OCADO GROUP PLC
Interim results for the 26 weeks ended 28 May 2023
18 July 2023
Financial and operational progress across Ocado Group
Financial progress
● Group revenue £1.4bn, +9%: Technology Solutions +59%, Ocado Logistics +2%, Ocado Retail +5%
● Group EBITDA*1 of £17m: Technology Solutions EBITDA* positive; Ocado Logistics flat; Ocado Retail small loss in the half; positive EBITDA* throughout Q2
● Cost reductions across the Group: operational efficiencies and lower support costs
● Underlying cash outflow*2 of £(288)m; +£108m versus 1H22: liquidity remains strong at £1.3bn (including £0.3bn revolving credit facility)
● Group EBITDA of £17m is offset by depreciation & amortisation and exceptional items to give a loss before tax of £(289)m
● FY23 guidance unchanged
Operational and strategic progress
● Technology Solutions: +35% growth in average live modules versus 1H22, increasing to 105 live modules at the end of the first half, +2 new CFCs live; 25 sites now live (21 CFCs, 4 Zooms)
● CFC direct operating costs3 down from 2.1% to 1.8% of sales capacity
● Partner Success programme: delivering tangible results and improved economics for OSP partners
● Ocado Intelligent Automation: proposition and business model well advanced in attractive market
● Ocado Logistics: increasing productivity and efficiencies in warehouse and delivery services for our UK partners
● Ocado Retail: continued strong customer acquisition growth, items per basket has been stable since last October, improved customer focus and efficiencies in all areas delivering positive EBITDA* throughout Q2
Tim Steiner, Chief Executive Officer of Ocado Group, said:
“Ocado Group has made good progress over the last six months. Technology Solutions has continued to deliver our industry-leading Ocado Smart Platform around the world and the opening of the first CFC for AEON, Japan’s biggest food retailer, in Chiba City, just outside Tokyo, is a landmark for the grocery sector. It demonstrates that our proprietary AI and robotics can be applied to businesses across the globe; Ocado Intelligent Automation is well placed to sign its first deals to provide our automation solutions outside of grocery; and we are pleased to report significant progress in our Partner Success programme, where our partners such as Kroger are seeing tangible improvements in their operational performance. The success of this programme is important to our plans to deliver stronger growth in orders for new capacity.
In the UK, Ocado Logistics had a steady, profitable first half and Ocado Retail is making good progress, with a return to profitability in Q2. Our operations in the UK remain an important demonstration of the potential for our international ambitions, as we seek to transform the economics of online grocery and expand into the wider automated storage and retrieval solutions market.
At a Group level, I am pleased to see the operational and financial discipline delivered by all our teams as we focus on driving cost efficiencies and cash flow improvement. For these reasons, we look forward to delivering the full potential of the business and continuing to create lasting value for all our stakeholders.”
Ocado Group 1H23 Income Statement
| £m | 1H23 | 1H226 | £m change | % change | FY226 |
| Revenue4 | |||||
| Technology Solutions | 198.2 | 124.7 | 73.5 | 58.9% | 291.4 |
| Ocado Logistics | 335.2 | 329.7 | 5.5 | 1.7% | 659.9 |
| Ocado Retail | 1,178.5 | 1,122.2 | 56.3 | 5.0% | 2,203.0 |
| Inter-segment eliminations | (341.2) | (314.2) | (27.0) | 8.6% | (640.5) |
| Group | 1,370.7 | 1,262.4 | 108.3 | 8.6% | 2,513.8 |
| EBITDA*1 | |||||
| Technology Solutions | 5.9 | (58.8) | 64.7 | 110.0% | (101.5) |
| Ocado Logistics | 14.6 | 14.5 | 0.1 | 0.7% | 33.6 |
| Ocado Retail | (2.5) | 31.3 | (33.8) | (108.0)% | (4.0) |
| Inter-segment eliminations | (1.4) | (0.6) | (0.8) | (133.3)% | (2.2) |
| Group | 16.6 | (13.6) | 30.2 | 222.1% | (74.1) |
| Depreciation & amortisation | (192.5) | (157.3) | (35.2) | (22.4)% | (348.6) |
| Finance expense | (31.4) | (41.6) | 10.2 | 24.5% | (64.6) |
| FX gains/(losses) | (5.0) | 8.2 | (13.2) | (161.0)% | 16.4 |
| Exceptional items5 | (77.2) | (7.0) | (70.2) | (1,002.9)% | (29.9) |
| Group loss before tax5 | (289.5) | (211.3) | (78.2) | (37.0)% | (500.8) |
* These measures are Alternative Performance Measures, refer to note 16 in the condensed financial statements.
