July 9, 2019 / 6:18 AM / in 8 days

Ocado outlook positive despite fire-hit first half

LONDON (Reuters) - British online supermarket and technology company Ocado (OCDO.L) reported a 46% fall in first-half core earnings hurt by a fire at its flagship distribution centre but sounded a confident note on the outlook for sales of its warehouse robotics and software.

FILE PHOTO: Delivery vans are lined up prior to dispatch at the Ocado CFC (Customer Fulfilment Centre) in Andover, Britain May 1, 2018. REUTERS/Peter Nicholls/File Photo

Its shares rose as much as 7.6% on Tuesday, extending their gains for 2019 to 57%.

“We have never had as many opportunities to grow as we do today,” said Chief Executive Tim Steiner, who co-founded the company 19 years ago.

He said Ocado was engaged with multiple retailers in a variety of markets with a view to adding more partnerships.

Ocado provides UK and international retailers with the infrastructure and software to develop their own online grocery businesses to compete with the likes of Tesco (TSCO.L) and Amazon (AMZN.O).

While Ocado’s retail business holds just a 1.3% share of Britain’s grocery market, its warehouse technology has powered a 8.3 billion pound stock market valuation.

“Ocado’s valuation is driven by the Solutions (technology) business, so we see management commentary on how the current pipeline is developing and what the future pipeline might look like as being far more valuable information,” said Bernstein analyst Bruno Monteyne.

Ocado, which now has deals with eight major retailers, including U.S. group Kroger (KR.N) and France’s Casino (CASP.PA), reported adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of 18.7 million pounds ($23.4 million) for the 26 weeks to June 2. That was down from a restated 34.8 million pounds for the same period a year earlier.

Retail revenue in the half grew 9.7% to 803.2 million pounds.

The group had warned of slower retail sales growth until it increased capacity elsewhere following a fire in February which devastated Ocado’s robotic warehouse in Andover, southern England.

That extra capacity was secured through a deal with Morrisons (MRW.L), Britain’s No. 4 supermarket group, in May, giving Ocado sole use of its newest robotic warehouse in Erith, southeast London.

The company also announced it would locate its fifth robotic warehouse in the UK in Purfleet, southeast England.

Prior to the blaze the Andover centre was providing about 10% of Ocado’s UK capacity. However, the impact of the fire was estimated at 2% of sales, which Ocado said demonstrated the resilience of the business.

Ocado reiterated its guidance for 10-15% retail revenue growth for the balance of the year.

M&S DEAL

In the first half Ocado’s fees from technology partners increased 36% to 122.7 million pounds.

In February Ocado announced a 1.5 billion pound joint venture to provide Marks & Spencer (MKS.L) with a home-delivery service by September 2020.

The group said it was happy with analysts’ EBITDA expectations for the full year, if adjusted for a 15 million pound impact of the Andover fire and share incentives worth 10 million pounds.

Ocado reported a statutory first half loss of 142.8 million pounds, which included a 98.5 million pound exceptional charge related to the fire. That comprised 110.3 million pounds of costs, including write-downs, offset by 11.8 million in insurance proceeds.

Finance chief Duncan Tatton-Brown said he expected all the fire-related losses to be covered by insurance over time, reported as exceptional income.

Reporting by James Davey; editing by Kate Holton and Jason Neely

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