Good day, and welcome to Ocado Group Analyst Call. I will now hand you over to David Shriver, Director of Communications. Please go ahead. Thank you, Marion. Good morning, everyone. This is David Shriver, Communications Director at Ocado Group. Welcome to the first 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, the Chief Executive Officer of Ocado Group and Chairman of Ocado Retail, and Niall McBride, the Chief Financial Officer of Ocado Retail. Tim will review the results, and then we'll go to questions. Tim, over to you. Thanks, David. Although we are here to report results today, at the top of our mind are the horrific consequences of the war in Ukraine for the people of that country, their friends and family, and our colleagues directly or indirectly impacted by the Russian invasion. We are dismayed and deeply upset at the human tragedy unfolding in Ukraine and the refugee crisis along its borders. We are doing what we can to support those affected, including a GBP 150,000 donation to the DEC Ukraine Humanitarian Appeal to help provide food, first aid, shelter, medicine, clothes, and other aids to those most in need. Quarter one is the last quarter where we are comparing a lockdown quarter last year with a post-lockdown quarter this year. The really good news today is that Ocado Retail continues to win new customers and has done so against the challenging backdrop of a year-on-year 4% decline in U.K. grocery market sales. We have grown our active customer base by 31% year-on-year to 835,000 active customers, and the number of customer transactions increased 11.6% in the quarter, reflecting this strong customer acquisition. Offsetting this, of course, is the continued normalization of the value of the average basket, which is significantly lower than it was in the first quarter last year and is now approaching pre-COVID levels as we return to the office more frequently and go about our normal lives. Netting out this increase in customer transactions with the decline in the value of the average basket meant that overall revenue was down 5.7% in the quarter against that tough comparative, although still up 31.7% versus Q1 2020, the last quarter before COVID. It is this growth in new customers which gives us confidence to invest in additional capacity to grow the business. To give you some details here, the Bicester Customer Fulfillment Center will be opened this year, adding 30,000 orders per week at maximum capacity. New sites opened in financial year 2021 continue to ramp up, with Purfleet and Andover now operating at over 40,000 and 25,000 orders per week respectively, around half their end game capacities in little more than six months. A new Zoom facility in Canning Town will be open in the spring with more sites over the next 12 months, expanding our unique Zoom proposition with a dramatically more expensive range and higher average baskets versus Q-Commerce competitors to more locations. Near term, it is clear that there are a significantly greater number of uncertainties for the business to deal with, including rising food price inflation, rising energy costs, and the overall level of market demand as the cost of living increases. As a result, this may mean that while revenue growth should exit the year in the high teens, the full year growth may be closer to 10%. Looking ahead, however, we remain very confident about the future and excited about the growth opportunities ahead of us. Operator, back to you for questions. Thank you. If you'd like to ask a question, please press star one on your telephone keypad. Please ensure the mute function on your phone is switched off to allow your signal to reach our equipment. If you find your question has already been answered, you may remove yourself from the queue by pressing star two. Again, please press star one to ask a question. We will take the first question from Andrew Gwynn from BNP Paribas. Yeah. Good morning, team. Morning, Tim. Quick two questions, actually. Firstly, retail sales growth during the lockdowns and so forth, I think you said was essentially held back by capacity. As we've come out the other side, there's less of a flattening in the wake, some more sort of peaks and troughs. Is that impacting trading, or is it really just, I suppose a drag, and particularly on the basket? Which leads on to the second question. Where are we in terms of volume in that basket? Obviously we've had a bit of food inflation between or during COVID, but particularly of late. Where are we in terms of that sort of basket normalization? I'm thinking there specifically around the volume side. Thank you very much. Thanks, Andrew. Let me just tackle the capacity point so we all understand. As we roll out new facilities and as they start to scale up, our peak day capacity goes up. Now, what was happening in the lockdown periods was that we were able to operate at peak day capacity seven days a week. We also, our customers were not traveling, and so every week they were able to operate at full levels. Whereas pre-pandemic, we had a shape of week where we had a biggest day on Friday and Saturday morning, with the biggest shifts of the week. We would have a seasonal pattern when it was half-term, we would lose some volume. When it was the summer holidays, we would lose some volume, for example. What we have seen latterly in the quarter is a return to that