of live modules, that 112 live modules that you see there. We're going to see a chart shortly that shows the improving revenue and contribution per module as well. Those two will be key drivers on our route to cash flow positive. The contribution is affected with the gross margin from that revenue. 71% a healthy and improving trend on gross margin as well, on contribution. We'll see that shortly. The P6 exit rate of the direct operating costs for the revenue of technology solutions is improving quarter versus quarter. Contribution margin. Technology costs and support costs are in line with the previous half, and that's after digesting the investment in partner success of around £7 million in that space to drive the success of our partners. strong growth in EBITDA, now at a 15% EBITDA margin. I'm on the back of the visibility that we have around the second six months and the expected progress we expect to make on cost management. We're raising our guidance today on a full year basis from previously over 10% to mid-teens. Growth in recurring revenue. So this chart on the left here shows that recurring revenue, that 84% of total revenues, and how it has grown from half to half over each of the last three years. Driven by the module numbers that we see there. And we now have 112 live modules at the end of the first half. You can see the UK international split. Then the annualised recurring revenue per module, that's growing as well. It's growing due to the indexation that's part of the contracts that we have with our partners around adjusting the fees for local inflation at the start of each year. It will also grow as we roll out reimagined technologies to our partners. We expect to be announcing the second half of this year orders for reimagined products by our international partners. That will lead to incremental annualised recurring revenue. That will be another reason for that number to grow even further. So watch out for that in the second half. We've got good visibility on the module rollout to fiscal 26 as well. This is another part of the attractions of this business model. We have good visibility around the sites that are going live in the current year, and we expect to go live over the next two years. The right-hand side summarises that. So the second half of this year, we've got Sydney and Melbourne for Coles, and we've got Madrid for El Campo. We expect those to go live in the second half of this year. We also expect some further incremental drawdowns in the lapping of the second half 23 module go-lives to lead to that higher number of at least 120 live modules. by the end of this year. So those two factors there in the top right-hand corner, adding up to in excess of 20 modules on a four-year basis to get us to that, sorry, over 10 modules to get us to that 120 number by the end of the year. Going into the next two years, five CFCs, going live over 25 and 26. Phoenix, Charlotte and Warsaw, most likely in 25. Tokyo and Busan in 26. Cost control in this business remains key, getting our fixed costs down. It's something that Tim reminds me about all the time, particularly in support costs. We're doing pretty well here. First of all, though, let me take you to the variable cost line, direct operating costs. Now, you can see that 1.56% in the far right of that table there on the left-hand side. An improving trend. We expect to improve that even further. What is this cost? It's the local engineering cost to maintain the grid and the bots internationally. And it is also the cloud computing cost as well. That's a rough mix around three quarters, one quarter in terms of the total cost. In fact, it's in the cloud computing cost that we've taken most cost out over the first half. I expect, though, and the visibility that we have of it, due to the reliability of our MHE, that the engineering cost, there's an opportunity there for that to come down considerably. And that's part of the reasons, I think, for the guidance that we're giving around the improving margin in tech solutions. The technology cash costs. This is the total cash that we spend on technology in the half, £145 million, capitalising £98 million of that, expensing the rest through the P&L account. Those costs are broadly stable, but as we've guided previously over the next couple of years, those costs will start to wind down as reimagined technologies get completed and ready for market and rolled out. Support P&L costs, that's the classic finance, human resources, legal, group IT, and so on, those costs. We've had good progress, as you can see, taking those costs down over the last two or three years. More is to come. But at the same time, those numbers accommodate the investments in the partner-facing teams that I just talked about. Kydo Logistics. I won't dwell too much on this business. It has Ocado Retail and Morrisons as its two customers, serving those in the UK, a reliable generator of EBITDA for us, and the cash flows as well. Costs are well controlled here. Fulfillment and delivery costs are up 3%, whereas orders were up 7.8% across those two customers. That's a really healthy dynamic. The role of this company is to bring its unit cost down as a measure of volume. That's what this company does because that means more money and profits for Ocado Retail and Morrisons. So on that note, this is the important chart here. The logistics measure itself against probably all measures. This is the one that looks at very, very closely. Units per hour. How many shopping items is it picking in a labour hour? You can see the trend, 