Ocado reveals widening losses as it counts cost of warehouse fire

The online grocer reported a loss before tax of £142.8 million for the 26 weeks to June 2, marking a significant increase on the £13.6 million loss reported last year.

Adjusted retail revenues were up 9.7% to £803.2 million.

Meanwhile, adjusted underlying earnings almost halved to £18.7 million.

The company said the dip in profitability was down to the impact of the fire at its Andover facility, the cost of share incentive schemes for management, and a delay in recognising fees from its partnerships with overseas retailers due to accounting standards.

For the full year, the fire is now expected to have a £15 million impact on earnings. Share schemes, which are dependent on the company’s share price, will also have a £10 million impact due to the rise in the stock’s value over the past year. Despite the setbacks, the company still expects retail revenue growth of between 10% and 15% in the second half of the year

It comes as Ocado shifts its focus following the announcement of a joint venture with Marks & Spencer. The deal will replace an existing partnership between Ocado and Waitrose next year.

The group is also on the hunt for more deals to provide technology services to retailers, which is a growing source of income. Fees invoiced from international partners almost doubled in the first half to £46.7 million.

Chief executive Tim Steiner said: “We have never had as many opportunities to grow as we do today.

“As we look to successfully scale our business and deliver outstanding execution to our partners, our challenge will be to select and prioritise the most attractive of these opportunities.”

Richard Hunter, Head of Markets at interactive investor, said: “Ocado’s transformation from online retailer to cutting-edge technology provider remains clear for all to see.

“The Andover fire in February was an unwelcome distraction, and has come at a cost both in actual terms as well as in lost sales. The former should be recouped in due course as the result of insurance and the episode served to underline the resilience of the business as alternative solutions were sought. Even so, the £100 million of “exceptionals” in the period dented an already loss-making business, such that the adjusted pre-tax loss widened to £43 million, versus £13 million in the corresponding previous year period.

Mr Hunter added: “The nature of Ocado’s growth plans carry execution risk as each deal is implemented, while capital expenditure remains high and estimated at £350 million in the immediate future. Meanwhile, from an investment perspective, the lack of a dividend converts the stock into a pure growth story although, for the most part, this has been a rewarding experience.

“Indeed, over the last three years, the shares have risen by over 420% following its success hitherto and, equally importantly, in anticipation of the potential riches to come. Quite apart from the previously transformational deal with Kroger in the United States, the Marks & Spencer tie-up is one which has both provided an injection of cash for future investment as well as new opportunities in a competitive market.

“ The company notes that it now has eight global partners, including latterly Coles of Australia and that it is engaged with “multiple” retailers in driving the business further forward. In the meantime, despite the headline loss, group revenues increased by almost 11% in the period, the initial signs for the (one hour delivery) “Zoom” service are promising and the underlying “Smart Platform” should continue to attract retailers globally looking for an edge using Ocado’s state of the art systems.

Mr Hunter added: “This leaves Ocado at an interesting juncture. The bar will be set increasingly high as its partnerships fully come into force, with the hope that the projected revenues are fulfilled.

“The shares have had something of a difficult ride of late, having dipped 17% over the last quarter, although over the last year they remain 15% ahead, as compared to a 2% dip for the wider FTSE100. The potential is clearly positive for Ocado, as evidenced by the initial share price reaction to the statement. However, with the true benefits yet to wash through and given the meteoric share price performance, the current market consensus comes in at a hold as the shares are seen as being up with events – for now.”