Ocado's share price jumps eight per cent at the open on profit surge

 
Helen Cahill
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The national living wage has pushed up labour costs

Ocado's share price jumped eight per cent at the open as it reported a spike in profits.

The company's full-year profits beat expectations - despite rising labour costs and price deflation throughout last year.

The figures

In its results for the year ending 27 November, Ocado reported a 13.6 per cent rise in gross retail sales, up from £1.115bn to £1.267bn. Revenue increased 14.8 per cent to £1.27bn and profit before tax jumped 21.8 per cent to £14.5m.

Read more: Ocado shares drop at the open despite sales growth in final quarter

However, basket sizes were hit by price deflation. The average value of an Ocado shopping basket fell by 2.7 per cent, down from £111.15 to £108.10. Overall average basket size also fell 3.7 per cent.

Ocado extended its technology and warehousing deal with Morrisons, and said the arrangement contributed £99.4m in revenue, up from £73.9m the year before - growth of 34.5 per cent.

The business also boasted that it had made its delivery services more efficient, increasing the number of deliveries made per van each week to 176, up from 166 the year before.

Why it's interesting

Although Ocado said this morning that it was being hit by the same increases in costs that other retailers are facing - primarily from the national living wage - the business was upbeat about its future expansion plans.

Read more: Morrisons announces same-day delivery Amazon tie-up

Ocado said it's in discussions over another Morrisons-style deal with leading retailers, and plans to invest approximately £175m over the coming year, mainly into warehousing and new vehicles. At the moment, Ocado is building its largest ever fulfilment centre, in south east London, which will open in the financial year of 2018 (30 per cent of this warehouse will be shared with Morrisons).

What Ocado said

Tim Steiner, chief executive officer of Ocado, said: "We commenced operations at our new customer fulfilment centre in Andover, which has the first installation of our new proprietary technology.

"At the same time, we have made good progress in improving the efficiency and throughput of our existing operations, increasing our capacity from existing facilities by over 20,000 weekly orders. These developments position us well for future growth, whilst improving our returns and enhancing the service we can offer our customers."

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