Headlines – Group revenue up 9.9%, Retail Revenue up 10.2%, Losses increased YoY by nearly 400% to -£214m. Strong cash position of £751m + £600m bond issuance
Comments – It’s important to factor a number of elements to these numbers which on the face of it look pretty bad. Firstly you had the big fire at Andover which affected not just Ocado Retail but also the services arm which supplied Morrisons (who had to take a Holiday), making the revenue growth look even more impressive and secondly the significant CapEx investments into the international services loaded cost into the business in year as ground was broken on new fulfilment depots.
Hankins Hot Take – A topline shock but an underlying success for Ocado who pointedly refuse mention of Waitrose at every opportunity focussing entirely on the JV with M&S and the expansion of their fulfilment and services business. The business now splits itself into three, UK Retail, UK Solutions & Fulfilment and International Solutions and whilst International Solutions is nascent and costly due to heavy Capex, its intriguing to view Ocados route to profit via the ratio between revenue and Ebitda for UK Solutions vs Retail (14.5% vs.2.1%). Perhaps unsurprisingly selling services are significantly more profitable than retail itself!! As the international business grows and Capex declines then the clear implication is that profit is only a short step away.
Another interesting angle on future development is taken by looking at the investments that they’ve made in Vertical Farming, Automated Meal Prep and 3D printing (in addition to ongoing investment in robotic arms for picking purposes) suggesting expansion of the Ocado group vertically into wholesale (like Tesco and Morrisons) and food delivery (they could be a big threat to Just EAT and UberEats). The presence of 3D printing is linked to the variable sized fulfilment centre options that they are trialling, paving the way for “out of the box” solutions as a service. The final word has to be reserved for the M&S JV. Expectations are for 10-15% growth which feels reasonable bearing in mind the 2019 revenue depression felt by the fire was estimated as having a 10-20% negative affect (for a net 10% growth). To support this SKUS have been increased up to 58k (Making Ocado the biggest grocer in the UK, Tesco have an estimated 40k) whilst regular users now total 795k (up 10.7%) and wastage is 1/6th of the market average which is an amazing result when you consider that often wastage management is the difference between profit and loss for many large grocery stores. This is an aggressive set of forecasts by Ocado and suggests they do not fear the loss of Waitrose.
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