Good day. Welcome to the Ocado Q3 analyst call. At this time, I would like to turn the conference over to David Shriver. Please go ahead. Thank you and good morning, everyone. This is David Shriver, Communications Director at Ocado Group. Welcome to the third quarter trading update for Ocado Retail, which as you all know, is a 50/50 joint venture between Ocado Group and M&S. I'm joined today by Tim Steiner, Chief Executive Officer of Ocado Group and Chairman of Ocado Retail, and Niall McBride, the Chief Financial Officer of Ocado Retail. Niall, we'll begin by reviewing the highlights of the quarter and then hand over to Tim, who will sum up. I will then go to questions where Stephen Daintith, Ocado Group CFO, will also be on the call. Niall, over to you. Thanks, David. We are very pleased to report resilient underlying performance throughout the third quarter. Although Q3 headline sales were down 10.8%, this really was a quarter of two halves. A strong first 6 weeks before the fire in Erith on July 16th, and the 7 weeks following, where we were recovering from the effects of the fire. We should also note the total sales for this quarter, despite the Erith disruption, were GBP 142 million, up 38% on Q3 sales in FY2019. Before July 16th, the business was performing in line with expectations as record customer acquisition drove orders per week up 22% during this 6-week period. While the value of the average basket continued to trend toward pre-pandemic levels over the quarter to GBP 124. This net resulted in sales marginally down 1.8% in that period. The performance also reflects a year-on-year comparison against exceptionally strong growth in Q3 2020 of 52%, when ongoing pandemic restrictions drove very strong demand during what are usually softer trading months in the summer as many customers traditionally go on holiday. Our performance in this period clearly showed that many customers who tried online grocery shopping for the first time have liked the experience and are not going back to the old ways. They are becoming savvy about where the best service and value is to be found and are thus migrating to Ocado. After July 16th, however, sales growth declined 19% for the remaining 7 weeks of the quarter. This was for two principal reasons. First, we need to cancel a small number of orders on and around the date of the fire, and second, the loss of sales capacity we would have expected to grow into. Taken together, a net of the offsetting impact of increasing capacity at other CFCs, we estimate that in the period we lost around 300,000 orders or around GBP 35 million of revenue due to the fire. As a result, despite the strong start to the quarter, overall sales growth in the period was down 10.8%. The good news is that the Erith fire is a one-off. We are firmly in growth mode and the capacity is progressively being increased, with work ongoing to get back to the levels we were at before the incident. We expect that the Erith CFC will be back to pre-fire operational capacity by the end of November, and with new capacity at CFC 5 in Andover and CFC 6 in Purfleet also available, we've already processed a number of items similar to our peak last year. Given strong demand, we're delighted to announce also today that additional CFC capacity will open across FY 2022 and FY 2023. A new CFC in Luton will contribute 65,000 orders per week on top of the new CFC in Bicester, which will contribute 30,000 orders per week. As a result of the GBP 35 million of lost sales, we expect Ocado Retail to take a one-off financial hit to EBITDA of GBP 10 million, which will flow through to group results. This impact largely falls within the insurance deductible. In addition to this business disruption, we expect about GBP 10 million of costs associated with stock and fixed asset write-offs. Both these costs and the compensation we expect to receive from our insurers will be treated as exceptional items, so will not affect EBITDA. The resulting net cost to Ocado is therefore currently estimated to be around GBP 10 million, which will impact Group EBITDA in FY2021. I need to highlight that there is a risk of additional headwinds in Q4, mainly related to the rising costs and availability of labor, particularly LGV and delivery drivers. This is an increasingly important issue for the whole sector that may result in a further GBP 5 million impact to full year numbers, which covers additional temporary measures we have taken to hire new staff, including raising some hourly rates and offering sign-on bonuses at specific sites. We'll be working to mitigate these costs as best we can. These two factors will, of course, have an impact on the Ocado Group consensus for FY2021. The bottom line, though, is that the underlying trajectory performance of Ocado Retail is strong and we're excited by the long-term trajectory that the business is on. We expect a bumper Christmas and to deliver strong revenue growth in FY2022. Tim, over to you. Thanks, Niall. We're really pleased with the continued strong performance of Ocado Retail and very confident for the future. Ocado is improving the customer experience even further and continuing to grow in a post-lockdown