Ocado Group plc (OCDO) Earnings Call Transcript & Summary

Hello, and welcome to Ocado's AGM and Trading Update Analyst Call. [Operator Instructions] Today, I'm pleased to present David Shriver, Communications Director. Please begin.

Thank you, Hugh, and hello, everyone. Thank you all for joining the call today. I hope that you, your families, friends and colleagues are all safe and healthy. Our sympathies to those who may have been touched more closely by the virus. And of course, we're grateful for the tremendous work of those on the front lines. This includes our own people, of course, and we're very proud of the way our colleagues have responded to this unprecedented challenge. We're doing something unusual today, publishing a trading update with our AGM. We're doing this for 2 reasons: first, because we think it's important to keep the market updated on current trading during these exceptional times; and second, because as a result of government regulations, we're not allowed to have a physical meeting this year. Duncan is going to give you an update first on current trading at Ocado Retail, the joint venture between M&S and Ocado Group, and then he will give a business update for Ocado Group itself. We will then take your questions. Duncan, over to you.

Thank you, David. Let me begin with an update on Ocado Retail. Since the crisis hit, we've seen unprecedented levels of demand. We've had to adapt quickly to current market conditions and make difficult decisions to prioritize our most vulnerable and our most loyal customers. We're now delivering more groceries to households than ever before. As an example, in the 4 weeks from the 23rd of March, we've delivered more than 50 million items to households across England and Wales. I would like again to thank all of our front line and other staff involved who've continued to work tirelessly to help serve customers at this time of need. We've been able to do this by adapting quickly and pragmatically to the challenges of current environment. We continue to operate our facilities at peak levels of throughput throughout the week. Bigger baskets with more similar items mean that we can process those baskets faster. Bigger baskets have partly come as many of our customers shop for their family, their neighbors or for the vulnerable. We've also reduced complexity in the range to improve these operations further. As an example, suspending the delivery of mineral water has allowed us to deliver to 6,000 additional households. So far, 2 months into the quarter, sales are running at just over 40% growth on last year, up on the 10.3% growth we reported in the first quarter. We continued to price match individual products against our competitors with the proportion of sales on promotion initially declining in line with the industry to discourage stockpiling. Our long-standing Ocado Low Price Promise ensures that we continue to deliver great value by sending vouchers to customers in the event their basket is more expensive than a comparable tescos.com basket. Ocado Group, which provides the operating platform and logistics to Ocado Retail, has been working hard to ramp up capacity significantly. Mature customer performance centers are running at their peak and at their best ever efficiencies. CFC4 in Erith, South East London continues to ramp up and is currently processing 110,000 standard-sized orders per week versus an equivalent number of around 80,000 at the end of the first quarter. Ocado Zoom, an important part of the group's fulfillment ecosystem, has now achieved planned end game capacity a year ahead of plan. In order to ramp up this kind of speed, we've added more resources using engineering contractors to help us scale faster. To reward the continued efforts of the front line staff in feeding the nation, we've been paying a 10% bonus on basic pay since the end of March, and we'll continue to do so throughout the crisis. Moving to our Solutions business. For the first half of 2020, we've seen a very important milestone: the opening of the first international customer fulfillment centers on behalf of our partners, Groupe Casino in France and Sobeys in Canada. Groupe Casino announced the go-live of its facility at Fleury-Merogis to the south of Paris in March, and Sobeys undertook a test launch of its facility in Vaughan, Ontario on the 27th of April. We think the fact that these facilities have been delivered on time in the middle of a global health crisis shows the ability of the business to execute well even under the most challenging circumstances. We've also been supporting our partners to enable them to bring an online grocery service to as many customers as possible. For example, we've scaled the platform for Morrisons using store-picked software to allow them to significantly increase online capacity with higher sales in existing stores and many more stores. Combined with our support for Ocado Retail, we're enabling delivery of over 40% more groceries in the U.K. than were being done on our platform before the impact of COVID-19. I'm also glad to say that we're currently experiencing no material delays in the delivery of future CFCs for Ocado Solutions clients. Finally, we continue to look to add new clients to our roster of the most progressive and forward-looking grocers around the world as the migration to online globally gathers -- gains pace. So that's my introduction at this point. Happy to answer your questions.

