Tuesday 9 July 2019 9:04 am

Losses deepen as Ocado reveals cost of Andover fire

Ocado suffered a sharp downturn in losses during the last six months as a devastating fire at one of the firm’s flagship warehouses scolded the firm’s performance.

The delivery giant’s pre-tax losses slid to £142.8m in the first half of 2019, plunging from £13.6m during the same period in the previous year, as a major inferno at the firm’s Andover distribution centre resulted in a £98.5m hit to the balance sheet.

Read more: Ocado to create 260 new jobs in Old Street tech hub

Despite the exceptional costs, the group struck a resilient tone this morning as it delivered a set of results that included a double-digit rise in group revenues.

Group revenues grew 10.5 per cent year-on-year to £874m in the 26 weeks to 2nd June 2019.

Retail revenues grew 9.7 per cent year-on-year to £812m.

In early morning trading investors seemed to welcome the news, with Ocado’s share price climbing more than nine per cent.

Richard Hunter, head of markets at Interactive Investor, said: “The potential is clearly positive for Ocado, as evidenced by the initial share price reaction to the statement.

“However, with the true benefits yet to wash through and given the meteoric share price performance, the current market consensus comes in at a hold as the shares are seen as being up with events – for now.”

The impact of the Andover fire is estimated to have wiped off two per cent of sales, despite having removed 10 per cent of group capacity.

Ocado has so far claimed some of the financial losses back from insurers and in the long term expects to recoup all the cost from the fire

Shares in the company slumped 14 per cent in the days after the inferno, which was tackled by hundreds of firefighters over the course of three nights.

Yet the firm’s share price has climbed 15 per cent to 1,170p over the last year, as the firm ramps up its international presence and ties up a new alliance with Marks and Spencer.

In May boss Tim Steiner was awared several million shares worth nearly £30m, with his pay packet set to soar by as much as £100m over the next five years if he delivers on certain targets.

“Despite taking a £100m hit, Ocado has largely shrugged off the fire at its Andover warehouse to deliver a healthy bump in retail revenues, whilst it’s also sharply increasing fees from partners using its technology,” said Neil Wilson, chief market analyst for Markets.com.

Wilson added: “Bottom line – big hit from the Andover fire on group earnings this year but this is already baked into the share price and the fees from international deals are starting to come through. These will ratchet up significantly in the coming years. M&S deal provides necessary cash for investment whilst deleveraging the business from the UK retail market.”

John Moore, senior investment manager at Brewin Dolphin, said investors remain optimistic on Ocado despite its recent troubles.

“However, investors will be keeping an eye on profitability and cash generation going forward as the Andover situation has unduly influenced these results,” he added.

“Around 20 years on from its establishment, there are still plenty of reasons to be positive about Ocado.”

Tim Steiner, chief executive of Ocado, said: “Our exciting new joint venture with M&S creates further growth opportunities for both parties in the UK and allows Ocado to increase focus on growing our Ocado Solutions business and innovating for our partners.

Read more: Ocado will cut 400 jobs after Andover warehouse fire

“At the same time we are beginning to apply our technology skills and expertise to other related activities which we expect to be of benefit to our Solutions partners as well as to other Ocado Group stakeholders.

Steiner added: “We have never had as many opportunities to grow as we do today. As we look to successfully scale our business and deliver outstanding execution to our partners, our challenge will be to select and prioritise the most attractive of these opportunities.”