behavior, which obviously means that what was producing a lot of capacity last year produces less capacity, but we have obviously added new facilities and continue to add new facilities so that we can go back to record volumes with Shape compared to previously the records being made without Shape. In terms of basket size itself, remember that Q1 is the bigger basket size quarter because it contains the Christmas week, which has larger baskets in it. Excluding that, basket size is probably only 1% or 2% or 3% bigger than it was going into COVID, somewhere around that kind of level. You know, i.e., 1%-5% bigger than it was going into COVID. It's come back down very quickly. I think it's probably lower than would be implied by the amount of people that are still working from home a number of days a week, and that probably reflects some euphoria that's going on in terms of, wow, we're all allowed out, and in theory, we're safe, so let's all zoom out to every restaurant that we can. I think we've got a balancing item where the work from home, which we expect to continue, ought to result in a larger basket size than historical, but it's being outweighed by the amount of entertainment people are doing. The last factor is, of course, we're adding a lot of new customers, which we want to continue adding new customers and expect to, and new customers always come in and their earliest orders are always smaller than our average basket sizes, and then they grow over the first kind of 5-10 orders. Forgot the next part of the question. I think you did was- No, no, that's. You pretty much answered it. I'll leave somebody else to ask a profit question. Just coming back to the profits, are you now hitting sort of capacity constraints, say, on a Friday evening? Are there sort of capacity constraints back, but in a slightly different way? Yeah, I mean, yes, and that's how we normally run the business. Look, we also have had, as we've been very clear, I think last time, there were significant labor constraints. Starting after the original kind of relaxation of rules in April, but accelerating in the summer period, June, July, there was a significant labor shortage or challenges in the economy. They hit us hard because we had grown significantly in 2020, and therefore, we had a lot of people who it turns out were on furlough and returned to their previous employers. I think we stated at year-end that we had seen a peak of about 8.5% labor shortage, which obviously cost us sales. By year-end, I think that was down to between 3% and 4%. We said it would end by the end of Q1, and it ended somewhere in February, where we're now able to hire as many people as we're selling orders. Now we can run the business like we have historically, where every week we net hire a few more heads, we acquire a few more customers, and we do a bit more business. We're kind of getting back to a more normal kind of behavior, but obviously still with uncertainties around the war and consumer demand and inflation and stuff like that. Okay, great. Thanks, Tim. I'll hand the floor over. Thank you. The next question comes from William Woods from Bernstein. Morning, Tim. Just a question on in terms of the customer acquisition, it obviously outstripped order growth. We suggest that your kind of frequency's coming down. How much of that is driven by your customers kind of shopping more frequently in store versus the acquisition of new customers who are maybe buying on a voucher and then not coming back? Do you think that's a concern? I suppose linked to that within the quarter, could you just give some context on how well Christmas performed relative to the first two months of 2022? Thank you. Sure, William. Hi. Let me try and tackle both of these. When you have a kind of constant growth rate of new customers and orders, etc., you would expect to see all other things being equal at a kind of constant frequency if you took the number of orders or the number of active customers divided by the number of orders. When you go through a period like COVID lockdown, where your existing customers are trying to buy more than every piece of capacity you can create, you stop acquiring new customers. Your active customers are all existing active customers, and you look at their frequency and it looks higher than the average used to be. Because as you know, when you acquire new customers, some of them only do one shop, some of them only do two shops, some of them do three shops. It's only when you get them to between three and five shops that they effectively become like long-term loyal customers. It's not often that you do it, but whenever you kind of go from a period of not acquiring customers and then you turn on customer acquisition, you will see the active pool grow faster than the number of orders. It's exactly what you would expect. Because the active pool, the way that we measure it, is the 12-week rolling. It's any customer who shopped in the last 12 weeks. If you think about it last year, it was a group of customers that were all shopping actively, whereas this year it's that group of customers, plus 31% new customers, a significant number of whom have just joined us in that 12-week period. They may have only joined us at the end of that 12-week period. At best, you know, they've done one shop. Some of them might have done two, and some of them might have done three. But