[Operator Instructions] Our first question is from the line of Bruno Monteyne at Bernstein.

First question is, are there permanent benefits to the capacity and the productivity? Or are these higher capacity and productivity really temporary and you'll have to take them back out? My second question is you're suspending the 10% to 15% guidance, but surely because you expect it to be materially higher than that? Just want to be sure about that. And third of all, can you give us a bit more detail about Sobeys and the Monoprix start of the trial? Initially, you said they were like Erith sites -- no, Andover site CFCs. How quickly do you think will you get to 20%, 50% or 100% capacities? Can you tell a little bit more about how quickly we can expect the full capacities of Andover style to be ready for them? And any more detail you can say on how the tests are going?

Okay. On your questions, I think the permanent increase in capacity is really at Erith because that has continuing to scale its business, and therefore, the growth in capacity are permanent. The drivers of some of the capacity increases elsewhere are the flattening of the week -- or rather I think really in response to the Andover fire, we talked a lot about flattening of the week. Now we're not really talking about flattening of the week. We're talking about a flat week. Effectively every day, the same size volume. So that's a peak throughput because customer demand is so high. So is that permanent? I think it's permanent as long as customer demand exceeds supply to that extent. The second change is the much bigger basket size with more purchasing of multiple items, which enables us to process more. Again, that capacity is permanent as long as people are buying bigger baskets. So some of those changes will last as long as the customer demand is there. And the last one is some of the range changes that we've taken, slight simplification of the range. Again, one will presume that we would unwind some of those at a different time, so they won't be as permanent. But again, some of them we may decide to stay. We may say there's a trade-off for some of the range for a bit more capacity. So that's that one. Just on the guidance. Yes, just to be definitive, I think it's quite difficult to get to a point where you can justify that you stay within the 10% to 15% range. The simple math means that we have to go substantially below 10% in the balance of the year to stay even in that guidance at the top end. That's the way -- why we've removed it. But I think it's too early to give a prediction for the balance of the year. For Sobeys and Casino through the Monoprix brand, how are they ramping. I think the details on how they're ramping, I think we will leave to our partners. But those operations are progressing as we would expect. And you -- without being too definitive because, again, these are for our partners, you would imagine there are some discussions ongoing with those partners and other partners of whether the global environment might mean that they want to accelerate capacity. Remember that, for us, to be able to accelerate capacity, we need to accelerate purchases in the supply chain and get more robots and more of the kit generally faster so we are not unconstrained in our ability to grow. But clearly, we'll try and accommodate as much growth as we can.

And maybe if I try the last question slightly different. We know that the end target is an Andover size capacity. You always made it sure you wouldn't go live with 100% of the capacity. You only have box for a certain part of the full capacity. Is the initial capacity you released to Casino and Sobeys, at what level is that? Is that 25% of ultimate, 50%, 75%? Could you sort of ballpark what level of capacity you initiate?

So I won't go into the detail. But I think to help ballparking, Bruno, assume about the 25% rather than a big difference. It's not that economic for us to launch very small volumes. But -- because these were the first sites, it's also unlikely we should expect them to open with huge capacity. So yes, at ballpark, 25%.

So bolt-on 25% and you would probably be able to scale that within 1 or 2 years to full capacity if there was demand for that, would that be fair?

In terms of our ability to scale, if it's predicted, we could scale -- we could open the facilities at full capacity and we can grow them much faster than that. If our clients have indicated that they want to, for example, scale over 3 years, to change that to scale over 18 months depending on how many of our clients do that globally, depending on the requirements of Ocado Retail in the U.K., then that may become more difficult in the short term whilst we ramp up the supply of things like robots. So I'm not wanting to give any indication that we're concerned about this, but I'm really trying to respond to the, is there an unlimited ability to scale? No, you have to work on some of the other areas. That might take a few months to scale up.

And those are the discussions you're currently having presumably with these partners about potentially accelerating that ramp-up curve?

