Ocado Group Plc

Half year results for the 24 weeks ended 17 May 2015

30 June 2015

Financial and statutory highlights

Key operational highlights

·      Strong new customer growth of over 30% year on year, underpinned by an increasing proportion from a broader set of customer demographics

·      Key metrics supporting our UK retail business have continued to improve against the ongoing structural headwinds of price deflation and cost inflation

·      Maintained stability in our average basket size by item despite some decline in selling prices driven by greater price competition

Tim Steiner, Chief Executive Officer of Ocado, said:

"The channel shift towards online grocery shopping continued during the period, with the broader grocery market remaining characterised by intense price competition and deflationary pressures.

"Against this backdrop, our relentless focus on customer satisfaction continues to drive customer numbers and like-for-like sales ahead of the online grocery market. The resilience of our business model and increasing operational leverage also mean that we have grown operating profit despite these industry headwinds.

"Our continuous commitment to constant innovation in technology not only allows us to give industry-leading service to our customers at home but to offer our end-to-end platform solution to retailers outside the UK. We are excited by the possibility and reiterate our target of signing a first agreement during 2015."

Key progress against our strategic objectives

Constantly improve the proposition to customers

·      Continued market leading service levels with on time deliveries maintained at a high level at 95.6% (1H 2014: 95.7%) and order accuracy improved to 99.3% (1H 2014: 99.2%)

·      Range at Ocado.com significantly broadened to over 45,000 SKUs (1H 2014: 35,000 SKUs)

·      Over 50% of orders were checked out using a mobile device using our latest apps and browsers and we launched our first Apple Watch app

·      Won Best Online Supermarket in The Grocer Gold Awards 2015

Strengthen consumer brands

·      Ocado own-label sales up nearly 25% year on year

·      New customer acquisitions up over 30% year on year, driving the increase of active customers⁴, up 18.9% to 471,000 (1H 2014: 396,000)

·      Average number of items in basket unchanged with average basket value declining to £111.68 (1H 2014: £114.43), impacted by price deflation and downward impact of orders for Fetch and Sizzle

Develop ever more capital and operationally efficient infrastructure solutions

·      Mature CFC⁵ operational productivity of 153 UPH (1H 2014: 142 UPH), with Dordon CFC reaching over 170 UPH by end of period

·      Delivery efficiency of 162 DPV broadly in line with last year, with a number of enhancements to our routing system resulting in improvements towards the end of the period

·      Commenced first installations of our proprietary infrastructure solution into our Andover CFC (CFC3) and it remains on track

·      Order volumes grown to an average of over 191,000 orders per week (1H 2014: 161,000 OPW), with the highest number of orders delivered in a week exceeding 207,000 during the period

Enhance end-to-end technology systems

·      IT systems replatforming progressing well and remains on track with our expectations

·      Continued expansion of our technology team to 620 developers and IT professionals with plans to increase this to over 700 by the end of 2015

Enable Morrisons' and future partners' online businesses

·      Morrisons.com reached around £200 million in annualised run-rate sales after 12 months of trading (announced in Annual Report, March 2015)

·      Discussions continue with multiple potential international partners to adopt Ocado Smart Platform with target to sign first agreement in 2015

Results presentation

A results presentation will be held for investors and analysts at 9.30am today at the offices of Goldman Sachs, Peterborough Court, 133 Fleet Street, London EC4A 2BE.  Presentation material and webcast will be available online at www.ocadogroup.com/investors/reports-and-presentations/2015.aspx

Contacts

Tim Steiner, Chief Executive Office 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 Hardiman-Evans, Head of IR & Corporate Finance on 020 7353 4200 today or 01707 228 000

Andrew Grant, David Shriver, Michelle Clarke at Tulchan Communications on 020 7353 4200

Notes

1.     Gross sales include revenue plus VAT and marketing vouchers

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

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

4.     A customer is classified as active if they have shopped within the previous 12 weeks

5.     Mature CFC operations. A CFC is considered mature if it has been open 12 months by the start of the reporting period

Financial Calendar

Our financial reporting calendar for the remainder of the year will be a Q3 Trading Statement on 15 September 2015, a Q4 Trading Statement on 10 December 2015 and a Full Year Results Statement on 2 February 2016. We will not release a Christmas Trading Statement.

