Ocado Regulatory News (OCDO)

OCADO GROUP PLC

Trading in line with expectations; statutory results impacted by Andover fire

Interim results for the 26 weeks ended 2nd June 2019

9 July 2019

Financial highlights

● 9.7% Retail Revenue growth demonstrates the resilience of the business, with the impact of the Andover fire estimated at 2% of sales in the half

● Fees invoiced from Solutions partners of £122.7 million, up 36% on the same period in the prior year, with fees from international partners almost doubling

● Group EBITDA of £18.7 million reflects the combined impacts of the Andover fire, IFRS 15 delaying the recognition of fees from international Solutions partners as revenue, and the cost of share schemes

Notes:

1. 2018 restatement was due to adoption of IFRS 15 in the second half of the year. Refer to note 3 in the condensed financial statements

2. Adjusted to remove Fabled which is now an asset held for sale

3. £98.5 million of exceptionals reflects the net cost associated with the write-down of Andover CFC and associated assets, comprising £110.3 million of costs, offset by £11.8 million in insurance proceeds recognised in exceptionals to date

See page 4 for Notes Continued

Tim Steiner, Chief Executive Officer of Ocado, said:

"In the last six months the centre of gravity at Ocado Group has shifted. Our exciting new joint venture with M&S creates further growth opportunities for both parties in the U.K. and allows Ocado Group to increase focus on growing our Ocado Solutions business and innovating for our partners. At the same time we are beginning to apply our technology skills and expertise to other related activities which we expect to be of benefit to our Solutions partners as well as to other Ocado Group stakeholders.

The innovation factory we have created is founded on a near twenty-year heritage of constant re-examination and reinvention of technology to provide the best customer experience. We have never had as many opportunities to grow as we do today. As we look to successfully scale our business and deliver outstanding execution to our partners, our challenge will be to select and prioritise the most attractive of these opportunities."

Key milestones

Over the last six months, the centre of gravity at Ocado Group has shifted from our heritage as an iconic and much-loved domestic pure-play online grocer to our future as a technology-driven global software and robotics platform business, providing a unique and proprietary end-to-end solution for online grocery, and an innovation factory, applying our technology expertise to adjacent markets and other verticals.

Focusing on our global technology-led platform business

● Announced the creation of a 50:50 joint venture with Marks & Spencer ("M&S") to transform online grocery retail in the UK, with the Ocado Retail JV becoming one of now eight global partners whose online business will be enabled by the Ocado Smart Platform ("OSP")6

● The £562.5 million upfront cash payment on the close of the M&S deal in August, will provide us with ample financial flexibility to execute on current commitments and to take full advantage of opportunities to grow Ocado Solutions and to accelerate the development of our platform

● Sold our remaining retail business, Fabled, to Next to simplify our operation

● Signed our sixth international partnership with Coles to develop the OSP in Australia, utilising both our proprietary software and algorithms as well as our robotic infrastructure solutions

● Extended our partnership with Sobeys, ahead of time, with the announcement of a second Customer Fulfilment Centre ("CFC") in Montreal

● Fees invoiced from international Solutions partners grew strongly in 1H 2019 to £46.7 million from £23.7 million in 1H 2018, with only an immaterial amount recognised as revenue. This will increase in the future

● We remain engaged with multiple retailers in a variety of markets with a view to adding more partnerships to our platform

Building a partner-focused business to deliver outstanding execution

● Our nearly 20-strong dedicated Transformation team is supporting the hundreds of colleagues who are working to prepare to open the 34 CFCs committed by partners to date. We are fully focused on successful delivery and execution

● We continue to invest in outstanding people. We hired 255 new software and hardware engineers in the half, out of a total addition to headcount in Ocado Group of 1,300

● We have made progress in delivering OSP to all our partners. Delivery of the first CFCs for each of Groupe Casino and Sobeys continues, both set to open in the first half of 2020; ICA is on track for scheduled migration onto OSP, and Kroger is ordering to plan, having broken ground on the first Kroger CFC, in Monroe, Ohio, with two other CFC locations announced in the half and continued progress in identifying further sites. Bon Preu is now making online deliveries and, in the UK, we continue to support the growth of Morrisons' online business

Investing in innovation to future proof the platform for our partners

● Launched initial test site for immediacy offer, Ocado Zoom. Strong customer response and operating metrics to date reinforce our confidence that we can help partners to serve and shape this new market segment, profitably, at scale

● First strategic investments made through our ventures arm, which seeks to leverage our technology expertise to support new opportunities for customers and partners through investments in other verticals. To date, we have made investments in automated meal preparation (minority stake in Karakuri) and vertical farming (majority stake in Jones Food Company, the largest vertical farm in Europe, and the creation of a three-way JV with 80 Acres in the US and Priva in The Netherlands)

Ocado Retail continues to perform well, as work to form a 50/50 JV between Ocado Group and M&S from Monday August 5th nears completion.