Notes:
1. EBITDA* is a non-GAAP measure defined as earnings before net finance cost, taxation, depreciation, amortisation, impairment and exceptional items.
2.Underlying cash flow* is the movement in cash and cash equivalents excluding the impact of exceptional items, costs of financing, purchase of/investment in unlisted equity investments and FX movements.
3.Direct operating costs as a % of site sales capacity reflects the exit rate position for all OSP CFCs live at the period end. Direct operating costs include engineering, cloud and other technology direct costs. The prior year has been updated in line with this definition (previously 1H22 was 2.4%).
4. Revenue is a. Retail – online sales (net of returns) including charges for delivery b. Technology Solutions – the fees charged to solutions clients and c. Logistics – the recharge of costs and associated fees from Ocado Logistics to our UK clients. Recharges from Technology Solutions & Ocado Logistics to Ocado Retail are eliminated on consolidation.
5. Net exceptional costs of £77.2m primarily relates to £38.7m UK network capacity review, £17.4m change in fair value relating to the revaluation of the Marks and Spencer Group plc (“M&S”) contingent consideration, litigation costs of £9.1m (related to patent infringement litigation between the Group and AutoStore Technology AS). Other exceptional items include costs associated with Ocado Group Finance transformation costs, Organisational restructuring costs and Ocado Retail IT systems transformation.
6. The Group has changed its segmental reporting for FY23 to reflect the Group’s three distinct business models of Technology Solutions, Ocado Logistics and Ocado Retail. The FY22 prior year comparatives have been restated on the new segment basis. A detailed exercise has been carried out to ensure all costs are owned and managed within the appropriate segment. This has resulted in a different cost allocation to that used in the preparation of the pro forma numbers as presented in the 1H22 and FY22 results presentations for Logistics and Technology Solutions; Ocado Group EBITDA* loss of £14m at 1H22 and £74m at FY22 remain unchanged.
The commentary is on a pre-exceptional basis to aid understanding of the underlying performance of the business
1H23 Operational and Strategic Review
Technology Solutions
OSP capacity rollout is driving strong revenue growth and high profit flow-through
Technology Solutions delivered strong operational execution with the rollout of new capacity in both new and existing markets. In the first half, two Customer Fulfilment Centres (“CFCs”) and six new modules went live, taking the total to 25 sites and 105 live modules at the end of the period. The first CFC went live for AEON in Chiba City, just outside Tokyo, Japan in April and Sobeys’ third CFC went live in Calgary in March. These new CFCs were delivered on time and on budget. Our equipment is performing well and the sites have started ramping up their capacity according to plan.
We are pleased with the improving financial progress in Technology Solutions as the number of live modules grows, reinforcing the dynamics of our business model. Our first-half performance demonstrates this with revenue growth of 58.9% and contribution margin of 71% which, combined with cost efficiencies, delivered strong profit flow-through and positive EBITDA*.
Our focus on efficiencies continues, support costs were £12m lower in the period, falling from £101m to £89m, as a result of cost reduction measures and the one-off profit of £5m from the sale of the Dartford spoke. We expect further progress over the course of the year driven by headcount reduction initiatives, discretionary cost expenditure actions, and specific project efficiencies such as the new finance platform that is now in place.
