LONDON (Alliance News) - Ocado Group PLC Tuesday reported a small decline in profit in the first half of its financial year even though sales grew, as it booked costs associated with investments, distribution and administration.
The online grocery business also reaffirmed its target of securing a licensing agreement for its technology platform with a customer outside of the UK during 2015.
Ocado, which last year teamed up with Wm Morrison Supermarkets PLC to be its online delivery company, said pretax profit in the 24 weeks ended May 17 slipped to GBP7.2 million from GBP7.5 million in the same period the year before, despite revenue rising 18% to GBP507.7 million from GBP429.7 million.
Ocado said that sales were driven by continued growth in its retail business and benefited from its agreement with Morrisons, with the number of loyal customers increasing. Average orders per week grew to 191,000 from 161,000, although this was partially offset by a decline in the average order size to GBP111.68 from GBP114.43.
However, profit was held back by investments in initiatives to support future growth of the business, higher depreciation and amortisation arising from the Dordon customer fulfilment centre, and competitiveness and deflationary pressures in the market, Ocado said. Total distribution costs and administrative expenses rose by 22.6%, while total depreciation and amortisation costs rose by 12.8%.
Ocado made its first ever annual pretax profit since its launch in 2000 in its last financial year to end-November.
"The channel shift towards online grocery shopping continued during the period, with the broader grocery market remaining characterised by intense price competition and deflationary pressures," Chief Executive Tim Steiner said in a statement Tuesday.
"Against this backdrop, our relentless focus on customer satisfaction continues to drive customer numbers and like-for-like sales ahead of the online grocery market. The resilience of our business model and increasing operational leverage also mean that we have grown operating profit despite these industry headwinds," he added.
Ocado made an operating profit of GBP11.8 million, up from GBP10.9 million the year before.
The online grocer said that it is in discussions with multiple potential international partners interested in utilising its Ocado Smart Platform in territories outside of the UK, and hopes to sign its first agreement during 2015.
"Our continuous commitment to constant innovation in technology not only allows us to give industry-leading service to our customers at home but to offer our end-to-end platform solution to retailers outside the UK. We are excited by the possibility and reiterate our target of signing a first agreement during 2015," Steiner said.
"Online grocery shopping has continued to expand faster than the total market, with all the major supermarkets investing to satisfy growing online demand. Internationally there continues to be increased interest in online grocery services from both consumers and retailers alike, as major incumbent retailers seek to address the channel shift online," he added.
Numis analyst Andrew Wade is encouraged by Ocado's performance saying that its earnings before interest, tax, depreciation and amortisation of GBP38.2 million was ahead of the broker's GBP37.5 million estimate.
"In all, an encouraging update from Ocado, demonstrating that it can continue to build its UK retail operation despite an extremely difficult trading environment," Wade said, adding that the broker believes Ocado "is uniquely positioned to leverage its market-leading IP to support Ocado Retail and develop partnerships with global grocery retailers looking for the best online grocery fulfilment solution".
Still, shares in Ocado were trading down 1.5% at 423.66 pence Tuesday morning, rebounding after falling to an early low of 405.00p.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
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Ocado (OCDO)