City snapshot: Ocado falls to £211m first half loss amid retail slowdown

Top story

Ocado has posted a £211m first half pre-tax lox amid a fall in retail sales as trading was hit by tough comparatives the rising cost of living crisis.

Ocado Retail sales fell 8% to £1.1bn in the six months to 29 May, with growth in new customers offset by changing customer shopping behaviours as the trend towards shopping smaller baskets with the end of Covid restrictions was further compounded by the growing cost of living crisis in the UK.

Active customers grew to 867k at the end of the period, up 12% on the prior year.

However, average basket in the period was £120, down 13% from £138 in year-on-year, largely driven by customers shopping fewer items per basket, down 15%, a trend only partially offset by the impact of a 3% increase in average selling price

That saw its retail division’s EBITDA fall to just £31m from £104m in the prior year, reflecting a reduction in volumes relative to fixed costs of new capacity, as well as higher utility and fuel costs and increased customer acquisition costs.

Group revenue was down a more modest 4% to £1.3bn as strong growth in international solutions and UK solutions and logistics offset by fall in Ocado Retail revenue.

Revenues in the international solutions segment more than doubled in the period, to £59m, though EBITDA was broadly stable year on year, a result of the upfront investments made in its technology capabilities.

Ocado said the build programmes for new international CFCs are “progressing well”. In Europe, Alcampo has announced the site of its CFC while in APAC Coles and Aeon’s first tranche of CFCs remain on track, while “good progress” is being made in North America in the rollout of new CFCs for Kroger and Sobeys.

However, the drop in retail contribution saw group EBITDA swing to a loss of £14m from a profit of £61m in the first half last year.

Its overall loss before tax of £211m (up from a loss of £28m in the period last year) reflects increased depreciation and amortisation costs with the ongoing roll out of OSP, and reduced exceptional insurance income received in the period compared to the prior year.

CEO Tim Steiner said: “The last six months has seen significant progress at Ocado Group and we have put all the building blocks in place to deliver profitable growth and strong cash flows.

“Our International Solutions business has good momentum, with 16 CFCs now open, of 58 committed so far. Each of these CFCs will generate dependable, recurring cash flows and attractive returns on capital. 11 of the world’s leading grocers are looking to Ocado to provide the technology and solutions to power their online grocery activities and our new partner pipeline is as strong as ever.

“Ocado Re:Imagined, the suite of ground-breaking innovations launched in January this year, will redefine both the customer experience, and the economics, of online grocery shopping. We expect enhanced economics, and improved customer propositions, to lead to faster growth from existing, and new, OSP partners.

“Following our recent successful financing, we now have a strong financial position and ample liquidity to fund the requirements of our existing and expected customer commitments into the mid-term. No additional Group financing will be needed as the business becomes cash flow positive.

“With these building blocks in place, notwithstanding the near-term challenges for the consumer in the UK, we look forward to the future with confidence”.

Ocado shares are up 0.9% to 782p this morning despite the widening losses and slowing growth.

Morning update

Britvic has released a Q3 trading update stating it is on track to deliver a full year performance in line with expectations.

A “robust” Q3 saw revenue for the period of £431.1m, an increase of 11.2% on the prior year, with volume growth and positive price/mix.

It saw double-digit revenue growth against the comparable period in pre-pandemic 2019, driven by a larger GB at-home business and expansion in Brazil

Britvic said growth rates are reflective of a more normalised operating environment due to the phased lifting of Covid-related restrictions in Q3 last year.

GB revenues increased 9.2%, driven by the continued recovery of the out-of-home channel and further growth in the at-home channel.

Brazil revenue increased 24.3%, while other unternational markets were up 12.7%, with both Ireland and France in growth in the quarter

CEO Simon Litherland commented: “Year on year performance in the quarter reflects continued resilient demand for our portfolio of trusted, family favourite brands. This summer we have a range of exciting marketing campaigns across all our markets, including a major new campaign for Robinsons in GB, and we will also be bringing back the Pepsi MAX taste challenge for the first time since the start of the pandemic.

“We are encouraged by trading performance year to date although we expect the uncertain environment to continue to weigh on consumer confidence. We remain focused on mitigating the impact of inflationary pressures on our business; soft drinks is a resilient category, within which we have a well-invested business, a flexible operating model and a robust supply chain. We are confident in our ability to deliver value for all our stakeholders and a full year performance in line with market expectations.”

M&S CFO Eoin Tonge, who joined M&S from Greencore just over two years ago, will be leaving M&S to take up a new role as finance director at ABF.

M&S said it is now commencing a process to appoint a successor and Tonge will continue to fulfil his current role in line with his notice period, which will include supporting the business through its interim results in November.

