Ocado Group plc ((GB:OCDO)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Ocado Group plc’s recent earnings call painted a picture of robust business health, underscored by solid revenue growth and significant improvements in cash flow and liquidity. Despite these positive indicators, the company acknowledged challenges such as increased finance costs, elevated support costs due to ongoing migrations, and the impact of wage increases on service delivery costs. The deconsolidation of Ocado Retail also posed a financial setback.
Revenue Growth
Ocado Group reported a commendable 13% increase in overall revenue, with Technology Solutions and Logistics segments experiencing growth rates of 15% and 12%, respectively. This growth reflects the company’s strong market position and the successful expansion of its service offerings.
Cash Flow Improvement
The company achieved a significant improvement in underlying cash flow, which increased by GBP 93 million year-over-year. This was primarily driven by reduced capital expenditures, fees from partners, and stringent cost control measures.
Strong Liquidity Position
As of the end of June, Ocado Group maintained a strong liquidity position with nearly GBP 1.2 billion, including GBP 866 million in cash and an undrawn GBP 300 million revolving credit facility. This robust liquidity provides the company with a solid foundation to support its strategic initiatives.
Technology Solutions Performance
Technology Solutions reported an EBITDA of GBP 73 million, with a mid-20% EBITDA margin. This performance was driven by an increase in live modules and recurring revenue growth, highlighting the segment’s contribution to the overall financial health of the company.
Ocado Retail Revenue and Customer Growth
Ocado Retail demonstrated a 16% increase in revenue, bolstered by strong growth in customer numbers and order frequency. Active customers grew by 13%, as the company continued to invest in competitive pricing strategies to attract more customers.
Ocado Retail Deconsolidation
The deconsolidation of Ocado Retail resulted in a GBP 9 million loss in share of results and JVs and associates. This financial setback underscores the challenges associated with restructuring and strategic realignment.
Increased Finance and Service Delivery Costs
The company faced increased finance costs due to higher coupons on debt raised over the past 12-18 months. Additionally, Ocado Retail experienced a 24% increase in service delivery costs, largely attributed to national living wage and minimum wage hikes.
Elevated Support Costs
Ocado Retail incurred dual costs due to migration to the Ocado Smart Platform (OSP), which are expected to remain elevated until 2026/2027. This ongoing investment is crucial for the company’s long-term strategic growth.
Forward-Looking Guidance
Looking ahead, Ocado Group aims to become cash flow positive by fiscal year 2026 through disciplined execution and lean operations. The company plans to focus on evolving its commercial strategy and addressing changes in exclusivity terms to allow more flexibility in partnerships. These efforts are supported by a strong liquidity position and a focus on cost discipline and strategic growth in international operations.
In conclusion, Ocado Group’s earnings call highlighted a positive outlook with strong revenue growth and improved cash flow, despite facing several financial challenges. The company’s strategic focus on cost discipline and international expansion positions it well for future growth, as it aims to achieve cash flow positivity by 2026.