Demonstrating the resilience of the UK business, growing the customer base, and winning market share

● Although the Andover fire removed 10% of our capacity, its impact was estimated at 2% of sales in the half, demonstrating the resilience of the business

● The total of insurance cash receipts in the first half was £43 million, net of fees, of which we recognised £12 million income in exceptionals

● Strong underlying growth, with active customers7 up 9.7% to 745,000 (1H 2018: 679,000)

● Total order volumes from Ocado.com and Fetch now an average of 318,000 orders per week (1H 2018: 288,000)

● Average hypermarket basket value was stable at £108.04 (1H 2018: £108.18), as the trend to smaller baskets as a result of ordering on mobile was offset by price inflation

● CFC3, in Andover, being rebuilt with a new state of the art facility expected to go live in late 2021/early 2022. CFC4 capacity increased by more than 50% in the period. Construction for CFC5, in Purfleet, will also commence soon

Continuing to improve the offer for Ocado's retail customers

● Ocado Retail continues to lead the market on service, with improved rates of delivery punctuality of 95.7% (1H 2018: 94.7%) and order accuracy of 98.9% (1H 2018: 98.8%)

● Ocado Retail offers the broadest range (55,000 SKUS in 1H 2019) and has anticipated key market trends, adding over 900 vegan products in the period and introducing other initiatives

● This unrivalled customer experience was recognised by The Grocer's award for "Online Supermarket of the Year", a leading position on which Ocado Retail will continue to build as part of the joint venture with M&S

Outlook statement

EBITDA performance for FY19, adjusted for the impact of the Andover fire (£15 million) and share incentives (£10 million), is in line with market expectations.

New guidance

● £15 million impact on Group EBITDA from Andover-related business disruption: Of this, £8 million is related to reduced fees in Solutions and higher fixed costs as a result of Morrisons' holiday8 on capacity at Erith, with the balance the Retail sales lost due to the Andover fire. We anticipate insurance payments relating to the Andover fire to provide a full indemnity for business disruption experienced over the next few years, including lost sales and cost inefficiencies, with the income, when recognised, as exceptional.

● £10 million impact on Other EBITDA from share schemes: At today's share price, we expect additional management incentive charges during the 2019 financial year largely due to recent share price performance

Current guidance

● Retail revenue guidance in H2 unchanged: Assuming economic conditions remain broadly stable, we continue to be confident that Ocado Retail will achieve retail revenue growth of 10-15% in the balance of the 2019 financial year, despite the impact of the Andover fire, given strong underlying demand growth and our ability to utilise additional capacity in CFC4

● Further growth in underlying EBITDA expected for Ocado Retail: As drop densities continue to improve, and CFC4 ramps up, we will continue to find efficiencies in our business and as such we expect further growth in the underlying EBITDA contribution of Ocado Retail

● Morrisons holiday will slow Solutions revenue growth: Given the loss of fees resulting from the Morrisons holiday on Erith capacity, we expect Solutions revenue growth to be lower than that of Ocado Retail. As previously guided at FY18 results, we continue to expect £15-20 million additional in operating costs necessary to prepare the CFCs and to provide features on the platform

● Capital expenditure guidance unchanged at £350 million

● Continue to target further Solutions deals: These would generate additional cash fees but may impact short term profits

Results presentation

A results presentation will be held for investors and analysts at 9.30am today at Numis, 1 Paternoster Square, London EC4M 7LT. Presentation material and webcast link will be available online at http://www.ocadogroup.com/investors/reports‐and‐presentations/2019.aspx shortly before the presentation starts.

Contacts

Tim Steiner, Chief Executive Officer on 020 7353 4200 today or 01707 228 000

Duncan Tatton‐Brown, Chief Financial Officer on 020 7353 4200 today or 01707 228 000

David Shriver, Director of Communications, on 020 7353 4200 today or 01707 228 000

Martin Robinson at Tulchan Communications on 020 7353 4200

Notes continued

4. Revenue is online sales (net of returns) including charges for delivery but excluding relevant vouchers/offers and VAT. The recharge of costs to Morrisons and fees charged to Morrisons are also included in revenue

5. EBITDA* is a non-GAAP measure which we define as earnings before net finance cost, taxation, depreciation, amortisation, impairment and exceptional items*

6. Following the formation of the joint venture, Ocado Retail will be charged fees for the use of OSP on arms-length commercial terms, so reducing capital requirements but also reducing Retail EBITDA

7. Customers are classified as active if they have shopped on Ocado.com within the previous 12 weeks

8. In May, Morrisons agreed to amended terms of agreement including a temporary suspension of their right to 30% of the capacity at Erith (CFC4) until February 2021. In return, they will not incur any of the costs associated with the use of CFC4 and will pay lower store pick fees

* These measures are Alternative Performance Measures, refer to note 15 in the condensed financial statements.

