Good day, and welcome to the Ocado Group Q4 analyst call. Today's conference is being recorded. At this time, I would like to turn the conference over to David Shriver. Please go ahead. Thank you, operator. Good morning, everyone. This is David Shriver, Communications Director at Ocado Group. Welcome to the Q4 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 Stephen Daintith, Chief Financial Officer of Ocado Group, and Niall McBride, the Chief Financial Officer of Ocado Retail, as well as Neill Abrams, Ocado Group General Counsel, who is joining us from New York. I'm gonna hand over to Stephen and Niall shortly to talk about the Q4 results. Because many of you on this call will no doubt be interested in the outcome of the judge's ruling in the ITC process overnight, I'm gonna hand over to Neill to give a few introductory remarks on what has been a decisive win for us. Neill. Thanks, David. As many of you may have seen, the judgment in the ITC trial was delivered last night, and the Chief Administrative Law Judge has found in favor of Ocado. The headline is that Ocado does not infringe any valid AutoStore patents, and AutoStore's requests for an import ban rejected. Held that three of the four AutoStore patents that were asserted against us are invalid, and the fourth patent is not infringed by us. There was a fifth patent and a number of other patent claims that were abandoned by AutoStore the day before the trial after a preliminary ruling by the judge that had made it clear that it was impossible for Ocado to infringe them. We've consistently stated that Ocado does not infringe any valid AutoStore IP. We said that after the claim started last October, we said that in our annual report, we said that in our half year report, we said that in the media, and we're really pleased that the court has also now rejected AutoStore's attempt and to use the ITC process to obstruct the development of our business in the U.S. Separately, I'll add that we're continuing to pursue our own claims against AutoStore patent infringement, both in the USA and in Europe. We anticipate that court determinations awarding Ocado damages for AutoStore's infringement of our patents and injunctions from doing so will flow in due course. With that, over to you, Stephen. Thanks, Neill. Now returning to the Q4 trading statement from Ocado Retail. We have a strong message around growth to give to you today. Bottom line, all the evidence over the course of this year points to the fact that we're seeing growing momentum in the channel shift from physical stores to online. Now, you can see this from the number of consumers we're now serving as we head towards one million customers, a landmark for the business. We're on a strong long-term growth trajectory, and we're backing our firm conviction by investing in new capacity and in marketing to capture that growth in fiscal 2022 and beyond. Now, for details of the quarter, let me hand over to Niall. Thanks, Niall. Thank you, Stephen. In the Q4, customer orders per week were up 9% versus the prior year, driven by a 22% increase in active customers to a new high of 832,000. Growth in orders, while positive, was impacted by the ongoing tight labor market in the U.K. in addition to the previously guided-to reduced capacity at the Erith customer fulfillment center following the fire in July. As expected, this positive trend was offset by continued reduction in the average basket as many customers returned to the office and the high number of calories consumed inside the home fell. The value of the average basket declined by 12%. Netting off these two factors, sales declined overall by just under 4%. It's important to note that we are still up 27% when you compare Q4 2021 with Q4 2019. Operationally, we've performed well in the period. Notwithstanding normalization in the trading week, the performance of Erith has been in line with the expectations we outlined at the Q3. With effect from mid-November, live peak day capacity at the site has returned to pre-fire levels, and our new CFCs are ramping up faster than ever before. We're already at 35,000 orders per week at our new robotic customer fulfillment center in Purfleet, only three months after go live. There were, of course, some well-publicized headwinds, which we highlighted in Q3 and which you've heard about from other companies in the sector, notably supply chain pressures and competition for labor. This affected us both in terms of revenue growth as well as costs. Revenue growth was impacted by a high degree of vacancies at the beginning of the period when we had around 1,200 roles to fill, equivalent to circa 10% of our targeted levels of total staff. We have almost halved this number to around 650 vacancies, thanks to temporary sign-on incentives and increased hourly rates in certain locations. Overall, we expect FY 2021 results to be in line with previous guidance. Looking now ahead to FY 2022. Thanks to the strong underlying growth momentum in the business, we expect top line growth to be at the top end of historic guidance range we have given pre-COVID. The strong underlying trend in trading gives us continued conviction to invest for growth. This means bringing on