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 Executive Officer's review

The UK grocery market has continued to experience significant challenges from price competitiveness and deflationary pressures. Against this backdrop, we continued to deliver on our strategic objectives that apply to both our own retail business and our existing and potential platform operations - to drive growth, maximise efficiency and utilise our knowledge.  Specifically, we increased sales faster than the broader online grocery market, progressed work on our next CFCs, continued to deliver good service to Morrisons.com, and advanced discussions with multiple potential international partners of our platform.

Business model validation

Our performance during the period provides further evidence of the validity and robustness of our business model.

Despite the industry-wide headwinds of continuing price competition and deflationary pressures, further improvements in operating efficiencies have offset declines in margin. The operating contribution pre overhead from our retail operations has continued to increase year on year.

Overhead costs have increased as we continue to invest in our platform to develop our international partner business, in line with our strategic objectives.

Progress against our strategic objectives 

We have a number of key complementary actions, which form a framework to achieve our strategic objectives, intended to deliver long-term shareholder value.  These actions are to:

·      Constantly improve the proposition to customers;

·      Strengthen our consumer brands;

·      Develop ever more capital and operationally efficient infrastructure solutions;

·      Enhance our end-to-end technology systems; and

·      Enable Morrisons' and future partners' online businesses.

Constantly improve our proposition to customers

We continued to improve the core elements of our proposition to customers - our service and user experience, the assortment of products we sell and the keenness of our pricing. 

The quality of our service and extensive range of products continued to be recognised by our customers, with the award of Best Online Supermarket in The Grocer Gold Awards 2015 and for the sixth consecutive year we were voted the Best Online Grocer by Which? Magazine in its members' Annual Satisfaction Survey.

A positive shopping experience is critical to encouraging consumers to try our service and to return to us for future shops. Our focus has remained on improving the customer experience by enhancing the speed, convenience and ease of using our service. 

It is naturally important for us to be where our customers interact and mobile continues to grow in importance. We enabled our customers to shop more easily using their mobile devices with the introduction of a mobile website at the end of last year which has proved to be popular particularly for first time users of the webshop. During the period we launched a redesigned Android app and our first Apple Watch app enabled the owners of this new device to shop using the watch on the first day of its launch in the UK. Over 50% of all orders are now checked out using a mobile device, using our latest apps and browsers.

Our PayPal login introduced at the end of last year has become increasingly popular, particularly for new customers.

We believe our order accuracy and on time delivery performance continue to be market leading, both critical elements in providing a high quality and reliable service for our customers. Orders delivered on time or early remained at a high level at 95.6% (1H 2014: 95.7%) and order accuracy improved slightly to 99.3% (1H 2014: 99.2%). 

We have trialled click and collect to test initial consumer reaction and expect to continue this on a limited basis.

Our range at Ocado.com is now over 45,000 SKUs (1H 2014: 35,000 SKUs) with further extension including the launch of our vegetarian "shop in shop" with over 650 vegetarian and vegan products in one place. The shop has proved popular with customers due to the extensive range which includes big brands alongside niche products from small suppliers, and was recognised as the Best Online Retailer for Vegetarians in the Veggie Awards 2015.

We also extended our range in non-food, which helped support growth in non-food sales by almost 80% despite current limited investment in technology in that area. Sales of sports nutrition and slimming products were up even more, making it the largest category for non-food at ocado.com. Fetch, our specialist pet store, and Sizzle, our kitchen and dining shop, continue to grow.  We are also progressing preparations for the launch of our health and beauty business alongside Marie Claire.

