Annual results from Ocado Group show its retail joint venture with M&S had a better year, returning to profitability and predicting more positive times ahead.
Over the comparative 52 weeks to 27 November 2023, Ocado Retail posted an adjusted EBITDA of £10.4m, compared to a loss of £4.0m the prior year when demand for its delivery service took a hit as shoppers returned to stores after the pandemic and made cutbacks amid soaring inflation.
Retail revenue increased by 7.0% to £2.36bn, driven by 5.9% growth in active customers to 998,000. Average orders per week also rose 4.0% to 393k, and the average basket value increased 2.7%. The rise in basket value was driven by a 7.9% jump in average selling prices, which was offset by a smaller number of items per basket, down 4.5% to 44, as cash-strapped shoppers made cutbacks.
Ocado noted that its ‘Perfect Execution’ programme had led to improvements in its customer proposition and service levels, with on-time deliveries and order accuracy back to pre-Covid levels. The retailer also expanded its offer, with the number of M&S products on its site increasing to around 90% of the addressable range.
Meanwhile, profit growth was driven by the improved range and stock management, reduced wastage, and increased delivery income.
Ocado said: “We see a clear pathway to continue this positive trend as active customers continue to increase and we make further progress increasing efficiencies, improving capacity utilisation of the CFCs and delivering incremental profitability through the natural operational gearing within the business.”
The company noted that retail sales growth is likely to be impacted by the easing in food price inflation. Revenue growth at Ocado Retail for its current financial year is expected to be in the mid-high single digits, whilst further progress on increasing efficiencies and operational leverage will help the business on its “journey towards a high mid-single digit EBITDA margin in the mid-term”.
Earlier this week, it was reported that M&S had put a final payment due to the Ocado Group on hold after their retail joint venture missed key performance targets.
Speaking today, the group’s CEO Tim Steiner stated that Ocado will “most likely” reach a negotiated settlement with M&S on the final payment of £190.7m that is due by August.
Amid rumours of tensions between the two firms, he stressed that their relationship remained “extremely strong”.
However, Steiner also raised the prospect of taking legal action. “We believe that we have a very solid case to get full payment, we know that M&S may not entirely share that view . . . We would much rather solve this in a nice and constructive way, which is what we’re working towards doing,” he said.
“We are very confident that we are owed a substantial sum of money and ultimately, I hope we will never get there, but we will not walk away from that sum of money.”
In its results statement, Ocado said it ultimately intended to receive a payment either “via a formal litigation process or settlement”.
In a statement, M&S said: “On the specific issue of the contractual contingency payment, our advice is that the financial performance of Ocado Retail means the criteria for the performance payment was not met.”
The wider Ocado Group posted a £393.6m pre-tax loss as the cost of technology and rolling out its automated fulfilment centres around the world continued to weigh on its bottom line. However, at the core earnings level, Ocado’s EBITDA came in at £51.6m against a £74.1m loss last year.
Steiner said he was confident of “faster growth, stronger cash flows, and higher returns, in the current financial year and beyond”.
NAM Implications:
- “Much rather solve this in a nice and constructive way”…
- …does not sit well with:
- …“We believe that we have a very solid case to get full payment”.
- So, unless this is an exaggerated opening stance…
- …there may be troubles ahead.