170 through to 221 in the first half of this year. In Luton CFC, which we opened recently, that delivered 250 units per hour in the last couple of weeks and expects to improve from there as well. What a higher units per hour means is lower labour cost. Going back to Tim's earlier comments. The drops per eight-hour shift is slightly lower at 21%. That's largely a consequence of the Hatfield closure and moving those orders to Luton. So a slight increase in the stem times between the warehouse and the spoke for delivery to the customer. Ocado Retail, healthy revenue growth, 11%. Good EBITDA flow-through and an improving revenue trend. Nothing other to highlight in those bullets beyond those comments I've just made. Word on inflation, the average selling price increased by 1.5% in Ocado Retail, in the half. That compares with the 4.4% Nielsen quoted grocery price inflation. So well below the price of inflation. That's this investment in value point to grow the customer numbers, which are happening very nicely, as you can see, growing by 8%. KPIs have improved and stabilised here in the shopping items per basket. See where we were at the COVID peak. Active customers, just reference that, growing nicely. This is a key point. You recall the low EBITDA numbers, or in fact negative territory that Ocado Retail was in, as it was operating with excess surplus capacity, now at 80%. and heading towards 100% usage of capacity. The key point there, though, is that the revenue growth for that business, where we have excess capacity, has a very high EBITDA margin flow-through. It flows through at about 19% or so to EBITDA. Ricardo Group, our cash flow. So in the first half, our cash outflows reduced from £320 million to £138 million. That includes the auto store settlement, but there is a £101 million underlying improvement, as we'll see shortly, in those cash flows driven by EBITDA and CAPEX. A word on our maturities. Three maturities on the horizon. I'm sure I'll be asked about this in the Q&A. We plan to address those maturities December 25, October 26, January 27. We do not expect to, or we're not planning to, allow those to go current. So we'll do our maturities well in advance. We've got a very clear plan. We're confident in delivering that plan. So, underlying cash flow continues to improve. That shows the trajectory of the last few halves. £197 million in the first half of this year. That's an improvement of 101 versus the 298 of the same half of the period before. A word on underlying cash flows, just as a reminder. It is cash flows basically after all capex, EBITDA, all other costs, etc., excluding, though, either the positives or the negatives of adjusting items. In old language, exceptional items. We are improving our guidance from £100 million improvement to £150 million improvement. That's on the back of the EBITDA growth. There is some capex in there as well, some capex reductions. We're using more capital that's existing capital on our balance sheet to fund certain capex projects. You may know that on our balance sheet we do carry a constructions in progress amount. We can draw down on that and deploy that in future go lives. And we're doing that quite successfully. The word here, we're on track to turn cash flow positive during fiscal 26. Tim referenced it, but we have very good visibility now that during the second half of 26... we expect to turn cash flow positive. This next slide takes you through the key building blocks to deliver that outcome. Number one is the growing contribution in technology solutions and the most important driver of that deliverable of turning cash flow positive. growing recurring fees from our clients as live modules increase, and good visibility, as you saw from that earlier chart, around the CFCs that are going live and the modules that we expect to be added to the live modules that we have today. The revenue per module that I talked about, reimagined will drive that, plus the indexation factor, and the lower OSP direct operating costs. That's a continuation of that trend that I showed on that chart a little earlier. robust cost control and efficiencies, keeping costs flat today. The support costs we have reduced, but we've guided previously on this, technology investment costs will reduce as the reimagined products are rolled out naturally. We're guiding to £240 million in fiscal 26. That's the number we've consistently guided at, and we're holding that number. At the same time, Ocado Retail is expected to return to cash flow positive territory in fiscal 26 as it delivers high mid-single EBITDA margins and as we reach that improved CFC utilisation number that I talked about earlier. Logistics will continue to generate cash for us. And finally, we will get some new cash flows from Ricardo Intelligent Automation. Mark's going to talk about that shortly. But just in case you're wondering whether all the sort of heroics is in this bottom right-hand corner, that's far from the case. It's going to be a low tens of millions of pounds type number from that business in fiscal 26. Guidance, kept guidance pretty much where we put it six months ago. Three areas, though, where we're highlighting or improving guidance or raising guidance. Cash flows we've talked about, now £150 million improvement. Technology solutions I've referenced, the mid-team margin from previously greater than 10%, and capital expenditures, £425 million, and previously that was £475 million. That's it from me. I'm now going to hand back to Tim for the strategic and operational review. Over to you, Tim.