City upbeat on Ocado first-half numbers

Ocado, the online grocery business that is getting into bed with Marks & Spencer, has given a bullish outlook despite revealing hefty losses in the wake of a blaze at one of its warehouses.

The latest results showed that adjusted retail revenues were up 9.7 per cent to 803.2m. Picture: Ocado
The latest results showed that adjusted retail revenues were up 9.7 per cent to 803.2m. Picture: Ocado

The group reported a loss before tax of £142.8 million for the 26 weeks to 2 June, marking a sharp increase on the £13.6m deficit reported last year. Adjusted underlying earnings almost halved to £18.7m. However, the latest results showed that adjusted retail revenues were up 9.7 per cent to £803.2m.

Ocado said its bottom line had been impacted by 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.

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For the full year, the fire is now expected to have a £15m impact on earnings.

Share schemes, which are dependent on the company’s share price, will have a £10m 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 per cent and 15 per cent in the second half.

Shares were up about 5 per cent in early trading on Tuesday.

The results come as the group shifts its focus following the announcement of a joint venture with high street stalwart M&S. That deal will replace an existing partnership between Ocado and Waitrose next year.

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

Chief executive Tim Steiner told investors: “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.”

John Moore, senior investment manager at Brewin Dolphin, said: “Revenue growth remains strong at Ocado, despite the major setback of the fire at its Andover facility earlier in the year.

“After being the best-performing stock on the FTSE 350 in 2018, Ocado’s share price has maintained momentum this year and is up around 50 per cent. However, investors will be keeping an eye on profitability and cash generation going forward as the Andover situation has unduly influenced these results.

“Around 20 years on from its establishment, there are still plenty of reasons to be positive about Ocado. The tie-up with M&S could be transformative for the business in its own contract worth and the profile that it offers, as Ocado looks to the ample opportunities it has to help other retailers.

“The key to future growth will be strong execution of the work in hand and conversion of immediate opportunities.”

Richard Hunter, head of markets at Interactive Investor, noted: “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.”