Otto Group performed well in 2023/24

The past financial year was characterized by a persistently tense macroeconomic and geopolitical environment, high interest and inflation rates and a sustained deterioration in consumer sentiment in the Otto Group's core markets. In the 2023/24 financial year, the Otto Group's total revenue fell by 6% to 15 billion euros on a comparable basis*. Overall revenue in Germany amounted to just under 8.5 billion euros, down 5.6% on the previous year's figure of around 9 billion euros. In the Group’s international markets, sales fell by 6.5% from 7.2 billion euros to around 6.5 billion euros.

In addition to consumer sentiment, which is still somewhat depressed, the deliberate and intentional focus on profitability and liquidity in the management of the Group also had an impact on revenue performance, not least due to the very relevant savings in the marketing budget and a correspondingly reduced customer contact. Systematic portfolio measures, in particular the discontinuation of the unprofitable companies of Mytoys and Unigro during the year, led to a further noticeable drop in sales.

The Otto Group’s diversification continues to ensure stability
A glance at the segments – its platforms, brand concepts, retailers, financial services and services – shows the effects of the focus on profitability and liquidity, and that the Otto Group's diversification continues to ensure stability.

In the largest segment, Platforms, which includes OTTO and About You, the trend is encouraging. The marketplace business with external partners launched by OTTO in 2020 continues to grow dynamically, and investments in OTTO's transformation into a platform are paying off. OTTO's Gross Merchandise Value (GMV), i.e. the total gross value of all purchases in the OTTO app and on otto.de, grew by almost 2% in the 2023/24 financial year compared to the previous year – a clear demonstration of the attractiveness of the OTTO platform. The GMV of external partners rose by around 50%. In the past financial year, OTTO was also able to increase the number of marketplace partners by 33% to more than 6,500. One-third of platform revenue now derives from marketplace business.

The About You Group was able to meet its annual forecasts both for revenue growth – an increase of 1.6% compared to the same period of the previous year – and for profitability in 2023/24. Despite the uncertain market environment, the e-commerce group of companies broke even with an adjusted EBITDA.

By contrast, IFRS external revenues** in the Platforms segment fell by 4.7% to around 6.2 billion euros. This is due to the fact that these revenues at OTTO only include commissions from the marketplace business in addition to those from OTTO's own business and platform services. They do not, however, reflect the significantly increased total value of partner revenue on the platform.

The Brand Concepts segment, which includes the Crate and Barrel Group, the Bonprix Group, the Witt Group and Sheego, recorded a like-for-like decline in revenue of 8.5% to 5.3 billion euros. The performance of the Witt Group, which grew revenue by 1.5% and improved profitability in the face of difficult market conditions, is worth highlighting. At Crate and Barrel, on the other hand, high mortgage interest rates in the USA and the associated decline in the number of property purchases, together with reduced demand for new furnishings, negatively impacted revenue. Nevertheless, Crate and Barrel was also able to significantly boost earnings.

In the proportionally less relevant Retailers segment, which includes Manufactum and Limango, revenue fell by 8.7% to around 2 billion euros on a comparable basis. However, the trend is significantly influenced by the closure of Mytoys and Unigro during the year.

The Services segment, which includes the Group’s logistics service providers and Otto International, lost 3.6% on a like-for-like basis, generating revenues of 374 million euros. This is not least due to the weakening demand in e-commerce, which in turn led to lower parcel volumes and a reduced order volume at Otto International – both in its own and third-party business. Revenue from the parcel distribution activities of Hermes Germany in Germany and Evri in the UK has not been included in the Otto Group's consolidated financial statements since the 2020/21 financial year.

In contrast, the Financial Services segment, which primarily comprises the Eos Group, recorded very encouraging growth in revenue of 4.4% on a comparable basis, is once again highly profitable and also made an important contribution to earnings in the past financial year.