environment. The last 18 months have shown that not only is Ocado Retail able to constantly set the gold standard for customer service in online grocery, but to do so with attractive and sustainable economics. This is encouraging for our Ocado Solutions partners as what Ocado Retail can do now is what their businesses will be able to do in the future. This last quarter has had its challenges, of course, and I would like to take this opportunity to pay tribute to the efforts of all my colleagues who worked so hard to get Ocado back to business so quickly following the fire in Erith. The success of these efforts demonstrated again the resilience of Ocado and its people, and our ability to learn and get better. I am proud of you all. Operator, back to you for questions. Thank you. We'll take the first question from Nick Coulter from Citi. Please go ahead. Hey, good morning, all. I know you haven't updated on the fire impacts before, but my sense was that 1% of the grid was damaged, and it was back up and running after, broadly, a 1 week. That seems not to be the case, I guess, with the impact still lingering. If you could correct my lack of knowledge, please. I guess I'm intrigued by the additional safety measures that are still in place at Erith. That's the first one, and I have another one on the CFC pipeline. Thank you. Sure, Nick. We were back up and running, as in we proved that we could do the end-to-end business of the site. First, we got a few orders out to show the whole processes, all the systems and networks and everything else were running. At the same time, we were removing damaged stock, we had to rebuild the stock position. We started shipping outbound orders and scaling that back up again. What we learned in this incident is that whilst previous testing had shown that the robots were okay for a type of collision that can occasionally occur, that there was a third party involved, i.e., a third one, as we said at the time, where the two that collided hit somebody else. The way that they managed to do that was a problem. That is a problem only for old bots that we stopped delivering at the beginning of this year. What we are doing at the moment, we've cleaned everything up, but we're just running it at slightly reduced rates whilst we implement some physical changes that will give greater protection to those robots to reduce the possibility of this ever happening again. They're just running at a lower speed with slightly more space around them, which gives us a slightly reduced capacity. We expect by the end of November to have implemented all those and to be back to previous performance levels on all of those bots. This does not affect the new bots that we've been delivering this year and are now rolling out to our client sites. Okay, you're not replacing the bots. You're just correcting or updating the hardware that may have caused them not to stop on their mark, effectively. It's slightly more complicated than that. Yes, we're making some small hardware changes, so in the rare event that they ever didn't behave exactly as intended and collided, that they're not able to penetrate something that you don't want them to penetrate. It's not possible on the new bots. We discovered it was possible on the old bots. We can make two physical changes to them that are quite minor, but they've had to be designed, they've had to be tested, they've then got to be manufactured and rolled out, which is what we will have completed by the end of November. Then they will not be possible to do that anymore, and then they can run back exactly the way that they worked before. Okay, super. Thank you. I've got a question on the CFC pipeline, if I may. How quickly will you ramp Andover and Purfleet? It looks like you've set them up for quite a quick build. Do you anticipate the phases, or are they kind of good to go? On Luton, when do you expect that to go live? I guess as a quick follow-up to that, when should we expect some news on a second Zoom site? At present, it seems like it's easier to find the full-scale sites for CFC than it is for a second Zoom. Thank you. Nick, I'm going to take the scaling Andover and Purfleet questions, and I'm going to give the other ones to Niall because I can only remember one at a time. On the scaling up, so we've already scaled those sites at a record rate. Andover has scaled, I think, something close to twice as fast as we managed to do so in Bristol, which was already quicker faster than anything that had been done before. What that's showing you is that the equipment, once installed on-site, can go to full capacity very quickly. Subject only to the hiring on-site, the hiring and training of the team on-site to be able to actually operate. Okay. The speed with which we can scale Andover or Purfleet now at site is just a function of both going out and attracting demand, also constrained by the ability to hire fast enough and add the relevant team members to the team. Okay. Thank you. Luton. Sorry, Tim, was there a follow-up on that? Luton and the second Zoom. Luton, at the moment, we're expecting Luton somewhere first half of 2023. It is a site that we are going to be constructing, so