the active customers that we brought into that quarter will on average be shopping about every two weeks. Got you. The next question comes. Oh, Christmas you asked about. Sorry, operator, one second. Christmas is also every year. Christmas is very complicated. It's lucky that I'm not just the chair of this business, but used to run it so I can answer some of these questions. Christmas is really a peak kind of 5.5 days into Christmas. When you plan it each time, because it looks different to a normal shopping week, you're constrained by, say, the chill physical pick capacity of the machinery one day, and then another day you're constrained by the vans, and another day you're constrained by the ambient. It's very detailed planning. Now, because in a Christmas week, we always trade it flat. We do effectively. Christmas week is what we did for Corona, but we did it for Corona for almost 18 months or two years or something. Christmas week, because it's flat, it was the Christmas that had the highest capacity. Despite the fact that we were constrained in labor, during Christmas week you're able to ask people to run an extra shift for you. Christmas was at a record level. It's just that when you then compare the, you know, the following weeks with a shape to it, compared to last year, the following weeks with no shape to it, the following weeks are harder to achieve, but Christmas week was at a record level. Perfect. Thank you. We will now take the next question from Victoria Petrova from Credit Suisse. Thank you very much, Tim. I have a clarification question. Back to volumes. Why are the volumes down from the fourth quarter, where they were at 375,000 orders per week, and now it's 367? It's already post-COVID, and I was assuming that probably in Christmas season you have some maybe additional frequency around that. Could you please clarify? Maybe there were any capacity issues we should just keep in mind. Secondly, when you were talking about sort of 1%-5% higher average basket size versus pre-COVID levels, is it before or after inflation-driven price increases? Thank you. Sorry, just ask me the second part again, because I was just looking at the first part. I'm very sorry. This 1%-5% average basket growth in value versus pre-COVID levels, is it pre-price increases or post-price increases driven by inflation of 4%, which you mentioned in your press release? Okay, the second one, in terms of where do I think the basket size is averaging out at the moment versus pre-COVID, that's a pre-price increase. That's just based on items. We're about one to one and a bit items larger than we were going into COVID for this at the same kind of seasonal time of the year. Your other question, I just need to look at some data to try and help answer your other question for you. The basket size, I believe is larger in Q1 than it is in Q4 because Q1, as I said, is a higher seasonal basket size. I'd have to get into the details so I can come back to you on the eaches volume. Also I think the other thing to understand is that as we've been being freed up more and more, you know, from April when we started to become free till I can't remember exactly when we were allowed to do everything we wanted to do, but the consumer behavior has been continuing to go back to that pre-COVID kind of behavior, so that the peaks and troughs are more pronounced now than they were during part of Q4 last year. We can come back to you with an answer on what's happened in each's volume Q on Q. I don't have it sitting in front of me right this second. Okay. Okay. Operator, can we go to the next question, please? Thank you. We'll now move to the next question from Rob Joyce from Goldman Sachs. Hi, good morning. Thanks for taking my questions. A couple of more macro ones and then one specific to you guys. I mean, just general tone of the release, I guess you talk about uncertainty a few times. Is there anything you're seeing actually from your own customer behavior that, you know, you're seeing them currently trading down, you're seeing any sort of items, you know, falling out the basket or those type of things. Firstly, is there anything you're seeing in your customer behavior that is seeing customers trading down or acting weaker than they have been previously? Second one, just a quick one. I wonder if you could specify what your own basket inflation was, in the quarter and whether you're passing through the inflation you need to hold the sort of gross profit or the gross margin side of things? The final one, on the cost measures you mentioned in the release, are you able to give any more specifics on the size of those cost measures and the specifics of those cost measures, please? Thank you. Sure. Rob, let me just tackle the kind of inflation question. What I always say here, and I'll repeat, is if anyone wants guidance on food price inflation, they're much better off to go to one of the Big Four than to come to us. We, you know, the way that we trade this business is very much as the price follower, ensuring that we offer the best value to customers by kind of matching prices, being very much in line with our larger competitors, but then offering the biggest ranges, the most outstanding service, the best selection, the best execution, et cetera. In terms of are we seeing any behavioral change? What I would say is that the inflation that we've seen on