OSP Partner Success programme delivering results
Since January, Ocado’s Partner Success teams have been working with our international OSP partners to more closely support them in delivering improved operational and financial performance in their CFCs, webshop, and last-mile delivery network, in order to maximise the power of OSP and help accelerate orders for more modules versus the current rate which is currently towards the lower end of our mid-term target.
For Kroger, initial results from our work with them in their first two CFCs indicate significantly increased warehouse productivity (units picked per labour hour within the facility (“UPH”) +25%), waste reduction (-30%), drops per van (+10%) and a lower operational cost per order (down 15%). Kroger is now applying these operational learnings across other sites to ensure the best performance is achieved from the OSP platform. There is still work to do and we will continue to support our partners with these dedicated teams, working together to make a sustainable difference to their economic returns in online grocery.
Ocado Intelligent Automation is well placed for first contract wins; acquisition of 6 River Systems
Ocado Intelligent Automation (“OIA”) has been established to bring Ocado’s unique and proprietary technology to clients outside grocery. OIA will operate a capital-light ‘MHE sell’ model designed so that upfront fees better match Ocado’s cash outflows and will largely leverage existing OSP technology. Discussions are well-progressed with several potential clients across a range of industries. Although cash will be received up-front when the MHE is sold, we expect that revenue and profit will be recognised when the project goes ‘live’.
On 30 June 2023, Ocado Group acquired 6 River Systems (“6RS”) from Shopify for $12.7m to support the technology roadmap for Ocado Intelligent Automation. 6 River Systems is a collaborative Autonomous Mobile Robot (“AMR”) fulfilment solutions provider to the logistics and non-grocery retail sectors, based in Massachusetts, USA. Founded in 2015, it has developed an Autonomous Mobile Robot product that provides automated assistance to pickers in a warehouse, working collaboratively with human operators. 6 River Systems brings new exciting possibilities to Ocado’s IP and product set, as well as valuable commercial and R&D expertise in the non-grocery sector. The business acquired by Ocado Group has a good client list, is debt-free, cash flow positive, and generates positive EBITDA.
Outlook for Technology Solutions – 2H23
● One further CFC (Luton) will go live in 2H23. The opening of the two CFCs for Coles in Melbourne and Sydney, previously scheduled for 2H23 is under review, and we are working closely with Coles on the revised timing.
● Continued implementation of our Partner Success programme is expected to drive improved economics for our OSP partners and support the rollout of further sites and modules.
● Further operating efficiencies and cost reductions will support growth in profitability, including a gradual flattening of technology costs; positive EBITDA* is expected for FY23.
Ocado Logistics
Our third-party logistics (“3PL”) operation, supporting Ocado Retail and Morrisons in the UK, continues to perform strongly and remains a good example of our highly efficient 3PL distribution model. In the first half operational costs grew by 0.6% driven by customer orders per week across our two partners which grew +4.3% and by eaches delivered which declined by 2.6% driven by fewer items per basket.
Inflation also affected operational costs, but this was well controlled by our teams and offset by productivity improvements in our OSP CFCs which saw UPH (units per labour hour picked) improve a strong 14%. Ocado Logistics is a reliable cash generator and EBITDA* of £15m was flat in the period.
Outlook for Ocado Logistics – 2H23
● Continued improvement in productivity for our UK partners
● We expect Ocado Logistics EBITDA* of around £25m for the full year, reflecting expected revenue growth and the cost-plus business model.
Ocado Retail
A return to profitability in the second quarter
Ocado Retail revenue grew by 5.0% in 1H23 driven by a mix of strong active customer growth of +10.6% to 959k, growth in average orders per week of +4.0% to 392k, and the average basket value increasing +1.5%. The basket value increase was driven by ASP (average selling price) of +8.4% (net of product mix effects), which was offset by smaller basket sizes which declined 6.3% to 45 items, and lower frequency of orders as customers managed their overall basket spend. The number of items per basket over the last quarter has stabilised at 44 items.
