Ocado steps-up spending as it counts cost of warehouse fire

By James Davey

LONDON (Reuters) - British online supermarket and technology group Ocado reported a ballooning annual pretax loss, mainly due to a fire which destroyed a hi-tech flagship warehouse, and forecast a more than doubling of capital expenditure in its new financial year.

Ocado on Tuesday said it expected to spend around 600 million pounds ($774 million) in 2019-20 as it prepares to open robotic warehouses for overseas partners.

The first half of the year will see the opening of the first such state-of-the-art facilities, for Sobeys in Toronto, Canada and Casino in Paris, France.

They are the first of more than 30 sites that will be operational over the next few years.

Ocado has transformed itself over the last two years from a domestic grocery delivery firm to a provider of online retail technology, also winning partnerships with Kroger in the United States, Coles in Australia, and most recently Aeon in Japan.

The deals have helped to push its shares 34% higher in the last year, giving it an 8.6 billion pound stock market valuation that dwarfs the equity values of traditional British supermarket groups such as Sainsbury's and Morrisons at 4.4 billion pounds and 4.3 billion pounds respectively.

Ocado's shares were up 3.6% at 1054 GMT, even though it said its loss before tax widened to 214.5 million pounds ($276.8 million) in the year to Dec. 1, 2019 versus 44.4 million pounds in 2017-18. The loss reflected exceptional charges of 94.1 million pounds, mainly relating to the write-down of the Andover site in southern England that was destroyed by a fire in February last year and is now being re-built.

While Ocado is fully insured, there is a time lag before it receives the full payout due.

Some analysts have questioned Ocado's valuation, saying that execution risks are proliferating and opportunities for it to win sizeable contracts in new geographies are becoming more limited.

"Our estimates suggest shareholders currently expect the Ocado Smart Platform (OSP) to build to a total picking capacity size of circa 50 billion pounds in the next 10 years. Which feels far too optimistic to us," said analysts at Jefferies.

CORE EARNINGS IN LINE

Ocado posted earnings before interest, tax, depreciation and amortisation (EBITDA) of 43.3 million pounds ($55.9 million), versus a re-stated 59.5 million pounds for 2017-18.

That outcome, which also reflected accounting changes and the costs of share schemes, was broadly in line with analysts' consensus forecast.

The wider losses and drop in core earnings were despite a 9% increase in group revenue to 1.76 billion pounds, including 10.3% growth in retail revenue.

"We are pleased to report results which show strong momentum in the business," said Chief Executive Tim Steiner.

"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."

The Ocado Retail division is now a joint venture between Ocado Group and Marks & Spencer. Their deal, completed in August, signalled the end of Ocado's supply contract with upmarket supermarket chain Waitrose in September 2020 and the start of M&S' first grocery home delivery service.

Ocado said preparations for the switchover were progressing well.

For the 2019-2020 year Ocado forecast retail revenue growth of 10-15% and invoiced international technology fees growth of at least 40%.

It forecast EBITDA from retail above its revenue growth. However, EBITDA from UK solutions & logistics and from international solutions was forecast to decline.

Prior to Tuesday's update analysts' average forecast for 2019-20 EBITDA was 33 million pounds.

(Reporting by James Davey; editing by Kirsten Donovan)