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There’s a lot to digest there, Sangijuelas and there’s no doubt that the business model is poorly understood. The Tech contribution to EBITDA certainly improved in 2023 alongside its revenue, which was up by 44.3%. If that continues then the picture should improve over time. I think there are three more CFC’s to be added this year - resulting in at least 120 live modules in total (up from 111 at FY23). In the meantime, however, the larger UK Retail and Logistics (ie Grocery) numbers will inevitably continue to dominate the FY statement and define perceptions of the company.
I note that the eye-catching FY23 Group loss before tax (393.6m) is largely made up of depreciation, amortisation and impairment (395.9m), which includes internally generated intangible assets (like the costs of developing OSP etc.) together with the continuing roll-out of OSP hardware and software at all CFC sites. I’m no accountant but I understand this largely represents cap ex from previous years like investment in development of the core technology and software which is then amortised or depreciated over a number of years for tax reasons. So the cash has been spent and my comment that OCDO still makes a loss should be qualified to clarify that operational profits are being made but that they are effectively buried in the headline pre-tax profit/loss figure by cap-ex depreciation/amortisation from years prior. In that sense the situation is not as bad as it may first appear.
Also with respect to Kroger closing 3 spokes. I think this is actually not that relevant to Ocado.
Ocado run the CFCs and Kroger take care of delivery. From what I can see the spokes are sites set up and run by Kroger to transfer orders made at the CFCs from lorries to delivery vans. So Ocado's involvement with them is limited to despatching orders to them from the CFCs.
The modules at the CFCs will already have been drawn down by Kroger whether these modules are used to fulfil orders within CFC reach or for orders going through the spokes.
You can argue that less spokes could lead to less modules been drawn down at the CFC but I don't think closing the existing spokes will mean a reduction in modules already drawn.
As I understand it Ocado earn from the CFC capacity used as well as in store fulfilment services. They don't have much to do with the spokes.
I am happy to be corrected on this if there's any reference to their tech actually being used at these sites.
All I can see are news articles about Kroger creating jobs in the spoke areas for people to work directly for them.
Just to be clear. The purchase obligation figures don't relate solely to Ocado. They include agreements to forward buy stock etc
Rather than emphasising these figures I was pointing towards their own statement about the likelihood of future CFC orders
In the notes to their financial statement there is a one (note 9) about how the Ocado costs are classed as leases (of the robots).
Their future liabilities to Ocado are recorded as long term debt and seem to be 785m dollars.
From page 46 of most recent Kroger annual report (April 2) detailing Purchase obligations, which are 827m dollars for 2024 dropping to 391 and 360m by 2026.
"We included our future commitments for customer fulfilment centers for which we have placed an order as of February 3, 2024. We did not include our commitments associated with additional customer fulfilment centers that have not yet been ordered. We expect our future commitments for customer fulfilment centers will continue to grow as we place orders for additional customer fulfilment centers".
One of the criticisms Kroger analysts have made are of Kroger's strategy. Rather than just buy tech upfront and then keep all future profits from digital sales they have to share sales revenue with Ocado.
So maybe the Ocado model is not as dumb as people make out. As well as getting the development fees they are setting themselves up for significant revenue streams in the future as more CFCs get up and running. I think this is the point Baillie Gifford are making when they say the business model is often poorly understood.
Lotte could also become a client of OIA as they have non grocery e-commerce business and also maybe in store fulfilment at their sites in Vietnam and Indonesia.
According to this the first Korean CFC is bigger than any of the Kroger ones- their largest was 375k square foot.
https://koreajoongangdaily.joins.com/news/2023-12-05/business/industry/Lotte-Shopping-breaks-ground-on-Ocadopowered-robotic-warehouse/1928264
He confirmed what I thought about the South Korea Lotte deal. SK has the highest online grocery market penetration at close to 30%. Lotte selected Ocado for 6 CFCs and they are a company with a strong background in automation in a country with a lot of highly advanced tech already in place.
Interesting contrast with Japan where online penetration is much lower at around 3%. Can Ocado's partnership with Aeon Next there help to increase online market share? You would think some of Japan's densely populated areas would be ideal for the Ocado delivery model.
As for Autostore they are focused on deploying their tech in smaller fulfilment centres with a much broader spread of sectors. Thanks to the investment in the Reimagined tech, Ocado can now position themselves as direct competitors to them in industries such as consumer packaged goods and pharmaceuticals. The Reimagined kit has brought down the cost and it's modular nature means it can be deployed with greater flexibility.
Off the top of my head it was only about 7-8 years ago that Ocado really turned their attention to selling systems to other grocery. They are projecting revenue from Solutions of about £500m for 2024. If they can increase that to £1bn or more over the next couple of years then the EBITDA contribution will increase greatly. Logistics is not expected to grow and Retail will be unlikely to deliver a margin of much more than 5%.
As Bernstein's William Woods said on the video the market seems incapable of valuing Ocado given the wild fluctuations in the SP. I think the current malaise is down to a mix of things like shorts betting that negative press can generate a death spiral down, the lacklustre UK market that has seen a number of companies either get bought out or opt to list in the US.