more capacity to fulfill customer demand, investing in our platform to improve the customer experience. Higher marketing costs so that we can make more customers aware of what Ocado can offer. The investments we are making will have an overall GBP 50 million impact in FY 2022. Around half of that can be attributed to the increase in capacity, including an increase in OSP fees and other fixed site-related costs. The remainder will be allocated broadly evenly across the following. Increased marketing spend with continued investment in the brand to drive record customer growth. One-off costs associated with continued transformation of the non-OSP business platforms and investment in talent to support the future scale of the business, and the impact of reduced operating efficiencies typical in early ramp-up of new sites. These investments will mean that we'll be set up for growth for the years to come, and we are planning for margin to rebuild towards 2021 levels with long-term margins underpinned by technology and the operating leverage. Stephen, back to you. Thanks, Niall. These are indeed exciting times for Ocado Retail. 2021 has clearly shown the strong underlying demand driving Ocado's success. We'll not be deflected by short-term industry-wide cost pressures. Instead, we're going for growth. While this will mean a short-term margin impact in fiscal 2022, we believe we have the best model to deliver for customers, and we look ahead to realizing the huge potential of Ocado Retail with excitement and enthusiasm. Let's now take your questions. Thank you. Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one to ask a question today. We will pause for a brief moment. Our first question today comes from Andrew Gwynn from BNP Paribas. Please go ahead. Hi there. Good morning, all. First question for Niall, if that's possible. Obviously a number of other claims in process, it seems like it could go on quite some time. Do you have a timeline loosely on when we might get sort of final resolution, all of the AutoStore stuff hopefully gone away? The second question, just coming back to the guidance. GBP 50 million, I think consensus is looking for around about GBP 155 million of retail EBITDA next year. It sounds like the message is that should be nearer GBP 100 million. I just wanted to clarify whether or not there's some gearing on the sales, maybe it's GBP 120 million. Any guidance on the absolute EBITDA numbers, sorry, would be very much appreciated. Thank you very much. The first question I think is for Niall actually. For me. Sorry, Neill. Neill, AutoStore. Do you wanna give the answer to that? Apologies, sorry. That's okay. No problem. It's easy to confuse an Irish accent and a South African accent. AutoStore, Neill, how long have you. Carry on, Neill. It's very difficult to predict when this will end, 'cause it depends on whether there are things like appeals. There are some firm milestones in the timeline. We were in court last week, Friday in Germany, and there are three more court cases in Germany, which will take place in January and February next year. We'll have judgments on those in sort of March time, maybe March, April. We have a trial in London starting in mid-March for four weeks. I'm not sure how long the judgment will take to come out after that, but you know, two months is a reasonable guess. We have cases pending in New Hampshire and Eastern District of Virginia. The New Hampshire cases are independent of everything else because that's us suing AutoStore for infringing our patents, and that's running on a timeline where it'll be in court towards the end of 2023. The Eastern District of Virginia cases are all stayed until the ITC process is completed, and if that gets appealed all the way to the federal court, then East Virginia won't start until probably Q3 of 2023. You know, it's unclear how long that would take to run in Eastern District of Virginia. I think that's probably the best information I can give you at the moment. Thanks, Neill. Very much appreciated. Thank you, Neill. Andrew, on the second one, yes, I think, based on our current view, that's, we're getting to around 100 for FY 2022. Okay, that's very clear. Thank you very much, and have a good Christmas. Thank you. Thank you. Thank you. We're now moving on to our next question from Victoria Petrova from Credit Suisse. Please go ahead. Thank you very much for taking my questions. The first is also on the AutoStore. Do I understand correctly that the AutoStore litigation in the U.S. has nothing to do with your performance, given that you are partnering with Kroger, which is your exclusive partner already? Or is there any additional upside coming from you winning? That's just important to understand. Similarly, with the processes in other country, is there any upside to OSP from you winning, assuming you win everywhere, in your OSP operations, apart from clearly a reputational one? Thank you very much. The second question, could you please run us through Erith capacity through 2021 and expected in 2022? Has Erith fire had an impact on your Q4 performance? Because obviously order frequencies remains pretty strong in the Q4 with a lower average order value. Was