Ocado has cut its annual loss by almost 80% amid booming sales during the pandemic, but the online grocer warned the coronavirus outbreak and drive for international expansion will continue to constrain profitability.
Total group revenues for the 52 weeks ended 29 November jumped by 32.7% to £2.33bn from £1.76bn in the previous year.
This was primarily driven by a 35.3% increase in retail revenue, its joint venture with Marks & Spencer, reflecting increased demand driven by Covid-19 restrictions, with a £31 increase in the average basket value from £106 to £137.
The Group also began to recognise revenue its international solutions business following the commencement of operations at the first two international CFCs in Toronto and Paris, with reported revenue of £16.6m.
Total invoiced fees across all international solutions partners were £123.9 million, an increase of 52.2% compared to the prior period
The revenue jump helped gross profit grew strongly, particularly in the second half of the period, also helped by a change in product mix.
EBITDA for the period was £73.1m, up from 43.3m a year ago, benefiting from higher revenues and operational efficiencies in the UK retail business, but offset by the increased investment in areas to support its platform growth, including additional headcount to grow its international relationships, and technology resources to help scale and improve the platform and infrastructure.
In addition, Ocado incurred higher Covid-19 related costs such as frontline worker bonuses and additional safety measures, received lower fee income from Morrisons due to a revised agreement which temporarily releases Erith capacity following the Andover fire, and incurred higher management incentive, FX and other acquisition related costs.
Depreciation, amortisation and impairment also increased by 24.1% to £168.9m, primarily due to an increase in amortisation costs relating to its investment and rollout of OSP software.
That meant that pre-exceptional losses increased from £120.4m to £148.6m during the year.
However, an exceptional gain of £104.6m, primarily relating to insurance payouts from its Andover CFC fire, compared to exceptional charges of £94.1m in the previous year, meant statutory pre-tax loss reduced to £44m compared to £214.5m.
During its 2021 financial year, Ocado said revenue growth was “highly dependent” on length of Covid-19 restrictions, although it is building new capacity to deal with raised demand with three new UK CFCs, two of which are expected to open in the fourth quarter
It also expects double digit percentage revenue growth in UK Solutions & Logistics, while international solutions revenues should increase to around £50m, reflecting another two CFC sites coming online in the first half of the current financial year.
However, Covid 19 will continue to have a “significant impact” on group profit performance.
It is investing an additional £30m to accelerate investments in technology and platform, in response to the increased demand for online grocery.
Meanwhile, total capital expenditure for the group is expected to be around £700m reflecting increased investment in the UK and international CFC roll-out, whilst continuing to invest in technology development and platforms
International solutions EBITDA is expected to be lower, reflecting greater investment in building the business, more than offsetting the increase in revenue
CEO Tim Steiner commented: “The rapid acceleration of many pre-existing trends in business and society has been a feature of the Covid-19 crisis and the dramatic channel shift in grocery is a clear example of this. The landscape for food retailing is changing, for good. As we look ahead to a post-vaccine world and a return to a new normality, Ocado Group is very well placed to enable our grocery partners worldwide to bring the best customer experience to market, responsibly, with high levels of hygiene and superior, sustainable, and proven economics.
“Going forward, customers who have experienced the benefits of online grocery shopping are likely to become ever more discerning. Winners in the online channel will need to offer the very highest standards of customer service and the ability to serve a full range of customer missions. These include the full family basket as well as the convenience shop, the option of direct to home or pick up at the store, the same day or next day.
“With the standard-sized CFC as an anchor, we can enable our partners to offer customers a best-in-class immediacy service alongside the geographic flexibility of mini-CFCs together with the additional, tactical advantages of In-Store Fulfilment roll out. The uniquely flexible Ocado Smart Platform allows our partners to offer all this, supported by proprietary technology which is constantly evolving thanks to our growing capacity to innovate. We believe strongly that our platform will help our partners deliver a market-leading service to their customers, as the very promising initial results from our partners Groupe Casino and Sobeys have shown.
“With Kroger’s first CFC set to go-live in H1, and seven of our nine partners likely to be on the OSP by the end of the year, we are very excited to be ever closer to our ambition of changing the way the world shops.”
Ocado has opened down 2.9% to 2,667p so far this morning.
English winemaker Chapel Down has announced plans to sell off its Curious Drinks business, comprising the Curious Beer and Cider brands and the Curious Brewery and restaurant, to Risk Capital Partners.
Subject to the granting of HM Revenue & Customs licences to RCP, the company intends to place Curious Drinks into administration, following which RCP will acquire the business and assets from the administrators.
The decision follows a strategic review by the board, which was undertaken as a consequence of the effects of the COVID-19 pandemic on the hospitality industry. With 90% of its beer sold to the on-trade, Curious Drinks has been “significantly impacted” by the closure of pubs, bars, restaurants and hotels and other hospitality venues and events due to the UK Government imposed lockdowns.
