Ocado Group PLC (LON:OCDO) has begun to reach its robotic arms beyond the grocery market with two tech acquisitions, while also lifting guidance for underlying profit (EBITDA) for the year after strong trading at its UK retail business.
Having issued an upbeat update in mid-September, Ocado today put out a short statement on behalf of Ocado Retail, its 50-50 joint venture with Marks & Spencer Group PLC (LON:MKS).
Full-year expectations for the FTSE 100 technology group’s EBITDA have now been hiked to “over £60mln” from the previous guidance for at least £40mln.
Sales at Ocado Retail so far in the fourth quarter of the year have been in line with the trends in the third, “although growth rates reflect the seasonality of the quarter”.
The company added that it “continues to see high demand as consumers migrate to online grocery in record numbers”.
In a separate statement, the group also said it has spent US$262mln buying piece-picking robotics specialist Kindred Systems and another US$25mln on Haddington Dynamics, a robotic-arm designer and manufacturer.
In the statement, Ocado chief executive Tim Steiner said: "We consider the opportunities for robotic manipulation solutions to be significant, both for Ocado Smart Platform clients and across the fast-growing online retail and logistics sectors.
"Ocado has made meaningful progress in developing the machine learning, computer vision and engineering systems required for the robotic picking solutions that are currently in production at our customer fulfilment centre in Erith. Given the market opportunity we want to accelerate the development of our systems, including improving their speed, accuracy, product range and economics."
During this tough time, we see that medical supplies are in a shortage. Dexter has remote use capabilities that allow users to control another robot in another physical location, eliminating physical contact. Does anyone in the medical field think we could help? pic.twitter.com/AvogNhuGLU— Haddington Dynamics (@HDRobotic) March 22, 2020
Steiner said the company believed Kindred Systems and Haddington Dynamics "have the capabilities to allow us to accelerate delivery, innovate more, and grow faster", while also enabling Ocado to "enter new markets for robotic solutions outside of grocery".
Kindred Systems has general merchandise and logistics customers, including clothing retailers Gap and American Eagle.
Both deals are expected to close within the current year and Ocado expects them to boost revenues by around £30mln in the next financial year with a small negative impact on EBITDA.
M&S is due to report interim results on Wednesday, while Ocado will issue a full fourth-quarter trading update on December 10 and full-year results for the 12 months to November 30 on February 9.
Ocado shares jumped 9% to 2,479p on by mid-morning on Monday, while those in M&S were down more than 1% to 87.94p.
Broker Peel Hunt noted that the costs associated with decanting and picking functions within Ocado's warehouses can be up to £7m per average CFC per year, so this deal “will generate meaningful cost savings”.
--Adds shares and broker comment--