there still a disruption in the Q4 coming from Erith? If so, could you quantify it in the number of orders per week? Thank you. Thank you. Neill, do you wanna have a stab at that AutoStore question around any practical implications for the U.S. market and indeed other markets with the outcome that was announced last night? Sure. I think the first thing I'd say is that the countries are generally independent of each other. Although there are similar inventions that are being litigated in multiple countries, the patents are all limited to their particular jurisdiction, and they're interpreted in accordance with their own national law, so there's not that much read across. Within the U.S., I think you asked, is there any upside for Ocado if we win all of the claims that are pending, and the answer is yes, there's significant upside in the sense that, we're suing AutoStore in Eastern District of Virginia for having fraudulently procured patents from the U.S. Patent Office. That's a claim that would be heard by a jury and decided by a jury rather than by a single administrative law judge. If we win that, we're automatically entitled to three times our damages, including three times our legal fees in all of the forums where we've had AutoStore claims asserted against us. That's one instance. The second is in New Hampshire. We're seeing AutoStore infringing four of our patents. If we win that, AutoStore is prevented from using the Black Line robot and from using the router route planning system that they use with both Black Line and Red Line. It also prevents it from using the tote-on-tote functionality where partially completed orders can be returned to the grid. Without those functionalities, AutoStore will not have the capability to be a participant in the grocery e-commerce market. Thank you, Neill. Now over to Niall for the questions on capacity and the impact of the Erith fire on Q4. I mean, overall, I think, Victoria, the Erith fire impact in Q4 is relatively limited. If we take it back to what happened, obviously, in the short number of days after the fire, the site was closed. The teams worked incredibly hard to clear out the grid to get everything back up and running. Within a, you know, I think it was four or five days, we were already shipping orders back out of Erith, and then we were turning the site back on. Obviously, you don't turn them on overnight. It takes a short amount of time to do, and then we geared back up. I think, the capacity is fully reinstated now, in terms of the live capacity of the site. The bigger impact really through the quarter across the entire network was from the constraints on labor. Thank you. In terms of thousand orders per week, what is it in Q1, what is it now, and what is expected in next year? Just as a cross-check, if you don't mind. I'm talking about Erith. Yeah, I think you can see the sort of the constraint that we've had in the back half of the year. I don't think we're going to get into site-by-site order numbers, but obviously we'll be pushing the site as hard as we can in Q1. Thank you very much. Thank you. We're now moving on to a question from Sreedhar Mahamkali from UBS. Please go ahead. Hi. Good morning, all. Thank you for taking my questions. Three quick questions from me, a couple of them to Neill, I guess, and then one back on Ocado Group. First one, in terms of the three AutoStore patents that were invalidated, was it the lack of candor? And if you can just quickly walk us through the thinking process here, clearly as AutoStore is planning to do so. Secondly, any insight at all from the German court session on Friday? Was there any strong wording hints coming from there? And the last one is, I realize this is ORL trading update, but is there any hints with respect to other segments of Ocado Group as we think about FY 2022, please? Thank you. Okay. Neill, do you want to cover the two AutoStore questions at the start there? I'll cover the overall group topic that came up at the end. Okay. The first question is to do with the three AutoStore that were found not to be valid. That wasn't for reasons related to lack of candor. That was for reasons that the AutoStore claims made in the patents related to things that they hadn't invented. The patent's got two components to it. The first part is the description, where you describe in sufficient detail to the world what your invention is. Then secondly, you set out the claims to which you want a 20-year monopoly. AutoStore's claims were for things that were not included in the description of their patent. You know, sort of 101 of patent law is that you can't claim an entitlement to something you didn't invent. That's why all three of those patents were held to be invalid. Sorry, I can't remember what your second question was. Just in terms of appeal process here, AutoStore, clearly they've already said they're planning to appeal, and they've got obviously 30 days to do so. Yeah. I'm just wondering what happens after they appeal? How long sort of does it take? So- for it to be reviewed by ITC? Yeah. They get to appeal to the commission to disregard some of the judge's findings. We don't know exactly what to appeal against, but I think I could