Ocado shares drop as spending drives wider annual loss

Ocado's annual loss widened as increased investment in its solutions business more than offset higher revenue at the online retailer and technology group.

The statutory pretax loss widened to £176.9m in the year to the end of December from £52.3m a year earlier as revenue increased 7% to £2.5bn.

Earnings before interest, tax depreciation and amortisation fell to £61m from £73.1m. Analysts had on average expected earnings of £60m and revenue was in line with forecasts.

Distribution and administrative costs jumped 20% to £976.7m as Ocado spent on technology to supply its retailer customers and expanded support functions. As usual the company paid no dividend.

The FTSE 100 company's shares fell 11.6% to £12.39 - the lowest price since March 2020 - as investors reacted to continued losses and high investment spending at a business that has rarely posted a profit in more than 20 years of trading. The shares have more than halved in value in the past year.

Ocado sells groceries online in the UK through a joint venture with Marks & Spencer - a business that has boomed during the pandemic. Its solutions business also helps retailers outside the UK set up and improve their online operations and it has billed this as its main source of long-term growth.

Russ Mould, investment director at AJ Bell said: To its credit, Ocado has made strategic progress over the past year. More customer fulfilment centres have been opened and its joint venture with Marks & Spencer is a major success. It has developed new technology that will let customers go live on its systems quicker.

“However, Covid showed that grocery companies have no choice but to build a state-of-the-art online ordering and fulfilment service, yet Ocado has yet to capitalise on this once in a lifetime opportunity by signing up a swathe of new customers.

"Capital expenditure represents a big chunk of revenue, and it is growing fast, unlike its sales. Investors are getting tired of hanging around for the big earnings breakthrough."

Retail revenue rose 4.6% to £2.3bn in 2021 and international solutions revenue quadrupled to £66.6m as Ocado opened five facilities for customers. UK solutions and logistics income rose 8.6% to £710.4m.

Tim Steiner, Ocado's chief executive, said: "The past year has further reinforced that demand for online grocery is here to stay. In the majority of mature markets, the fastest growing channel is online and to truly win here food retailers need to deliver the best offer with the best economics across all customer missions."