June 26, 2012 9:37 am

Ocado shares slide despite profit rise

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Shares in Ocado plunged 20 per cent on Tuesday on fears that disruption from the Olympic Games could hit sales, and concern that the online grocer’s balance sheet was becoming increasingly fragile.

Ocado, which has a supply agreement with Waitrose, made a pre-tax profit of £181,000 in the six months to May 13, compared with £174,000 in the year earlier, on sales up 11.4 per cent to £308.04m.

However, Tim Steiner, chief executive, said that Ocado had experienced disruption from the Queen’s diamond jubilee, which cost it 1-2 percentage points in sales growth. “From a business perspective we would have preferred not to have a Jubilee,” he said.

Mr Steiner said that he was also cautious about the Olympics, which could disrupt traffic and alter shopping habits, making the third quarter difficult to forecast. Previously Ocado had expected an acceleration in sales growth in the second half.

“We still believe the second half will outperform the first half, and hopefully meaningfully,” he said. “The Olympics may be at best a distraction. We don’t know.”

Numis, joint broker to Ocado, cut its forecast of second-half sales growth from 17.6 per cent to 15.8 per cent, and full-year earnings before interest, tax, depreciation and amortisation from £38m to £37m.

The shares, which floated at 180p, fell 22.10p to 86p.

Mr Steiner denied that Ocado was accident prone, having been forced to issue a profit warning last year because of capacity constraints at its warehouse in Hatfield.

“I would not say there is always something. Clearly there have been some things that are harder than we anticipated,” he said.

Ocado chart

Ocado also unnerved investors with an increase in net debt from £19.2m at November 27 to £71.3m at the end of the first half.

It added that its financial headroom on its net debt to ebitda covenant would be reduced until its second distribution centre opened early 2013. The covenant requires net debt to be no more than 3.5 times ebitda. Shore Capital estimates that it will approach three times at the year end, possibly rising if earnings forecasts are cut.

However, Mr Steiner insisted Ocado did not need a rights issue.

“At any point I can say ‘stop the music’,” he said. “Its just at the moment, we have chosen to follow the strategic aims we set out at the initial public offering, to massively expand our capacity,” he said.

He also insisted that Ocado was not looking to sell itself.

“We don’t need to do a deal with another retailer,” he said. “We have an independent future.”

Ebitda was £14.9m, against £14.3m last time. The gross margin fell by 0.3 percentage points year on year, reflecting increased use of vouchers amid intensifying competition.

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