City snapshot: Ocado first half retail sales top £1bn but pre-exceptional losses mount

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Ocado has posted first half retail sales growth of 27.2% amid “unprecedented and sustained demand”, but its pre-exceptional losses rose by 64% to almost £80m amid mounting costs.

Group revenues in the six months to 31 May were up 23.2% to £1.09bn in comparison to revenues of £882.3m in the same period last year.

This was primarily driven by an increase in the number of items sold, with significantly higher basket size but reduced order volume growth, with the majority driven by the increased demand from the social distancing requirements due to COVID-19.

Ocado saw a 27.7% year-on-year increase in average basket size due to the material increase in demand, up to £137.46 driven by the COVID-19 impact where customers were typically ordering one large shop a week, in comparison to lower basket size orders in the prior year.

Despite volatility in customer shopping behaviour during the period, and some associated supply chain disruption, service metrics remained strong, with substitutions of less than 4% and 97% of orders delivered on time

Exit rate of sales in the half remained over 40% versus the prior year

Fees invoiced to its international solutions business were up 58% to £73.7m during the year, as international roll out gains pace with the opening of the first partner Customer Fulfilment Centres in Paris and Toronto.

However, EBITDA from its international solutions activities was a loss of £45.1m compared to a loss of £23.7m in the same period last year as costs rose to support the rollout of its international agreements.

Overall EBITDA before the impact of exceptional items for the period fell to £19.8m from £30.7m in the prior year as the benefit of higher revenues was more than offset by the increased investment to fund growth such as people to help manage the international relationships and technology resources.

In addition, in the UK Ocado incurred higher COVID-19 related costs such as frontline worker bonuses, received lower fee income from Morrisons due to a revised agreement which temporarily releases Erith capacity following the Andover fire and higher share incentive costs in the period.

The group’s pre-exceptional loss before tax grew to £79.7m from £48.5m in the prior financial period.

However, an exceptional gain of £39.1m related to an insurance payout for its Erith fire, compared to a £99m exceptional loss in 2019 caused by the fire, meant its headline loss before tax fell to £40.6m from £147.4m last year.

Ocado CEO Tim Steiner commented: “The world as we know it has changed. As a result of COVID-19 we have seen years of growth in the online grocery market condensed into a matter of months; and we won’t be going back. We are confident that accelerated growth in the online channel will continue, leading to a permanent redrawing of the landscape of the grocery industry worldwide.

“This will mean more demand for Ocado Smart Platform from current and prospective partners and our recent fundraising will ensure that we are able to meet that demand. It will also mean that we can invest more capital in innovation for our partners and further expand our leadership as the world’s preeminent solutions provider in online grocery.

“Seizing the future will, of course, require the same mix of constant questioning and innovation, focus, and quiet determination that has brought us so far. I have no doubt that we will rise to the challenge, taking advantage of a scale of opportunity that we have never seen before”.

Ocado shares are down 3.3% to 1,965p on the news.

Morning update

Global mixer drinks supplier Fever-Tree has posted a trading update ahead of reporting its interim results on 8 September.

It said it had seen a “solid start to the year”, but since then trading across its regions has been dominated by the impacts of COVID-19, leading to widespread closure of the on-trade alongside a consistently strong performance through our off-trade channels.

In the UK, positive momentum in both the spirits and mixer categories in the off-trade during lockdown has continued.

Fever-Tree’s off-trade sales for the last 12 weeks to 14 June increasing 34% year-on-year as the “popularity of long mixed drinks as an everyday affordable treat continues to resonate with consumers”.

The group’s off-trade sales also grew strongly in the US, where the increasing popularity of the Fever-Tree brand is driving category growth. Nielsen data, which covers just under half of Fever-Tree’s US off-trade sales, has reported 89% year-on-year sales increases for the last 12 weeks to 13 June, reflecting the increased at-home consumption during lockdown, as well as the benefit of incremental distribution that was secured over the course of 2019.

In Continental Europe, while off-trade sales have been robust across the region, the impacts of COVID-19 have been more significant in the South which is more reliant on the on-trade relative to Northern Europe.

The increased uncertainty during the last few months has led some of its importers to de-stock, which has impacted European sales over the first half of the year.

Its ROW region, delivered strong off-trade sales and secure new distribution, particularly in Australia and Canada, with its focus turning to the on-trade as it begins to re-open.