Yes. And I think generally on this topic, and I think it may come up again, I think our belief is the unprecedented times that we're living is creating a greater demand for online grocery globally. But -- and I think when talking to our stakeholders, it's important to say until we have evidence of that, I don't want to overpromise on that. And I think it's better to wait until we can announce that we can demonstrate that rather than making any significant predictions today. But I think most people have accepted these circumstances are going to increase the demand for our platform.

Our next question is from the line of Xavier Le Mené at Bank of America.

Just a quick one. Right now with Ocado Retail, you are not accepting any new customers. You will just close the door to anyone who wants to shop with Ocado. So how do you think the post-lockdown period where potentially people will start to go back to stores a bit more, the volumes will go down and you will start to reopen the website to anyone. So how are you going to attract potentially grumpy customers who were not able to access Ocado in the recent weeks?

I mean I think if I go back a couple of years, I think for quite a number of years, we've always talked about our ability to track new customers is substantially easier if they've previously tried online shopping at one of our competitors. And so proportionately, we found a much greater success rate from acquiring those. For example, shoppers at tesco.com than somebody who just shops at the Tesco store. So we think the significant additional capacity that's coming into the industry is exposing a lot more customers to the benefits of shopping online, and we have a confidence that our proposition is by far the best proposition. And therefore, it will make us -- make it easier for us to attract them. So we see a lot of good news in this. And there will be some people who will have tried to get to shop at Ocado over the last couple of months and haven't been able to. We don't think that long term will impact our ability to attract the next customers.

Our next question is from the line of Andrew Porteous at HSBC.

A few quick ones, if I could. Firstly, in terms of exit rates, I assume that 40% is sort of an average over the quarter. Have you been increasing capacity through that so your exit rate is a bit higher? Could you give us some detail around that? And then just a bit of color around what the split is between new orders and average basket size because it sounds like average baskets are up quite a bit. I would have thought that's probably doing most of the work in terms of the overall sales growth. And then the last one just in terms of social distancing and how that's playing out in terms of your CFCs, are there issues in terms of running the CFCs at the moment? And do you sort of see any potential issues around CFC operation going forward if we have to sort of have more social distancing in how we work?

So you're right in terms of exit rate. Exit rate capacity is bigger than the beginning of the quarter. So we have been ramping notably Erith over the quarter, yes, and we weren't running at 110,000 orders per week of standard-sized orders throughout the whole quarter that's been ramping. And one would expect that to continue to ramp. Importantly, I think, on exit rate year-on-year sales growth, year-on-year sales growth are primarily determined by what last year's sales were. So we're running at consistent levels of throughput with this gradual increase as we squeeze more capacity. But year-on-year, the sales growth can be quite different, depending on whether it was a holiday period in the prior year. So if -- and I'm not saying that this will happen, but if the levels of demand are the same in the middle of the high summer season -- normal high summer season in August, our sales rate will be substantially higher than they are today because we'll be delivering the same or slightly more capacity, but the prior year comparative is much smaller. So our operations are running at full capacity, which we're gradually growing. The year-on-year sales growth is driven by what we had last year. In terms of the mix between order size and order numbers, you're right to assume that the basket size is quite a substantial increase, and therefore, there's been less growth. In fact, sometimes there's been a decline in the number of orders. Important to note, as I mentioned in my introduction, that quite a bit of that is from our customers shopping for more than themselves. And we know that our customers are shopping for their friends. Sometimes they might only get a delivery once a fortnight, but with a friend, between the 2 of them, they're getting a delivery once a week. So they're shopping together. They're doing that for friends, for family, for neighbors, for the vulnerable. And we know that quite a number of our customers are shopping for those in need, which we would encourage. It enables us to deliver more groceries in aggregate, which is, I think, what we're trying to do at this time. On social distancing, our operations, I think, are set up for the biggest element of the lockdown. And although we don't know the details clearly, if and when -- or when lockdown start to ease, I don't think we'll see any further challenges to our operation. There are more than 100 operational procedure changes in the way we've operated, cleaning routines, distancing style, separate break times, temperature monitoring when they enter our facilities, now testing of front line staff on a regular basis. So there's a whole host of changes that we've made. We think we can sustain those changes and continue the levels of throughput that we've got at the moment.