Our Low Price Promise ("LPP") basket-matching scheme ensures that we remain price competitive against the market leader, giving confidence to customers over our pricing position. Despite the increased numbers of price reductions and broader food price deflation in the market, when checking for LPP, over 70% of our customers' baskets were already cheaper at Ocado. The cost of LPP in the form of vouchers used during the period remained low, reflecting our competitiveness in prices and consistent promotional activity. We remain comfortable with this pricing position even with the current market conditions.

Our value credentials were further supported by the introduction of checkout walk gifting, where customers can accept supplier funded gifts as they complete their order, and this offer has been well received by customers.

Strengthen consumer brands

We have continued to broaden awareness of our brands and reinforce their strength and values through our marketing and other promotional activity. In light of the timing of new capacity, we scaled down our above the line marketing programme and have focused our limited marketing expenditure on attracting new customers to Ocado with awareness campaigns with external partners, as well as radio and national newspaper offers and sponsorship of the food section of the Ideal Home Show.

Following the great success of last year's initiative, we launched the second series of "Britain's Next Top Supplier" competition, an initiative to support and nurture small British suppliers, who form a significant part of our supplier base.

The Ocado own-label reinforces brand strength and grew in popularity with the average basket now containing over five Ocado own-label products, and with sales up nearly 25%, with growth constrained by the cap under our contractual arrangements with Waitrose.

Our active customer numbers grew to 471,000 (1H 2014: 396,000), up 18.9% reflecting the strengthening position of our brand. More significantly new customer acquisitions grew by over 30% in the period.

While our customers' average baskets reduced to £111.68 (1H 2014: £114.43), including the impact of destination site orders from Fetch and Sizzle, the number of items in the average grocery basket remained stable. The average basket was £112.59 (1H 2014: £114.29) when destination site orders are excluded.

Fetch has continued to grow, with strong customer acquisitions from increased brand awareness, and sales driven by specialist pet food lines. Sizzle has grown more modestly with limited marketing support, whilst we wait to complete further usability advancements which require technology resources.

Develop ever more capital and operationally efficient infrastructure solutions

We have previously announced our plans for CFC3 and CFC4 in Andover and Erith respectively.  We commenced the first installation of our new proprietary modular, scalable physical fulfilment solution into our Andover CFC, and remain on track to commence operations around the end of the year. The developer has now commenced works at the Erith site and we expect to start our works at this site in 2016.

Both our Hatfield CFC and our Dordon CFC continued to operate to a high level of accuracy and with improved efficiency. Using the units per hour efficiency measure ("UPH"), the average productivity for the period in our mature CFC operations was 153 (1H 2014:142). By the end of the period, operational efficiency in the Dordon CFC reached over 170 UPH. During the period we installed into the Dordon CFC its first three proprietary bagging machines, which are now in the commissioning phase but which will benefit productivity during the second half.

Ocado order volumes have grown to an average of over 191,000 orders per week ("OPW") (1H 2014: 161,000 OPW), with the highest number of orders delivered in a week exceeding 207,000 during the period.

We made a number of enhancements to our routing system which in the second part of the period led to an improvement to the average deliveries achieved on a van route. It takes a little longer to align the total number of vans to the improved routing systems, hence deliveries per van per week across all shifts ("DPV/ week") fell marginally to 162 (1H 2014: 163) while drops per standard driver shift improved.

We expanded our delivery capacity with the opening of additional spokes during the period in Dagenham and Park Royal, and first Ocado deliveries were made from our Knowsley site which opened just prior to the end of 2014. The Park Royal site replaces our smaller White City location which has now been closed. Last year we received a one-off compensation payment of £1.2 million from the landlord at the White City spoke to cover costs of closure and the fit out costs of the new site, with a further £3.3 million received shortly after the period. The delivery capacity for some of these spokes is shared with Morrisons, reducing the impact of the additional fixed costs of these operations which are only partially utilised during their build-up of capacity.