items is lower than anything I've read about in the newspapers. The pass-through in terms of our average selling price is probably marginally, very marginally lower than the inflation that we've seen. You can see a very small amount of you know, basket mix. I would just remind everybody that in trading down, there's many ways to trade down. There's the kind of, I used to shop at Tesco, so now I go to Aldi, that's trading down. There's the, you know, I shop at Ocado, and I used to eat fillet steak once a week, and now I swap it for a hamburger, that's trading down. Of course, you've got to remember that the grocery industry is the beneficiary of, I ordered a takeaway from Deliveroo, or I went out to eat in a restaurant, and now I'm gonna have another meal at home because that's also trading down. You may actually enjoy better food, but in terms of budget, you know, in terms of your budget, it's trading down to make your own food. You know, as a very developed and you know, wealthy country, there's a lot of trading down that happens into supermarkets when customers are put under budgetary constraints. Lastly, Rob, on cost measures, I guess, look, here I don't want to get into too specific. Obviously, we use electricity and we use fuel. We have historically felt that we had a slightly smaller, but it's very hard to prove with the data, so we tended not to make these statements publicly. We believe that we have a smaller CO2 footprint than our bricks-and-mortar competitors operating their entire U.K. businesses. That obviously means our model would be using a lot less CO2 because we're delivering it into our customer's kitchens rather than our customers having to drive to the supermarket to go and get it. Now, if we're anywhere close to right, and we are using a similar amount, then it suggests to me that we use significantly less electricity because I'm confident that we use more diesel. When I look at what's happening in the market right now, while the price of diesel is up, the amount that diesel is up relative to electricity is very small. I think that we're not seeing any pressure that our competitors are not seeing. Obviously, you know, some retailers might have got longer-term hedges on, so they're not yet paying kind of spot prices in the market or anything like that. They might have a, you know, good hedge on. Overall, the industry uses energy. We use energy. Our biggest use of the electricity is actually the fridge plants. It's not the automation, it's actually the fridges. Then it's the diesel. You know, the problem with trying to forecast what it means for the rest of the year is, of course, the extreme volatility that's going on at the moment, where you know, in the last week, I think, you know, Brent Crude, the price of a barrel of oil, it's traded up to over $120, and I think this morning it's back down under $100. It's very difficult for us to forecast what that means going forward. The same thing is true of electricity, which you know, fluctuates enormously with the price of natural gas that has been up 500%. I'm just not sure where it's going for the rest of the year. Okay. Tim, maybe just to clarify that final point, I guess. Do you expect that the cost measures you mentioned in the release will be enough to offset any potential EBITDA sort of low downgrades from the lower revenue expectations? Or do you expect the consensus EBITDA to move? At a group level, we don't expect it to move. As I say to you, there's uncertainty out there, so it could be better and it could be worse. It's very hard to predict, and I think I'm the first person, in this sector anyway, reporting after the invasion. Of course, that has just added to what was already, you know, a COVID unwind kind of fluctuations in energy prices. It's got harder to predict since the Russian invasion of Ukraine. We do expect that we can generate savings at group that will offset any loss of EBITDA in retail. Thank you. The next question comes from Maria-Laura Adurno from Morgan Stanley. Thank you for taking my question. Actually, just one very quick question on Russia, Ukraine. Is this impacting or disrupting in any type of way your supply chain on certain products? Are you seeing some delays on the back of potential commodities disruptions coming from the backdrop of this conflict? Maria, we don't sell any Russian SKUs today, and I think we only had one out of 50,000 before. That was pretty quick to be able to remove that. We are not yet seeing any disruption from our suppliers as a result of any supply chain disruptions coming out of Russia or the Ukraine. I'm not expecting any imminently, but obviously we have to wait and see. Thank you. As a reminder, to ask a question, please press star one. We'll now take the next question from Nick Coulter from Citi. Hi, good morning. A couple, two or three probably. Actually could you unpack the move from strong mid-teen sales growth guidance at the prelims to closer to 10%, today? I guess there are a number of moving parts. Inflation is probably a tailwind. I guess restaurant euphoria, as you phrase it, is probably a headwind. It'd be helpful to understand the steps down. Thank you. You're the first one. Nick, I think just if we reflect on the quarter and then the exit rate of this quarter going into next quarter, and then we look at very strong growth towards the back end of the year, we consider