we're subject to getting all of that right in the supply chain in that instance. That's our expectation at the moment. Work is ongoing to make it happen. Second Zoom, we have a second Zoom, that will be in Canning Town We hope to open that again early in the coming year. We have identified other sites. We're in negotiations on them. As and when we complete negotiations, we'll be announcing as well. Nick, just to put the original one into context. Go ahead, sorry. We took Andover from 0 to over 20,000 orders in the first four weeks, which is in excess of 100% of sales in under four weeks. It's quite extraordinary for an automated service to be out like that. No, granted. No, thank you very much indeed. Operator, if we could have the next question, please. We'll now take the next question from Andrew Gwynn from Exane. Please go ahead. Hi. Yeah, morning. Just going back to the disruption. If I add back the GBP 35 million, I mean, I think your sales are still down quite sharply for the quarter. I appreciate, obviously, maybe GBP 35 million might be in a conservative estimate, but just wondering what else might be going on. Is it just seasonal impact returning to the business? The second question, really just a quick one. I appreciate it's a call about Ocado Retail, but obviously the core part of your business is solutions. Just wondering if there's anything you wanted to flag there. Thank you very much. Let me take the first one. Andrew, yeah, look, the thing to remember here is what we're comparing quarter-over-quarter. Last year in Q3 was an unusual year in that pandemic restrictions were in place. We grew 53%, and we did not have the typical sort of summer softness that we see when customers are often away on holidays. In this year, you've got a return of seasonality there, which we expected that to happen. I think if you look at the first part of the half, pre-Erith, orders were up 22%. I think if you take from that we see the demand in the market, and as we bring on the capacity, there's demand there to serve. There is a return to some of that pre-pandemic behavior, because you can see it in the baskets as well. I think it's as we expected, nothing other than that really going on. Sorry. Sorry, you go ahead. Just because, I mean, if I look at the pre-pandemic period, if I look at Q3, it was down maybe about 5% versus Q2. This figure seems to be down quite a lot more versus Q2. Andrew- Almost there's more seasonality than normal. Andrew, we normally went from a peak volume end of June. By the time you hit mid-August, we were normally down 15%-20% week-on-week sales for the last 18 years. That's fairly normal. We used to estimate that 20% of our customers would be away at any one point in time, representing most of our customers having a two-week break during that six or eight-week period. I think we've just seen more normal behavior like that, obviously combined with the fact that actually, as Niall's saying, it's more customers, it's more orders, because this time last year, the basket size was extremely high. It's still higher than pre-pandemic, but it's significantly smaller than last year. There's a lot more orders going through, but smaller baskets as people are able to go out and eat in restaurants and are vaccinated, feel more comfortable about doing so. Okay, cool. Yeah, sorry, then the solutions. As you said, this is a retail update, but we are pleased. I will be brief. We are pleased with the progress on solutions. We have recently had another contract for a number of sites from our partners in the United States for a number of different formats. Great progress going on. Obviously, we mentioned earlier in the year bringing our 10th customer on board. We are making progress on building sites, launching sites, getting customers to commit to more sites. The progress in the existing live sites is very positive as well. Okay, cool. Thanks so much. We'll now take the next question from Andrew Porteous from HSBC. Yeah. Hi, gents. A few from me. Can you just talk about the sort of the shape of normalization? I know you've sort of flagged average baskets down at sort of GBP 124. Is that a level they've sort of stabilized at, or have they been sort of normalizing through the quarter so that your exit rate's a little bit lower than that? Are we starting to see the peaks come back into the week as well as people sort of go back to more normal life there? Second one, I mean, obviously a bit of press coverage around Zoom wage rates. Could you just talk about the mechanics of what went on there and, I guess, why you're getting that press coverage and what you're doing to resolve it? A last one really, more on the solutions side again. I know you flagged some cost pressures on the retail side. What are you seeing on the solutions side? Are there mechanics in your contracts on solutions to pass cost increases through? I'll take the last one, and I'll let Niall go with the first two, I think, and add comments if I need to. Perfect. Shape of the normalization, Andrew, I think, look, it is in line with our expectations in terms of we are seeing a number of items in the basket and basket sizes trend downward through the