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10 December 2020
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10 December 2020

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Ocado has hiked its full year profits forecast as its UK retail sales continue to boom as grocery shoppers stay at home.

Ocado said that continued positive customer response to M&S offering and impact of additional lockdown measures, contributed to strong momentum in the 13 weeks to 29 November.

Retail revenues were up by 35% to £579.6m in the quarter reflecting strong demand for online grocery and the continuation of a smoothed trading week compared to the peaks and troughs that reflected normal shopping habits pre-COVID.

Ocado said that the strong retail performance, combined with the impact of operational leverage in the retail business, meant it now expects full year EBITDA to be over £70m – up from its most recent forecast of £60m in November and £35m at the start of the financial year.

Order numbers were up by a more modest 3% to 360,000, but average average order size rose to £1,331 as customer shopping behaviour continued to normalise

It said that customers continue to embrace the full M&S range with the biggest selling lines coming from everyday essentials in the M&S fresh categories.

Melanie Smith, Ocado Retail’s CEO commented: “We continue to make good progress bringing even greater choice, quality, and value to our customers following the switchover to M&S at the beginning of September. At Ocado Retail we are constantly looking to raise the bar even further and the addition of M&S products to our grocery ranges has enhanced what was already the widest

“Despite exceptional demand during the period, we have high rates of on-time customer delivery and low rates of substitutions. This, together with our commitment to competitive prices and the freshest produce available, all delivered in a way that minimises handling and maximises hygiene, has strengthened our credentials as the UK online grocery market leader in terms of customer experience.

“With three new warehouses opening in 2021 which will ultimately give us 40% more capacity to our business, we look forward to being able to offer more slots to existing customers while welcoming new customers to Ocado and showing them what we can offer”.

Tim Steiner, Chairman of Ocado Retail, said: “This has been an exceptionally difficult year for everyone in the country and indeed around the world. Throughout the COVID crisis, we have endeavoured to bring the best and most reliable customer experience to as many households as possible.

“I would like to pay tribute to all my colleagues who have played a part in making this happen, in particular our front line staff and those working in our Customer Fulfilment Centres, who have worked tirelessly to help feed the nation. I am incredibly proud of the agility the business has demonstrated through this challenging time. We enter the holiday period with confidence and look ahead to better times for all in 2021”.

Ocado shares have dropped 3.2% to 2,250.7p this morning, while M&S shares are down 2.2% to 139.9p.

Morning update

McColl’s has announced its full year sales are back in growth, rising by 2.3% to £1.25bn to reflect strong demand since the onset of the coronavirus pandemic albeit mitigated by store closures.

Like-for-like sales were up 12% during the year, compared to flat in the previous financial year, driven by a strong performance in BWS, fresh food and tobacco.

Like for like sales growth in the fourth quarter, remained strong at 11.4%.

McColl’s said its strongest performance was delivered through Morrisons Daily format, with significant LFL sales growth. It is also reviewing opportunity to convert further sites in the first half of next year, adding to the 31 trial stores in current operation.

The group is currently migrating the remaining part of its estate to Morrisons supply, in order to simplify our operations, which is expected to complete by March 2021.

A total of 179 stores were closed during the year, in line with its strategy to increase focus on larger, more profitable, convenience stores.

However, despite strong demand, changes in shopping behaviour during the pandemic has resulted in margin pressures due to a change in product mix. McColl’s also said it has experienced lower services revenues as well as ongoing COVID-19 related costs.

Adjusted EBITDA pre IFRS 16 is expected to be between £29m to £30m, down from £32.1m last year.

It also expects like for like growth to moderate in the new financial year, but that its sales mix will begin to normalise.

It said its strategic focus on the larger convenience store format, such as Morrisons Daily, should drive incremental sales in grocery, fresh food and BWS in particular, providing opportunities for sales mix improvement.

CEO Jonathan Miller commented: “As we look towards the festive period, the safety and well-being of our colleagues and customers continues to be our number one priority. I am extremely proud of all of our colleagues who have been working incredibly hard to keep supplying our neighbourhood communities with the food, goods and services they need.

“Since the onset of the pandemic, we have seen strong demand driven by our customer offer and the positioning of our stores in key neighbourhood locations. At the same time, we have faced significant COVID-19 related costs and our operating margins have been reduced by a change in customer behaviour and product mix.

“Despite the challenges of 2020, the pandemic has reinforced our confidence in our ongoing strategic change programme. The importance of neighbourhood stores has never been greater, and we are well positioned to continue enhancing our convenience offer by further developing our partnership with Morrisons, and further improving the quality of our estate and our overall customer experience.”

Pub operator and brewer Marston’s has announced it has suffered a 30% sales drop and a £22m annual loss due to the closure of pubs and bars during the pandemic.

Group sales for the 53 weeks ending 3 October 2020 were £821m, 30% below last year.

Total pubs and bars sales for the year were 34% down to £516m, principally reflecting the 15-week closure period and the impact of the disposal of 172 pubs for proceeds of £61m in the first half year.

Ahead of the merger of its brewing arm into a joint venture with Carlsberg UK, the division saw sales drop 22% to £306m.

Off trade volumes for the year were up 23%, driven by exceptional demand during the period of pub closure. However, on trade volumes (even excluding the closure period) were 11% below last year.

Since 4 July, the group had reopened approximately 99% of its pubs by the year end, though a small number closed subsequently as revised regulations were introduced in Scotland. Managed and franchised like-for-like sales averaged 90% of last year over the 13-week period to 3 October – an outperformance of approximately 7% relative to the UK pub sector due to limited exposure to city centres and only three pubs in Central London.