the quarter-on-quarter comps that we have. Obviously in the third quarter last year, we had the issue with Erith. In the fourth quarter and the third and fourth quarter, we had significant issues with labor availability. We're expecting to see very strong quarter-on-quarter, you know, year-on-year growth for those two quarters. We know that the first two quarters are harder. The COVID unwind has probably come faster than we were expecting before, and the impact of the shape of week and what that does to capacity in terms of the capacity that customers want to buy, as opposed to all the capacity that you have. Therefore, we just think that is a more sensible place to guide to. You know, we don't really know. You know, if inflation goes high, then obviously we'd expect to guide to higher growth, but we're not banking on on kind of getting the growth via price rises. We're really talking about what we expect to do with the inflation we've already seen. Okay. It's basically the COVID unwind that has changed from the prelims. I think the shape of the week has come back more fiercely and the overall market, you know, the overall market for the quarter was down 4% in the grocery market. The overall online market was down closer to 20%. We dramatically outperformed the overall online market, which is what we would have expected to do, and grew our market share. I think that has left everybody or a number of people being extremely competitive with extremely high marketing spends out there that are dwarfing ours. It just makes it a competitive environment for Niall, Mel, and the team to be acquiring customers, which as you can see, they did a great job doing. It's you know an aggressive market at the moment. Okay, no, that's helpful. Thank you. You may or may not have the stats in front of you for this one, but in terms of a normal pre-COVID basket with respect to each year and applying a normal shape of the week, what was the hypothetical capacity increase in the quarter between, remove all of the noise? Let me come back to you with that because there's two ways of looking at it. There's the kind of hypothetical. The challenge is when you turn on something like Andover that, say, is adding, say, 60,000 orders a week of capacity, in what time frame do you want me to add it in that? You know, do I add it over 12 months? Do I add it over six months? Do I add it over 18 months? Where do we add it? You know, what we've seen is without wanting to kind of release competitive information that our competitors would like to have, some of our original sites or the ones where we've had the biggest labor issues, which we talked about from the kind of summer last year, kind of alleviating by around February. You know, some of those sites are still harder to achieve their previous highs in 'cause you haven't yet got back to the amount of labor that they had in them. Meanwhile, the new sites, we're finding it easier to recruit the labor in, and that's helping us. What do you want to know? The labor, the amount we could have done given the labor that we had employed, the amount that we could have done if we assume those sites came on and traded up in a certain, you know, at a certain trajectory? The answer is that we will end the year with enough fixed capacity in terms of infrastructure to do what we're saying in terms of, you know, high teens or more, volume growth. We at the moment, based on the hiring that we are seeing, we've seen the market really kind of stabilize, I guess, is the right word to use. 'Cause in the back end of last year, people were having to pay incentives for people joining and incentives for people attending and extra incentives for overtime. You know, there was a lot of extra money going everywhere in our market. You know, all our competitors were doing the same things to get people to work. Now, you know, there has been wage inflation, but it's much calmer than it was in the back six months of last year. Okay, so in a sense, it's the labor that is your primary constraint or labor availability is your primary constraint that the FP&A guys are scratching their heads on through the rest of the year, I guess, is what you're trying to say. Nick, I think what I would say is that the labor constraints was the issue for the last, kind of from June till about February. Labor was the biggest challenge. Now, we are, whilst it remains challenging, they're not, like, flooding in the doors like they were in the Corona period, where we were hiring, you know, amazing numbers extremely quickly. We are managing to hire what we need to achieve a weekly growth rate. We are also adding capacity, and our new sites are ramping very successfully. I mean, these are the fastest ramps we've ever seen in Andover and Purfleet. You know, we're kind of circa 50% six months in, which is great and is a good signal for our international clients of their group business. We are adding another site as well this year, which means that overall, we think we're well-positioned to deliver on our plan, and, you know, are heading in that right direction with the active customers growing, the customer order numbers growing. We don't expect the basket to fall from here, so we don't have that to deal with again. We know that the quarter one has the higher basket of the year 'cause of the Christmas peak, but in terms of where it is in its seasonal