The share price of online groceries shopping and warehouse automation company Ocado has plunged by almost 16% today after the company reported a tripling of pre-tax losses over the year. The company’s quickly growing technology business, which builds and licenses its warehouse automation robotics, typically meets the upfront cost of building facilities for retail partners. And the cost of building out five new warehouses has seen pre-tax losses grow to £176.9 million from £52.3 million a year earlier.
The company’s earnings, calculated as ebitda, were also down 12.1% to £61 million from £73.1 million a year ago, meeting analyst estimates. The company has seven of its own automated warehouses in the UK from which it fulfils online orders for its brands as well as for partnerships with Marks & Spencer and Morrisons. However, investors see the greater long term growth potential in licensing the technology to international supermarket chains with e-commerce operations.
Total group revenues saw 7.2% growth to £2.5 billion thanks to a leap in sales from the international technology business which rose around 400% to £66.6 billion from £16.6 billion. The boost to income came from the opening of its first two automated warehouses built for the U.S. supermarket chain Kroger. The two sites are in Florida and Ohio with several more to follow.
Ocado has now brought a total of 13 robotic fulfilment centres into operation, adding 5 over the past year with another nine due for completion during the current financial year in the UK, USA, Sweden and Canada.
As well as fitting out warehouses, Ocado also offers its Ocado Smart Platform to international retail partners. It offers them an out-of-the box solution for selling goods online as well as facilitating in-store click-and-colled services. Seven of Ocado’s 10 international partners now use the platform including France’s Group Casino, Alacampo in Spain and Japan’s Aeon.
Ocado Retail, the joint venture with Marks & Spencer where ownership is split 50/50 saw revenue growth of 4.6% to £2.29 billion for an ebitda of £150.4 million, representing growth of 1.9%.
Order capacity has been improved 40% to around 600,000 deliveries-a-week after the reopening of the Andover fulfilment site following a fire. New fulfilment centres due to open in Bicester and Luton, respectively this year and next, will expand capacity to 700,000 orders-a-week. Another 3 smaller, localised “Zoom” sites designed to fulfil its one-hour delivery offer will also open in London and two more sites over the next 18 months.
The company said it faces ongoing challenges as a result of the UK’s tight labour market with delivery drivers a particular bottle-neck. A lack of delivery drivers has seen average customer orders per van slide from a high of 184 in 2020 to 177 last year.
Long term, the future still looks good for Ocado, which will benefit down the line from capital being invested upfront now to roll out new warehouses for retail partners. New technology recently unveiled, including significantly lighter robots and automated arms able to pick items for orders directly from the warehouse grid that robots move around, will also make the company’s warehouses cheaper and quicker to install.
The innovations will also reduce warehouse labour costs by around 30% when they are operational and allow for up to 50% of customer orders to be delivered within four hours. Currently, only around 10% of orders are fulfilled within that timeframe.
Ocado chief executive Tim Steiner commented:
“The new generation of Ocado technology, which we have called “Ocado Re: Imagined”, represents a transformational leap forward … Partners will be able to go live quicker, at lower cost, and achieve higher margins and return on capital. For Ocado Group, this means a bigger addressable market, the opportunity to win new partners more quickly, and fresh opportunities to accelerate growth.”
