Ocado’s earnings suffer in dash for growth
ONLINE GROCER Ocado has reported a £9m half-year loss following hefty investment in new warehouses and IT systems as part of its expansion plans.
The new FTSE 100 entrant, which works with Morrisons in the UK, said it had been a transformational period after sealing a string of international deals, which have sent its shares soaring more than 270 per cent over the past year.
The losses in the six months to June 3 compare with pre-tax profits of £7.7m a year earlier, while underlying earnings fell 14 per cent to £38.9m for the halfyear.
Retail revenue growth slowed to 11.7 per cent after the Beast from the East hit at the start of the year.
Ocado’s top team are set to share an extra £9m in bonuses after the group’s stock price rocketed. The shares bonanza is set to reach £14m when it pays out next year, based on the current share price.
The majority will be shared between Ocado’s senior bosses – chief executive Tim Steiner, finance director Duncan TattonBrown and chief operations officer Mark Richardson – although some of the handout will go to other managers and staff.
The extra bonus payout contributed to Ocado’s slump into the red during the six months to June 3.
Ocado’s share price had been held back in previous years after it was slow to sign its first international deal providing IT solutions to other retailers, which is seen as the group’s main growth engine.
But the cost of developing this side of the business, as well as developing new warehouses to support its UK retail operation, have taken its toll on the group’s bottom line.
Ocado’s solutions arm reported an underlying interim loss of £2m after significant investment to secure its international tieups.
It warned that earnings in the unit would remain under pressure as it spends another £4m on its technology and the Ocado Smart Platform.
The group had already cautioned in February that investment would hit earnings this year, with spending set to surge to £210m.
Mr Steiner said: “This is a transformational period for Ocado.
“We have developed unique and proprietary technology to offer retailers an end-to-end operating solution for grocery retail that enables them to meet the changing needs of consumers.”
Ocado said retail earnings will start to “improve significantly” over the remainder of its financial year as the benefits of the new warehouses start to bear fruit.
Ocado has cheered investors with a series of deals – most recently signing up US giant Kroger in May.
Tom Stevenson, investment director from Fidelity Personal Investing’s share dealing service, said: “No one is really focused on its results in the short term.
“Rather it is the enormous potential of what looks like becoming the platform of choice for the online grocery business.”
George Salmon, equity analyst at Hargreaves Lansdown, said: “Higher than expected levels of investment mean half-year profits are behind what had been hoped for.
“That’s clearly a blot on the copybook, but for many on the markets that won’t present too much of a problem. With the group in the midst of a dramatic transformation, the investment case at Ocado is all about what lies ahead.”
He said a series of licencing deals meant that the Ocado of the future was more likely to be described as international technology provider than niche online grocer.
“We suspect the spate of deals, which are creating thousands of jobs, owes much to Amazon’s moves to expand into the grocery market,” he added.