Ocado Retail’s share of online grocery increased from 12.7% to 13.0% and remained stable as a % of the overall UK grocery market during the period. ASP inflation was well below UK grocery inflation of 12.8% (according to Nielsen) and we continue to invest in price and broaden our range to ensure we differentiate ourselves further alongside choice, service and experience. Our Ocado Price Promise now matches over 10,000 like-for-like goods between Ocado.com and Tesco. This is a key part of our strategy to support growth and the retention of customers and the increase in the total active customer base and mature customer base is indicating this strategy is delivering.
The total active customer base increased modestly, up 2,000 customers since the end of Q1; however, the mature customer base (those customers who have shopped 5 or more times with Ocado) continues to grow steadily and was up 14,000 customers over the same period, driven mainly by strong retention of new customers.
The Ocado Retail “Perfect Execution” programme is driving improved customer proposition and service levels, with on-time deliveries and order accuracy back to pre-covid levels; “Perfect Orders”, meaning on time and in full, with no substitutions, increased by around 6 percentage points year on year. During 1H23 we introduced c.700 new Marks and Spencer Group plc (“M&S”) grocery lines, offering customers even more choice.
There was strong control of costs across the board which meant that combined costs fell as a percentage of revenue. This includes productivity from improved efficiency at our CFC sites, where UPH (units picked per hour) improved by 13.8%, and marketing optimisation. This was offset by the increased capacity and costs of operating 2 new Zoom sites but with the announced closure of Hatfield CFC, we expect capacity used to reach greater than 75% by the end of the year.
Profitability improved throughout the first half with the Retail business delivering positive EBITDA* in each month of Q2. We see a clear pathway to continue this positive EBITDA trend as the capacity utilisation of the CFCs improves and the natural operational gearing within the business delivers incremental profitability.
UK network capacity review supports greater efficiencies and a better customer experience
The ceasing of operations at our oldest CFC in Hatfield, UK and the transfer of a portion of Hatfield’s capacity to a new robotic CFC in Luton, scheduled to open in 2H23, will assist in the recovery of profitability for Ocado Retail. There will be a natural reduction in excess capacity, coupled with the more attractive economics of the latest generation of robotic CFCs. These CFCs are consistently achieving over 200 units picked per labour hour within the facility, compared to UPH of around 150 for our first-generation CFC in Hatfield. The newest sites also have much lower energy usage and together this will result in a reduction of fixed costs in FY24. With the benefit of Ocado Re:Imagined, Ocado will continue to drive improvements in UPH (to exceed the target of >300 UPH) and customer experience, including increased capacity for same-day deliveries. We continue to identify opportunities to retain as many of our Hatfield colleagues as possible within our other existing operations, primarily to the soon-to-be-opened Luton CFC.
Outlook for Ocado Retail – 2H23
● Q323 customer and order numbers will reflect the tougher comparison with significant customer acquisition actions in Q322.
● Volume-driven growth is expected to accelerate again in Q4.
● Ocado Retail is expected to be marginally EBITDA* positive in the full year.
Ocado Group
Group cash flow
Underlying cash outflow* improved by £108m in 1H23, driven by revenue growth, cost reductions and lower capital expenditure. The Group is on track to deliver the guided £200m of underlying cash flow improvement in the full year.
Group capital expenditure
Capital expenditure primarily comprises new site construction costs and technology development costs to enhance OSP. Capital expenditure was £283.6m in the period (1H22: £366.8m), a reduction of £83.2m, driven by a decrease in the number of CFCs and new modules under construction. Capital expenditure in H2 is expected to be lower than that in H1; full-year Group capital expenditure is expected to be no more than £550m, in line with the full-year guidance.
