REG - Ocado Group PLC - Trading Statement

OcadoAnnouncement

14/12/2021 07:00

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RNS Number : 5148V  Ocado Group PLC  14 December 2021

OCADO GROUP PLC

 

14 December 2021

Ocado Retail Q4 Trading Statement

Strong underlying demand trend; conviction to invest and accelerate growth

Ocado Retail Ltd ("Ocado"), a joint venture between Ocado Group plc ("Ocado
Group") and Marks & Spencer Group plc ("M&S"), today announces its
trading statement for the 13 weeks to 28th November 2021.

 

Highlights

 

●     Q4 trends reflect strong momentum in underlying demand for Ocado;
best-ever Christmas ahead

●     Fastest ever ramp-ups at Andover and Purfleet; Bicester opening
next summer

●     Strong customer acquisition growth; heading towards 1 million
landmark

●     2021 expected outturn in line with guidance; strong demand offset
by labour pressures and capacity constraints; shape of the week and basket
sizes trending towards pre-COVID levels

●     Strong, mid-teens sales growth expected for 2022; driven by
accelerated roll-out of new capacity

●     £50m impact from increased investments in 2022 to support
long-term growth

 

Key financials

 

                             13 weeks  13 weeks  13 weeks  Growth(4)  Growth(4)

                             Q4 2021   Q4 2020   Q4 2019   vs 2020    vs 2019

 Retail revenue(1)           £547.8m   £570.1m   £416.2m   -3.9%      +31.6%
 Average orders per week(2)  375,100   345,700   328,955   +8.5%      +14.0%

 

 

Revenue

 

●     Customer orders per week were up 9% versus the prior year, driven
by a 22% increase in active customers to 832,000, demonstrating Ocado's
ability to win new customers in the context of continued strong demand for our
market-leading online grocery offer

●     Growth in orders, while positive, was impacted by the changing
conditions in the post-lockdown UK labour market in addition to the previously
guided temporary reduction in capacity at the Erith Customer Fulfilment Centre
("CFC")

●     At the same time, the value of the average basket fell 12%, to
£118 (note: up 13% v 2019), as customer behaviours continued to normalise as
many consumers returned to the office and spent less time at home

●     The net effect of these two trends was that headline sales were
down 4% in the 2021 quarter, compared with the same quarter in 2020 (note: up
32% compared with 2019)

●     Sales growth was held back by labour shortages; early in the
quarter, headcount decreased across our delivery and CFC roles in Ocado
Logistics; but following the introduction of the additional measures announced
at the Q3 Trading Statement, and the end of furlough, vacancies are returning
to more normal levels

●     Participation of M&S products in the mix continues to be
strong, at nearly 30% of the basket, demonstrating the continued popularity of
M&S products in the average basket

●     We are also experiencing cost inflation due to nationwide utility
price increases and dry ice shortages and are mitigating these through various
cost management measures.

 

Operations

 

●     Ocado Retail is adding significant new capacity to take advantage
of growing demand and deliver strong, sustainable growth

●     The business benefited from additional capacity as the new
facilities at Andover (opened in August) and Purfleet (opened in September)
came on stream.  Andover is now processing around 25k orders per week and
Purfleet around 35k orders per week, out of an expected total at maturity of
60,000 and 85,000 respectively. These are the fastest ramp-ups of any CFC
recorded to date.

●     Notwithstanding continued normalisation in the trading week
towards the peaks and troughs experienced before the pandemic, the performance
of Erith in Q4 has been in line with the expectations we outlined with the Q3
trading update; with effect from mid November, notwithstanding labour
constraints, live peak-day capacity at the site has returned to pre-fire
levels,

●     Following the success of Zoom in West London, Ocado Retail expects
to open a second Zoom site, in Canning Town, in the second quarter of 2022;
three further sites are planned for the second half of next year - these Ocado
Retail Zoom sites will generate average revenues of around £20 million per
year, many multiples higher than our competitors while offering customers an
extensive range of around 10,000 SKUs and with an average basket size that we
estimate is at least double our competition.

●     Looking to future years, Bicester CFC is planned to open in 2H22
and Luton CFC will open in 1H23, adding 30k OPW and 65k OPW respectively, to
bring total potential capacity to around 700k OPW (on a pre-Covid basket). The
business continues to search for additional sites.

