Online grocer Ocado on Thursday reported an interim revenue decline and widened loss, which it put down to a UK grocery market that ‘contracted post pandemic and the rising cost of living crisis in UK’.
Revenue in the six months to May 29 fell 4.4% to £1.26 billion from £1.32 billion a year earlier. Ocado Group’s pretax loss ballooned to £211.3 million from £27.9 million.
Hitting its bottom line was depreciation, amortisation and impairment losses, wich rose 51% to £157.3 million.
‘The significant increase in cost of living is having a significant impact on customer behaviour and will be an ongoing challenge for the remainder of the year,’ Ocado warned.
Following a near £580 million cash raise, the company said its medium-term financing needs are met. Ocado has ‘ample liquidity’, it said.
On Tuesday, the company had said the chief executive of its retail joint-venture with Marks & Spencer will step down from the role. Melanie Smith will leave the business at the end of next month. She has led the joint-venture since its formation back in August 2019. Lawrence Hene, Ocado Group’s chief product officer, will take on the role of interim CEO of the joint-venture.
‘With a biting cost of living crisis unfolding, Ocado’s heydays as a pandemic-era darling now feel like a distant memory. However, our experts expect online penetration to grow to 20% within the next five years. Ocado looks set to benefit if it can expand its capacity in good time,’ commented Alex Smith at research house Third Bridge.
‘Although Ocado is currently the leader in the warehouse picking robotic technology, our experts say it is still at least three to four years away from becoming a pure technology company. The technology part of Ocado’s business remains tiny even though it grew by 300% last year.’
Ocado shares were down 1.7% early Thursday.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: down 0.1% at 7,255.03
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Hang Seng: down 1.6% at 20,550.98
Nikkei 225: closed up 0.4% at 27,803.00
S&P/ASX 200: closed up 0.5% at 6,794.30
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DJIA: closed up 47.79 points, or 0.2%, at 31,874.84
S&P 500: closed up 23.21 points, or 0.6%, at 3,959.90
Nasdaq Composite: closed up 184.50 points, or 1.6%, at 11,897.65
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EUR: flat at $1.0206 ($1.0202)
GBP: flat at $1.1983 ($1.1988)
USD: up at JP¥138.35 (JP¥138.05)
Gold: down at $1,689.31 per ounce ($1,707.88)
Oil (Brent): down at $106.03 a barrel ($107.06)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Thursday’s key economic events still to come
1415 CEST EU ECB interest rate decision
0830 EDT US Philadelphia Fed business outlook survey
0830 EDT US unemployment insurance weekly claims report
0830 EDT US weekly export sales report
1000 EDT US leading indicators
1030 EDT US EIA weekly natural gas storage report
1630 EDT US foreign central bank holdings
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UK government borrowing increased in June, figures from Office for National Statistics showed. Public sector net borrowing, excluding banks, amounted to £22.9 billion in June, up 22% year-on-year from £18.8 billion. The latest figure was the second-highest June borrowing amount on record, the ONS noted. In June 2020, borrowing was £32.2 billion. For the year to June, borrowing hit £55.4 billion, down 9.3% from £61.1 billion a year earlier, but more than doubled from the year to June 2019, so before the Covid-19 pandemic. Public sector net debt excluding public sector banks and the Bank of England was £2.068 trillion, which is 83% of UK gross domestic product.
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In the race to lead the ruling UK Conservative party, Liz Truss criticised Rishi Sunak’s record on taxation and the former chancellor claimed he was the only one who could beat Labour as the leadership contenders turned their focus to winning over Tory members. Foreign Secretary Truss vowed to bring in an emergency budget to swiftly axe the national insurance rise if she wins the race to be the next prime minister. Sunak made his own pitch to win over the Conservative membership who will crown the winner by arguing he could win an election, whereas Truss could not. Tory members of Parliament chose the pair to enter the run-off for the leadership, as Penny Mordaunt was eliminated when she came third behind Truss by eight votes. Sunak was the parliamentary party’s favourite, winning 137 votes to Truss’s 113. But bookmakers placed Truss as the frontrunner, with early indications suggesting she is more popular with Tory members ahead of a summer of campaigning.
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The Nord Stream gas pipeline linking Russia to Germany restarted on Thursday after 10 days of maintenance work, its operator told AFP. ‘It’s working,’ a Nord Stream spokesman said, without specifying the amount of gas being delivered. The German government had feared the pipeline would not be reopened by Moscow after the scheduled work. According to data given by Russia’s state-owned energy giant Gazprom to Gascade, the German operator of the line, 530 gigawatt hours would be delivered during the day. This was only 30% of its capacity, Klaus Mueller, president of Germany’s energy regulator, the Federal Network Agency, said on Twitter. Gazprom has cut flows to Germany via the vital Nord Stream 1 pipeline by some 60% in recent weeks, blaming the absence of a Siemens gas turbine that was undergoing repairs in Canada.