period. It's difficult to say exactly where that will normalize to or where exactly that will finish. Our expectation is that we will continue to see a sort of a tailwind from COVID because more people will be at home into the future and probably spending and therefore able to take delivery of groceries on different days of the week where maybe they hadn't done before. We kind of expect to see normalizing shape of the week and normalizing basket. Where it finishes, we're not sure, but it definitely trends down. We're talking about maybe a couple of items in the basket over the period, not a huge amount compared to how far we've gone up. It's also interesting, Niall, isn't it, that while shape's been coming back into the week, it's not been coming back into the week where it was before the pandemic. Correct. Yeah. Before the pandemic, there was more demand in the afternoons and evenings than there was in the morning. Now there's more demand in the morning than there is in the afternoon and evenings, for example. The peak days have changed as well. I think whilst you can see the level of demand, I mean, you could sell any slot in any hour at any time of the week, it's not the same as it was during the middle of the pandemic. You can see that people's lives have changed and the peak periods are slightly different. Do you want to hit off on the Zoom 1? Zoom. Andrew, look, we are aware of the coverage that's out there and the concerns. We do have a recognized union. Let me take a step back. All ocado.com deliveries are made by Ocado employees who receive significantly above the living wage. Overall, 99% of all of our drivers are employed by Ocado Group, and we're actually looking for more full-time drivers, and for those people who want to seek direct employment with us. For Zoom specifically, that's our immediacy service operating in West London. A small proportion of deliveries are made by third-party delivery partners. Obviously, drivers who accept and fulfill orders for those partners receive well above the living wage on a pro rata basis. We do not accept anything that's out there in terms of the statements that have been made in the press. In fact, over the past year, we've already been ramping up our in-house directly employed employees at that site. I guess it'd be fair to say that, for us, it would be unacceptable for any drivers to be paid below the living wage, and we're committed to working pretty closely with our suppliers to ensure that our model delivers great outcomes for everybody involved, including everyone delivering orders for our Zoom customers. The last question was. Just on the solutions side around wage pressures there and the mechanisms to pass them through. Yes, the contracts all have some linkage to inflation in them. Globally at the moment, we're not seeing as much pressure as we are in the U.K. I think the U.K. has got more factors affecting its wage rates than we're seeing in certain other markets. At the moment, any other kind of supply chain type pressures, we are managing them. There's a lot to manage with disruptions in global shipping and electronic components and stuff like that, but we're managing through them quite successfully. Brilliant. Thank you. That's really helpful. We will now take the next question from Xavier Le Mené from Bank of America. Yes, good morning. Thank you for taking my question. Only one, actually. Now that you've got more capacity building up in the U.K., I just want to know what you're doing to hire new customers, if there is any cost associated to that, and how you're working with M&S actually to achieve that. I think nothing very particular to say about it. I mean, we're trying to attract customers as we always have. We have a fantastic proposition. We've got a great range, including the M&S range, and we have a fantastic service, right? All of our service metrics are industry leading. We're going out and trying to win customers who we know have probably tried, a lot of them have tried online for the first time in the pandemic, have liked it, and want to find the best way to do their grocery shopping online. I think it's pretty much what we were doing before, but really ramping it up as we try to attract more and more customers to the proposition. That includes working with M&S to attract the M&S customer who wants to shop online, and we're working very closely with them. They've obviously got a huge customer base, and we're looking at the best way to tap into that. Okay, thank you. The next question comes from Maria-Laura Adurno from Morgan Stanley. Thank you very much for taking my questions. I have two. The first one, perhaps on the back of everything you've discussed about labor costs in general, input costs as well. What are your comments around pricing into year-end and how you see that evolving at Ocado? The second question, coming back to 1 of the questions that was already asked. Usually summer is a seasonally weaker quarter, but can you perhaps just talk about the trends that you've already started to see into September? Thank you. The pricing one, obviously, what we want to do is offer customers the absolute best proposition that we can. We're