Financial Calendar

The schedule for Ocado Retail results for the remainder of the year is for a Q3 Trading Statement on 17 September 2019 and a Q4 Trading Statement on 12 December 2019.

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.

Chief Financial Officer's review

For the period to 2 June 2019, we maintained significant sales growth in a competitive environment while continuing to transform our business further.

The Group has secured a sixth international partnership and a transformational deal with M&S in the UK providing additional financing headroom while continuing to deliver double digit revenue growth despite losing the Andover CFC capacity as a result of a fire. Profitability in the period was impacted by the significant International investments in our platform to support future growth, the annualised cost of our new facility in Erith, share-based management incentive charges, and additional depreciation. Loss before tax increased due to costs relating to the Andover CFC fire.

The commentary is on a pre-exceptional basis3 to aid understanding of underlying performance of the business, with a separate section on the exceptional costs incurred by the business in the period.

1Revenue is online sales (net of returns) including charges for delivery but excluding relevant vouchers/offers and value added tax. It also includes revenue earned from Solutions' clients and the recharge of costs to Morrisons

2 EBITDA is an alternative performance measure which we define as earnings before net finance cost, taxation, depreciation, amortisation, impairment and exceptional items

3 2018 restatement was due to adoption of IFRS 15 in the second half of 2018

4 Adjusted to remove exceptional items and Fabled which is now classified as held for sale. Exceptional items are an alternative performance measure.

Revenue grew by 10.5% to £874.0 million in comparison to 2018 revenue of £791.2 million. This was driven by an increase in the average number of orders per week, despite capacity limitations following the fire at CFC Andover, and by additional fees earned from Morrisons. Gross profit of £304.0 million exceeded the rate of revenue growth despite the competitive nature of the market. We continued to increase our media income from suppliers as we provide them more ways to grow their revenues through Ocado.com, and total Other Income was up by 16.8%.

EBITDA* of £18.7 million was 46.3% lower than the prior year. This was primarily driven by the increased investment in developing the head office teams required to support our international growth, annualised costs of the Erith CFC and higher share incentive costs in the period primarily due to the increase in the share price.

Depreciation, amortisation and impairment increased by 32.5% to £55.0 million, driven primarily by the annualised impact of the Erith CFC.

Net finance costs increased from £6.2 million to £6.7 million year-on-year. This primarily consists of finance costs relating to the £250 million Senior Secured Notes, and the growth came from reduced capitalisation of interest on qualifying assets, offset by cost savings from debt expiring such as finance leases.

Corporate Developments

This has been a period of rapid change for Ocado Group and several events have had a material impact on the results for the period. To aid understanding of the numbers, a summary of these is given below.

Andover CFC

In February 2019, a fire destroyed the Andover CFC, including the building, machinery and all inventory held on site. The Group has comprehensive insurance and claims have been formally accepted by the insurers. Due to the capacity constraints following the CFC Andover fire, the Group has agreed with Morrisons to temporarily suspend their access to capacity in CFC Erith towards the end of the period in exchange for lower store pick fees and no cost recharges from the warehouse. Although there is no material impact in the period, the Group will begin to recognise 100% of all fixed and variable costs for Erith.

In addition in exceptionals there is a net cost of £98.5 million relating to the Andover CFC comprising £110.3 million of costs, offset by £11.8 million of insurance proceeds recognised to date.

Ocado Solutions 

In March, the Group signed an agreement with Coles Group Ltd to develop two CFCs, one in Sydney and one in Melbourne, expected to open by 2023. Coles Online will also transition its store-pick based operations to the Ocado Smart Platform and this is expected to take place in parallel to the opening of the CFCs.

In May the Group announced an agreement between Ocado Solutions and Sobeys Inc. ("Sobeys") to build a second CFC in Pointe-Claire, Montreal. The new site will be Sobeys' second, adding to the centre already under construction in Vaughan, Ontario to serve the Greater Toronto Area.

These additional agreements contributed to the increase in head office costs but there was no revenue impact to the results in 1H 2019.