Our next question is from the line of Nick Coulter at Citi.

A few, if I may. Just firstly to follow up there on Andrew's question. Is it possible to have kind of a guide on the working assumption for the growth in orders, please? And I guess also it would be useful to understand what the kind of the average absolute basket size has been for Ocado.com, taking your point around absolute growth over different seasonal periods. That would be the first one.

So because we've got a 40% growth in capacity I talked about, then what I think you should assume is a modest decline in order numbers and a substantial growth in basket size. So I won't give you the figure, but if it's 40%, that could be 10% order decline and 50% basket growth is...

No. That basket size comes down, then obviously that order number will kind of waterbed up, I guess, from what you're saying?

Absolutely. Our facilities don't actually work to orders. They work for the number of items picked. And so if we -- a standard basket size, you've heard in the past, is sort of between 45 to 50 items. You just take, to make it easy, 100,000 orders or 50,000 items. That gives you the product throughput and you can deliver that same throughput with bigger baskets and smaller number of orders or smaller baskets and larger number of orders.

Got that. And then if I may, just a couple more on how does that roll through onto the economics or the operation within delivery? So I guess DPW might be somewhat of a misleading statistic in this instance, but things like the length of time for an average van run probably come down exponentially. Certainly, I would have thought so in terms of distance. It'd be great to get your kind of narrative around delivery economics, please.

Yes. Nick, you're right going to another level of detail. If you're delivering orders, and this is not the case, but just to make it easy, if you're delivering double-sized orders, then to deliver the same number of grocery you need half the number of deliveries. And if you're delivering half the number of deliveries, there's quite a proportion of the route, of the time that our front-line staff are involved in is at the drop. It's much quicker to deliver 1 double-sized order than 2 half-sized orders. So yes, there are some efficiency. Just imagine it from the front-line staff, it's not a straight roll-through because the volume and the weight of groceries they're having to carry hasn't changed. So it's still very hard work for them and we're very appreciative of that. And we are weight limited on our vans. If the weight limit on the vans were slightly different or bigger, then we can -- yes, we could get some more efficiency. And lastly, of course, there's less traffic on the roads and the van speeds are slightly better. So yes, without a doubt, there are some delivery efficiencies we're missing.

And on the cost side, obviously, you've called out the staff bonus and you've alluded to extra engineering costs. But presumably, there are a whole host of other things from medical checks to staff absences, et cetera, et cetera. We can probably have a go at kind of quantifying the staff bonus. But when you look at the other costs in aggregate, how do they sit in proportion to that staff cost -- the cost of the staff bonus?

Yes. So there's additional costs in terms of -- just to repeat what you've said to a certain extent, Nick, so that everybody hears it, yes, additional cost of bonus, additional engineering costs, additional costs of testing. Some of the operational procedures bring some additional costs. So there are some costs associated with that. There's clearly some efficiencies in delivery. There are some efficiencies in the CFCs. So net-net, I think at an operational EBITDA level, there's no real benefit and margins are not benefiting where we're still as price competitive as we were before. So net-net, there's no real change. For the Retail business overall, clearly, there's an element of fixed cost, which is unchanged. So EBITDA margins might be slightly better in Retail. But I would also note the fact that given expectation of additional demand from Solutions clients, we need to consider doing things faster. And at the earlier question on how fast can we scale, we need to consider how the supply chain or the fulfillment solution needs to be enhanced. So we're seeing -- I don't think you should read anything into the release today to say that you should change the consensus tonight.

Okay. So there's no operating leverage really to contribution margin, but it might be a little bit to EBITDA. And then one final one, if I may, just quickly on the capacity in Erith. Obviously, you've added 30,000 standard-sized orders in the blink of an eye. Have you learned to go faster there? And I guess there's a cost benefit within that. But it looks like a very material ramp. And does that impact how you roll out going forward?