The financial consequences of pub closures due to COVID-19, for the duration of the 15-week period of enforced closure, subsequent restrictions and local lockdowns in many areas across the country, are reflected in significantly reduced profit.

Underlying EBITDA fell £100m back to £125.6m and total underlying operating profit was £74m compared to £172.8m in the previous year.

The group’s total underlying loss before tax was £22m compared to a profit of £95.1m last year.

On a statutory basis, the total loss before tax was £397.1m due to £375.1m of exceptional items. One-off costs largely related to a goodwill impairment of £200.6m and an impairment review of the pub estate in the period, which resulted in a £105.1m.

Looking forward, Marston’s said that, following the recent Government announcements on the Tier system and criteria, the winter months will be both challenging and uncertain and 780 pubs remain closed after the November lockdown.

However, the longer term outlook does look more positive. The Prime Minister has strongly intimated that restrictions will ease in the Spring and there is increasing confidence that an effective vaccination programme can be implemented.

“Importantly, with the development of the vaccine, the more vulnerable groups, who are a key part of our business, should have more confidence in returning to pubs,” it stated.

CEO Ralph Findlay commented: “2020 has been an extraordinarily difficult year for the pub and wider hospitality sector which has been particularly hard hit by the pandemic.

“Whilst short-term uncertainty remains, we have taken swift action to future-proof the business to withstand the challenges presented by the pandemic and Marston’s has emerged a significantly stronger business, with a substantially strengthened balance sheet and well placed to rebuild trading momentum when restrictions are eased. The roll out of the vaccine is clearly critical to that, but in the meantime the sector continues to face major challenges and Government support will need to continue in order for many viable businesses to survive.

“Looking forward, Marston’s has entered the current year fit for the future and excited about the next chapter in the Company’s development as a focussed pub and accommodation operator.

“We look forward to realising the potential of the Group’s brewing JV with Carlsberg and wish the team at CMBC every success. There is clear evidence that consumer demand for our pubs remains strong and our geography, as a predominantly community pub operator with 90% of our well invested, high quality pubs located outside city centres, leaves Marston’s well placed to leverage the market opportunities available to us over the medium to longer term.”

Finally this morning, packaging giant DS Smith has announced a fall in first half profitability and box volumes as its customers were hit by COVID lockdowns.

After an initial challenging start to the six months to 31 October where many of its customers’ operations were either closed or disrupted due to Covid-19, sales volumes recovered strongly throughout the first half of this financial year in both Europe and the US.

Overall corrugated box volumes in May were 4.7% below May 2019 but recovered to growth of 3% in October resulting in the half year being 1.0% down on the corresponding period last year.

As a consequence, together with a deflationary pricing environment, overall profitability fell against last year, with profit before tax down 54% to £97m and adjusted operating profit down 34% to £230m.

Over the half year period, there was an initial further reduction in paper prices as European corrugated demand fell during lockdowns, which, combined with the temporary but sharp peak in OCC prices, due to the impact of lockdowns on the recycling infrastructure, and other Covid-19 related costs in Q1, impacted margins in that quarter.

However, profitability progressed strongly during the half year with the result that Q2 return on sales averaged 9.5% compared to the half year average of 8%.

CEO Miles Roberts said: “Q1 was particularly impacted by Covid-19, but pleasingly we saw real momentum in corrugated box volumes and profitability through Q2 and into H2, together with continued excellent cash flow generation.

“We have maintained our track record of winning market share through our fibre-based offering focussed on FMCG and e-commerce customers, where the seasonal period has seen solid growth. Growth with our largest customers has been excellent and our US business has seen good underlying progress during the period, reflecting the recent investment in our new plant in Indiana and the award of a number of significant supply contracts from major FMCG companies.

“We are as excited as ever about the structural growth drivers for corrugated packaging with a number of trends accelerated by the Covid-19 pandemic. We are well positioned to capitalise and are announcing today the construction of two new state of the art packaging plants in the fast growth regions of Italy and Poland to supply the burgeoning FMCG/ e-commerce sector.

“While the economic and political environment remains uncertain due to Covid-19 and Brexit, we see continued momentum for our business, underpinning confidence in continued performance in line with our expectations for the year. Strong demand has driven ongoing paper price increases, supporting future box pricing, which, together with customer wins in Europe and the US and our strong position to benefit from attractive structural trends, reinforces our confidence in the business going forward.”

On the markets this morning, the FTSE 100 is up 0.4% to 6,588.9p.

Fallers include McColl’s, down 13.2% back to 27p, SSP Group, down 2.3% to 328.3p and Bakkavor, down 2.3% to 81.1p.

Risers include Applegreen, up 44% to 510p, Glanbia, up 1.8% to €10.32 and Science in Sport, up 1.7% to 36p.

Yesterday in the City

The FTSE 100 finished the day up 0.1% to 6,564.2pts yesterday.

Ocado and Marks & Spencer were up ahead of today’s Q4 results for Ocado Retail, with Ocado up 3.4% to 2,326p and Marks & Spencer up 4.3% to 143p.

Other risers included Nichols, up 7.9% to 1,235p, Just Eat Takeaway.com, up 7.3% to 8,084p, Pets at Home, up 6.4% to 394.4p, Hotel Chocolat, up 6.4% to 460p, Sainsbury’s, up 3.1% to 222.9p, WH Smith, up 3.1% to 1,637p, Premier Foods, up 2.9% to 92.1p and Greencore, up 2.2% to 119.1p.

The day’s fallers included Naked Wines, down 3.9% to 615p, SSP Group, down 3.5% to 336p, Greggs, down 3% to 1,704p, Glanbia down 2.7% to €10.14, AG Barr, down 1.4% to 504p and Associated British Foods, down 1.4% to 2,262p.

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