In contrast, Chapel Down’s wine and spirit business, with an established strong brand and a more multichannel route to market has “thrived”, with overall volume growth of 38% in 2020.
The board of Chapel Down has therefore decided that, given the competitive strength of the wine business, it is in the best interests of the group and its shareholders to focus on building the Chapel Down wine brand and business and to exit the Curious Drinks business.
RCP has extensive experience in hospitality and drinks and we believe they can provide the award-winning Curious business with the “investment and support it needs to fulfil its exciting growth potential”.
There will be no redundancies as part of the disposal.
The effect of the disposal, for which Chapel Down will not receive any consideration, is to remove the Curious business from the Chapel Down Group and with it the attendant net debt in Curious.
This will reduce Chapel Down’s unaudited net debt from £7.2m to £0.1m with £4.6m cash on a proforma basis at 31 December 2020.
Frazer Thompson, CEO of Chapel Down Group, said: “The COVID-19 pandemic has upturned the best laid plans of businesses all over the world and has required companies to respond to the crisis with flexibility and agility.
“Demand and respect for English wines and Chapel Down in particular, is growing all the time, and as the leading brand and business we see a significant opportunity and a very bright future for Chapel Down. We certainly won’t be abandoning the hospitality business – we love it – and will support its return vigorously with our wines and spirits.
“It has, however, been a very difficult year for the Curious Drinks business which, as a young brand with 90% of its sales to the on-trade hospitality sector, has been severely impacted by the uncertainty and frequent shuttering of that industry.
“While this has been a difficult decision, we are very pleased to have found in Risk Capital Partners an excellent home for Curious Drinks – and the Curious team – where the business will be able to fulfil its exciting growth potential. I’m delighted that we will be able to offer Curious Drinks shareholders shares in Chapel Down Group.
Luke Johnson, founder of Risk Capital Partners, said: “We see terrific potential in the Curious Drinks business, and we’re very excited about its future, despite the challenges of the past year. Brewing will always be a cornerstone of British culture, and the craft beer revolution has only strengthened that.
“Curious is a great brand made in a fabulous facility, and with our support we believe the business can be developed further. We are particularly pleased to be taking on all Curious employees, who bring with them a wealth of insight and knowledge.”
Elsewhere, British shoppers spent £1.4bn on groceries online during the month of January, a growth of 121% in the last four weeks ending 30 January.
A large proportion of this expenditure was from new online shoppers who spent an equivalent of £770m, reveals new data released today by NielsenIQ.
The online share of grocery sales across British supermarkets doubled to 16% in the last four weeks ending 30th January, up from 8% during the same period in 2020. This is the highest ever share for online grocery sales, exceeding the extraordinary levels last seen in June 2020, when share peaked at 14%.
Data from NielsenIQ shows that during the four week period, 1 in 3 of all British households shopped online (9.3m) and 4.1m of these shoppers were brand new to the channel, the highest number of new online shoppers on record.
The substantial growth of online follows what has been an exceptional January for supermarkets, in which total till sales in the last four weeks grew by 10.6%, also the highest growth since June 2020. This is an unusually strong grocery sales growth for January, which has typically been a month of subdued growth following the festive period.
In terms of retailer performance, Morrisons (+10.5%) is the only retailer in the ‘big four’ to have gained market share over the last 12 weeks. However, there was also strong performance from Lidl (18.3%) and Iceland (15.4%).
Mike Watkins, Nielsen’s UK head of retailer and business insight, said: “It has been an extraordinary January for British supermarkets. This was spearheaded by the exceptional growth in online grocery, in which there were 24 million online shops made - up from just 11 million last January. This growth has once again been driven by increased demand throughout the third lockdown as shoppers shifted spend away from stores where overall growth was flat. Retailers were able to flex their capacity in home delivery and increasingly in click and collect to meet the unprecedented number of new online shoppers.
“Looking forwards, we anticipate that this level of spending will remain consistent throughout February, however we will see growth fall in March given the comparative 21% growth of last March, and we estimate that growth for the full quarter will level out at between 1%-3%.”
January retail sales slumped once more under coronavirus lockdown conditions, according to the monthly BRC-KPMG retail sales monitor.
On a total basis, sales decreased by 1.3% in January, against a decline of 0.4% in January 2020.
This is below the 3-month average growth of 0.6% and above the 12m average decline of 0.4%.
UK retail sales increased 7.1% on a Like-for-like basis from January 2020, when they had decreased 0.8% from the preceding year.
Over the three months to January, in-store sales of non-food items declined 36.5% on a total and 19.8% on a like-for-like basis.
Over the same three month period, food sales increased 7.5% on a like-for-like basis and 7.9% on a total basis. This is higher than the 12-month total average growth of 6.1%.
Online non-food sales increased by 83% in January, against a growth of 1.0% in January 2020 - the highest monthly jump on record.
