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Ocado sees losses persist despite growing retail revenue

"As a result of COVID-19 we have seen years of growth in the online grocery market condensed into a matter of months; and we won't be going back," said CEO Tim Steiner

Ocado Group PLC -
Ocado's robots in action

Ocado Group PLC (LON:OCDO) reported strong revenue growth but continued losses as it invests in the roll-out of robot-operated warehouses for its overseas partners.

The FTSE 100 group invoiced £73.7mln of fees to international customers of its Solutions business, up 58%, as the first two depots were opened in Paris and Toronto.

On home shores, Ocado Retail, the online grocery joint venture with Marks & Spencers Group PLC (LON:MKS), increased sales 27% to £1bn in the 26 weeks to May 31, with underlying profit (EBITDA) up 87% to £45.7mln.

Group revenues were up 23% to £1.1bn, with only a £1.6mln contribution booked from the international business in the period. 

EBITDA at group level fell 36% to £19.8mln, with the main impact being a 90% increase in international losses and a one-off insurance gain last year after the fire at Ocado’s Andover site.

Loss before tax of £40.6mln was down from £147.4mln a year ago, when the Andover fire had a net £99mln impact.

The half-year ended with £1.3mln cash in the bank, partly offset by debt to a net cash position of £196.2mln, which was boosted in the early weeks of the second half by a £1bn fundraising

Fuelled by another fundraising and increased demand for online grocery delivery due to the coronavirus lockdowns, chief executive Tim Steiner was looking firmly forward. 

“The world as we know it has changed,” he said. “As a result of COVID-19 we have seen years of growth in the online grocery market condensed into a matter of months; and we won't be going back. 

“We are confident that accelerated growth in the online channel will continue, leading to a permanent redrawing of the landscape of the grocery industry worldwide. This will mean more demand for Ocado Smart Platform from current and prospective partners and our recent fundraising will ensure that we are able to meet that demand.”

REACTION: Ocado delivers curate's egg as tasty side for M&S

Ocado shares fell 4% in early trade came back to flat by midday and then dropped 2% again to 2,000 by mid afternoon.

Analysts at Numis noted that UK Retail EBITDA was well ahead of expectations, driven by strength in sales and margin expansion.

The broker said it has upped its full-year group EBITDA forecasts from £75mln to £80mln, “a shape that could still prove conservative should current conditions persist”.

But Berenberg predicted there would be no upgrades as the improved Ocado Retail UK EBITDA would be “broadly offset by downgrades to Ocado Solutions as the group accelerate the roll-out of their e-commerce solutions to partners”, while medium-term losses look likely as the targeting of further Solutions deals “would generate additional cash fees but would negatively impact short term profit”.

The Berenberg analysts also noted that insurance proceeds related to the Andover fire will be received over time, with business interruption losses expected to be covered and further insurance proceeds will be received over time and be recognised as exceptional income when the related capital expenditure or business interruption costs are incurred. 

   --Adds share price and broker comment--

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Quick facts: Ocado Group PLC

Price: 2895 GBX

LSE:OCDO
Market: LSE
Market Cap: £215.57 m
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