not seeing a lot on pricing at the moment. Taking the where is the question coming from, the driver shortages are obviously a national issue, you know that. Ocado's a specific one, it's very difficult to say, the extent which that will translate into anything. At the moment, we're not seeing anything. Our aim is to absolutely offer customers the best proposition that we can on Ocado. Sorry, what was the second question, going into September? I think it's what are we seeing. Has the seasonal weakness ended? Yeah. strong demand. Yes. Short version, yeah. As any other normal September, we're starting to see the demand coming through. We're trying to bring on as much capacity as quick as we can to deliver to it. Sorry, the GBP 35 million impact stemming from Erith, does it include the fact that you're just going to be fully ramped up into November, or is it just the impact for the summer? That's in the quarter. Okay. Yeah. Okay. Thank you. As a reminder, to ask a question, please press star one. We'll now move to the next question from Simon Bowler from Numis. Hi. Morning. I've got three. I'll go one by one, if okay. Firstly, did I hear you say that early into Q4, you're back to posting or achieving a similar volume of capacity year on year? Is it therefore fair to assume with ongoing ramping that you'd be hoping to pull Q revenues in line, if not ahead year- on- year? Yeah, you did hear that. We're talking about a similar number of units. Look, I think if we look at we have added the capacity in Purfleet and Andover, and we're going to seek to ramp those up as quick as we can. We're obviously aiming to bring Erith back up to the pre-fire levels before the end of November. We're attracting new customers. That's our objective, growth in Q4. Okay, great. Thank you. Sorry, I think this is my line going right near the start. Did you mention, are any of your partner CFCs run on these old bots? Is there any retrofitting or any safety measures needed across any of your international partner CFCs, or is that a non-issue? Simon, we are doing some retrofitting to some of those bots that are in the original overseas partner CFCs. They're not currently affecting volume in those sites, because we had excess bots ready to deploy there, so we've put those bots just on the grid. We're not expecting any impact at our clients, but we do have a little bit of retrofitting to do to eliminate that risk. All the new sites that we're launching at the moment do not have those bots in them. Okay, great. I think you also kind of dropped into a question earlier, news around signing a new contract with Kroger. I appreciate that again, it's a retail call. Is there any other color you can share on that? Is it fair to assume that is going kind of over and above the 20 sites that initially started the announcement at the start of the deal? Well, it's not so much it's going over the 20. It's that in building up to the 20, we have been announcing specific locations and sites and things like that, and I think we were previously at 11. I think the last time we updated-- Did I say last time we updated, we were 11, we're now at 16. That includes Zoom and different formats, different sizes, to serve multiple missions, take advantage of the ecosystem that we can provide for Kroger to do a range of customer missions in e-commerce. That's in addition to the ones they've already announced, the in-store fulfillment software that we're working on with them as well. It's the continued expansion of our partnership into more geographies. We expect to continue announcing more sites in the future. It's just specific locations, which we're not putting out today. That's for Kroger to do in their own time. Okay, great. Thank you. I'll take the next question from Victoria Petrova from Credit Suisse. Thank you very much. I have just two small follow-ups. First, are you seeing any inflation in your insurance costs, given that this is sort of the second fire in the last 2 years? My second question, there was a press release from Kroger that it collaborates with KNAPP to modernize its Great Lakes Distribution Center. Does it come into any competition with your solution, or are those completely different tasks of modernization and automation Kroger is dealing with? Thank you. On the second part of your question, Victoria, the KNAPP facility is a case pick tray facility. Kroger already had some from another company called Witron. It's just an expansion of their store replenishment systems. It had no conflict whatsoever with the e-commerce projects that we're working with Kroger on. In terms of the insurance costs are moving around all the time based on different things going on in the insurance markets and the different measures. The key is, when you have an incident, is understanding, do you have the right mitigation strategies in place? Which obviously in Erith we did. The fire, as you know, was extinguished very quickly. The damage was limited. That's important. Can you make any further changes, any further learnings to reduce the future risks of it either starting or of it spreading? Which we can, and which we work on together very closely with our insurers. That normally