Ocado loss widens on cost of warehouse fire

(Sharecast News) - Ocado's annual loss more than quadrupled as costs rose and the online grocer and logistics company paid for the destruction by fire of a high-tech warehouse.
Pretax loss for the year to the end of December widened to £214.5m from £44.4m a year earlier. Group revenue rose 9.9% to £1.76bn.

Analysts had on average expected a pretax loss of £110m, Ocado said. Excluding exceptional items, the loss was £120m. Earnings before interest, tax, depreciation and amortisation fell 27% to £43.3m, broadly in line with expectations.

Ocado paid out a net £88m in exceptional costs related to the fire at its Andover warehouse. The FTSE 100 company's results were also affected by accounting changes. The company said it had received £74m in insurance payouts from the fire with £24m recognised in the income statement.

Retail revenue rose 10.3% to £1.62bn despite loss of capacity caused by the Andover fire. UK solutions and logistics revenue rose 7.8% to £583.2m.

Chief executive Tim Steiner said: "We are pleased to report results which show strong momentum in the business. Although statutory results reflected a combination of factors, including the impact of the Andover fire, the underlying performance of Ocado retail and the successful growth of Ocado solutions were very encouraging."

Ocado is going through a period of rapid change. Launched 20 years ago as an online grocer, it is now selling its robotics, algorithms and other knowhow to international retailers and this will be the biggest part of its business.

Ocado said fees invoiced to these customers were £81.4m in 2019 and that total fees of £140m will be recognised in the accounts when projects go live. The first international fulfilment centres are due to open in the first half of 2020 for Sobeys of Canada and France's Groupe Casino.

Ocado also signed a deal a year ago to sell half its retail operation to Marks & Spencer for an upfront payment of £562.5m and will distribute M&S products later in 2020. Ocado and M&S will be in a battle with Waitrose, Ocado's former supplier, for the spending of upmarket online shoppers.

Steiner said: "We are pleased to report results which show strong momentum in the business. Although statutory results reflected a combination of factors, including the impact of the Andover fire, the underlying performance of Ocado retail and the successful growth of Ocado solutions were very encouraging."

Ocado shares rose 1.8% to 1,239.5p at 09:25 GMT. The shares have surged from 239p in November 2017 when Ocado signed its long-awaited first deal with an international retailer.

Distribution and administrative costs rose 18.3% to £676m before exceptional items and a £25.4m reduction under accounting the IFRS 16 rule. Ocado said capital spending in the current year would more than double to £600m from £260m in 2019.

Clive Black, an analyst at Shore Capital, said Ocado deserved credit as an innovative company and for signing deals with international customers that are likely to transform the company. But he said there was little clarity about revenue, spending and earnings.

Black wrote in a note to clients: "Then there is the amazing revelation of capital expenditure of £600m! ... What sort of RoCE [return on capital] can be expected from this group? Time will tell. In the meantime, one has to hope that Ocado can keep living the dream, execute perfectly and stay on the right side of good fortune."