probably guess. You know, we might appeal against some of the other aspects of the findings as well. That will go to the legal division of the commission, and they'll deal with that over the next few months and make a final decision in April. There won't be another hearing in terms of an oral hearing, but there will be written briefs exchanged. When that's done, mid-April, if the commission decides to impose a control order, which is obviously contrary to what the judge has said, then there's a two-month period for the president to review that. Finally after that, there is an appeal to federal court, if either party wants to appeal to federal court, and that can take another 16 months. We think that it is highly unlikely that the commission is going to overturn the judge's decision. Obviously, what has been made public is just a one-pager, but behind that one-pager is a 167-page fully reasoned judgment, which is not currently public. Although I have not seen it personally, because it is only limited to the attorneys on both sides, we know from discussions we have had with them that the judgment spends the majority of its substantive part reasoning the validity or the invalidity of the AutoStore patents, in a very, very cogently reasoned way. The remaining points are no longer necessary because once the patents are invalid, it's not necessary for the judge to make significant findings on things like the fraud points or the candor points, and those are dealt with very briefly. We think that the commission overturning someone with the sort of pedigree of the Chief Administrative Law Judge on a point like this is very unlikely. Thank you, Neill. That was very helpful. Thank you for the question on the group. This is an Ocado Retail trading update, so I'm not gonna say anything about our other business segments, but I can confirm this morning that Ocado Group remains in line with guidance, and I'll just leave it at that. Thank you. Sorry, can I just come back on the last question I had there? Was German court hearing on Friday, was there anything there that we should be aware of, any hints from that session? Thank you. The German court hearing on Friday, the judge called for more written briefs to be provided and gave a date of the 28th of January. Then based on that, the court will make a decision and hand down judgment on the 4th of February. That's obviously separate from the other three cases in Germany, two of which are gonna be held on the 27th of January, and the other one is gonna be held, I think, on the 1st of February. Thank you. Those are all separate cases, separate courts, in front of separate judges. Thank you, Neill. Thank you. Thank you. We now take our next question, which comes from Nick Coulter of Citi. Please go ahead. Hi. Good morning, and congratulations. Firstly, how quickly should we expect a margin rebuild? I guess another way of asking the question is, you know, which costs are specific to FY 2022 and then kind of therefore fall away in the outer years? That'll be the first one. Thank you. Nick, thanks for the question. I think that this comes back to the leverage that we will get in the sites, right? We are building capacity at the moment, and we're building up the capacity through the course of the year. There, if you look at that sort of the OSP element of that, as we fill those sites up, that fixed leverage will be utilized. Then, you know, also the operating efficiencies in the site will get higher as well. Roughly half of that will, you know, get utilized as we go through the year. And the rest of it in terms of the marketing spend and transformation again, so a lot of that is specific to FY 2022. Is there a chunk for Zoom in there as well as you build out that portfolio? No. There's an element of Zoom, but it's a smaller, much smaller proportion. Okay, great. Thanks, Niall. Quick one for Neill, joining from far away. Do we know if AutoStore managed to get the 2012 priority date for the cavity patents? Have you had that feedback from counsel? Thank you. Sorry, Nick, it's not something I'm able to tell you about. Great. Okay. Um. No worries. Sorry, that isn't in the public part of the decision. Okay, great. Um. I'm sure it will come out in the public in due course. I guess just a broader one. What are your latest thoughts on dumbing down or using lower specification robots to fulfill non-food? I guess AutoStore's market cap suggests there's a fair amount of value in that direction. It's obviously something you've not focused on thus far, but all of this patent activity Clearly suggests that there's an overlap and an application for you to potentially pursue. Thank you. I'll give you two quick thoughts on that and then ask Stephen to add the thoughts of his. I'd say from my side, the sort of historical store product, the Red Line of the kind that we bought in 2012, is not protected by any patents. It's open to anyone to recreate that. Obviously when we look at what the capabilities are of OSP and how broad a spectrum of retail we want to be able to service, we are very open-minded about moving from grocery into non-grocery. I certainly want to ensure that we have the technology that's able to do that. Super. Thank