Yes. I mean I think in times of crisis, people learn how to do things differently. And yes, I think we have benefited from the crisis and that's enabled us to speed up on some things. And we feel quite good about the fact that we've scaled it so quickly. We think in Erith, it's a permanent scaling of capacity. And clearly, if our clients are buying facilities smaller than this, it clearly demonstrates we can ramp all of our clients' facilities at a faster pace. So yes, we think it is encouraging. We wouldn't necessarily, I think, in normal times, say that you want to trade-off some of those engineering costs to accelerate at that pace. But given the unprecedented levels of demand in the U.K., given the need to do our bit to feed the nation, it's the right trade-off for the U.K. business today and proves that we can do it faster elsewhere.

Our next question is from the line of Simon Bowler at Numis.

A couple from myself. That kind of rate of kind of capacity growth at Erith, is that kind of -- can we roll that forward in terms of the rate at which you can continue to scale from here across the second half of the fiscal year?

Simon, I couldn't guarantee that we could grow at 30,000 every 2 months, which is effectively what we've done. But I will not hide from the fact that our internal target for the year-end is now higher than it was before. And we definitely think we'll have ramped Erith faster this year than we would originally have ramped it. But no, I wouldn't assume 30,000 every 2 months, but do assume a further growth from here.

Okay. And then with regards to Ocado Zoom, can you just talk a bit around what the implications are for that? How fully developed is the blueprint for Zoom? Can you accelerate that rollout? Or given you still fundamentally use it at CFC capacity, does that in some way get deprioritized at this point?

No. Simon, I think the team -- we're very busy. We're very busy because you would imagine that if we believe there's some increased demand for our solution, both for the Ocado consumer business here in the U.K., but for our clients generally, we need to work pretty fast on a number of levels. We need to build our capability to manufacture more robots faster. We need to look for more sites with our clients internationally or with our clients in the U.K. Ocado, and Zoom is definitely part of that. So there are -- I don't think you should take this as a negative read on to the desire to roll out Zoom in more locations. I think you should take it as a positive read. But given the amount we've got on our plate, don't assume that we can switch on overnight. But yes, maybe the motivation for opening more Zooms has got stronger rather than weaker over the last 2 months.

Okay. That makes sense. And then kind of final one for myself. You kind of mentioned, I think it makes good sense in terms of there's not unlimited ability to scale. But in that kind of context, can you just kind of talk a bit about how you think around kind of prioritizing U.K. versus existing clients versus potential new clients? And how that kind of decision process works?

That's a good question, and as you would imagine, a question of much debate internally. Frankly, as it always is, this puts more pressure on that debate. But it's a permanent part of the management time, which is where do we put our resources, where do we put our management time, what's the area of focus because the opportunity set ahead of us is so big and we are constantly prioritizing. So this has added for that challenge. But frankly, Simon, these are really nice challenges to have. Which opportunity to go for first or what proportion of your resource to put on which opportunity in which order, these are really great challenges. So those are ongoing debates, and we will try and serve all of our clients. And undoubtedly, we'll never be able to serve all of their needs exactly when they want because we are -- we have been scaling our business pretty dramatically over the last couple of years. We need to keep scaling it, frankly, as dramatically over the next couple of years and arguably even more so as a result of these events.

Our next question is over the line of Lukas Schmitz at S W Mitchell Capital. Okay. We've just lost that line. So now we go over to the line of Maria-Laura Adurno at Morgan Stanley.

I just have two. The first one, in normal times, can you tell us how much of your revenue sales is usually derived from promotions? And then the second question, coming back to some of the comments that were actually made earlier, you talked a lot about efficiencies, but at the same time incremental costs. So just wondering, during this period of time where you saw pretty punchy growth in your volumes, have you seen any type of positive operating leverage? Yes, any comments on this? And also you had growth of 40%. But how is this now -- has it leveled back to more normalized levels?

