REG - Ocado Group PLC - Trading Statement

OcadoAnnouncement

17/01/2023 07:00

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RNS Number : 9006M  Ocado Group PLC  17 January 2023

Ocado Retail FY22 Q4 Trading Statement

FY22 performance in line with guidance; record Christmas providing strong

momentum as we enter the new year

 

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 27th November 2022

Highlights

 

4Q 2022

●     Q4 Retail revenue of £549.4m, up 0.3% versus the same quarter
last year, a result of:

●     Average orders per week (Ocado.com) of 382,000, up 1.9%
year-on-year and reflecting 940,000 active customers(1) at end Q4, up 12.9%
year-on- year, offset by reducing frequency in customer shopping compared with
the pandemic period and as customers respond to the cost-of-living crisis

●     Average basket value (Ocado.com) of £117, down 1.3% year-on-year
as a 7.6%  increase in the average selling price(2) per basket item, the
lowest price inflation of all major supermarkets, was offset by a 8.3% fall in
average items per basket (to 45 items) versus the same quarter last year.
Alongside these two major factors, small moves in a combination of other
items(3) resulted in the overall decline in basket value

●     Moves in other line items of -0.3%, primarily driven by a
normalisation in vouchering spend (revenue is shown net of vouchers) compared
with the historic lows of the pandemic period

 

FY 2022

●     Full-year revenue of £2.2bn was down 3.8% from the prior year, up
c. 40% from FY19. While average orders per week (+5.8%) were up in the year,
reflecting an increase in active customers, and full-year average selling
prices have increased by 4.4% (from £2.44 to £2.55), an unwind of pandemic
shopping behaviours, accelerated by the onset of the current cost of living
crisis, resulted in lower basket volumes (-12.1%, 6 fewer items) and declining
shopping frequency, in turn driving an overall year-on year decline in revenue

●     Current headwinds related to inflationary costs, capacity
investments to support future growth and higher marketing costs continued to
weigh on profitability; for the full year, we expect close to break-even
EBITDA, in line with guidance

 

Christmas Trading

●     We have started FY23 strongly with record Christmas sales, up 15%
over the five days before Christmas, and orders up 13%, including the highest
level of orders ever recorded in a single day (more than 72,000)

 

Key financials

 

                             13 weeks  13 weeks  Growth      3-Year

                             Q4 2022   Q4 2021   v Q4 2021   CAGR
 Retail revenue(4)           £549.4m   £547.8m   +0.3%       +9.6%
 Average orders per week(5)  382,000   375,000   +1.9%       +5.1%

 

Hannah Gibson, Ocado Retail's Chief Executive Officer, said:

 

"This year we delivered our biggest ever Christmas for our customers at Ocado.
A huge thank you to all my colleagues for making this possible. We now have
close to 1m active customers, our largest ever customer base and we see huge
potential to convert those who have now trialled online shopping elsewhere to
become Ocado customers.

 

The year ahead will set us up to deliver strong sales and profit growth over
the mid-term. In 2023 we will continue to strengthen and improve our leading
customer proposition, including investing in value to help customers manage
cost of living pressures, while keeping tight control of our costs. We will
also be doing much more to unlock the potential of our partners, combining the
benefits of Ocado's technology with the magic of M&S products.

 

While the current market environment is challenging for everyone, I am very
excited in the future for Ocado Retail. Building on 20 years of amazing
service and innovation, we are confident of continuing to raise the bar in
online grocery and working with our partners to deliver the very best
experience for our growing customer base."

 

Strong growth in customer numbers

 

As reported by Nielsen, Ocado Retail continues to grow its share of online
grocery, increasing to 12.3% by the end of the quarter, up from 11.7% in the
prior year, as it attracts increasing numbers of customers who tried online
grocery for the first time during COVID and who are now looking for the best
customer experience online.  As consumers continue to seek value online, the
channel's share of the market appears to be stabilising around 11% - versus
around 6% pre-COVID - and is expected to grow next year, according to IGD.

 

Ocado's active customer base was up 12.9% year on year, to 940,000 at the
year-end, evidencing strong customer demand for the service and value offered
by Ocado.

 

Total customer numbers have been stable during the quarter, but reflect an
improving profile.

 

The active customer base includes both mature customers and those just
starting out (within the first five shops) on their Ocado journey. Our mature
customer base continued to grow in the quarter. By contrast, the absolute
number of newer customers within the active base has reduced, as we have
refocused our marketing strategy from driving acquisition volume to
prioritising the acquisition of customers more likely to convert into the
mature base.

 

Customers acquired in the second half of the fourth quarter are already
evidencing stronger conversion to maturity, underpinning our expectations for
continued customer growth going forward.

 

Delivering value for customers

 

We have beaten the market on inflation. Grocery price inflation across the 8
major UK supermarkets was 13.9% during the quarter to end November 2022
(source: Which? report of 7 December 2022), and the highest recorded rate for
30 years.

 

Ocado Retail has continued to work closely with its suppliers to deliver cost
savings. These have been reinvested in price to support our customers as they
manage rising living costs.  The same Which? study shows that prices at Ocado
Retail increased 9.4%, over four percentage points lower than the overall
market and the lowest of all the major supermarkets.

 

As mentioned above, our own data shows average selling prices have increased
by 7.6%, after a 1.8% impact from customers trading down within the basket.
The pricing of our core range of Everyday Saver lines has remained consistent
with, or below, Ocado's larger UK competitors.

