ASDA Q1 2023 Update

Operating Performance

LFL revenue growth YoY up 7.8% to £5Bln (ex-fuel). Up 8%, £373m in gross revenue. Fuel sales down 13% YoY to £781m, down £115m.

Fuel revenues down mainly due to the price decline in Unleaded fuel from Q1’22 at 170p to 145p Q1’23, average pump prices according to the RAC.

Although revenue has increased for ASDA in the food segment, supermarket food prices have increased 16% YoY. Asda’s own food inflation averaged over 15% last year.

Source:- Which Supermarket Food Price Inflation

The revenue increase of 8% does not suggest that Asda is outperforming.

Source:- Which Supermarket Food Price Inflation

An indicator of Asda’s performance is the market share trend. As of May’23, they have had a decline in market share of 0.6% to 13.9%, since Q1’22. Both Tesco, and Sainsbury’s have declined 0.3% over the same period, Morrisons by significantly more, and Aldi and Lidl have gained substantially in market share, to 10.1% and 7.7% respectively.

Source: Kantar

Costs have increased 5% to 99.4% of revenues, not leaving much margin to work with at all. Costs mainly increased in raw food costs, along with supply logistics & transport landed costs. Employment costs increased 3.5%.

EBITDA of  £200m for Q1, is down 11% on Q1’22, due to the decline of £19m in EBIT. Adjusted EBITDA margin is low at 4.67%, and has declined from 5.69% Q1’22. For comparison, Tesco has an EBITDA margin of 6.4%, Iceland operates at 5%, whilst Morrisons operates at 4.4%.  

Cashflow & Liquidity & Capex

Cashflow for Q1’23 was negative -£201m.

  • There was a reversal of working capital, which is standard in Q1, of -£283m, due to an increase in inventory. Interest payments of £69m, of which £32m are lease payments.
  • LTM cashflow is a little more satisfactory at £434m post interest payments. Though they paid £416m for the Arthur chain in Q4’22 which has brought their overall cash position down to £483m LTM.
  • LTM CAPEX Spend in line with prior year at c£300m. And lower than pre-TDR Capital ownership. In Q1’23, 40% of Capex is spent on essential maintenance and 25% has been spent on PPE expansion, whilst 35% has been spent on I.T. and other intangible assets.
  • They also have an unutilized RCF of £500m, giving a total liquidity position of £983m.

Leverage, Interest & Coverage

Leverage remains at c6x. Little changed over the past year.

Net Debt remains at £6.98Bln, Debt consists of £3.8Bln GBP Secured 1st lien 3.25%and £500m in secured sub 4.5% bonds.

EBITDA / Interest cover has remained at 2.8x, whilst FFO / interest coverage is slightly lower at 2x.

Outlook & EG Acqusition

With the latest acquisition of EG Group stores, Asda is likely to pay £2.27Bln, with an equity injection of £450m, £1.1Bln in ground rent and sale & leasebacks, and the rest in Debt of £770m. EG Group likely to contribute £195m in EBITDA and leverage likely to be pro-forma 4.3x (adjusted EBITDA).


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