Formation of the Ocado Retail Joint Venture with Marks and Spencer ("M&S")

In February 2019, the Group announced the creation of a new 50/50 joint venture with M&S. The joint venture will comprise Ocado's UK retail business, Ocado.com, supported by a new partnership for Solutions services underpinned by the Ocado Smart Platform and the provision of branding and sourcing from M&S. M&S products will be available on Ocado.com by September 2020, replacing Ocado's current sourcing agreement with Waitrose Limited. M&S has agreed to pay Ocado £562.5 million in upfront cash and a deferred cash payment of £187.5 million up to five years after completion, dependent on the satisfaction of certain financial and operational conditions.

On 20 May 2019 the transaction was approved by Ocado's shareholders at an extraordinary general meeting and the transaction is expected to complete in Q3 2019.

Growth of new venture investments

In the period, the Group announced two complementary investments, a proposed joint venture with 80 Acres Farm Inc. and Priva Holdings BV, expected to complete shortly, along with the purchase of a 58% stake in Jones Food Company. We believe that these investments will add to the significant portfolio of technologies and know-how that we are building to revolutionise the way customers access fresh food.

There is no material impact to the results for these developments in 1H 2019.

Sale of Fabled to Next

Post the period end, the Group agreed the sale of Fabled to Next which completed on 8 July 2019. As this happened after period end, the fair value of Fabled is accounted for as an asset held for sale on the Balance Sheet. To aid underlying performance comparison, the current and prior year results of the Group have been adjusted to remove Fabled.

Trading review by segment

Retail Segment

1 Distribution and administrative costs* excludes depreciation, amortisation, impairment and exceptional items for the period. This is an alternative performance measure which we define in note 15 to the condensed financial statements.

2 EBITDA* is an alternative performance measure which we define as earnings before net finance cost, taxation, depreciation, amortisation, impairment and exceptional items*

3 Adjusted to remove exceptional items and Fabled which is now classified as held for sale. Exceptional items are an alternative performance measure.

Retail revenue* growth of 9.7% was primarily due to a 10.4% year-on-year increase in orders per week to 318,000 (1H 2018: 288,000) driven by an increase in the number of new customers. The average basket at Ocado.com of £108.04 decreased slightly by (0.1)% compared to 1H 2018.

Gross profit

Gross profit was up 11.2% to £233.2 million, driven by higher order volumes, slightly ahead of revenue growth.

Other income

Other income increased by 19.4% to £33.3 million (1H 2018: £27.9 million) with supplier income increasing year-on-year by 20.2% to £32.1 million (1H 2018: £26.7 million) equivalent to 4.0% of retail revenue* (1H 2018: 3.6%).

Distribution and administrative costs*

1Marketing expenditure excludes voucher costs

2Retail distribution and administrative costs* is an alternative performance measure, which we define in note 15 to the condensed financial statements and excludes depreciation, amortisation, impairment and exceptional items

3Adjusted to remove exceptional items and Fabled which is now classified as held for sale. Exceptional items are an alternative performance measure.

Retail distribution and administrative costs* consist of costs for the fulfilment and delivery operations of the business as well as head office costs. Total distribution and administrative costs* increased by 16.1% year-on-year.

CFC costs increased from £65.7 million to £81.4 million, an increase of 23.9% year-on-year. The rate of growth ahead of sales was primarily due to the annualised impact of the Erith CFC, which was not operating in the previous year, and which currently has higher engineering costs per order. The remaining underlying increase was driven by greater order volumes and inflationary pressures in key cost lines, offset by savings from fixed costs in Andover CFC after the fire.

Mature CFC UPH (units per hour) efficiencies continued to improve on the prior year at 167 (1H 2018: 163), driven mainly by improvements at Dordon CFC.

Trunking and delivery costs increased by £7.3 million to £97.5 million, an increase of 8.1% year-on-year (1H 2018: £90.2 million). This is due to increases in wage-related and vehicle costs as a result of greater order volumes and inflationary cost pressures but was below the rate of sales growth because of improved delivery efficiency. Deliveries per van per week have risen by 2.7% to 194 (1H 2018: 189) as customer density improved and with continued enhancements to our routing system.

Head office costs increased by 20.6% year-on-year from £24.3 million to £29.3 million. This is driven by technology costs as we begin the project to transition Ocado.com onto our new platform, and additional headcount partly to support the warehouse operations opened in the last 12 months.

Marketing costs excluding voucher spend increased from £5.9 million to £8.7 million due to increases in online acquisition and trialling of an offline media campaign. This was 1.1% as a percentage of retail revenue* (1H 2018: 0.8%).