Enhance our end-to-end technology solutions

The foundation of our business is proprietary IP, knowledge and technology that supports our "best in class" proposition to customers and drives our operating efficiencies.

We continue to develop our platform with the rewrite of our IT systems to enable faster replication and roll out of our technology internationally, and remain on track with our plans. We continue to expand our technology team and by the end of the period employed 620 developers and IT professionals with plans to increase this to over 700 by the end of 2015. Our technology professionals currently operate from offices in the UK and Poland, and we have plans to open a second technology office in Poland during 2015.

Enable Morrisons' and future partners' online businesses

Our IP and technology leadership present opportunities to generate significant value through commercialisation.

Our first commercialisation agreement, with Wm Morrison Supermarkets plc ("Morrisons"), resulted in the launch of Morrisons.com in January 2014.  Morrisons.com uses our existing CFC technology and solutions and has continued to ramp up well. In March 2015, Morrisons reported that the run rate of sales after 12 months of trading for Morrisons.com had reached about £200 million. To our knowledge this is the fastest ramp up of an online grocery business globally, and provides evidence of the effectiveness of combining our platform with an existing grocery retailers' brand, customer awareness and merchandising skills.

We continue to receive interest from international parties to discuss how our "Ocado Smart Platform", which combines our end-to-end technology platform with our physical modular infrastructure solution, might assist them in launching or improving online businesses in their own markets.

During the period, discussions with multiple parties advanced further with a view to utilising Ocado Smart Platform, and we reiterate our target of signing a first agreement during 2015.

Market backdrop

We believe the outlook for the grocery market remains subdued despite the more positive outlook for broader economic growth in the UK.

Recent Kantar data suggests that prices have been declining since September 2014, although the fall may not have been as steep as in previous months.  The price declines are primarily driven by increased price competition to counter the growing threat posed by discount operators, resulting in margin decline as well as food industry deflation resulting from lower input costs in the food chain.

Notwithstanding this broader market activity, online grocery shopping has continued to expand faster than the total market, with all the major supermarkets investing to satisfy growing online demand.

Internationally there continues to be increased interest in online grocery services from both consumers and retailers alike, as major incumbent retailers seek to address the channel shift online.

People and CR initiatives

By the end of the period, we employed over 8,400 people, an addition of over 1,500 new employees since 1H 2014 to further support the growth of our Ocado retail businesses, our Morrisons platform business and the development of Ocado Smart Platform.

In response to customer feedback, we launched "Donate Food with Ocado", a scheme whereby customers donate a sum of money which is then matched by Ocado in groceries and donated to food bank partners. Nearly £100,000 is in the scheme to date, with Ocado committed to at least matching every donation made.

Reporting, current trading and outlook

We finished the period with growth in retail revenue of 15.1%. We expect to continue growing slightly ahead of the online grocery market.

Chief Financial Officer's review

During the period we continued to grow our sales against a backdrop of a grocery retail market that remained challenging and competitive. At the group level, sales were driven by continued growth in our retail business and benefits from our agreement with Morrisons.

Retail sales were driven by further improvement in our proposition to customers and an increase in the number of loyal customers. Operating profitability strengthened in comparison to the prior period benefitting from more efficient operational fulfilment. This was offset by lower margins reflecting the competitiveness and deflationary pressures in the market.  In addition, we continued to invest in a number of strategic initiatives to support future growth of the business and the period was impacted by higher depreciation and amortisation arising from Dordon CFC, vehicles and additional spokes to support current and future business growth.

1. Revenue is online sales (net of returns) including charges for delivery but excluding relevant vouchers/offers and value added tax. The recharge of costs to

    Morrisons and fees charged to Morrisons are also included in revenue

2. Morrison MHE JVCo impact includes the income arising from the leasing arrangements with Morrisons for MHE assets and share of results from joint venture

Revenue

Group revenue improved by 18.2% to £507.7 million. Revenues from retail activities were £475.3 million, an increase of 15.1%. The Morrisons agreement contributed £32.4 million to revenue, up from £16.9 million in 1H 2014. This comprised annual fees for services, technology support, research and development, management fees and a recharge of relevant operational variable and fixed costs.