FY23 Guidance
The performance of our businesses in the first half gives us confidence in the full-year financial outcome. In the second half, our priorities remain focused on ongoing excellence in operational execution and financial discipline with costs and cash flow. There is no change to the financial guidance given at FY22 results on February 18th 2023.
| Revenue | EBITDA* | Capital Expenditure | |
| Technology Solutions | +40% | positive | |
| Ocado Logistics | broadly stable | around £25m | |
| Ocado Retail | mid-single digit growth | marginally positive | |
| Total Group Capex | – | – | £550m |
AutoStore Litigation
On 30 March 2023 Ocado Group recorded a comprehensive victory in the patent infringement suit brought by AutoStore at the UK High Court. His Honour Judge Hacon held that the AutoStore patents were invalid and Ocado did not infringe them. AutoStore had originally asserted six patents against Ocado in October 2020. Of these six patents, two were invalidated by the European Patent Office before judgement was handed down, two were withdrawn by AutoStore shortly before the hearing started and the remaining two patents were invalidated by Judge Hacon in today’s judgement. Judge Hacon decided that even if he had not invalidated these remaining patents, Ocado’s OSP did not infringe them. In addition, he also found that Ocado’s bots did not infringe the patents that AutoStore had withdrawn from the case. AutoStore has subsequently been ordered to pay Ocado £6.7m in costs.
This UK High Court decision follows Ocado’s victory over AutoStore in the International Trade Commission in the USA in 2022. Ocado’s claims against AutoStore for infringing Ocado’s IP continue in Germany and New Hampshire, USA.
Results Presentation
A results presentation will be available for investors and analysts at 9.30am. This can be accessed online here. Following the session there will be Q&A, also accessible via the webcast.
Contacts
Tim Steiner, Chief Executive Officer on +44 20 7353 4200 today or +44 1707 228 000
Stephen Daintith, Chief Financial Officer on +44 20 7353 4200 today or +44 1707 228 000
David Shriver, Chief Reputation Officer, on +44 20 7353 4200 today or +44 1707 228 000
Martin Robinson at Teneo on +44 20 7353 4200
Financial Calendar
The schedule for Ocado Retail results for the remainder of the 2022 financial year is for a Q3 Trading Statement on the 19th of September 2023 and a Q4 Trading Statement on the 16th of January 2024.
Cautionary statement
Certain statements made in this announcement are forward‐looking statements. Such statements are based on current expectations and assumptions and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results expressed or implied in these forward‐looking statements. Persons receiving this announcement should not place undue reliance on forward‐looking statements. Unless otherwise required by applicable law, regulation or accounting standard, Ocado does not undertake to update or revise any forward‐looking statements, whether as a result of new information, future developments or otherwise.
Financial Review
Headlines
Revenue increased by 8.6% to £1,370.7m (1H22: £1,262.4m):
● Technology Solutions delivered strong revenue growth, up 58.9% to £198.2m (1H22: £124.7m) with an average of 101 modules live during the period (1H22: 75). In the period we have added two new sites and six modules. These include the first Customer Fulfilment Centre (“CFC”) in the Asia-Pacific region for AEON in Chiba City, just outside Tokyo, Japan; and the third CFC for Sobeys in Calgary, Canada. We now have 25 live sites (1H22: 18 sites, FY22: 23 sites) and 105 live modules (1H22: 86 live modules, FY22: 99 live modules).
● Logistics revenue grew by 1.7% to £335.2m (1H22: £329.7m), this primarily represents cost recharges to Ocado Retail and Wm Morrison Supermarkets Limited (“Morrisons”) of £318.5m (1H22: £317.3m), which grew by 0.4%. While orders per week increased by 4.3% to 512,000 orders per week (1H22: 491,000) volumes, measured in eaches (individual items in the shopping basket), declined by 2.6% primarily due to the decrease in basket sizes as customers responded to the cost-of-living-crisis.
● Retail revenue increased by 5.0% year-on-year to £1,178.5m (1H22: £1,122.2m) reflecting growth of 10.6% in active customers to 959,000 (1H22: 867,000, FY22: 940,000). Price inflation has continued, with the average item price up 8.4% to £2.72 (1H22: £2.51). This has been partially offset by smaller basket sizes, declining 6.3% to 45 individual items (1H22: 48 items), as customers manage their overall basket spend. Orders per week have grown by 4.0% to 392,000 (1H22: 377,000), driven by the increase in active customers and offset by lower frequency of orders.