Obviously my optimism could be greatly misplaced. For all I know the OIA sales team could be running round like headless chickens with no strong strategic direction. Or they really have already reached the peak in terms of finding international grocery groups willing to sign up to the CFC model.
"Ocado is worth far more than the current SP"
...and when they relist on the NASDAQ they will be.
Https://www.bbc.co.uk/news/business-68639533.amp
Very impressive.
Ocado is worth far more than the current SP.
Short sellers have savaged the SP.
Following your prompt, Sang , I’ve now watched the video - which is 6 months old and made when the sp was, er, rather more than today!! So his advice turned out to be cr+p (although it did nearly hit 800 and I recall taking profits).
Yes - he says Tech is the thing for OCDO investors but look at it - is that really true regarding the company? It’s been pumping cash into UK CFCs and Logistics etc. etc and is now in the top three UK online grocers It’s primarily an f’in grocer ffs!!! And, despite being in the top three it is still making a loss every year - so something isn’t right - right?
The FY Report had Solutions at less than a third of group EBITDA - with Logistics dominating (thanks to people and vans) and Retail limping along due to the poor margins in grocery.
Autostore seem to have more focus on tech although they've admittedly not been as smart as OCDO in selling a product that provides a sustainable income stream.
OCDO tech has had more than a decade since IPO and a decade before that, so twenty years + , which is a long time in tech, but it still isn’t a global benchmark warehouse system. Is that because the UK grocery business was the priority?
I hope Steiner has a tough time at the AGM: after twenty + years building a top three UK on-line business and an advanced tech product he's still making a loss. I doubt he would even make it on The Apprentice. And he wants a bonus? LMAO.
A move to the NASDAQ needed for the tech side to be valued. It will happen.
Yes- I haven't seen it but I'm not surprised. Investors aren't paying attention to the numbers. The problem is that the company's results - and its resources - are weighted to Retail . It's a company with two divergent objectives and a mixed message. It's not a brilliant strategy.
If you check that Bernstein video I posted he said 10% of investor interest relates to Retail, the real business is Solutions.
OCDO didn’t even manage to fully fill Monday’s gap to 249.40 today: https://invst.ly/14klsn and with another red trend incoming during May it may well be time to follow the old saying to sell and go away ‘till St Leger’s day.
If the sp does revisit and test 342 again, which seems highly possible, then I imagine that plenty of stop losses will be waiting to be tripped not much further below. Perfect for shorters to exploit.
Meanwhile Autostore is about 10% down since December, compared to OCDO’s near 50%: https://invst.ly/14kmpk but they are a tech company rather than an online grocer that does a bit of tech on the side.... (sorry just a wind-up comment - but I do think there's a problem with OCDO's tech branding and identity that needs to be fixed).
Https://markets.businessinsider.com/news/stocks/ocado-group-s-promising-cash-flow-improvement-and-market-expansion-opportunities-a-buy-recommendation-1032676655
This video is very much in line with my thinking from the Bernstein guy.
https://m.youtube.com/watch?v=0wJaTKjCX-Y
It's like Kroger are committed to building additional CFCs.
They have put things on pause. If I pause a movie to get a cup of tea that doesn't involve throwing the TV out the window.
They literally seem to be copying the research posted last week on that AI site.
Sorry but in what world does a broker note from HSBC strike a serious blow to a business?
Fluff
Yeah, but that's a rehash of old info with spin. It's media hype.
Https://www.thetimes.co.uk/article/robots-sabotage-ocado-effort-to-become-tesla-of-grocery-3jpb2rgzg
"Robots sabotage Ocado effort to become ‘Tesla of grocery’
Analysts suggest automated warehouse business might not be as high growth as founder Tim Steiner hopes
The Ocado founder Tim Steiner’s long-held ambition to transform his business into the “Tesla of grocery” has received a further blow. In a note, analysts at HSBC highlighted the fact that the robot warehouse business might not be as high growth as hoped, forecasting slower uptake in what it said was already a “highly competitive” market with “many established participants”.
In particular, the analyst highlighted further problems with the company’s partnership with the US grocery giant Kroger, pointing to the fact it had announced the closure of three facilities, two in Texas and one in Florida, which failed to meet targets.
Ultimately, the analyst said that orders from Kroger, if anything, appear to be slowing down, underscoring the risk of overcapacity in the broader market"
Made a complete ar se of my self there, I can't deny it. But I'm the right side of the trade which is the most important. I'm not convinced we've seen my 350 or below so I'm waiting for the moment.
Thanks for the support Boyo and Stupmy.
Stupmy, hope your Ocado Financial calender diary is fully updated now :o)
Seriously the Reddit forum was made up of disgruntled workers that had lost their jobs.
They were criticising Kroger but what they were saying was in line with what Britain Ladd and others said about the spoke closures.
You can get a useful idea from talking to employees. I asked one of their drivers the other day how many loads. He said 24, which is their efficiency target. If he had said only 10 or 15 then that's a negative indicator.
I've no issues with anyone here. I will call out research based on what a guy on Reddit said or the importance of a couple of LinkedIn likes though.
Always DYOR. Try to go beyond the predominant blind optimism shown on this board. The profit has been there for those who have dared to investigate and capitalize on the flaws of Ocado.