March 19, 2019 / 7:15 AM / in a month

Ocado shares hit record after company plays down fire impact

LONDON (Reuters) - British online supermarket Ocado played down the impact of a fire which devastated its flagship distribution centre in southern England, saying the blaze didn’t affect its long-term plans and helping send its shares to a record high.

FILE PHOTO: An Ocado truck returns to the Ocado depot in Hatfield, southern England July 21, 2010. REUTERS/Suzanne Plunkett

Though the cause of the fire in Andover is still being investigated, Ocado said on Tuesday its initial assessment had given it confidence there are no significant implications for the risk profile of its assets or the viability of its model.

Shares in Ocado, which have doubled over the last year, were up 2.9 percent at 11.82 pounds by 0836 GMT, having hit a record 11.92 pounds.

Last month when Ocado announced a 1.5 billion pound ($2 billion) joint venture with Marks and Spencer its Chief Executive Tim Steiner told reporters he knew the precise cause of the fire but could not share the details.

“The fire has been a setback, but it will be only a temporary one,” Steiner said on Tuesday.

He said Ocado will build a replacement facility that reflects the innovations and improvements it has made since Andover opened in November 2016.

Ocado also said retail revenue increased 11.2 percent to 404 million pounds in the 13 weeks to March 3, its fiscal first quarter, having risen 12 percent in the previous quarter. The impact of the fire was 1.2 percent of sales.

Chief Financial Officer Duncan Tatton-Brown told reporters he expected the impact in the second quarter would be about 3 percent of sales, reflecting a full three-months trading impact versus one in the first quarter.

Ocado said average orders per week rose 11.3 percent to 314,000, though average order size edged 0.2 percent lower to 110.24 pounds.

LOST CAPACITY

Prior to the blaze the Andover centre was providing about 10 percent of Ocado’s UK capacity. The company warned in February of a reduction in sales growth until it increases capacity elsewhere.

Plans include the setting up of a temporary facility in Andover and ramping-up capacity of its fourth and newest distribution centre in Erith, near London.

Though Ocado has a 1 percent share of Britain’s grocery market, its 8 billion pound stock market valuation has been driven by the technology side of its business - providing international retailers with the infrastructure and software to develop their own online grocery businesses to compete with the likes of Amazon.

The Andover plant, which was processing 30,000 orders a week, is Ocado’s third automated warehouse and has been instrumental in it winning major deals to sell its technology to U.S. group Kroger, France’s Casino, Canada’s Sobeys and Sweden’s ICA.

Late last month Ocado sold M&S a half share in its UK retail business for 750 million pounds.

The group was founded by three Goldman Sachs bankers 18 years ago. After struggling for years to post a profit it has flourished particularly in the last year.

Reporting by James Davey; Editing by David Holmes

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