EBITDA* for the period was £16.6m (1H22: loss of £13.6m), an improvement of £30.2m driven by Technology Solutions, which generated positive EBITDA of £5.9m, up £64.7m (1H22: loss of £58.8m) due to strong profit flow-through from revenue growth. Logistics delivered EBITDA of £14.6m (1H22: £14.5m) on its resilient cost-plus model. Retail generated a £2.5m EBITDA loss (1H22: £31.3m profit) with a steadily improving trajectory toward full-year profitability. The year-on-year movement was driven by a decline in gross profit margin and the non-repeat of certain one-off benefits in 1H22.
Statutory loss before tax of £289.5m (1H22: £211.3m loss) includes depreciation, amortisation and impairment charges of £192.5m (1H22: £157.3m), net finance costs of £36.4m (1H22: £33.4m), and net exceptional costs of £77.2m (1H22: £7.0m), which include the one-off costs relating to the ceasing of operations at our oldest CFC in Hatfield and the change in the fair value of contingent consideration receivable from Marks and Spencer Group plc (“M&S”).
Strong balance sheet, with cash and cash equivalents of £1,008.5m at the end of the period (FY22: £1,328.0m) and liquidity of £1.3bn (FY22: £1.6bn) (including the undrawn revolving credit facility (“RCF”) of £0.3bn) to support our UK and international growth plans. Net debt* at the end of the period was £(900.7)m (1H22: £(758.8)m).
| 1H23 | 1H22 | ||||||
| £m | Pre-exceptional* | Exceptional items | Total reported | Pre-exceptional* | Exceptional items | Total reported | Pre-exceptional change |
| Revenue | 1,370.7 | – | 1,370.7 | 1,262.4 | – | 1,262.4 | 8.6% |
| Insurance proceeds | – | – | – | – | 6.3 | 6.3 | n/a |
| Operating costs | (1,353.2) | (56.8) | (1,410.0) | (1,275.5) | (13.3) | (1,288.8) | 6.1% |
| Share of results from joint ventures and associates | (0.9) | – | (0.9) | (0.5) | – | (0.5) | 80.0% |
| EBITDA* | 16.6 | (56.8) | (40.2) | (13.6) | (7.0) | (20.6) | £30.2m |
| Depreciation, amortisation and impairment | (192.5) | (20.4) | (212.9) | (157.3) | – | (157.3) | 22.4% |
| Net finance costs | (36.4) | – | (36.4) | (33.4) | – | (33.4) | 9.0% |
| Loss before tax | (212.3) | (77.2) | (289.5) | (204.3) | (7.0) | (211.3) | 3.9% |
* These measures are alternative performance measures. Please refer to note 16 of the consolidated financial statements.
This commentary is on a pre-exceptional basis to aid understanding of the performance of the business on a comparable basis. Following the change in the reporting of the Group’s operating segments during the period (as further explained below), the Group has adopted a revised presentation of expenses in the Income Statement, replacing Cost of sales, Distribution expenses and Administrative expenses with a single line item for Operating costs.
The revised presentation provides an Income Statement that is more relevant for the total Group. Our three reporting segments have different operating models and costs, therefore, we have summarised the presentation of costs for the consolidated Income Statement and provided relevant details by segment in each section. This reflects the growing significance of the Technology Solutions business and provides more reliable reporting by eliminating the need for allocations between distribution and administrative expenses.
Revenue for the period increased by 8.6% to £1,370.7m (1H22: £1,262.4m). Technology Solutions revenue increased by 58.9% from £124.7m to £198.2m with the go-live of five sites in 2H22 including three for Ocado Retail (Bicester, Leyton and Leeds) and two for Kroger in the US (Denver and Baltimore). In 1H23, two sites went live with Sobeys’ third CFC in Calgary and our first CFC for AEON in Chiba City, just outside Tokyo. The average number of live modules is the key revenue driver for Technology Solutions and increased by 34.7% from 75 in 1H22 to 101 in 1H23. Logistics revenue increased by 1.7% to £335.2m (1H22: £329.7m) and largely comprises cost recharges to its two UK customers, Ocado Retail and Morrisons). Retail revenue increased by £56.3m from £1,122.2m to £1,178.5m reflecting strong growth in active customers, growing order volumes and continued price inflation (that has led to smaller basket sizes, as customers manage their overall shopping basket spend).