Retail revenue growth was driven by growing demand with average orders per week of 191,000 up from 161,000 in 1H 2014, partially offset by a decline in the average order size to £111.68 (1H 2014 £114.43).

We continued to acquire new customers with tailored marketing and voucher activity and maintained a lower emphasis on reactivating lapsed customers. New customer acquisitions were up over 30% from 1H 2014, with voucher spend in the period increasing to 1.2% of revenue (1H 2014 1.0%).  We sustained the significant growth of our non-food offering in the period with revenue increasing by nearly 80% year on year.

Gross profit

Gross profit rose to £170.8 million, up 21.6% year on year. Gross margin was 33.6% of revenue (1H 2014: 32.7%), ahead of 1H 2014 principally due to the contribution from Morrisons gross profit. The grocery trading environment remained challenging and as a result of increased price competition, retail gross margin reduced by (0.8)% to 29.1% (1H 2014: 29.9%) of retail revenue partially offset by lower average product wastage. Average product wastage reduced to 0.7% of retail revenue (1H 2014: 0.8%) mainly due to improvements at Dordon CFC as this warehouse increased its order volumes. Gross profit was £32.4 million from our arrangement with Morrisons, an increase from £16.9 million in 1H 2014 driven by the growth in scale of Morrisons.com.

Other income increased by 22.9% to £19.3 million (1H 2014: £15.7 million) with media income from suppliers of £12.4 million standing at 2.6% of retail revenue (1H 2014: 2.5%). Media income from website related activities continued to grow strongly because of increased demand from our suppliers, due to the benefits of scale and a wider product range. Other income also included £5.1 million (1H 2014: £3.9 million) of income arising from the leasing arrangements with Morrisons for MHE assets and £1.1 million (1H 2014: £1.1 million) of rental income relating to the lease of Dordon CFC. This income for the MHE assets is generated from charging MHE lease costs to Morrisons and is fully offset by the additional depreciation and lease interest costs that we incur for the share of the MHE assets jointly owned with Morrisons.

Operating profit

Operating profit before the share of result from joint venture and exceptional items ("adjusted operating profit") for the period was £10.6 million, compared with £9.8 million in 1H 2014.

Distribution costs and administrative expenses include costs for both the Ocado and Morrisons fulfilment and delivery operations, as well as head office costs. The costs relating to the Morrisons operations are recharged and included in revenue. Total distribution costs and administrative expenses, including costs recharged to Morrisons, grew by 22.6% year on year. Excluding Morrisons, costs grew by 13.6%, lower than the growth in the retail average orders per week of 18.6%.

1. Excluding chargeable Morrisons costs, depreciation, and amortisation and impairment charges

2. Morrisons costs include both distribution and administrative costs

3. Included within depreciation and amortisation for 1H 2014 is a £0.2 million impairment charge

At £97.5 million, distribution costs increased by 11.9% compared to 1H 2014, lower than the growth in the retail average orders per week. Mature CFC UPH efficiencies continued to improve year on year by 7.7% to 153. This improvement in mature CFC UPH was driven mainly by the Dordon CFC productivity which exceeded 170 UPH by the end of the period. UPH in the Hatfield CFC also improved at the end of the period and reached 150 UPH.

We made a number of enhancements to our routing system which in the second part of the period led to an improvement to the average deliveries achieved on a van route. It takes a little longer to align the total number of vans to the improved routing systems, hence deliveries per van per week across all shifts ("DPV/ week") fell marginally to 162 (1H 2014: 163) while drops per standard driver shift improved. We also benefited from lower fuel costs.