 

Outlook

 

2021

 

●     Outturn expected in line with guidance

 

2022

 

●     We expect Ocado to return to strong, mid-teens revenue growth in
2022, at the top of the historic pre-COVID range of 10-15%

o      The 3 new CFC sites opened in 2021, combined with the Bicester
site to go live in 2H22, represent around 50% more available growth capacity
compared with 4Q20

o      In addition, Ocado Retail expects to open four Zoom sites,
representing mature capacity of around £80m in total

o      The business continues to search for future sites

●     ORL will make significant investments of around £50m in 2022
across a variety of areas to support strong growth, both in the year and for
the longer term:

o      Around half attributed to the increase in capacity including an
increase in OSP fees and other fixed site-related costs

o      The remainder allocated broadly evenly across:

o      increased marketing spend, with continued investment in the brand
to drive record customer growth, supporting accelerated sales growth as
customer behaviour normalises

o      one-off costs associated with continued transformation of the
non-OSP business platforms and an investment in talent to support the future
scale of the business

o      measures taken to address ongoing labour shortages

●    Ambition for EBITDA margin to rebuild towards 2021 levels following
a significant year of investment in 2022, with long-term margins underpinned
by technology and operating leverage

 

 

Melanie Smith, Ocado Retail's Chief Executive Officer, said:

"Over the past year our brilliant colleagues across Ocado Retail have been
working to further strengthen our range and deliver more value for money to
customers, as we continually refine and improve on the best customer
proposition in the market. We are delighted that M&S products now account
for nearly 30% of the basket - our customers clearly love the opportunity to
buy M&S food online. The investments we have made over the past year mean
we have significant capacity for growth in 2022 and we will continue to invest
in facilities, systems and people in the year ahead to deliver on our
long-term growth potential. We are working hard to manage current industry
challenges, and Ocado Retail has great momentum as we get ready for another
record Christmas and further strong progress next year."

 

Tim Steiner, Chairman of Ocado Retail, said:

"We are very encouraged by the underlying trends which are driving growth in
our business. Hundreds of thousands of UK consumers have tried online grocery
over the last eighteen months and the vast majority are continuing to shop
online and are not going back to physical stores. These customers increasingly
appreciate the customer service provided by Ocado.com
(https://protect-eu.mimecast.com/s/n6H1C314wc4XznSg4C9U?domain=ocado.com) and
Ocado Zoom and the range of customer missions that we satisfy from the big
basket to the top-up shop. We can see this in the strong growth in customer
transactions at Ocado Retail over the second half of the year. At a time of
growing momentum in the channel shift from physical stores to online we are
bringing significantly more capacity to market and are confident that we are
on  a strong, long-term growth trajectory".

Ocado Group, on behalf of the joint-venture, will be hosting an analyst
conference call at 7.30am today. Please use participant number: +44 (0)330 336
9125 and confirmation code: 6617307. A replay facility will be available
through an on demand link for 90 days following the announcement.

 

Contacts

●     Stephen Daintith, Chief Financial Officer, Ocado Group plc, on
01707 228 000

●     David Shriver, Director of Communications, Ocado Group plc, on
01707 228 000

●     Fraser Ramzan, Head of Investor Relations, Marks and Spencer Group
plc, on 0203884 7080

●     Martin Robinson at Tulchan Communications on 020 7353 4200

 

About Ocado Retail

 

Online supermarket Ocado.com was established in 2000 and is one of Britain's
leading online retailers, now a 50:50 joint venture between Ocado Group and
Marks & Spencer Group plc. Covering geographies comprising over 74% of UK
households, every shopping bag is carefully packed in one of six distribution
centres or the first Zoom site in London, using market leading software and
technology. Shopping is then delivered directly to customers using a network
of regional spokes in brightly-coloured vans. With an award-winning mobile
app, Ocado Retail delivers over 50,000 products, including big-name brands, a
range of Ocado and M+S own brand products and non-food selection. Thoughtful
service features such as colour-coded bags, digital receipts provided in date
order, reminder texts with your driver's name, along with convenient hourly
delivery slots complementing award-winning customer service on email, phone
and social media.

 

Notes

1.         Retail revenue comprises revenues from Ocado.com and Ocado
Zoom and excludes revenues from Fetch in current and prior periods

2.         Average orders per week refers to results of Ocado.com.

3.         Average basket size refers to results of Ocado.com.

4.         Growth percentage calculated on a rounded basis.

5.         The figures used in this announcement are unaudited.

6.         A copy of this trading update is available on
www.ocadogroup.com (http://www.ocadogroup.com) and
www.corporate.marksandspencer.com.

 

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.

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