Archie Norman, chairman of M&S commented: “Eoin has made a great contribution to the transformation of M&S, bringing quality and rigour to the finance function and building a very strong team. Our financial controls, reporting, and financial discipline are in a far stronger place than when he arrived. Under his guidance, we have restored the balance sheet and created a strong platform for the next phase.

“Eoin has been extremely helpful in supporting the Board and seeing through our planned succession to Stuart Machin as chief executive and Katie Bickerstaffe as co-chief Executive. He has been a great colleague; we thank him for his efforts at M&S and wish him well in his new role.”

Tonge added: “It’s never an easy decision to leave a great business like M&S. However, the opportunity has knocked for me to take on a new financial role across a diverse portfolio of businesses. Behind every great business there are, of course, great people and I’m incredibly proud of the outstanding team we’ve built.

“The M&S I leave behind is undoubtedly stronger and more resilient than the M&S I found. My priority now is to ensure a smooth handover to Stuart and Katie and the wider leadership, and I have every confidence that M&S will flourish, as they reposition the business for future growth.”

Finally, AIM-listed premium mixers producer East Imperial has posted growth of 32% in the first six months of 2022.

The group sold 95,780 cases globally across 28 markets, driven by both the addition of new customers and strong demand from the existing base.

In East Imperial’s established APAC market, sales in the period were ahead of the board’s expectations as COVID restrictions continue to lift in key markets, with New Zealand and Singapore now returning to pre-COVID levels of demand.

In the key strategic US market, revenue was 37% higher than budget, with June being East Imperial’s biggest ever month of sales. The US business has been bolstered senior hires and a long-term distribution agreement with Republic National Distributing Company, which began distributing East Imperial’s mixers across eight key US states in March 2022. Plans are now in place to expand into more states over the next few months.

“Global consumer trends in the beverage industry continue to shift towards ultra-premium drinks consumption, reinforcing the company’s strategy for long-term sustainable growth,” it stated.

CEO Tony Burt commented: “We’re pleased with the performance of the business in the first six months of the current financial year. As well as achieving record sales in key strategic markets, we have also delivered important operational frameworks that provide a platform to enable us to drive sustainable sales growth in the months and years ahead.

“While global logistic challenges remain, we are beginning to feel the benefits of the hard work our teams have done to put in place a strong bottling and distribution framework in the US. An operational priority for the rest of the year is to further enhance our bottling capability, to increase capacity and give us further flexibility as we embark on our national roll out with RNDC.

“We have an ongoing strategy to improve our margins, including actively reviewing our supply chain for ways to simplify the bottling and packaging process. We will see further margin improvement as we grow as we will also benefit from economies of scale. As an ultra-premium product, East Imperial’s pricing also means that margins are holding up well.

“While consumers more broadly are no doubt feeling the squeeze, the continuing shift towards premiumisation across the beverage industry means that demand for East Imperial’s products remains very resilient despite inflationary pressures as people recognise the unparalleled quality of our product.

“I’m confident that this will cement our continued progress and deliver continued sales growth during the next six months, a period that is traditionally our dominant half of the year for sales. Our year to date performance encourages me that we have the right strategy and platform in place to drive long term sustainable growth to create value for our shareholders and we look forward to providing further details of our progress in September.”

On the markets this morning, the FTSE 100 is down another 0.5% to 7,225.1pts.

Risers include Devro, up 2.8% to 187p, SSP Group, up 2% to 256.6p and Associated British Foods, up 1.4% to 1,701.5p.

Fallers include Cranswick, down 2.3% to 3,144p, Marks & Spencer, down 1.7% to 140.9p and Deliveroo, down 1.7% to 96.4p.

Yesterday in the City

The FTSE 100 fell back 0.4% yesterday to close at 7,264.3pts.

Premier Foods ended the day up 0.3% to 111p after reporting a “strong start” to its financial year as budget-conscious shoppers turned to its range of familiar brands for cheap meals despite price rises across its product portfolio.

Finsbury Food Group was up 3.7% to 70.5p after it said its trading year had met market expectations despite battling “exceptional macroeconomic and inflationary headwinds”.

The day’s other risers included Just Eat Takeaway.com, up 9.4% to 1,392p, Ocado, up 2.7% to 774.8p, B&M European Value Retail, up 1.6% to 414.7p, McBride, up 1.6% to 16.3p, Fever-Tree, up 1.2% to 1,061p and Bakkavor, up 1.2% to 84p.

Fallers included DS Smith, down 3.8% to 283.6p, THG, down 2.4% to 70p, Glanbia, down 1.9% to €10.94, Imperial Brands, down 1.7% to 1,867.5p, and Britvic, down 1.6% to 831p.