We increased our distribution capacity in our existing geographic coverage by the opening of two new spokes in the period in Dagenham and Park Royal, the latter replacing the smaller White City spoke which was closed during the period. We also benefited from the opening of three new spokes in the second half of last year (Sheffield, Enfield and Knowsley).

Total administrative expenses excluding depreciation, amortisation and costs recharged to Morrisons increased to £32.0 million, a 20.3% increase from 2014 and 6.3% as a percentage of revenue (1H 2014: 6.2%). This year on year increase is mainly a result of additional technology professionals to support our strategic initiatives, higher share based management incentive costs and additional costs to operate the Morrisons services for which the Group earns fees. Marketing costs excluding voucher spend remained flat at £4.0 million (1H 2014: £4.0 million), falling as a percentage of retail revenue to 0.8% (1H 2014: 1.0%). Marketing spend excluding vouchers continued to be spent on targeted activities and this lower spend as a percentage of sales was offset by more vouchering to continue the strong momentum of growth in our new customers, up over 30%.

1. Excluding chargeable Morrisons costs, depreciation and amortisation

Total depreciation and amortisation costs were £26.4 million (1H 2014: £23.4 million), an increase of 12.8% year on year. This increase is due to higher depreciation and amortisation arising from the full period impact of depreciations on the phase 2 extension works at Dordon CFC and increased investment in new spokes and vehicles to support our order growth.

Share of result from joint venture

MHE JVCo Limited ("MHE JVCo") was incorporated in 2013 on the completion of the Morrisons agreement, with Ocado owning a 50% equity interest in this entity. MHE JVCo holds Dordon CFC assets, which Ocado uses to service its and Morrisons' online business. The Group share of MHE JVCo profit after tax in the period amounted to £1.2 million (1H 2014: £1.1 million).

Net finance costs

Net finance costs were £4.6 million, versus £3.4 million in 1H 2014. This increase was attributable to £0.8 million of additional interest under finance lease arrangements with MHE JVCo and £0.3 million of commitment fees in respect of the previous £100 million Revolving Credit Facility ("RCF").

Profit before tax

Profit before tax for the period was £7.2 million (1H 2014: £7.5 million).

Taxation

Due to the availability of capital allowances and Group loss relief, the Group did not pay corporation tax during the year. No deferred tax credit was recognised in the period. Ocado had approximately £285.3 million of unutilised carried forward tax losses at the end of the period.

Earnings per share

Basic earnings per share was 1.23p and diluted earnings per share was 1.17p.

Capital expenditure and cash flow

Capital expenditure for the period:

1. Capital expenditure includes tangible and intangible assets

2. Capital expenditure excludes assets leased from MHE JVCo under finance lease arrangements

3. Capital expenditure includes Ocado share of the MHE JVCo capex in 2015 of £2.4 million and in 2014 of £11.5 million

Capital expenditure in the Hatfield CFC was £1.6 million on resiliency projects to refurbish zone pick aisles and conveyors and some improvement projects such as additional bagging machines.

In July 2014, we announced plans for our next CFC located in Andover, Hampshire in the south of England. The Andover CFC will be smaller than our existing CFCs with expected capacity of 65,000 OPW. We have currently incurred £17.8 million of costs on the main build of the warehouse and the early build costs for the first installation of our proprietary infrastructure system.

In January 2015, we announced plans for our latest CFC located in Erith, South East London. The Erith CFC will be larger than our existing CFCs (expected capacity of 200,000 OPW). We expect our work to commence in 2016 and for the site to go live during 2H 2017. We incurred £1.2 million of costs on this site in the period.

Investment in new vehicles, which are typically on five year financing contracts, was £7.9 million, higher than the prior year (1H 2014: £4.4 million). This was to support the business growth and the need to replace vehicles that have reached or exceeded their five year useful life. Delivery capital expenditure also included investments for new spokes of £2.6 million, which included costs for the completion of the Dagenham spoke which opened in January 2015 and costs for our new London spoke at Park Royal, with operations transferred from the White City spoke in May 2015.