BRC chief exec CEO Helen Dickinson commented: “January saw retail sales growth decline to its lowest level since May of last year. The current lockdown has hit non-essential retailers harder than in November, with the new variant hampering consumer confidence and leading customers to hold back on spending – especially on clothing and footwear.
“Meanwhile, retailers have worked incredibly hard to expand their online delivery and click and collect offerings to ensure everyone can get the products they need during lockdown. This has led to record growth for online non-food sales and is a testament to the resilience and innovation of retail, which in the face of the pandemic, has rapidly adapted and invested in online platforms and delivery logistics.
“Retail firms are supporting the Government’s efforts to combat the virus and the industry will continue to play its part in the fight by stepping up safety measures to keep their teams and customers safe. However, three periods of prolonged closure for some and the ongoing uncertainty around reopening puts many retailers in a precarious position.
“If Government wants to avoid further administrations of otherwise viable businesses and thousands of jobs losses, it must provide those firms which have been hardest hit with the necessary financial support, including targeted business rates relief beyond March.”
IGD CEO Susan Barratt added: “Food and drink sales followed a familiar January dynamic, dropping back following the festive sales generated in December. The latest national lockdown triggered a small spike in sales at the start of the month, but this was much more modest than the surge experienced in the first lockdown in March. Many categories continue to benefit from the closure of the out-of-home sector. Alcohol sales have fared particularly well, with ‘dry January’ having little impact on consumers’ spending.
“While boosted in the short-term, confidence is likely to remain fragile as shoppers feel the impact of the economic downturn. Any supply chain disruption due to the new trade deal with the EU could also have an impact on shoppers.”
Finally this morning, Barclaycard has found that spending on essential items grew 3.9% in January, bolstered by a 17% rise in overall supermarket expenditure, with online supermarket spend seeing significant growth (126.8%).
This was driven by a surge in demand for home deliveries, with almost four in 10 (37%) Brits saying they found it harder than ever to secure a delivery slot.
Online supermarket spending by the over 65s has grown much faster than other age groups, more than quadrupling (+332.5%) compared to last year.
Spending at physical food and drink specialist stores – which includes butchers, bakeries, and greengrocers – also grew (40.5%), as Brits continued to support nearby independent businesses. This comes as 45% say they plan to continue shopping more locally, even after lockdown ends, to support their community.
Fuel, however, saw its sharpest decline (-32.3%) since June 2020 (-33.8%) – when measures from the first national lockdown were still in place – as prices at the pump continued to fall and more Brits stayed at home.
Spending on non-essential items declined 24.2%, as more shops across the UK temporarily closed due to the restrictions. The steepest declines on the high-street were seen at department stores (-36.8%), pharmacy, health and beauty (-27.2%) and clothing (-25.0%).
The hospitality sector had another very challenging month as Brits’ social plans remained on hold, with bars & pubs, and restaurants recording significant declines of -93.7% and -84.2% respectively.
Despite the slight improvement in travel spending in December, tighter restrictions and news of tougher border controls saw a drop in holiday bookings and overseas trips in January, with travel agents (-87.2%) and airlines (-81.6%) hit hardest.
Raheel Ahmed, head of consumer products, said: “As the impact of the latest lockdown start to takes its toll, we’ve seen particular sectors struggle, as physical premises across the UK were forced to close. Last month’s glimmer of hope for the travel sector also seems to have stalled as tougher border controls saw bookings drop.
“Yet, on a more positive note, we have seen a surge in many online categories as the demand for home deliveries continues to rise. From meal kits and subscription services, to online grocery shopping, Brits have continued habits they formed in the first lockdown, with a record high seen in spending on takeaways and fast food.
“While confidence in job security has reached its lowest point in over a year, the ongoing vaccine rollout means that Brits believe there is hope on the horizon, and we all look forward to being reunited with much-missed family and friends later in the year.”
On the markets this morning, the FTSE 100 is up 0.2% to 6,534.9pts.
Early risers include McBride, up 3.8% to 83p, Nichols, up 2.3% to 1,250p and McColl’s Retail Group, up 1.9% to 26.2p.
Fallers, along with Ocado, include Bakkavor, down 4% to 85.5p, Pets at Home, down 1.3% to 408.8p and C&C Group, down 1% to 250p.
Yesterday in the City
The FTSE 100 opened the week up 0.5% to close Monday at 6,523.5pts.
Risers included Bakkavor, up 3.1% to 89.1p, Nichols, up 2.3% to 1,22.5p, Coca-Cola HBC, up 2% to 2,307p, WH Smith, up 1.9% to 1,705p, Premier Foods, up 1.4% to 93.8p and Hilton Food Group, up 1.3% to 1,058p.
The day’s fallers included Glanbia, down 3% to €10.17, Marks & Spencer, down 3% to 134.2p, PayPoint, down 2.45% to 620p, Ocado, down 2.2% to 2,746p, Greggs, down 2.2% to 2,062p and McColl’s, down 2.1% to 25.7p.