EBITDA*2

EBITDA*2 for the retail business decreased from £46.1 million in 1H 2018 to £44.1 million.

Solutions Segment

1 Solutions distribution and administrative costs* is an alternative performance measure, which we define in note 15 to the condensed financial statements and excludes depreciation, amortisation, impairment and exceptional items

2 EBITDA* is an alternative performance measure which we define as earnings before net finance cost, taxation, depreciation, amortisation, impairment and exceptional items*

3 Adjusted to remove exceptional items. Exceptional items are an alternative performance measure.

Fees

Fees invoiced, exclusive of VAT, amounted to £122.7 million, of which £46.7 million relates to international Solutions partners (1H 2018: £90.1 million, of which £23.7 million relates to international Solutions partners) and are a combination of fees due for services invoiced under existing solutions contracts and amounts received in advance of new Solutions contracts. Fees relating to Solutions contracts are not recognised as revenue until a working solution is delivered to the partner. When fees invoiced are greater than the revenue recognised, the Group recognises a contract liability.

Revenue*

The revenue* from Ocado's Solutions businesses was £70.8 million, up from £58.7 million in 2018. This comprises fees from our arrangement with Morrisons, for services rendered, technology support, research and development, management fees and a recharge of relevant operational variable and fixed costs and also an immaterial revenue from International solutions partners.

Distribution and administrative costs*

1Solutions distribution and administrative* costs excludes depreciation, amortisation, impairment and exceptional items and is an alternative performance measure which we define in note 15 to the condensed financial statements

2Adjusted to remove exceptional items. Exceptional items are an alternative performance measure.

Distribution and administrative costs* predominantly consist of fulfillment and delivery operation costs for the Morrisons business and the costs of employees who are developing solutions for and supporting our partnership agreements. These costs grew 33.4% year-on-year as a result of increases in headcount to support further improvements in our platform, to support existing international clients, and to build further capabilities to sign future clients.

EBITDA*

EBITDA* from our Solutions activities was £(16.2) million, an increased loss of £(9.6) million due to continued investment for our existing and new partnership agreements.

Other Segment

EBITDA* was £(9.2) million in 1H 2019, an increased loss of £(4.5) million primarily due to the increase in national insurance expense relating to share-based management incentive charges.

Exceptional Items

Andover CFC

In February 2019, a fire destroyed the Andover CFC, including the building, machinery and all inventory held on site. The Group has comprehensive insurance and claims have been formally accepted by the insurers. Property, plant and equipment with a net book value of £96.9 million was destroyed or damaged to the extent that nothing significant is expected to be recoverable. Inventory held at cost of £5.6 million was destroyed by the fire.

Insurance reimbursement for inventory is for the retail price of destroyed inventory, other incremental costs and a portion of business interruption losses.

There have been a number of other exceptional costs as a result of the fire which include, but are not limited to, temporary costs of transporting employees to other warehouses to work, professional fees relating to the insurance claims process, reimbursement of employee's personal assets that were destroyed and a restructuring provision that has been recognised as a result of the formal redundancy consultation that commenced in May 2019.

The Group expects to receive further insurance reimbursements in respect of reconstruction costs and business interruption losses. Claim negotiations are ongoing and the Group have not included any further amount in respect of these reimbursements as the likely insurance proceeds cannot be accurately quantified at this point. Income will be recognised in the future as the rebuilding costs of the CFC are incurred.

Disposal of Fabled

Legal and other transaction costs of £0.1 million were incurred in relation to the planned sale of Fabled.

Joint venture with M&S

Whilst certain costs relating to the transaction are permitted to be accounted for directly within equity, there are others that do not meet the requirements and as a result have been reported as exceptional costs. These include, but are not limited to, legal fees for advice relating to TUPE regulations and contractor fees incurred relating to transitional arrangements.

Loss before tax

1Adjusted to remove exceptional items and Fabled which is now classified as held for sale. Exceptional items are an alternative performance measure.

Depreciation, amortisation and impairment

Total depreciation and amortisation costs excluding write off of Andover were £55.0 million (1H 2018: £41.5 million), an increase of 32.5% year-on-year, driven primarily by the annualised impact of the Erith CFC and new front end software as a result of Bon Preu going live in the period.

Net finance costs

Net finance costs increased from £6.2 million to £6.7 million year-on-year. This primarily consists of finance costs relating to the £250 million Senior Secured Notes, and the growth came from reduced capitalisation of interest on qualifying assets, offset by cost savings from debt expiring such as finance leases.

£0.3 million of interest costs have been capitalised in the period in relation to the Bond and the RCF in accordance with the relevant accounting standards (1H 2018: £2.0 million).

