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Technology

Ocado's First-Half Earnings Dented By Investment

By Steve Wynne-Jones
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Ocado's First-Half Earnings Dented By Investment

Ocado, the online supermarket and technology company, reported a 13.9% fall in first-half core earnings on Tuesday, reflecting a step-up in investment in the business.

It said that it expected earning trends to improve in the second half of the year, however, and it also maintained its forecast for retail revenue growth of 10%-15% for full 2018, assuming that economic conditions remain broadly stable.

The group, whose share price has soared 256% over the last year, on the back of four major overseas partnership deals, made earnings before interest, tax, depreciation and amortisation (EBITDA) of £38.9 million in the 26 weeks to 3 June.

"This is a transformational period for Ocado," said Tim Steiner, its chief executive. "We have developed unique and proprietary technology to offer retailers an end-to-end operating solution for grocery retail that enables them to meet the changing needs of consumers.

"In the past six months, we have partnered with some of the world's, biggest, best and most innovative retailers to help them redefine the shopping experience for their own customers. As a result, we are beginning to fulfil our ambition to change the way the world shops," added Steiner.

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Earnings Slowdown

Ocado had warned in February that investment in its UK distribution centres and software platform would put a brake on earnings this year. It said that capital expenditure would be £210 million in 2018, up from £160 million in 2017.

The firm struck its biggest deal so far, with US supermarket chain Kroger, in May. That followed deals with Sweden's ICA Group, Canada's Sobeys and France's Casino.

Shares in Ocado listed at 180 pence in 2010. They closed at 1,012 pence on Monday, valuing the business at £6.81 billion.

It said that it expects the trends in retail EBITDA to improve significantly over the course of the second half, partly due to lower engineering costs per order, and as new capacity at its newest distribution sites at Andover, southern England, and Erith, just outside London, is utilised.

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It forecast a decline in solutions EBITDA, as it makes a further £4 million investment.

Ocado also expects additional management incentive charges of about £9 million, largely due to its share price performance.

News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.

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