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BROKER RATING CHANGES
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Citigroup reinitiates GSK with ’neutral’ - price target 1,975 pence
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Citigroup starts Haleon with ’buy’ - price target 360 pence
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Jefferies reinitiates THG with ’buy’ - price target 120 pence
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COMPANIES - FTSE 100
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Anglo American reported a mostly weaker production performance in the first half of 2022, with declines in copper, platinum group metals and iron ore output. For the six months ended June 30, the miner posted a 17% drop in copper output to 273,000 tonnes from 330,000 tonnes the same period a year before, driven by planned lower grades from the Los Bronces and El Soldado mines in Chile. For 2022 as a whole, Anglo American’s copper guidance remained between 660,000 and 750,000 tonnes. Only diamond production from the De Beers business achieved a positive result in the half year, rising 10% to 16.9 million carats from 15.4 million carats. Anglo American’s guidance for diamond output for the year was increased to between 32 and 34 million carats, from prior guidance of 30 million carats to 33 million.
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Electricity utility SSE backed its annual guidance but noted that performance in its first quarter ‘slightly’ topped expectations. SSE guided for an annual adjusted earnings per share of 120 pence, which would represent a 26% rise from the 95.4p achieved in the year ended March 2022. The Perth, Scotland-based power suppler said that for the first quarter ended June, its performance ‘slightly exceeded our expectations’. SSE added: ‘Progress across the various capex projects also continues at pace, with first power from Seagreen offshore wind farm expected by the end of this month and construction on Viking onshore wind farm and Dogger Bank A, B & C offshore wind farms progressing well.’ Back in May, SSE began a sales process to dispose of a 25% minority stake in SSEN Transmission. On Thursday, SSE said the process now is formally under way, and it targets agreeing a sale by the end of the calendar year.
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Primark-owner Associated British Foods named Eoin Tonge as its next finance director, taking over from John Bason by ‘no later than February 2023’. An official date is yet to be agreed. Tonge is currently chief financial officer at M&S, which said it will kick off a search for a replacement. M&S said Tonge will serve his notice period, which includes the firm’s interim results in November.
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COMPANIES - FTSE 250
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Home furnishings retailer Dunelm said annual sales increased and profit has beaten market forecasts. For the financial year that ended June 25, sales were 16% higher at £1.55 billion, despite a fourth-quarter decline of 6% year-on-year to £358 million. Dunelm said about its fourth quarter: ‘Strong sales in the comparative period were driven by pent-up demand after the re-opening of our stores in April 2021, following the third national lockdown.’ Annual pretax profit is expected to be higher than analyst consensus of £207 million, Dunelm predicted. A figure of £207 million will be 31% higher than the £157.8 million achieved in the prior year. In addition, Dunelm said Whitbread CEO Alison Brittain will chair the home furnishing retailer’s board. She joins Dunelm’s board on September 7 and will succeed current chair Andy Harrison ‘comfortably in advance’ of the end of his nine-year term in September 2023. Late last month, Whitbread announced that Brittain will retire after seven years as CEO of the Premier Inn chain owner, replaced in early 2023 by Domino’s Pizza Group CEO Dominic Paul.
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COMPANIES - SMALL CAP
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S4 Capital issued a profit warning as its cost base grew. The digital advertising firm now targets annual earnings before interest, tax, depreciation and amortisation of £120 million, below the current analyst forecast range of £154 million to £165 million. For the six months to June, the Martin Sorrell-led ad agency said like-for-like revenue and gross profit/net revenue growth was in line with a full-year run rate expectation of 25%. S4 explained: ‘Whilst revenue and gross profit/net revenue growth remain robust, even against very strong comparatives for Q2 2021 (prior year up 66% like-for-like), continued significant investment in hiring and consequent expansion of the company’s cost base, particularly in the Content practice, have had a negative impact on first half Ebitda and Ebitda margin. With the pattern of profitability already significantly skewed to the second half of the year, and as previously signalled more than the usual two-thirds weighting, this means that the profitability required for the second half of the year to meet market expectations will be even greater.’ S4 shares were down 44% early Thursday in London.
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Go-Ahead suitor Kelsian said it will not table a bid for the transport operator, citing ‘volatile’ equity markets in Australia, where Kelsian is listed. Go-Ahead re-affirmed its support for a £647.7 million takeover from a consortium consisting of Kinetic Holding and Globalvia Inversiones.
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COMPANIES - GLOBAL
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Zurich-based industrial conglomerate ABB said it has decided to exit the Russian market due to the impact of sanctions, as it reported a drop in quarterly income and revenue. ABB posted a net income of $379 million in the second quarter of 2022, down 50% from $752 million the previous year. Basic earnings per share dropped 47% to $0.20 from $0.37. Revenue fell more modestly, dropping 3% to $7.25 billion from $7.45 billion, despite orders increasing 10% year-on-year to $8.81 billion from $7.99 billion. Chief Executive Bjorn Rosengren said this was achieved despite the pressure from a tight supply chain, Covid-related lockdowns in China and an inflationary environment. The issue of component supply is expected to ease, however, he said.
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Thursday’s shareholder meetings
Big Yellow Group PLC - AGM
Evgen Pharma PLC - AGM
Experian PLC - AGM
Halma PLC - AGM
Intermediate Capital Group PLC - AGM
Johnson Matthey PLC - AGM
Octopus AIM VCT PLC - AGM
Pennon Group PLC - AGM
Pires Investments PLC - GM re offer from Tern PLC
QinetiQ Group PLC - AGM
SSE PLC - AGM
Tern PLC - GM re offer for Pires Investments PLC
Vp PLC - AGM
Workspace Group PLC - AGM
Zephyr Energy PLC - AGM
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