Share of result from joint venture

MHE JVCo Limited ("MHE JVCo") holds Dordon CFC assets, which Ocado uses to service its and Morrisons' online business and is owned 50% by Ocado and 50% by Morrisons. The Group share of MHE JVCo profit after tax in the period amounted to £0.5 million (1H 2018: £0.6 million).

Loss before tax and exceptional items*

Loss before tax and exceptional items* for the period was £43.0 million (1H 2018: loss of £12.9 million).

Taxation

Due to the availability of capital allowances and Group loss relief, the Group does not expect to pay corporation tax during the period. No deferred tax credit was recognised in the period. Ocado had approximately £267.5 million (1H 2018: £207.6 million) of unutilised carried forward tax losses at the end of the period.

Dividend

During the period, the Group did not declare a dividend.

Earnings per share

Basic loss per share as per the statutory results was 19.77p (1H 2018: loss per share of 2.22p) and diluted loss per share was 19.77p (1H 2018: loss per share of 2.22p).

Capital expenditure

Capital expenditure for the period:

Capital expenditure in the Hatfield CFC was £1.8 million (1H 2018: £1.5 million), which mainly related to a number of small projects to improve the capacity and resiliency of these sites.We incurred £26.4 million of costs in the period for our new CFCs, with the majority  at Erith CFC to support ramping up operations.

The building works on our new international CFCs continued in FY19. These relate to deals signed for CFCs in France, Canada and USA.

Total expenditure on new vehicles in the period was £5.7 million (1H 2018: £3.8 million). This expenditure enabled business growth and replacement of vehicles that have reached or exceeded their five year useful life.

Ocado continued to develop its own proprietary software and incurred £31.6 million (1H 2018: £26.4 million) of internal development costs in the period on technology, with £5.8 million (1H 2018: £4.4 million) being spent on computer hardware and software. We expanded our headcount as increased investments were made to support our strategic initiatives. The main areas of investment were replatforming of our technology including  the greater use of public and private cloud services, and support for the growth of Erith CFC and existing partners' future CFCs.

Fulfilment development expenditure of £13.5 million (1H 2018: £8.5 million) represents the development of our next generation fulfilment solutions which will be used in our latest CFCs and within CFCs for our Solutions partners.In the period, we incurred our share of the capital expenditure relating to MHE JVCo of £0.2 million (1H 2018: £0.4 million) to improve operational capacity and efficiency of the Dordon CFC and various minor improvement projects.Other capital expenditure was £10.6 million in the period, primarily relating to our distribution network and investments in the transformation of our business process and infrastructure to support the OSP expansion, including a new HR system.At 2 June 2019, capital commitments contracted, but not provided for by the Group, amounted to £78.8 million (1H 2018: £49.9 million). We expect capital expenditure in 2019 to be approximately £350 million which mainly comprises the continuing investment in our infrastructure and technology solutions, the implementation of our solution to our international partners, roll out of our new CFCs and additional investment in new vehicles to support business growth. This includes capex requirements related directly to our new Solutions' customers.

Cash flow

Net operating cash flow after finance costs paid decreased to an outflow of £8.6 million, from an inflow of £38.1 million in 2018 as detailed below:

 1. EBITDA* is an alternative performance measure which we define as earnings before net finance cost, taxation, depreciation, amortisation, impairment and exceptional items*

Operating cash flow decreased by £46.7 million during the year driven mainly by the cash settlement of share incentive schemes, partially offset by an increase in Solutions fees received and insurance proceeds of £3.5 million received for the loss of inventory for the CFC in Andover. The increase in working capital inflow of £38.6 million is driven by an increase in trade and other payables of £44.8 million and an increase in contract liabilities of £41.9 million, offset by an increase in trade and other receivables of £54.8 million. The remaining £6.7 million is due to the decrease of inventories and settlement of cash flow hedges.

During the period there was £131.8 million of capital expenditure and investment, which was paid in cash, as the Group continues to invest for future growth comprising investments in new CFCs, development of our next generation fulfilment solutions, and spend on new vehicles and spoke sites. Insurance proceeds of £40.0 million were received towards the rebuilding of the Andover CFC. The Group also received a dividend of £6.6 million from MHE JVCo, a joint venture company in which the Group holds a 50% interest.

Net financing cash flows in the period were £41.3 million, comprising £57.7 million of proceeds from the disposal of shares, offset by £12.6 million decrease in financing obligations and £3.8 million of transaction costs.

Balance sheet

The Group had cash and cash equivalents of £360.1 million at the end of the period versus £410.8 million as at 2 December 2018.