FeverTree said the on-trade is gradually re-opening across many of its regions, although the easing of restrictions and the extent to which outlets are re-opening has varied, with ongoing short-term uncertainty.

“While the Off-Trade continues to see good momentum in many regions, we expect some of the Off-Trade demand to switch to the On-Trade as it begins to re-open. However, the pace and quantum at which this will occur is likely to be gradual as the On-Trade still has to contend with cautious consumers, social distancing and therefore lower capacities,” it stated.

The changes in channel and territory mix resulting from COVID-19 are expected to lead to gross margin headwinds during this financial year.

“However, we remain committed to our planned investments, particularly in marketing, and therefore intend to maintain our budgeted £60m of operational costs for the full year, enabled by the Group’s strong balance sheet and conviction in our ability to deliver long-term sustainable growth,” Fever-Tree said.

Meanwhile, Fever-Tree has announced the acquisition of Global Drinks Partnership (GDO), the group’s sales agent in Germany.

It said GDP is a well-established sales agent and importer of premium drinks, with a strong track record of growing premium brands in a complex, fragmented market.

The acquisition consolidates the strong partnership that Fever-Tree and GDP have developed over the last seven years in Germany, during which GDP has enabled Fever-Tree to establish a growing brand presence in the On-Trade and a strong footprint across national and regional retailers in the Off-Trade.

Fever-Tree said the German market represents a “notable opportunity” for the group as one of the largest mixer markets in Europe and underpinned by emerging premiumisation trends evident in both the mixer and spirits categories.

Alongside Fever-Tree, GDP also distributes a portfolio of complementary premium beer and spirits brands, which generated €10 million of sales in 2019. This portfolio approach is highly suited to the size and outlet fragmentation of the German market, and the Group looks forward to continuing to work with these brands in the future.

The total consideration for the acquisition comprises €2.6m in cash, plus a €5m consolidation of historic balances owed to Fever-Tree by GDP at completion. Alongside this, Fever-Tree has agreed to fund the repayment of €1.9m of shareholder and other third-party loans owed by GDP.

Tim Warrillow, CEO of Fever-Tree commented; “The completion of the GDP acquisition is an important step as we execute our growth plans in Germany, providing us with an ideal platform to take advantage of the opportunity within the German market and accelerate our growth. I have worked closely with Morgan Zuill and his team at GDP since we first entered the German market and have been impressed with their approach and expertise in growing the Fever-Tree brand, so I am delighted that they are joining the Fever-Tree team.”

Elsewhere, household goods manufacturer McBride has posted a trading update for the twelve months ended 30 June 2020.

It said adjusted operating profit and adjusted profit before tax for the year ended 30 June 2020 will be ahead of current market consensus, due to a stronger second half of the year.

Increased demand for surface cleaning and dishwashing products in most of its household markets, as well as encouraging sales of new hand sanitiser products developed by its aerosols and Asia businesses boosted trading in the second half.

This was offset by a reduction in demand for laundry products over the same period. However, as the pandemic slows in Europe and countries ease restrictions, it has seen customer demand return to more normal levels

Overall, full year revenues from continuing operations at constant currency were 1.7% lower than the previous year. Household sales were flat for the full year with second half year revenues 1.3% higher than the first half year.

McBride intends to announce its preliminary results for the year ended 30 June 2020 on 8 September 2020 on an ‘unaudited’ basis.

Additionally, the group has appointed Clive Jennings as interim CFO. He was formerly CFO at The Rank Group plc and joined McBride in late June. Jennings has joined the group’s executive committee but has not been appointed to the McBride board, which has begun a formal process to identify and appoint a permanent CFO.

The BRC–KPMG retail sales monitor for June found a 3.4% rise in sales in June, compared to a decrease of 1.6% in June 2019 – representing the highest retail growth since May 2018.

The month also marks the first retail growth registered since the lockdown and above the 3-month average decline of 6.4% and the 12m average decline of 2.1%.

In June, UK retail sales increased 10.9% on a like-for-like basis from June 2019, excluding temporarily closed stores.

Over the three months to June, in-store sales of non-food items declined 46.8% on a total and 11.3% on a like-for-like basis. This is worse than the 12-month Total average decline of 16.5%. For June, the like-for-like excluding temporarily closed stores remained in decline.

