Last updated: January 31, 2012 8:14 pm

Ocado overcomes warehouse problems

The warehouse problems that caused Ocado to issue a profit warning in December are largely behind a £2.4m annual pre-tax loss the online grocer said on Tuesday.

Tim Steiner, chief executive, said the group’s distribution centre in Hatfield was overcoming the difficulties it experienced as it was reconfigured to meet increased orders. “We have very much broken through,” he said.

Ocado had to take on additional temporary staff and reintroduce some manual picking of customer orders while construction work was going on at the warehouse. Its range of products also had to be slightly trimmed to 20,000 lines.

Sales in the 52 weeks to November 27 were up 16 per cent on the previous year at £598.3m. The £2.4m pre-tax loss was down from a loss of £12.2m a year earlier. The loss per share was 0.1p compared with a 1.63p loss last time.

Earnings before interest, tax, depreciation and amortisation (ebitda) were £27.9m, in line with analysts’ scaled-down expectations after the profit warning.

The group said it expected 10 per cent year-on-year gross sales growth in the first quarter of its current financial year, broadly in line with the preceding quarter.

However, this represents a deceleration from the 24 per cent growth Ocado reported for the immediate run-up to Christmas. Sales growth was expected to improve as the year progressed, Ocado added.

The company – which is looking for a new chief financial officer following the resignation of Andrew Bracey in January – plans to open a second distribution centre in Dordon, Warwickshire, in about a year’s time.

Ocado had net debt of £19.2m at November 27 – down from net cash of £80.5m a year earlier – with undrawn borrowing facilities of £78.8m.

Last summer, it renegotiated the terms of its main £100m credit facility to make one of the covenants – covering the acceptable ratio of its net debt to ebitda – less restrictive.

The limit was changed from a multiple of three times to 3.5 times at a cost of less than £200,000, Mr Steiner said.

FT Comment

Some of the numbers are moving in the right direction, but there are still questionmarks over Ocado’s business model. Even if Waitrose’s own online delivery service was not making a play for its well-heeled clientele inside the M25, Ocado would still face intense internet competition from supermarket groups Tesco and Sainsbury. Valuing a company lacking both profits and direct comparators is a tricky business, though sceptics may say that at a closing share price of 87.10p, less than half the 180p on flotation in July 2010, tells its own story. It is hard to see Ocado making any converts until it not only provides increased capacity but shows that this leads to profitable growth.

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