Gross debt at the period end was £360.2 million (1H 2018: £375.2 million) and external gross debt*, excluding obligations under finance leases owing to MHE JVCo, was £291.1 million (1H 2018: £282.9 million). External net cash* at the period end was £69.0 million (1H 2018: £164.7 million). External net cash* for 1H 2018 included a one-off uplift from cash generated by the proceeds from the issue of share capital.

Trade and other receivables includes £51.5 million (1H 2018: £33.0 million) of amounts due from suppliers in respect of commercial income. £9.2 million (1H 2018: £4.9 million) is within trade receivables, and £42.3 million (1H 2018: £28.1 million) within accrued income.

The Group has recognised £157.1 million (1H 2018 restated: £74.3 million) of contract liabilities which are fees invoiced to Solutions customers prior to the recognition of revenue. The increase is due to new Solutions deals signed since that date.

Included within property, plant and equipment is capital work‐in‐progress for land and buildings of £48.8 million (1H 2018: £38.1 million) and capital work‐in‐progress for fixtures, fittings, plant and machinery of £56.4 million (1H 2018: £93.8 million), the decrease is largely due to costs included in 1H 2018 relating to Erith CFC, which opened in the second half of 2018.

Key performance indicators

The following table sets out a summary of selected unaudited operating information for 1H 2019 and 1H 2018:

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

1. Average orders per week refers to results of Ocado.com and Fetch.

2. Average retail value of goods a customer receives (including VAT and delivery charge) per order from Ocado.com

3. Measured as units dispatched from the CFC per variable hour worked by Hatfield CFC and Dordon CFC operational personnel. We consider the mature CFCs to be Hatfield and Dordon

4. Average deliveries per van per week has been adjusted to exclude the period in which the Andover spoke was not operational, following the fire.

5. Value of products purged for having passed Ocado's "use by" life guarantee divided by retail revenue*

*These measures are considered Alternative Performance Measures which we define in note 15 to the condensed financial statements

Condensed Consolidated Income Statement

for the 26 weeks ended 2 June 2019

Earnings before interest, taxation, depreciation, amortisation, impairment and exceptional items (EBITDAa)

aEBITDA is an alternative performance measure, refer to note 15 for further information.

b2018 restatement was due to adoption of IFRS 15 in the second half of 2018. Refer to note 3 for further details.

cExceptional items of £0.1 million in 2018 have been reclassified to administrative expenses in the income statement for purposes of presenting the comparative information.

Condensed Consolidated Statement of Comprehensive Income

for the 26 weeks ended 2 June 2019

a2018 restatement was due to adoption of IFRS 15 in the second half of 2018. Refer to note 3 for further details.

Condensed Consolidated Balance Sheet

as at 2 June 2019

a2018 restatement was due to adoption of IFRS 15 in the second half of 2018. Refer to note 3 for further details.

Condensed Consolidated Statement of Changes in Equity

for the 26 weeks ended 2 June 2019

b2017 and 2018 restatement was due to adoption of IFRS 15. Refer to note 3 for further details.

Condensed Consolidated Statement of Cash Flows

for the 26 weeks ended 2 June 2019

Notes to the Condensed Consolidated Interim Financial Information

1 General Information

Ocado Group plc (hereafter "the Company") is incorporated in the United Kingdom and domiciled in England and Wales (registration number 07098618). The address of its registered office is Buildings One & Two, Trident Place, Mosquito Way, Hatfield AL10 9UL. The condensed consolidated interim financial information (hereafter "financial information") comprises the results of the Company and its subsidiaries (hereafter "the Group").

The financial period represents the 26 weeks ended 2 June 2019 (prior period 26 weeks ended 3 June 2018; prior financial year 52 weeks ended 2 December 2018).

2 Basis of Preparation

The financial information has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union and the Disclosure Rules and Transparency Rules of the UK Financial Conduct Authority.

The financial information does not amount to full statutory accounts within the meaning of section 434 of the Companies Act 2006 and does not include all of the information and disclosures required for full annual financial statements. It should be read in conjunction with the Annual Report and Accounts of Ocado Group plc for the 52 weeks ended 2 December 2018 which was prepared in accordance with IFRS as adopted by the European Union and were filed with the Registrar of Companies. This report is available either on request from the Company's registered office or to download from www.ocadogroup.com. The auditor's report on these accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

The financial information is presented in sterling, rounded to the nearest hundred thousand unless otherwise stated. It has been prepared under the historical cost convention, except for certain financial instruments, which have been measured at fair value.