Over the three months to June, food sales increased 7.3% on a Like-for-like basis and 3.8% on a Total basis. This is higher than the 12-month Total average growth of 2.7%. For the month of June, Food was in growth year-on-year.

Online Non-Food sales increased by 48.2% in June, against a growth of 3.3% in June 2019, while non-food online penetration rate increased from 33.1% in June 2019 to 50.7% this June.

BRC CEO Helen Dickinson commented: “June finally saw a return to growth in total sales, primarily driven by online as a result of lockdown measures being eased and pent up demand being released. Despite footfall still being well below pre-coronavirus levels, average spend was up as consumers made the most of their occasional shopping trips.

“All eyes are on next month now that pubs, restaurants and cafes have reopened, in the hope it brings a much needed boost to our high streets and shopping centres.

“Though a month of growth is welcome news, retail is not out of the woods yet. The pandemic continues to pose huge challenges to the industry, with ongoing stores closures and job losses across the UK.

“The reopening of shops is an important step on the road to recovery, but with months of rent building up, many shops will be forced to close unless action is taken before the next Quarter Rent Day. The Government must remain open to further action to boost consumer demand and should take steps to support with rent costs or the industry could suffer thousands of avoidable job losses.”

Meanwhile, Consumer spending fell 14.5% year-on-year in June – the smallest decline since lockdown began – with month-on-month figures showing an uplift as shops re-open, according to Barclaycard.

Spending on essential items grew 6.6% in the month – an improvement of 5.7% compared to May. This was largely driven by supermarket expenditure which saw the sharpest increase since the start of the year at 25.7% overall.

Online grocery spend jumped significantly by 105.9% year-on-year.

Fuel spend saw a less severe decline (-33.8%) than last month (-49.7%), as warmer weather and easing of lockdown measures allowed more people to travel.

Spending on non-essentials fell 22.3% but was an improvement on the decline seen in May (-36.9%), as the gradual re-opening of non-essential shops saw general retailers increase by 31.7%.

Strong upturns on month-on-month growth were seen across home improvement & DIY (+31.3% vs -3.2%) and furniture (+17.6% vs -28.2%) compared to May’s year-on-year figures.

While over half (56%) of consumers continue to avoid the shops, household confidence has held up at 68 %, with Barclaycard suggesting this figure is due to the savings people are making by postponing holidays.

Esme Harwood, director at Barclaycard, commented: “While shoppers remain understandably cautious, slowly but surely Brits are starting to spend again. Some retailers have seen really positive increases, particularly home improvement, DIY and sports and outdoor outlets, where spend has reached higher levels than before the onset of coronavirus, when spending at these stores was in decline. The recent VAT cut and meal vouchers are also a positive sign for the hospitality industry and it will be interesting to see how these measures impact consumer spending.

“It also seems shoppers are generally reassured by retailer efforts to take precautions and make their stores safer. As lockdown eases and Brits are encouraged to enjoy summer safely, it’s clear that people are making the most of a sense of normality again, with many of us travelling to see friends and family, eating al-fresco, and taking day trips.”

On the markets this morning, the FTSE 100 is back down 1% to 6,117.4pts losing some of yesterday’s gains.

Early fallers include Applegreen, down 4.5% to 320p, WH Smith, down 3.4% to 1,010p and Greggs, down 3.1% to 1,537p.

Risers include McBride, up 6.7% to 64p, Hotel Chocolat, up 2.8% to 308.4p and Imperial Brands, up 0.8% to 1,417.5p.

Yesterday in the City

The FTSE 100 opened the week on the front foot, ending the day up 1.3% to 6,176.2pts.

The day’s risers include Bakkavor Group, up 8% to 69.9p, Premier Foods, up 5.4% to 84.1p, Coca-Cola European Partners, up 4% to €34.85, McColl’s, up 3.5% to 40.3p and Glanbia, up 3% to €10.13.

FTSE 100 names on the rise included Compass Group, up 2.7% to 1,145p and Unilever, up 2.2% to 4,283p.

FeverTree also rose 2.1% to 2,418p ahead of its trading statement this morning.

Fallers yesterday included Applegreen, down 2.9% to 335p, Devro, down 2.5% to 135.2p, Majestic Wine, down 2% to 390.5p, C&C Group, down 1.9% to 236.5p and Hotel Chocolat, down 1.6% to 300p.