Ocado continued to develop its own proprietary software and incurred £7.7 million (1H 2014: £5.6 million) of internal development costs in the period on Technology, with a further £1.5 million (1H 2014: £1.1 million) spent on computer hardware and software. We expanded our technology total headcount to 620 staff at the end of the period (1H 2014: 450 staff) as increased investments were made to support our strategic initiatives, including the major replatforming of Ocado's technology and migration of most of our systems to run on a public or private cloud. This will allow Ocado to achieve greater technical agility and enable the technology to support possible international expansion opportunities. In addition, we have invested internal technology resources as part of developing capital projects for Dordon CFC phase 2, next generation of fulfilment solutions and the further development of the Morrisons proposition.

Fulfilment development capital expenditure includes £7.1 million of investment in developing our next generation fulfilment solution which will be used in our new CFCs and for Ocado Smart Platform partners.

In the period we incurred our share of the capital expenditure relating to MHE JVCo of £2.4 million for the completion of Dordon CFC phase 2 to improve operational capacity of the warehouse and various minor improvement projects (e.g. bagging machines).

At 17 May 2015, capital commitments contracted, but not provided for by the Group, amounted to £35.3 million (30 November 2014: £20.1 million). We expect capital expenditure in 2015 full year to be approximately £150 million, with further investments in the next generation of fulfilment solutions, work on our new CFCs, additional new vehicles to support business growth and the replacement of vehicles coming to the end of their five year financing contracts.

Net operating cash flow after finance costs increased to £41.1 million, up 21.6% from £33.8 million in 1H 2014 as detailed below:

The Group continues to invest for future growth comprising investments in new CFCs, development of our next generation fulfilment solution and spend on new vehicles and spokes sites. We incurred £50.5 million of capital expenditure during the period. £40.6 million of capital expenditure was settled in cash during the period.

Net financing cash flows in the period were £(6.4) million comprising £(9.2) million net repayment of debt and financing obligations and £2.8 million of proceeds from the issue of new share capital following the exercise of employee share options and options under Ocado's Save As You Earn share scheme.

Balance sheet

The Group had cash and cash equivalents of £70.4 million at the end of period versus £76.3 million at 30 November 2014.

Gross debt at the period end was £175.4 million (1H 2014: £154.9 million) and external gross debt, excluding obligations under finance leases owing to MHE JVCo Limited, was £45.5 million (1H 2014: £46.2 million). Net external cash at the period end was £24.9 million (1H 2014: £64.1 million).

Trade and Other Receivables includes £26.1 million (2014: £24.0 million) of amounts due from suppliers in respect of commercial income.  £10.7 million (2014: £8.7 million) is within trade receivables, and £15.4 million (2014: £15.3 million) within accrued income.

Increasing financing flexibility

On 30 June 2015, the Group amended and extended its existing unsecured RCF. The facility was increased to £210 million and extended by 2 years to 1 July 2019. The participating banks are Barclays, HSBC, RBS and Santander. 

Key performance indicators

The following table sets out a summary of selected unaudited operating information for 1H 2015 and 1H 2014:

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

1. Average retail value of goods a customer receives (including VAT and delivery charge and including destination site orders) per order

2. Measured as units dispatched from the CFC per variable hour worked by Hatfield CFC and Dordon CFC operational personnel in 2014. We consider a CFC to be mature if it had been open 12 months by the start of the half year reporting period

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

4. Percentage of all items delivered exactly as ordered, i.e. the percentage of items neither missing nor substituted

Consolidated income statement

for the 24 weeks ended 17 May 2015

Non-GAAP measure: Earnings before interest, taxation, depreciation, amortisation, impairment and exceptional items (EBITDA)

Consolidated statement of comprehensive income

for the 24 weeks ended 17 May 2015

Consolidated balance sheet

as at 17 May 2015

Consolidated statement of cash flows

for the 24 weeks ended 17 May 2015