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Losses at Ocado have widened in the first half despite revenues growing as the grocery tech group was hit by a range of exceptional costs and battled to get the online M&S partnership on track.
The online partnership with M&S swung from a £31m profit a year ago to a £2.5m loss in the 26 weeks to 28 May but group CEO Tim Steiner said this morning the Ocado Retail business was making “good progress” and returned to profitability in the second quarter as prices were sharpened.
Group revenues increased 9% to £1.4bn in the half, driven by a 59% jump at the technology solutions division to £198.2m, with the logistics arm up 2% to £335.2m and retail up 5% to £1.2bn.
Ocado Retail registered 10.6% growth in active customers to 959k, a 4% increased in average orders per week to 392k and a 1.5% rise in average basket size, while the joint venture’s share of the online grocery market increased from 12.7% to 13%.
Ocado continued to invest in price in the half, with a ‘Price Promise’ now matching more than 10,000 products with Tesco.
The group said this was a “key part” of its strategy to support growth and customer retention, and increase in the total active customer base.
Increased capacity and costs of opening two new Zoom sites pushed the venture to a loss in the half, but the operation is forecast to be marginally EBITDA positive for the full year.
Group EBITDA for the half improved from a loss a year ago to a profit of £16.6m, but finance expenses of £31.4m and exceptional items of £77.2m pushed pre-tax losses from £211.3m to £289.5m year on year.
Exceptional costs included charges for a UK network capacity review, litigation costs for the patent infringement case with AutoStore Technology and a £17.4m change in fair value related to the revaluation of payments still owed by M&S for the Retail joint venture.
Steiner said the group had made “good progress” over the past six months, highlighting the opening of a first CFC for Japan’s biggest food retailer, Aeon, as a “landmark” for the grocery sector.
“It demonstrates that our proprietary AI and robotics can be applied to businesses across the globe,” he added.
“Ocado Intelligent Automation is well placed to sign its first deals to provide our automation solutions outside of grocery; and we are pleased to report significant progress in our ‘Partner Success’ programme, where our partners such as Kroger are seeing tangible improvements in their operational performance.”
Steiner said: “In the UK, Ocado Logistics had a steady, profitable first half and Ocado Retail is making good progress, with a return to profitability in Q2.
“Our operations in the UK remain an important demonstration of the potential for our international ambitions, as we seek to transform the economics of online grocery and expand into the wider automated storage and retrieval solutions market.”
Shares in Ocado jumped sharply this morning on the back of the results, up 5.2% to 611p.
Morning update
Kantar grocery market share data
Inflation in supermarkets registered its steepest slowdown since its March peak, falling 1.6 percentage points to 14.9% in the four weeks to 9 July 2023.
According to the latest data from Kantar this morning, take-home grocery sales over the same period grew by 10.4% year on year.
It comes as sales of of items bought on promotion rose for the first time in two years, with more than a quarter (25.2%) of groceries purchased on a deal as the mults ramped up loyalty card offers.
“Grocery price inflation has now been falling for four months in a row,” said Fraser McKevitt, head of retail and consumer insight at Kantar.
“That will be good news for many households although, of course, the rate is still incredibly high.
“The change comes as spending on promotions has gone up for the first time in two years, now accounting for just over a quarter of the total market at 25.2%.”
McKevitt added that the shift to more loyalty card deals could signal a change in focus by the grocers from concentrating on everyday low pricing.
Sainsbury’s sales growth edged ahead this month, marking the first time since January this year it has led Asda and Tesco. It grew by 10.7%, maintaining its share of the market for the third consecutive month and is now at 14.9%.
This was just ahead of Asda and Tesco which increased sales by 10.5% and 10.2%, giving them market shares of 13.6% and 27.0% respectively.
Aldi was again the fastest growing grocer, with sales up by 24.0%. It now holds 10.2% of the market, up from 9.1% a year ago. Lidl increased its market share, up by 0.7 percentage points to 7.7%, with sales increasing by 22.3%.
Morrisons saw growth of 2.5%, its best showing since April 2021 and its eighth month in a row of improved performance. Both Waitrose and Co-op grew by 5.1% over the 12 weeks, the largest boost both retailers have experienced since March 2021. Waitrose now holds 4.4% of the market and Co-op 6%.
Iceland maintained a 2.3% share of the market after growing sales by 8.9%. Ocado’s sales rose by 2%, taking an overall market share of 1.7%, aided by its much larger 3% share in London.
SSP refinance
Catering group SSP has completed a refinancing of its syndicated banking facilities.
The previous facilities consisted of £338m of term loans and an undrawn revolving credit facility of £150m due to mature in January 2025.
The new financing consists of a £300m four-year term loan and a currently undrawn £300m revolving credit facility provided by a syndicate of banks.
Deputy CEO and group CFO Jonathan Davies said: “We are pleased to complete this refinancing which strengthens our balance sheet, extends our maturity profile and maintains our high level of liquidity.
“We have benefitted from strong support from our banking partners, enabling us to secure the new facilities on improved terms. The refinancing will support the ongoing delivery of our strategic priorities, including rapid growth in North America and Asia Pacific.
“As previously stated, we anticipate the resumption of ordinary dividend payments for the 2023 financial year.”
Wincanton board appointment
Logistics group Wincanton has appointed John Pattullo as a non-executive director with effect from 1 November.
He will also join the board’s audit and nomination committes.
Pattullo is currently senior independent director of Redde Northgate, the FTSE 250 supplier of mobility vehicles, a position he has held since 2019.
He was previously chairman of V Group until December 2020 and has served as senior independent director and remuneration committee chairman of Electrocomponents (now RS Group), chairman of NHS Blood & Transplant, chairman of Marken Logistics and chairman of In Kind Direct, a Prince’s charity.
Pattullo was also CEO of Ceva Logistics between 2007 and 2012. Before that, he worked for Exel/DHL where he led the EMEA logistics business and earlier held a number of senior global supply chain appointments with Procter & Gamble.
Wincanton chairman Martin Read said: “We are very pleased to have secured someone of John’s wide experience in consumer goods and logistics and as a non-executive across a range of other industries. He will be a great asset to the Wincanton board.”
Morning shares
The FTSE 100 opened up 0.1% at 7,413.24pts.
M&S joined Ocado as one of the morning’s risers, up 2.3% to 199p.
Early fallers included Bakkavor, down 3.3% to 95.2p, Naked Wines, down 2.9% to 76.7p, and Hilton Food Group, down 1.6% to 633p.
Yesterday in the City
The FTSE 100 ended the day down 0.4% to 7,406.42pts.
Shares in Virgin Wines UK jumped 3.5% to 30p yesterday after the DTC firm said full-year sales and profits would be in line with expectations - and added it was making progress against its strategic objectives.
Rival online wine retailer Naked Wines also saw shares rally, climbing 6.7% to 77.3p.
Bakkavor was also among the risers, up 4.5% to 98.4p.
Coca-Cola HBC and Supermarket Income REIT were among the fallers, down 4.2% to 2,330p and 2.9% to 73.3p respectively.
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