Net cumulative invoiced fees to our Ocado Smart Platform (“OSP”) partners that are on our balance sheet and not yet recognised as revenue increased by £37.9m from £390.3m at 1H22 to £428.2m at 1H23, driven by orders from our newest partners Lotte, Auchan Poland and AEON.
Operating costs include all costs incurred in the continuing operations of the Group. Operating costs increased by 6.1% to £1,353.2m (1H22: £1,275.5m). Technology Solutions operating costs increased by 4.8% to £192.3m (1H22: £183.5m) driven by an increase in the costs of operating live sites, driven by the increase in average live modules and higher technology costs as we continue to support and invest in the OSP. This was partially offset by a reduction in Technology Solutions support costs of £12.1m to £88.5m (1H22: £100.6m). Logistics operating costs increased by 1.7% to £320.6m (1H22: £315.2m) due to a 4.3% growth in orders that was offset by lower basket sizes and improved productivity across our OSP sites. Retail operating costs increased by 8.3% to £1,181.0m (1H22: £1,090.9m) largely driven by the growth in orders, continued inflation and incremental OSP fees year-on-year.
EBITDA* for the period was £16.6m (1H22: £13.6m loss) with the £30.2m improvement driven by a £64.7m improvement in Technology Solutions to £5.9m (1H22: £58.8m loss), offset by a £33.8m decline in Retail to £2.5m loss (1H22: £31.3m profit). The improvement in Technology Solutions EBITDA* was driven by the strong 88% flow-through of incremental revenue to EBITDA*, improving contribution margin of 71% (1H22: 65%) and cost reductions in support costs that were down 12.0% to £88.5m (1H22: £100.6m). Retail EBITDA* decline was primarily driven by 1. increased OSP fees for new sites that are not yet at full capacity; 2. investment in good value pricing to protect our customers from high cost price inflation which resulted in a gross profit margin decline from 34.3% to 33.1%; and 3. the one-off benefit in 1H22 from the release of a long-term incentive plan provision.
Depreciation, amortisation and impairment increased by 22.4% to a charge of £192.5m (1H22: £157.3m), primarily due to the increase in amortisation relating to internally generated intangible assets (primarily the investment in the Ocado Smart Platform) together with an increase in depreciation as a result of the continuing roll-out of OSP hardware and software at our CFC sites. At the end of the period, there were 25 live sites (1H22: 18 sites) including 21 CFCs and 4 Zooms. Property, plant and equipment held on the balance sheet was £1,832.9m (1H22: £1,495.8m). The increase largely relates to the seven sites that have gone live in the last 12 months and the amortisation of technology projects that have gone live in the same period.
Net finance costs of £36.4m increased by £3.0m (1H22: £33.4m) and include finance costs related to our gross debt and lease liabilities, finance income on our cash balances and foreign exchange and revaluation movements.
Exceptional costs of £77.2m (1H22: £7.0m cost) primarily relate to the one-off costs related to the cessation of operations at the Hatfield site of £38.7m, the change in fair value of the contingent consideration due from M&S of £17.0m, litigation costs of £9.1m (primarily relating to the patent infringement litigation between the Ocado Group and AutoStore Technology AS) and organisational restructuring costs of £7.8m.
Statutory loss before tax of £289.5m (1H22: loss of £211.3m loss) reflects an EBITDA profit of £16.6m (1H22: loss of £13.6m), depreciation, amortisation and impairment of £192.5m (1H22: £157.3m), net finance costs of £36.4m (1H22: £33.4m) and net exceptional costs of £77.2m (1H22: £7.0m).