Ocado PLC (LON:OCDO) saw its losses grow almost fivefold last year, partly due to a fire at its Andover warehouse, but the online grocery specialist is more focused on the future, with the first two robotic depots expected to be up and running for clients by June.
The FTSE 100 group, which runs a UK online grocery joint venture with Marks & Spencer but has also sold the concept of its robot-operated warehouses to various other supermarket groups via its Solutions business, reported a loss before tax of £214.5mln in the year to 1 December, up from £44.4mln a year earlier.
Although group revenue rose by 10% to £1.76bn, mostly boosted by a 10% increase at the retail joint venture and 8% from the UK arm of Solutions business, profits were hit by the Andover fire and up-front costs and investment for the international Solutions business.
Stripping out the £88mln Andover effect and other factors, underlying profits (EBITDA) fell 27% to £43.3mln, as the online grocery joint venture and UK Solutions arms both made positive contributions but up-front costs hit the international Solutions business.
Cash and outlook
Ocado had just over £750mln of cash in the bank at the year-end and topped up its coffers with another £750mln from a bond issue soon after as it expects to invest around £600mln in the coming year, mostly as part of Solutions contracts.
It said preparations were “well advanced” for the opening of the first international ‘customer fulfilment centres’ (CFCs) for Groupe Casino in Paris and for Sobeys in Toronto, with both expected to go live in the first half of the year.
September will see the switch of the UK online grocery joint venture sourcing from Waitrose to M&S products, with preparations “well underway”.
The outlook for the year ahead is for retail revenue growth of 10%-15%, though international Solutions is expected to provide less than £10mln as the slow ramp-up begins in Paris and Toronto, with EBITDA losses expected to worsen as further up-front investment is made.
Market reaction
Ocado shares were up 1% to 1,230p on Tuesday morning.
Richard Hunter, head of markets at Interactive Investor, said: “Ocado remains at an interesting juncture. It has been a “jam tomorrow” stock for some considerable time but has managed to keep the bears at bay with a series of partnerships with obvious potential.
“For investors, the danger is that the gap becomes too wide between expectation and reality.”
A slightly incredulous Clive Black at Shore Capital noted that fees invoiced to International Solutions partners rose by 38% to bring the total of unrecognised fees by the FY2019 to £140mln, though actual International Solutions revenue was a miserly £0.5mln.
He also examined the gap between the here and now and future expectations.
“The real problem for the Ocado investment thesis to us is one of visibility,” Black said. “For some time this lack of clarity hindered the group’s stock progress.
“However, since the Kroger deal announcement, the market has decided that no visibility around the sequencing of revenues, EBITDA or capital expenditure, never mind returns, is fine and the group’s eventual financial delivery is something that one can take on trust...That lack of visibility, we should add, is why we have given up attempting to forecast Ocado and today’s outlook statement and guidance underscores our view; watch out for further house broker adjustments.”
Some analysts were more positive, however, such as an "excited" Peel Hunt where the first Sobeys and Casino’s first CFCs going live means "we will see real revenues from [Ocado's] raison d'être".
Peel Hunt noted that Ocado the margin potential of its new model, which is the all-in EBITDA margin for the retail business of 2% which, after fees and admin costs, "is the implied minimum margin its partners can reach for and shows why [Ocado] is the provider of choice".
Information like this, and Ocado's total available market, "keep us excited about the longer term", Peel Hunt said, though it acknowledged that it will reduce its EBITDA forecasts for the coming year.
--Adds share price and broker comment--