Ocado Group PLC (LON:OCD) posted a pre-tax loss for the first half on the back of higher investment costs but revenues jumped as it won three new international deals.
The online grocery firm said it made a pre-tax loss of £9mln in the 26 weeks to June 3, compared to a pre-tax profit of £7.7mln the same period a year ago.
Underlying earnings (EBITDA) fell 13.9% to £38.9mln, reflecting higher investments in capacity and in its e-commerce software – the Ocado Smart Platform (OSP).
Total revenue rose 12% to £799.9mln, including an 11.7% rise in retail revenue at its online grocery delivery arm and a 16.8% gain in its Ocado Solutions business.
In mid-morning trading, shares reversed initial declines to rise 1.2% to 1,024p.
"Overall this is very much another set of mixed results from Ocado," Shore Capital said.
"The revenue growth of 12% continues to come through but this is not translating into earnings, which continues to be Ocado’s Achilles heel."
Growth in retail customers, international partnerships
In the retail division, the number of active customers rose 12.8% to 679,00 and total order volumes grew to 291,000 orders per week from 260,000 per week last year. However, the average order value fell by 0.4% to £108.18.
"Ocado won’t want to be going down the route of increased deliveries for smaller orders, as profitability is likely to be eroded," said David Madden, market analyst at CMC Markets.
"The company was hit by ‘the Beast from the East’ but it still managed to exceed its weekly delivery average. If the firm can grind out a decent set of delivery numbers during those harsh conditions, it says a lot about the business performance."
The Ocado Solutions division signed new partnerships with food retailers for its OSP, including Canada’s Sobeys, Sweden’s ICA and America’s Kroger.
Chief executive Tim Steiner said it was 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," he said.
Expanding capacity
During the period, the company opened its first robotic warehouse in Andover, started operations at its fourth customer fulfilment centre (CFC) in Erith and increased headcount to support its OSP.
It spent £52.7mln on the CFCs in Andover and Erith, £3.8mln on new vehicles for grocery deliveries and £20.3mln on the development of its technology.
To support these investments, the company issued 5% of its issued share capital to raise gross proceeds of £143mln in the first half.
Further revenue growth expected but higher costs to drag on earnings
Ocado said it continues to expect revenue growth in its retail business of 10-15% in the 2018 financial year, supported by an increase in capacity and growing market share in the UK.
The group expects retail EBITDA to improve over the course of the second half due to lower engineering costs per order and as its new CFCs improve efficiency.
READ: Ocado shows potential to become the next Microsoft or Android of retail
However, solutions EBITDA is expected to fall as it invests a further £4mln in its platform and defers recognition of upfront fees from clients over “multiple years”.
Total capital expenditure guidance for 2018 was left at £210mln.
“In order to fully capitalise on the opportunities ahead of us, we are working at pace, investing more and focussing sharply on execution to bring on new capacity in the UK and to achieve successful outcomes for our partners,” said Steiner.
“We are confident that we have the ability to scale-up the business, deliver on our commitments, drive sustainable growth and deliver value to all our stakeholders."