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REG - Ocado Group PLC - Trading Statement

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RNS Number : 6842M  Ocado Group PLC  25 May 2022

OCADO GROUP PLC

 

25 May 2022

Ocado Retail Trading Update

 

Ocado Group ("Group") has issued today a Trading Update for Ocado Retail to
coincide with the publication of the Marks & Spencer Full Year 2021
results which include Ocado Retail results to the end of Q1 2022.

 

Summary

 

Since the beginning of Q2, Ocado Retail has continued to win new customers and
grow market share online. The fundamentals of the business are strong and
Ocado Retail is confident that sales and EBITDA contribution will follow an
increasingly positive trajectory in the medium to long term. This confidence
is based on expectations of continuing customer acquisition, the availability
of capacity to meet future demand, and encouraging trends in underlying
productivity.

 

Like every consumer-facing business in the UK, however, Ocado Retail's short
term sales growth reflects changing customer behaviour against the background
of a growing cost of living crisis.

 

In response to this, Ocado Retail is mobilising the ingenuity and commitment
of its colleagues, and the resilience of its business model, to offer
customers fair value and the highest quality service through this challenging
period.

 

Market backdrop

Since Ocado Retail's Q1 trading update on the 17th of March, the trading
environment has deteriorated, as has been widely reported in industry data,
with the cost of living crisis compounding the impact of a return to more
normal consumer behaviours as restrictions have ended and many people return
to the office.

 

In the last few months, the grocery market has declined by 4-5% compared to
last year when the country was experiencing peak
COVID restrictions. Online grocery overall has declined by around 20%
compared with last year, although the online market remains 60-70% higher
compared with two years ago. Online share of grocery at 11-12% is almost
double compared to pre-pandemic levels.

 

Food price inflation and the value of the average basket

 

While Ocado Retail is committed to offering customers fair value, the business
also recognises the high cost inflation being experienced by food suppliers
and others in the grocery supply chain. Overall, food price inflation in the
average basket is trending in the low single digits. In addition to the impact
of the normalisation of consumer behaviours, industry trends are increasingly
impacted by the cost of living crisis in the UK. Ocado Retail is seeing
consumers ordering one or two fewer items per shop than before and therefore
the value of the average basket is currently trending 9% lower compared to a
year ago.

 

New customer acquisition

 

Over the week beginning the 9th of May, Ocado Retail delivered 400,000 orders
to customers for the first time. However, although customer numbers are
growing (up 12% year-on-year, year to date), the rate of growth has slowed as
consumers respond to short term discounts and promotions. A combination of
slower growth in customer transactions, and a slightly lower average basket,
means that Ocado Retail sales were down around 8% in Q2 in the period up to
and including the 25th of April compared to a fall of 5.7% reported in Q1.

 

Ocado Retail continues to see big pools of demand in the UK market for online
grocery services which, with new capacity coming on stream, it has the
opportunity to serve. Ocado Retail continues to show the strongest growth in
the online channel and is winning market share, according to industry data.

 

 

Impact on ORL sales and EBITDA contribution

 

Given expectations that the effects of the cost of living crisis will
intensify, with a further rise in utility prices anticipated in the autumn,
Ocado Retail now expects that sales growth in FY22, while positive, will
nonetheless be in the low single digits rather than around 10%, to which we
guided previously.

 

Slower than expected sales growth, coupled with the impact of higher utility
and fuel costs in the year, implies a low single digit EBITDA margin for Ocado
Retail in FY22.

 

Key indicators of efficiency in both fulfilment and the last mile continue to
show positive trends. Of particular note, units picked per labour hour ("UPH")
in our newest sites, Andover and Purfleet, are exceeding our 200 UPH target,
with Andover having hit 220 UPH. This gives the business confidence that the
EBITDA margin will recover towards a high mid-single digit level over time as
it recovers the fixed costs of new capacity and when the impact of the current
cost of living crisis begins to abate.

 

Separately, Ocado Group will be hosting an accounting seminar at 3pm BST today
to discuss the modelling of the business and to improve understanding of the
underlying operating segments. For those not attending the presentation in
person there will be a webcast link detailed on the Press Release, and replay
facilities made available, shortly after the presentation, on the Group
website, OcadoGroup.com (http://ocadogroup.com/) .

 

No additional material updates on current trading will be provided at the
event.

 

Contacts

 

●     David Shriver, Director of Communications, Ocado Group on 020 7353
4200 today or 01707 228 000

●     Martin Robinson at Tulchan Communications on 020 7353 4200

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

 

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 using market leading software and technology. Shopping is then
delivered direct to customers using a network of regional spokes in
brightly-coloured vans. With award-winning mobile apps, Ocado Retail delivers
over 50,000 products, including big-name brands, a range of M&S and Ocado
own brand products and a growing 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.

 

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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