Chief Financial Officer's review

"Strong sales growth has led to Ocado reaching EBIT profitability pre-exceptionals for the second half of the financial year and EBT profitability in the last quarter of the financial year. Achieving profitability clearly demonstrates the operational leverage of the Ocado model, with EBITDA margin from additional sales at 11.3% in the second half of the year."

Andrew Bracey, Chief Financial Officer

Andrew Bracey

Andrew Bracey
Chief Financial Officer

2010 was a landmark year for Ocado with the Group reaching EBIT profitability pre-exceptional item for the second half of the financial year and EBT profitability in the last quarter of the financial year. This is the first time the Group has achieved EBIT profitability and demonstrates the operational leverage of the Ocado model. This was further demonstrated by the incremental EBITDA margin increasing to 10.3% for the whole year, up from 9.1% in H1 to 11.3% in H21. This increased operational leverage has contributed to an increase in EBITDA margins from 2.2% of gross sales in FY09 to 4.0% in FY101


Gross sales were up 29% to £551.1 million for the year. The growth was driven by a substantial increase in orders per week offset by a slight decrease in average order size. The number of active customers increased by 19% to 262,258 at the end of FY10, with average weekly new customers up by 37% to 2,948. There was minimal geographic expansion during the year. Revenue grew by 28% to £515.7 million. Spend on marketing vouchers remained broadly flat at 1.5% of sales, increasing by 25% to £8.1 million which was slightly less than the rate of growth in gross sales.

Gross profit

Gross profit increased 32% to £161.6 million. This equates to a 58 basis point increase in gross margin over the period to 29.3%. This was driven by positive changes in input prices, retail price inflation, supplier support and changes in product mix as well as the effects of the increasing scale of the business. Over the period the average price of items sold increased by 0.8%.

Other income increased by 136% to £6.2 million. This was primarily driven by a 161% rise in marketing revenue. The increased space on the new website launched at the end of the year has provided us with further opportunities to generate additional marketing revenue.

Operating costs

Distribution costs increased by 20% to £132.8 million. This increase was slower than sales growth demonstrating the developing operating leverage of the business. Distribution costs decreased as a percentage of sales from 26% to 24%. The two major components of distribution costs are CFC costs and trunking and delivery costs. CFC costs increased by 17%. Variable CFC costs increased broadly in line with revenue due to limited productivity gains. However, the operating leverage of the fixed cost base on increased volume meant that total CFC costs continued to fall as a percentage of revenue. Trunking and delivery costs increased by 23% with productivity gains more than offsetting inflationary pressures. Administrative expenses increased by 25% to £36.9 million. The main drivers of these cost increases were additional employment costs and associated infrastructure, including the additional costs of being a public listed company.

Operating profit/loss

Operating loss pre-exceptionals for the full year decreased from £14.4 million to £1.8 million, a decrease of 87%. This decrease was primarily due to the growth in revenue that enabled greater operating efficiencies, as highlighted above. This is demonstrated clearly in H2 when the business made a pre-exceptionals EBIT of £0.9 million. This compares to an EBIT loss of £7.0 million in the equivalent period in FY09. In Q4 the business achieved PBT, for the first time, of £0.3 million.

In the second half of the year the Company incurred the one-off exceptional costs associated with the IPO. These, along with associated fees for a £100 million credit facility, came in at £12.4 million, substantially under the budget set out in the Prospectus of £15 million. £3.5 million was charged as a one-off exceptional item to the income statement with the remainder taken as financing costs and through the share premium account.

Net finance costs

Net finance costs decreased by 38% to £6.9 million from £11.1 million. This reduction in costs was primarily due to the proceeds of the IPO enabling repayment of debt shortly after the IPO in July. The interest paid on borrowings reduced to £8.4 million.


The statutory rate of tax applicable was 28%. A deferred tax credit of £5.0 million was recognised. Ocado had approximately £260 million of unutilised carried forward tax losses as at the end of FY10.

1 Adjusted to exclude one-off IPO costs of £3.5m

Gross Margin

Loss per share

Basic and diluted losses per share decreased from 6.05p to 1.63p. This reduction in loss per share is due primarily to the improved financial performance as well as an increased number of shares on issue after the IPO.

Cash flow

Net operating cash flow doubled this year to £8.2 million. This was primarily due to a significant reduction in loss before tax and a reduction in interest paid offsetting the impact of minimal net changes in working capital this year.

Balance sheet

The IPO enhanced the strength of the balance sheet with net assets increasing by over £200 million to £171.8 million. £45.5 million of debt was repaid in the financial year and the Company ended the financial year with cash and cash equivalents (including short-term treasury deposits) of £154.6 million. In addition, the arrangement of a £100 million credit facility further increased the financial flexibility of the business.

Capital investment

In FY10 there was capital expenditure of £35.0 million, an increase of 52%. The capital investment increased the capacity of the Hatfield CFC ("CFC1"), expanded the van fleet and funded the internal development of new computer software.

Capital expenditure plans remain as described during the IPO. Completion of CFC1 is expected to cost £80 million. This will increase both capacity to 180k orders per week and the range stocked. CFC2 is expected to cost £210 million. The construction of the new CFC in Dordon, Warwickshire, will commence in the coming months and will continue into 2012 and beyond.


The following table sets out a summary of selected unaudited operating information for FY10 and FY09:

FY10(unaudited) FY09(unaudited) % Change
Average order size (£)(1) 114.06 115.9 (1.6%)
Average orders per week 92,916 70,873
CFC efficiency (units per hour)(2) 121 124 (2.2%)
Average deliveries per van per week (DPV/wk) 133 121 10.3%
Average number of operational staff (full-time equivalent) 3835 3,151 21.7%
Average product wastage (% of gross sales)(3) 0.61 0.57 n/a
Items delivered exactly as ordered (%)(4) 99.0 99.4 n/a
Deliveries on time or early (%) 94.9 93.0 n/a

Source: The information in the table above is derived from information extracted from management accounts and internal financial and operating reporting systems and is unaudited.

  1. Average retail value of goods a customer receives (including VAT and delivery charge) per order.
  2. Measured as units dispatched from the CFC per hour worked by CFC operational personnel.
  3. Value of products purged for having passed Ocado's "use by" life guarantee and stock adjustments (net of sales to Company Shop), divided by gross sales. As expected, the introduction of the service counter increased the level of waste.
  4. Percentage of all items delivered exactly as ordered, i.e. the percentage of items neither missing nor substituted.