Maria-Laura, thank you for the questions. On promotions, yes, the level of promotions that we ran substantially decreased right at the outset. You've got to remember in those first few weeks, there was a big challenge on the supply chain and that was -- you couldn't pick up a newspaper without a story about shortages of food. So we, like the industry, cut back on promotions. Promotions now, we're in, as it were, a position for sort of the temporary new normal, let's say, with different levels of demand, but now a bit more steady demand. Promotional activity is now returning back to where it used to be. Throughout this process, we always had more items on promotion than any of our competitors. So despite cutting back, we were always very well represented, but that's back at or around normal levels. In terms of positive operating leverage, I think if you take away the COVID costs of extra bonus, testing costs, operational procedures, yes, there is a positive operating leverage. And as I said earlier, I would call it sort of operational EBITDA margins are unchanged despite those costs but there is some benefit because the fixed costs are fixed and so that's coming through. In terms of the sort of normal levels of growth, I'd come back to what I said earlier, which is every day of every week, we're operating at full capacity and we expect that capacity to grow over the couple of months -- next couple of months as we continue to get more capacity from Erith. The year-on-year growth rates will be different week-on-week depending on whether last year was a half term or a holiday week. And 40% growth we've reported in the 8 weeks to date includes some weeks at lower levels of growth and some weeks at substantially higher depending on what the profile of demand was in the prior year. This year, every hour of every day is full. We're not serving any new customers. We're not serving many of our existing customers. We're only able to serve our most loyal customers. So frankly, at the moment, we don't see any expectation of reduction in demand. But that will come at some time as we all hope to return to a normal level of -- a normal situation.

We now go to the line of Andrew Porteous at HSBC.

Sorry, I just have one quick follow-up, really, to an earlier question around sort of delivery efficiency. I'm just wondering how that works. You -- if I'm the delivery driver that's got 10 orders normally and now I'm delivering 5 orders of twice the size, do I come back to the CFC and do another order? Or how do you manage that? Are you shortening the shift times of drivers or...

So Andrew, depending on where they are, depending on the type of route, if you're delivering to one of our newer areas, for example, out in Norfolk, for example, down into Devon, yes, because those are long routes, they're not necessarily able to get the van back and back out again in the 8-hour period. But in -- yes, in some of the more dense urban areas, we often operate by that -- we have been operating like that for some time where some of the routes are shorter routes and then going out multiple times. So yes, we've increased an element of that. But frankly, if our drivers get -- instead of working 8 hours, only work 7.5 hours, we're also not exactly concerned about that because they're carrying the same amount of groceries. And frankly, it's a pretty tough job. So we don't want to overwork them either so...

Our next question is over the line of Rob Joyce at Goldman Sachs.

Just 2 quick ones. Could you remind us what percentage of sales your fuel costs are in more normalized times, maybe where they're running at now? And then the second one, does the ramp for Erith represent a step change in the sort of supply chain capacity to produce robots? Or is there something else you've done to really accelerate that?

Sorry. Rob, can you repeat that second question again? I was slightly distracted.

Sorry. Yes. I was just saying, does the accelerated ramp at Erith, is that as a result of you managing to really accelerate the capacity within your robot supply chain? Or is there something more out specific that you've done to accelerate that?

So in Erith, what we've been able to do is we always have an element within our supply chain. We always have an element of contingency of robots because we're constructing them over a sustained period. What we've been able to do by putting more engineering resource is get more robots on the grid quite quickly and therefore scale our capacity more quickly. So that has helped us do that. We're obviously working with our manufacturers to try and produce more robots more quickly, so we can continue to ramp that. But no, this is effectively utilizing more the robots that we already have in construction. In terms of fuel costs, I don't have a figure at hand, so I'm not going to quote a figure. But I can obviously understand the reason behind your question, which is how much are we benefiting from fuel price declines. As you well know, a large proportion of what we pay is actually in tax. And so we only benefit on -- it's about 1/3 of the cost, any reduction. And it's also worth saying that at Ocado, for a number of years, we forward -- we've hedged our fuel purchases, so we forward buy. So we're not seeing a substantial benefit today. Obviously, we'll see that benefit spread over the next year or so as the cost of hedging going forward comes down dramatically.

The next question is from the line of Andrew Gwynn at Exane BNP Paribas.

Hope you're all well. Two questions for me. So the first question, just coming back to the partners. I'm just wondering when the next CFC is due to open. I think that's Kroger, presumably at some point in sort of late Q1, early Q2? And the second question is the kind of bigger question. But obviously, it strikes me now that you do have quite a lot of pricing power versus your partners. I appreciate that it's quite difficult to exploit with your existing partners. But going forward, do you think that Ocado is in a stronger position to effectively take a slightly bigger slice of the pie?

