Ocado Group PLC (LON:OCDO) posted a 46.3% drop in first-half earnings after a fire destroyed one of its warehouses but shares gained as investors cheered on a big uptick in fees received from international parternships.
Adjusted group earnings (EBITDA) fell to £18.7mln in the six months to the end of June from £34.8mln a year ago.
The weaker earnings reflected the adoption of IFRS 15 accounting standards, which delayed the recognition of revenue from contracts, and the impact of a fire that tore through its Andover warehouse earlier this year.
The disruption caused by the fire carved 2% off sales in the first half and cost the company £110mln.
The online grocer expects to take a further £15mln hit to EBITDA in the full year, including £8mln related to its decision to reduce fees for partners that used the warehouse and to take back capacity from Wm. Morrison Supermarkets PLC (LON:MRW).
In May, Ocado signed a new deal with Morrisons to allow the supermarket chain to sell directly online through other platforms, including Amazon and Deliveroo, and to use other partners to deliver goods. In return, Ocado was able to reclaim distribution space it used for Morrisons to fulfil orders for its own customers.
Annual earnings will also be dragged lower by £10mln charges related to share schemes, primarily due to the increase in the share price.
Deals with M&S and Coles boost shares
Despite concerns about reduced capacity after the fire, shares have risen strongly this year on the back of deals Ocado has secured recently.
Ocado has transformed itself from a pure-play online grocer into a technology firm that supplies its software and automated warehouses to develop online grocery services for other supermarkets and retailers.
Ocado said fees invoiced from its partners amounted to £122.7mln in the first half, up 36% on a year ago.
Revenue led higher by international deals
Total adjusted revenue still rose 10.5% to £874mln with revenue from international deals up 20.6% to £70.8mln and revenue from its own online grocery service up 9.7% to £803.2mln.
“Over the last six months, the centre of gravity at Ocado Group has shifted from our heritage as an iconic and much-loved domestic pure-play online grocer to our future as a technology-driven global software and robotics platform business, providing a unique and proprietary end-to-end solution for online grocery, and an innovation factory, applying our technology expertise to adjacent markets and other verticals,” said chief executive Tim Steiner.
Shares jumped 5.9% to 1,240p in morning trading.
Peel Hunt keeps 'buy' rating
Peel Hunt maintained its 'buy' rating and target price of 1,700p on the shares.
"As it pushes through to becoming The Microsoft of Retail, Ocado’s fees from its deals increased by 36% in the first half to £123mln, with international fees almost doubling," the broker said.
"This is the key performance indicator hat investors should focus on as Ocado Group makes the dramatic transformation from a transactional online retailer to a software and deep tech hardware business."