Ocado Group Plc reports strong revenue growth, raises FY24 guidance

Ocado Group PLC (LON:OCDO) has announced its interim results for the 26 weeks ended 2 June 2024.

Financial progress

●     Group revenue £1.5bn, +12.6%: Technology Solutions +22%, Ocado Logistics +6%, Ocado Retail +11%

●     Group adjusted EBITDA*¹ of £71.2m, up £54.6m from £16.6m: Technology Solutions EBITDA of £35.0m, up £29.1m; Ocado Logistics at £17.2m, up £2.6m; Ocado Retail at £20.7m, up £23.2m; inter-segment eliminations at £(1.7)m, down £0.3m

●     Reported loss before tax £(154)m (1H23: £(290)m): after net adjusting items* of £7.3m (1H23: £(77.2)m)

●     Underlying cash outflow*² of £(197)m: £101m improvement vs. 1H23, driven by higher revenues, increasing EBITDA margins, lower capex and good cost control; continuing a sequential improvement in the Group’s cash flow. Liquidity remains strong at £1,047m (1H23: £1,309m)

●     Improving mid-term cash trajectory: underlying cash outflows in FY24 now expected to be around £150m lower (improvement) vs. FY23. Clear roadmap for Group to turn cash flow positive during FY26.

●     Cost & capital discipline across the Group: commitment to progressively reduce total technology & support annual spend towards our mid-term goals; clear and focussed targets for technology cost reductions as Re:Imagined innovations approach market-readiness and roll out to our partners

●     Raising FY24 EBITDA* & cash flow guidance: Underlying cash flow* expected to improve by £150m (previously £100m); Technology Solutions to achieve a mid-teens EBITDA margin (>10% previously)

Operational and strategic progress

●     Technology Solutions: +11% growth in average live modules³ vs. 1H23 (up from 101 to 112) reflecting the incremental drawdown of capacity at certain CFCs and the annualisation of three new CFCs in FY23; we expect the CFCs in Madrid, Sydney and Melbourne to go-live in 2H24

●     Partner Success: supporting our partners’ long-term growth and profitability remains a top priority; specialist resources embedded in our local account teams, supported by a dedicated central function.

●     Re:Imagined technology rollout: On Grid Robotic Pick (“OGRP”) and Automated Frameload (“AFL”) installations progressing well; next-generation robots and grid on track to be deployed with McKesson in Canada

●     Ocado Logistics: continuing to drive leading levels of productivity and efficiency for our UK partners

●     Ocado Retail: ‘Perfect Execution’ Programme has driven a market-leading trading performance, +11% growth in sales; on track for FY24 guidance of 2.5% adjusted EBITDA margin* (excl. Hatfield fees)

Tim Steiner, Chief Executive Officer of Ocado Group, said:

“Today’s results illustrate good progress as we support thirteen of the world’s leading grocers to grow their online business with our technology. We have come through an unprecedented  period for online grocery, with multiple years of high food inflation following a surge in demand during the pandemic. The global channel shift to online has now resumed and Ocado is uniquely well-positioned to take advantage of the opportunity.

Our technology is delivering high levels of productivity and customer satisfaction. In the UK, Ocado Retail continues to lead the way in online grocery, and internationally we have received orders for new capacity, with a number of our partners reporting strong digital sales growth year-on-year.

The success of our partners is our top priority, and we are focused on helping them execute their online strategies to deliver attractive returns from their investment in our technology. While there remains more to do, we look forward to making continued progress over the rest of the financial year and beyond, as we build a profitable, cash-generating, technology business”.

Ocado Group 1H24 Summary Income Statement

* These measures are alternative performance measures. Please refer to Note 16 of the Condensed Consolidated Financial Statements

Notes:

1. Adjusted EBITDA* is defined as earnings before net finance cost, taxation, depreciation, amortisation, impairment and adjusting items*.

2. Underlying cash flow* is the movement in cash and cash equivalents excluding the impact of adjusting items*, proceeds from the disposal of assets held for sale, cash received in respect of contingent consideration, costs of financing, purchase of/investment in unlisted equity investments and FX movements.

3. Average live modules measures the weighted average number of modules of capacity installed and ready for use by OSP clients during the year, which drives Technology Solutions recurring revenue.

4. Revenue is a. Retail – online sales (net of returns) including delivery charges to the customer b. Technology Solutions – the fees charged to Solutions partners and OIA clients and c. Logistics – the recharge of costs and associated fees from Ocado Logistics to our UK clients. Recharges from Technology Solutions and from Ocado Logistics to Ocado Retail are eliminated on consolidation.

5. Adjusting items* of £7.3m income (1H23: £77.2m expense) comprise largely 1. the unwind of the discount in relation to the settlement reached with AutoStore to settle IP patent legal cases of £6.9m, 2. profit on the disposal of Dagenham and Coventry spoke sites of £12.4m, and 3. finance, IT and HR systems transformation costs of £8.2m.

6. Direct operating costs as a % of live sales capacity reflect the P6 exit rate position for all OSP CFCs live at the period end. Direct operating costs include engineering, cloud and other technology direct costs.

7. Mid-term support cost target of £130m subject to inflation from FY21 – estimated to be c.£150m including inflation impact.

8. DP8 represents the customer deliveries per standardised eight-hour shift for Ocado Retail only.

9. NIQ Total Till and NIQ Homescan from Nielsen Consumer LLC.

10. Active customers are classified as active if they have shopped at Ocado.com within the previous 12 weeks.