Yes. So the next CFC due to open will be a Kroger CFC in 2021. Of course, if you exclude those in the U.K. because we are in the process of building 3 CFCs in the U.K., one, obviously, the rebuild of Andover, but also the Bristol mini-CFC and Purfleet. So all of those are ongoing and several -- maybe more than several of those may open next year. In terms of pricing power with our clients, we think the economics of our solution to ourselves on the current pricing is attractive, and we've never aimed to become -- to earn excess margins. We're working with grocers whose own profitability -- grocers are -- the grocery industry is not a huge profit margin industry. And therefore, we prefer to sell more of our solution at acceptable margins than less of our solution at higher margins. So I wouldn't necessarily assume that we would use the current event to try and substantially change the pricing for what we offer. Of course, it does give us a little bit more negotiating power, which I think is useful around the edges, but I wouldn't assume anything substantive.

Our next question is from the line of Tom Davies at Berenberg.

I guess 2 questions for me. First of all, in terms of M&S partnering with Deliveroo, how does that affect the relationship with Ocado Retail given that Deliveroo is now part of Amazon? And in the contract it says that now you can partner with Amazon? And second of all, just a clarification question. In terms of the EBITDA margin, are you saying that at group level, it was flat, but Ocado Retail would be up?

Tom, yes, thanks for your questions. I think first of all, on the sort of Deliveroo service with M&S, I think the important thing to say at the moment is the U.K., as many countries around the world, is in unprecedented times and we're trying to do our bit, all of us, to feed the nation. So despite the contractual constraints that exist that might prevent some of those things happening, we were more than happy to allow M&S do that with Deliveroo because what does a contract matter when you've got to try and help serve those in need at home. So it's, we believe, a temporary situation, a relatively small scale, and we're more than happy for M&S to do that because M&S is trying to do their bit to help feed the nation. In terms of EBITDA margin, yes, Tom, you've got it right. So at a group level, I wouldn't assume a change. But clearly, one can't see a 40% growth in sales, fixed cost being fixed, and not expect some leverage in EBITDA for the retail business. Now we have stopped providing guidance going forward. But as to one of the first questions, that's unlikely to be less than 15% growth unless something pretty dramatic happens. We don't know what's going to happen. But at the moment, you've got to assume that it's slightly positive this year for the retail EBITDA figure.

Great. Just, I guess, one more question. In terms of the CFC 6 in Bristol, is that still on track for the December launch given the disruption?

Yes, Tom. So we always said the formal launch date was in early 2021. We were hopeful at trying to get it in the back end of 2020. But you could imagine that there's been travel restrictions, difficulty at getting contractors on-site and slip the program by a week or 2 weeks, you hit Christmas. So I think it's now highly unlikely that we'll get to open to our aspirational target. But I do think it's likely that we'll open in our announced formal target.

The final question for today is over to the line of Nick Coulter at Citi.

Apologies for the follow-up. Just very quickly on consensus. I think you said you didn't expect it to move. But is that more a case of given the lack of visibility that you're kind of withdrawing any informal EBITDA guidance? Is that the correct understanding? Obviously, the risk seems to be to the upside here.

Yes. So I think what I was -- well, hopefully, you would have understood is within the overall, you might assume slightly more positive in the Retail business. But I would lead you to assume slightly more negative in the Solutions business because extra demand...

And that's the extra costs?

Yes. Yes. Extra demand means extra sourcing of robots. It means extra technology requirements. And if you have an expectation of extra demand in the couple of years ahead short term, those are very sensible decisions to take. So I wouldn't assume an overall change. Mildly positive for Retail, marginally negative for the rest of the group.

Okay. So extra costs are positive reasons effectively.

Exactly. We -- if you think you've got more demand, you should accelerate the pace of your development to meet that demand.

As that was the final question for today's call, may I please pass it back to you for any closing comments at this stage?

Thank you, everybody. We look forward to speaking to you all again with our interim results on the 14th of July. But for the moment, thanks very much, and have a good day.

This now concludes today's call. Thank you all very much for attending, and you can now disconnect.