means that there is not a significant change outside of the normal changes going on in the insurance market. Thank you very much. That's very helpful. We'll now take our next question from Fabienne Caron from Kepler. Please go ahead. Yes. Good morning, everyone. Two from me. The first one, given the shortage in building materials and as well on electronic components, are you confident that you can stick to your timetable regarding your CFC abroad, or should we expect some delay? The second question, can you give us some more details regarding the Zoom performance over the quarter? Thank you. Yeah, Fabienne, on your first part, there are delays around the world on different building materials and on electronic components. And we have small impacts sometimes, which we work hard to mitigate to ensure that we can turn on our client facilities on time. We're not yet looking at any delays from those impacts. Sometimes it just means that we have to rejiggle things, or we have to work a little bit harder to catch up a week here or a week there. But from handover to us of our client sites, to us handing them back for use, I don't think we've got any notable delays across the building network. I'll let Niall answer about the Zoom performance in the quarter. Zoom, remember we're talking about the site in Acton. It's one site. The performance is pretty good. That site is more or less operating at capacity. In the quarter, we saw the effect, again, a little bit of the seasonality of the quarter. In line with expectations, more or less the site is at capacity. We're looking forward to getting more capacity on Zoom as quick as we can. Okay. Did you see as well some decline in basket size on Zoom? Not particularly. A little bit, nothing to call out. There weren't any wild movements in it. Okay. Thanks a lot. We'll now take the next question from James Grzinic from Jefferies. Thank you. Yeah, good morning to you. I have two quick ones, really. First one is, where did you see consensus EBITDA before today, before that GBP 15 million adjustment for the full year? In addition to that, you seem to be a lot more hawkish in terms of media spend in the U.K. Can you perhaps give us some context of how much more you're spending from that perspective? I think you were talking about that back at half one, but any thoughts about the exact ramp up would be very helpful. Thank you. Okay. Consensus before we announced this was about GBP 167 for ORL and GBP 74 for group, and that's going to move down, we think, by at least the GBP 10 that we highlighted today. Clearly, there's that risk of that extra GBP 5 million around labor shortages, which will be what it will be, but that's our estimate at this stage as to what that cost might be in respect to the labor shortages. James, I'm not quite sure I've picked up the exact question on media spend. I think you're asking what our view on where media spend is. I think, James, he's also noting that he's seen more media. We've done more above the line media which was a strategy we put in place even 18 months ago or something. Obviously, James, our plan has been as we're coming into adding all the capacity over the summer, we've launched the very visible, hopefully above the line campaign. Again, that's about customer acquisition and reminding customers of where we are and bringing people to the site. It's very much all part of we're bringing on the capacity and we're spending the media money with it to make sure that we then use that capacity. That was, I'd say, in the first part of this quarter, quite successful, and we will continue to do that through the back half of the year and into 2022 to fill up the capacity as we bring it on. Is there any way you could give us an order of magnitude of that step up year on year, please? James, I'm not sure I can go into that detail, what I would just say is, when you're smaller, we still spend money. It's on direct response. You individually might not see what's out there. When you get to a certain scale, the incremental direct response is less effective, and what's more effective is to add a fixed component of more visible media that makes the direct response that you are doing more effective. We've only just as a business really reached that scale in the last 12 months, which is why in the last 12 months you've seen Mel and Niall and their team doing more of that broad media to make the direct response that they are doing more effective. Whilst you spend more on the big media, you save some on the direct response because it's naturally more effective because the awareness is higher. I don't think we're going to get into specific details for the exact amount of spending on media. Understood. Thank you, Tim. As there are no further questions, I would like to hand the call back over to David for any additional or closing remarks. Great. Thank you everyone. That concludes our call. We'll report next on the 9th of December with the Q4 trading update from Ocado Retail. I'm sure we'll be speaking to most of you before then, but for the moment, thank you and have a good day. Thank you. That will conclude this conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.