pattern, we don't expect it to fall from here. Our comps going forward, the next quarter was a part COVID quarter, and then the following two quarters were significantly diminished COVID quarters. Okay. No, thank you. I'll follow up with the team. Just one final quick one. I assume you're not hedged on any of your energy costs from the way you've answered questions this morning. Thank you. Well, from time to time we have some hedges on, but we didn't have, like, a three-year hedge on from six months or a year ago when energy prices were where they were. So have we always paid spot every month? No. Has that helped us sometimes? Yes. But are we locked in with, you know, cheap electricity and cheap diesel and the answer is no. Okay. Thank you very much indeed. The next question comes from Sreedhar Mahamkali from UBS. Hi, Tim, good morning. Thanks for taking questions. Most of them already gone through. Really quick one to follow up on your comment on inflation. I fully understand ORL is more of a price follower than a setter. I'm curious to see what your thoughts are as you look at the industry overall. Do you think the industry is being rational with the COGS inflation overall, or you see a willingness to take a little bit of a hit on the chin in trying to absorb some of it? Or how do you see it as you look at the overall industry scale at the moment? I think I'll let Niall give you his view. I think probably overall rational and within that pockets of high competitiveness. I mean, you know, there's it's definitely the case that as an industry, everyone wants to offer great value to customers. Do we. We want to compete on range, we want to compete on value, and we want to, you know, add as many customers as we can throughout the year. But we're not the only ones who want to add customers. I think if you look at some of the others, they are competing on value as well. You know, we don't see that letting up, you know, in the next few minutes. Okay. Thank you. We'll now take the next question from Dimitris Dimitriou from Schroders. Please go ahead. Hi, good morning. Thank you for taking my question. My question is actually also on value and similar to the last question that was just asked. You know, I think it's fair to say if you look at the various consumer surveys and reports that emerge from time to time, value is probably not the strongest point here. I was just wondering how you view value in your ability to expand and your ability to continue increasing your audience and your appeal as you expand to more cities and especially beyond London, whereby you maybe have a bigger role to play. Thank you. I'll go again. Look, I think a little bit like what Tim was saying earlier, value comes in many ways. I think when you look at our range, we've got 50,000 SKUs in the range. That's you know, that's a massive range compared to any of the competition. When we say there's an Ocado just for you, we really mean that. You know, you can come in as a customer and shop our value range. We had a fantastic Everyday Savers campaign in January. We had Fill Your Freezer for £5 campaign just finished, and we've got a Smart Pass campaign on right now. I think if you want to shop in that way with us, you absolutely can. Equally, if you want to shop, you know, sort of the more expensive range, you can do that as well. I think we think about it that way, that we compete across all of those sort of points. I think the extra thing that I would add is the view that we're going to more cities. Ocado Retail covers mid-70% of the U.K. population, has done for a number of years, is growing not through geographical growth, is growing through organic growth in the geographies that it already serves. Has had the majority of its business outside London for, you know, a significant period of time. The idea that any idea that there's some challenge on value as we move out of London is many years too old, if you see what I mean. We've been outside London for most of our time, and inside the M25's been just under 50% of our business for a long period of time. Most of our business is outside of London, and we're not banking on geographical expansion to achieve the growth we expect to achieve this year. Thank you. The last question comes from Simon Bowler from Numis. Please go ahead. Hi, and apologies if I missed this, but I think I caught a comment from yourself that you feel any kind of EBITDA shortage at the retail level can be offset elsewhere, from a group level perspective. While I appreciate this is just a retail call, I was wondering if you could just kind of share some color of where the EBITDA offset elsewhere within Ocado Group may come from. Well, firstly, we don't expect it to be a big number. Secondly, it's just, you know, the usual tightening of the belt that one would expect us both to be doing at retail and at group level, which means that overall we're not expecting a move. Okay. That's great. Thank you, Tim. Thank you. That will conclude today's question and answer session. I'd like to hand the call back over to your host for any additional or closing remarks. Thank you, everyone. That concludes our call. We'll report next on the 21st of July with Ocado Group's first half results. I'm sure we'll be speaking to most of you before then. For the moment, thank you, and have a good day. Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.