Ocado is branching out beyond grocery delivery
(Picture: PA)Ocado’s big bet on selling “smart warehouses” to other grocers saw its losses jump last year, leaving some investors rattled.
Losses widened from £52 million in 2020 to £177 million last year as capital expenditure hit £680 million. That was £154 million higher than a year earlier.
The big jump in investment came as it opened five of its customer fulfilment centres - its smart warehouses - around the world. Ocado also continued to plough big sums into technology, recently launching a new generation of robots to pick groceries.
The company said investment in technology was likely to increase by £30 million again this year, leading broker Numis to downgrade its forecasts.
Ocado is betting its future on selling its robots and warehouse technology to other retailers, rather than just selling groceries itself. It has done deals in the US, Sweden and Canada among others and spun its retail arm into a joint venture with Marks & Spencer.
CEO Tim Steiner said: "The past year has further reinforced that demand for online grocery is here to stay. In the majority of mature markets, the fastest growing channel is online and to truly win here food retailers need to deliver the best offer with the best economics across all customer missions.”
Building warehouses for clients incurs set-up costs for Ocado before it earns revenues from helping retailers run the operations.
Revenues from the division remain small but are growing fast. Overseas contract revenue rose 300% to £66.6 million last year, while revenue in the UK - where it works with Morrisons - rose 8.6% to £710 million. By contrast, retail sales rose 4.6% to £2.3 billion.
The performance was roughly in-line with forecasts but the investment plans, and subsequent profit drag, hit the share price. Ocado dropped 168p, or 12%, to 1239p.
Sophie Lund-Yates at Hargreaves Lansdown said: “Next year’s profits are expected to be lower than the market was hoping.
“The trouble is, Ocado’s impressive robotic grid systems and software are a fundamentally attractive product for retailers looking to boost their online footprints, but Ocado has been unable to scale as quickly as would have been ideal. That leaves question marks over its ability to capture as much of the addressable market as it might like.”
Chris Beckett, head of equity research at Quilter, said: “Ocado’s 2022 guidance includes increased costs set to support long term growth and higher capital expenditure that will more than halve the £1.5bn cash balance.
“Ultimately, this is a growth stock that needs new orders to justify the valuation. This will likely come, but timing remains uncertain.”