Improved earnings
The Otto Group's focus on profitability and liquidity has clearly paid off. This is evidenced not least by the year-on-year increase in EBITDA of around 155 million euros to 744 million euros. Without the costs incurred from the discontinuation of the business activities of Mytoys and Unigro, the increase in EBITDA would have been even greater. The significant operational improvement in profitability is driven not least by strict cost programmes at a large number of Group companies, which lead to more efficient cost structures, including along the supply chains and in marketing.

At 11 million euros, reported earnings before interest and tax (EBIT) were almost on a par with the previous year. However, this does include a significant impairment loss of 175 million euros. Assets recognized and amortized in the course of the consolidation of About You in the 2021/22 financial year required a book value adjustment in the light of market developments. Excluding the effect of this impairment loss, EBIT amounted to 186 million euros, which means that the forecast, adjusted for this extraordinary charge, was achieved. This also removes future risks from the balance sheet.

Following 36.8% in the previous year, as at 29 February 2024, equity ratio stood at 33.8% and thus remains solid. The dynamic gearing ratio improved to 2.0 compared to 2.4 in the 2022/23 financial year, reflecting the decline in net financial debt and the improvement in the Group's cash EBITDA. At 689 million euros, a significantly positive free cash flow was also achieved in the 2023/24 financial year (2022/23: -1.2 billion euros).

In the 2023/24 financial year, the Otto Group employed an average of 38,456 full-time equivalents (2022/23: 41,186). The downward trend was influenced not least by decisions to discontinue the operations of some Group companies, primarily Mytoys and Unigro. In addition, a fundamental recruitment freeze was and is still a relevant measure to safeguard earnings throughout the Group.

Alexander Birken, Chairman of the Executive Board and CEO of the Otto Group: “We used the crisis to make the Otto Group fit for the future. And we succeeded. We have managed to focus on the key challenges and implemented robust portfolio measures. Last but not least, we can now work with a different, more efficient cost structure. This puts us in an excellent position to achieve sustainable competitive success with our business models and to take advantage of any tailwind from the market.”

Focus on artificial intelligence (AI) for investments and innovations
In the current financial year, the Otto Group is also investing significantly in performance, innovation and sustainability, primarily in digital transformation and logistics. The clear focus here is on those services that improve the customer experience. The Otto Group's state-of-the-art logistics centres in Altenkunstadt and Iłowa in Poland, which have been the focus of investment over the past two financial years, will be completed this calendar year, thereby enabling the Group to expand its European logistics network.

The aim is to offer end customers a peerless shopping experience and the best possible service, including ready product availability and prompt delivery. Increasingly, shoppers ordering online today expect the complete shipment to be delivered tomorrow, wherever possible. This requires a denser network of logistics centres than was previously the case.

The use of AI-controlled robots in logistics, introduced as part of a strategic partnership with the US start-up Covariant, is to be rapidly expanded to other fulfilment centres following the successful launch at the Otto Group's largest German logistics centre in Haldensleben. A second strategic agreement with Boston Dynamics, the global leader in mobile robotics, will automate more logistics processes in the future. Over the next two years, a fleet of Boston Dynamics spot robots will be deployed in more than ten Otto Group logistics centres and stretch robots in more than twenty. The aim is to increase operational efficiency and occupational safety and make warehouse work more attractive in view of the shortage of skilled workers.

Innovation focuses on the continued, targeted expansion of the use of generative artificial intelligence (GenAI). OTTO alone employs over a hundred experts in artificial intelligence and already has more than 65 AI tools in use, ten of which are based on GenAI. The Otto Group is driving the use of GenAI in four strategic fields of action across the Group: shopping experience, customer service, product development and process optimization.

Testing hyper-personalized content marketing communication at OTTO, Witt and Bonprix, for example, with the help of GenAI serves to improve the whole shopping experience. OTTO also automatically creates product descriptions using GenAI. While a manually written description takes around ten minutes to complete, GenAI creates around 1,500 such texts of the highest quality in the same time. This increases the relevance of product descriptions for customers while simultaneously helping to reduce employee workload in their day-to-day business.