The directors are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed consolidated financial statements. In assessing going concern, the Directors take into account the Group's cash flows, solvency and liquidity positions and borrowing facilities. At the period end, the Group had cash and cash equivalents of £360.1 million (1H 2018: £447.6 million) and net current assets of £150.8 million (1H 2018: £302.3 million)

3 Significant Accounting Policies

The accounting policies applied by the Group in these interim financial statements are consistent with those applied by the Group in its consolidated financial statements for the 52 weeks ended 2 December 2018, with the exception of IFRS 9 "Financial Instruments" which became effective for the Group for the period commencing 3 December 2018.

IFRS 9 Financial Instruments

IFRS 9 "Financial Instruments" replaces IAS 39 for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement, impairment and hedge accounting.

The main changes the new standard introduces are:

· new requirements for the classification and measurement of financial assets and financial liabilities;

· a new model for recognising impairment of financial assets; and

· changes to hedge accounting by aligning hedge accounting more closely to an entity's risk management objectives.

The changes have been applied by adjusting the Consolidated Balance Sheet at 3 December 2018, the date of initial application, with no restatement of comparative information. In accordance with IFRS 9 transition guidance, comparative financial information in the primary financial statements remains compliant with the classification and measurement requirements of IAS 39.

Classification and Measurement

IFRS 9 introduced a principles-based approach to the classification of financial assets. Financial assets are measured at fair value through profit or loss (FVTPL), fair value through other comprehensive income (FVTOCI) or amortised cost. Classification is determined by the nature of the cash flows of the assets and the business model in which they are held. These categories replace the existing IAS 39 classifications. For financial liabilities, most of the pre-existing requirements for classification and measurement previously included in IAS 39 were carried forward unchanged into IFRS 9.

An assessment of the Group's business models was made as at the date of initial application on 3 December 2018 and applied prospectively. The changes in classification resulted in an increase in an unlisted equity investment held within Non-current financial assets as at

3 December 2018. A summary of the respective classifications under IAS 39 and IFRS 9 is presented below:

(a) Previously the Group measured the investment at cost as permitted by IAS 39. Measurement at cost is no longer permitted and an election to measure the investment at FVTOCI has been made.

IFRS 15 "Revenue from Contracts with Customers"

The Group early adopted IFRS 15 "Revenue from Contracts with Customers" using the full retrospective method for the 52 week period ended 2 December 2018. The adoption was in the second half of the 2018 and hence the H1 18 results require restatement as a comparative. This note shows the impact of the adoption of IFRS 15 on the Group's half year results for the 26 weeks ended 3 June 2018.

Consolidated Income Statement Restatement under IFRS 15

Below is a description of the IFRS 15 impact on material areas requiring reclassification or restatement:

Recognition of Revenue:

Under the Group's previous accounting policy, revenue for certain contracts was recognised under the percentage of completion method based upon costs incurred to date as a proportion of the estimated full cost of completing the contract and applying the percentage to the total revenue expected to be earned. Such percentage of completion accounting would typically result in higher levels of revenue recognised in the earlier stages of a contract in line with the profile of costs incurred.

Under IFRS 15 revenue is recognised once, or as, a performance obligation is fulfilled. Typically, in an Ocado Solutions contract, revenue recognition would not commence until the date of "go-live". Previously revenue was typically recognised in the earlier development stages of a contract. This change has resulted in a reduction of £4.6 million in revenue recognised in the period to 3 June 2018. Under IFRS 15, revenue is now spread over the expected duration of the period the services are provided.

Consolidated Balance Sheet Restatement under IFRS 15

The cumulative effect of the adoption of IFRS 15 has resulted in a decrease in net assets of £27.7 million as at 3 June 2018 and a corresponding decrease in retained earnings. This reflects an important change in accounting policy as the Group moves from percentage of completion to a methodology that is focused on aligning revenue recognition to the delivery of its performance obligation. The new policy results in lower levels of revenue being recognised in the early stages of a contract but higher levels towards the end of a contract.

The decrease in trade and other payables relates to the reclassification and restatement of deferred income as non-current and current contract liabilities. Prior to adoption of IFRS 15, deferred income was classified within 'Trade and other payables'.

The increase in property, plant and equipment relates to contributions received from a customer towards the cost of an asset. These are within the scope of IFRS 15 and are therefore recognised as contract liabilities and released over the life of the contract but were previously offset against the cost of the asset.

The other adjustment of £0.5 million relates to an item of property, plant and equipment that was classified as a non-current asset held for sale at 3 June 2018. It was incorrectly remeasured at fair value which exceeded its carrying amount. This adjustment corrects that remeasurement.

 Consolidated Statement of Cash Flows Restatement under IFRS 15