 

Notwithstanding these actions taken to support our customers, the challenging
consumer environment has driven a faster normalisation from the high volume
customer baskets experienced during the pandemic. The 7.6% increase in average
selling price recorded in the period was more than offset by a reduction in
the average number of items in the basket of 8.3% year on year, from 49 items
to 45 items, in line with pre-pandemic levels. This saw the average value of a
basket declining overall by 1.3% to £117.

 

The new generation of CFCs are improving operating costs and customer
experience

 

Ocado's Customer Fulfilment Centres ("CFCs") orders continue to grow while
achieving progressively higher rates of productivity. Average orders per week
for Ocado.com during the quarter were 382k (versus an installed capacity
potential of around 600k), equivalent to around two-thirds of installed
capacity potential.

 

The level of capacity utilisation is expected to improve significantly during
2023 as customers and orders continue to grow.

 

Today, the latest generation of robotic CFCs are operating at increasingly
higher levels of productivity, with Andover and Purfleet consistently
achieving over 200 units picked per labour hour within the facility ('UPH'),
and Andover achieving a peak of 220 UPH, compared to UPH of around 150 for our
first generation CFC in Hatfield. The newest sites also have much lower energy
costs.

 

Going forward, with the rollout of Ocado Re:Imagined innovations, we expect
Ocado Smart Platform ('OSP') operated sites to see further UPH improvements to
over 300. At the same time, these innovations will enable further improvements
in customer experience, notably with increased capacity for same day
deliveries.

 

Update on Zoom

 

In 2022, Ocado Retail expanded the reach of Zoom, its leading immediacy
offering. We have now opened 4 sites, including the opening of Leeds at the
end of November. Together, we expect these sites to represent around £80m of
annual sales at maturity.

 

Zoom is successfully reaching new customers for Ocado Retail with more than
half of Zoom customers acquired in FY22 having never shopped on Ocado.com. Of
Zoom customers who are active Ocado customers, a high proportion of their
spend on Zoom is incremental.

 

2023 guidance and outlook

 

We entered the New Year with strong momentum following a record Christmas.

 

In 2023 we will focus on our Perfect Execution programme: focusing on
unbeatable choice and reassuringly good value, and with leading service,
against the background of the cost of living crisis in the UK.

 

Key initiatives that we are driving include:

 

●    Investing in great value for our customers including better prices
and promotions

●    Unbeatable choice and service to provide all the products that
customers love, improved availability and deliveries back to the kitchen table

●    Capitalising on the opportunity to leverage the M&S relationship
with regards to customer growth and our customer proposition, and

●    Driving efficiencies across our operating model, returning cost
ratios as a percentage of revenue towards pre-pandemic levels across the
business, including operations, marketing and central costs

 

We enter the year comparing against the larger volume basket shopping
behaviours that remained in place last year (following the pandemic) and, as
such, expect that the first half of 2023 will therefore see lower basket sizes
than those of the first half of 2022.

 

In the second half of 2023 we will no longer be comparing against these larger
basket sizes. This will support a return to volume growth, improved capacity
utilisation and reduced costs relative to sales. Revenue growth will also
reflect the impact of price inflation.

 

The shape of the year will reflect the factors described above. Though we
expect positive and improving revenue growth as we progress through the year,
it is likely that EBITDA will be negative in the first half and positive in
the second half, reflecting trends in volume growth.

 

Putting this together, we expect full year revenue growth in 2023 to be in the
mid-single digits. While there remain many uncertainties, we expect ORL to
deliver marginally positive EBITDA in 2023.

 

The improving trajectory forecast for the second half is expected to underpin
a strong recovery in 2024.

 

In the medium term,  Ocado remains confident, in the light of strong customer
acquisition and continued improvements to underlying productivity, that sales
and EBITDA margin will recover strongly. We will further build on Perfect
Execution by making the most of the product and customer opportunities with
M&S, and with the benefits of Re: Imagined still to come. Growing customer
numbers, orders and increased utilisation of available capacity will,
together, underpin a recovery to high-mid single digit EBITDA margins.

 

Alongside this release, a short video is available on the Ocado Group website
here (https://www.ocadogroup.com/investors/reports-and-presentations/) in
which CEO, Hannah Gibson, discusses recent performance, strategy, and the
significant mid-term opportunities ahead for Ocado Retail.

 

Ocado Group, on behalf of the joint-venture, will be hosting an analyst
conference call at 8.00am today. Please use participant number: +44 (0) 330
551 0200 and confirmation code: 1220779. 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, Chief Reputation Officer, Ocado Group plc, on 01707 228 000

● Fraser Ramzan, Head of Investor Relations, Marks and Spencer Group plc, on
020 3884 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 plc
and Marks & Spencer Group plc. Covering geographies comprising over 74% of
UK households, every shopping bag is carefully packed in one of seven
distribution centres using market leading software and technology. Shopping is
then delivered directly 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 quality M&S
and Ocado own brand products and a 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.   Active customers are classified as active if they have shopped at
Ocado.com within the previous 12 weeks

2.   Average selling price refers to Ocado.com and is defined as gross sales
divided by total eaches

3.   Other items includes delivery income and smart pass, post-delivery
adjustments and cancelled orders

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

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

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

7.   Growth percentage calculated on a rounded basis

8.   The figures used in this announcement are unaudited

9.   A copy of this trading update is available on 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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