At Baur and the Otto Austria Group, GenAI complements the classic search function in online stores to make the shopping experience more inspiring. The “SearchBuddy” also understands complex queries in natural human language and recommends suitable products to customers, for example for their summer vacation. The About You Group also recently launched an AI-supported shopping wizard that accompanies many About You app shoppers in Germany, Austria and Switzerland, offering personalized inspiration. OTTO and Bonprix are also testing the AI generation of artistic or photorealistic backgrounds for product images.

In customer service, Eos and Hermes Einrichtungs Service are testing the use of AI-based voice bots. Baur, on the other hand, has developed its own chatbot that uses generative AI to provide answers on service and advice, with the ultimate aim of providing customers with information more readily.

Bonprix is piloting the use of GenAI in product development. The “Fashion Creation App” developed in-house supports product managers, facilitating the creation of new styles and collections. Based on product attributes as either text or photos, the tool generates different variations of the style to be developed. These can then be modified until they are suitable for further 2D/3D product development. Bonprix relies on the smart combination of several GenAI models.

Generative AI also offers huge potential to optimize internal process and personal productivity, for instance through specialized co-pilots for software development. With the internal, data protection-compliant AI assistant ogGPT, around 26,000 employees have the opportunity to explore the potential uses of GenAI in a secure environment and facilitate their own work processes. More than 11,000 colleagues have already used the AI assistant, and some have already integrated it into their everyday work. The basic aim is to keep trying out new ways of using generative AI and to learn how the technological options can make online retailing even better.

Alexander Birken: “We are seizing the opportunities arising from the use of artificial intelligence in all business processes and across all Group companies. We were and still are staunch fastmovers in this field of innovation in the retail sector. The strategic use of this disruptive technology is of paramount importance for the future viability of the Otto Group. AI helps us to become even better and faster, to save costs and, above all, to make shopping even more convenient, personal and attractive for our customers.”

Science-based target: responsibility revalidated
In the coming years, the Otto Group intends to further strengthen its commitment to protecting the environment and nature, which has been anchored in its corporate goals for decades, and to justify even more the Group’s claim to provide responsible commerce. This is all based on new, highly ambitious targets as the Group's contribution to fight climate change, officially validated by the Science Based Targets Initiative (SBTi) at the end of February. This includes the Group’s aim to reduce its absolute greenhouse gas emissions by 42% by the end of the 2031/32 financial year compared to 2021/22.*** The Otto Group is therefore making a tangible and measurable contribution to limiting global warming. The SBTi has certified that the Otto Group’s targets are not only scientifically sound and in line with the 1.5 degree target approved at the Paris Climate Agreement, but also meet the highest standards.

Since the start of the 2024/25 financial year, the Group has officially been managed in line with the new SBT target architecture. From the new financial year, the science-based target (SBT) and the long-term Transformational Goal of achieving net-zero emissions across the entire value chain of the retail and services Group by 2045 will therefore completely replace the previous climate targets laid out in the Group's CR strategy. The previous climate targets have been incorporated into the new SBT target architecture.

Alexander Birken: “We are very determined to drive the sustainable transformation of the industry forward. This is exactly what we are demonstrating by having our ambitious climate targets validated. The SBT gives us the big picture when it comes to greenhouse gas emissions across our entire value chain – from the cultivation of raw materials and production to the use phase and the final disposal of goods. What makes this unique in the competitive environment is the integration of the marketplace business into the setting of targets. We are therefore also taking responsibility for the emissions of our marketplace partners and are going far beyond the minimum requirements for successful validation as well as the standard practice of our competitors. We are committed to sustainable change in our business and in society.”

Outlook: Further significant increase in profitability planned
Given that the market environment remains challenging and uncertain, the Otto Group anticipates that revenue will remain stable, and that profitability will significantly increase in the current 2024/25 financial year. The Group will maintain its focus on profitability and liquidity. This will lay the foundation for returning to growth in subsequent financial years and increasing economic performance.

Alexander Birken: “During the crisis, we successfully focused on the key challenges and, not least, took very robust portfolio measures. We aim to achieve a significant improvement in the operating result in 2024/25. We expect EBIT to increase to a lower mid-triple-digit million figure. Maintaining financial stability will remain one of our most important goals in the future.”