you. Thanks, Neill. No, I think you've answered the question. It's, you know, our focus is very much there's a big grocery market for us to go for around the world. You know, that's our core focus. We remain open-minded about on the opportunity to enter non-grocery, and we clearly have the technology that can do that as well, whether it be sort of legacy technology or new technology and future technology. It's an avenue that remains open to us, but the core focus is grocery. That's super helpful. Thank you. Thank you. We now move on to our next question, which comes from Xavier Le Mené from North America Securities. Please go ahead. Yes, thank you. Just one question actually for me. You mentioned the loyalty of customers and the fact you were hiring, you know, or have loyal customers on 832,000. What is the opportunity, you know, to work with M&S, you know, going forward? You're going to invest in the marketing, but where can you get this number and how much does it cost to acquire new customers? And lastly, you know, what help do you get from M&S on that side? Thanks, Xavier. Look, I think overall we are about 2% of the grocery market in the U.K. You know, when we think about acquiring customers, you know, we've got the strongest NPS. We've got the widest range for customers, including the fantastic M&S range. We've got the best fulfillment statistics. We've got the most popular drivers. And you know, we're offering the customers fair value for money. So we see a very, very large opportunity to increase the number of active customers. You know, at 832 now, we would have loved that number to be higher, and coming out of the year, you know, we're gonna push pretty hard in FY 2021. With M&S, I think it's a fantastic opportunity for us to work together. We are doing that. We're looking at, you know, how we can jointly market on things and what products we can bring forward as well for customers that can, you know, be specific to ORL, but also for good products for both of us. I think the combination remains compelling. Yeah, we look forward to doing more in 2022. Just a quick follow-up question. Just on the margin guidance you've given and you're talking about recovering to 2021 levels. What number do you have in mind when you're talking about the 2021 level? I mean, I think, you know, we were operating in the H1 at around 6% in terms of the EBITDA margin, and as we go through FY 2022, that leverage will come back through the system as we sort of grow into it. Okay. 6% is the number? Yeah, I mean, it, you know, that's it. That's what we're aiming to get back to. Okay. Thank you very much. Thank you. Rob Joyce from Goldman Sachs has our next question. Please go ahead. Hey, thanks very much for taking the questions. Two from me. First one to Neill. You mentioned in passing that there might be some appeals of your own. What is it within this ruling that in that regard all seems to have fairly much gone in your favor as far as we can see. The second one is just on the guidance for next year in terms of EBITDA. Am I right in reading it though that since quite a bit of that EBITDA is related to OSP fees that retail will pay up to the group, the impact at group should be less than the GBP 50 million headline ORL EBITDA investments? Thank you very much. Yeah, I'll do the second question. It's Stephen here. Yeah, no, you're quite right. The portion of, we say around half of the GBP 50 million is due to OSP fees, but also the fixed costs related to the new sites that are coming on board in line with Niall's earlier comments. But those OSP fees are very much group fees to our UK Solutions business segment and therefore are neutral to the group. The only portion that is the drag in fiscal 2022 is the fixed costs on the new sites. Thank you. Rob, the question on your situation is what might Ocado appeal against to the full commission? I think the answer to that is there are a number of findings that we are considering appealing against, including the finding that the patents are not unenforceable because of inequitable conduct or equitable estoppel. Effectively, this relates to the fourth point that was mentioned earlier, that material information was deliberately withheld from the U.S. Patent Office. Yes, the finding here is, because there's no doubt that the information was withheld, how material that information was. It was information that was patents in Europe and in Norway when those same patents came before the patent office there. I think that's the main candidate for an appeal by. Very clear. Thank you. Thank you. Thanks, Rob. As a quick reminder, to ask a question today, please signal by pressing star one on your telephone keypad. We will pause for a brief moment. As there appears to be no further questions at this time, I'd like to hand the call back over to David Shriver for any additional or closing remarks. Thank you, everyone. That concludes our call. We're next reporting on the 8th of February with Ocado Group's FY 2021 results. I'm sure we'll be speaking to most of you before then, but for the moment, thank you very much and have a good day. Thank you. This concludes today's call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.