Latest news with #Ocado Group
Times
5 days ago
- Business
- Times
Profitability is overrated, says Ocado boss Tim Steiner
The City is wrong to 'obsess' over short-term profitability, as tech companies burn cash in pursuit of scale, the boss of Ocado Group has said. The online supermarket operator, which has been branded a 'jam tomorrow' stock for its years of losses, has long been criticised for achieving a full-year pre-tax profit only once in its 25-year history. Tim Steiner, co-founder and chief executive of the technology and grocery provider best known for its partnership with Marks & Spencer, said the market should take a longer view. 'Our shareholders should only have invested if they believe that in the long term we're going to be a profitable business,' he said. 'It's right to have a focus but it can sometimes be wrong to overly obsess about it in the short term and not consider the long term.' Ocado Group, which includes technology and logistics divisions, has had a turbulent time. Founded in 2000 by three former Goldman Sachs executives, its value has plunged from £22 billion during the pandemic to £2 billion, pushing it out of the FTSE 100 last year. The dramatic fall from grace has attracted plenty of criticism from analysts and rivals. Philip Dorgan, then an analyst at the broker Ambrian Partners, once quipped that 'Ocado begins with an 'o', ends with an 'o' and is worth zero,' while Sir Terry Leahy, the former Tesco boss, dismissed it as little more than a 'charity', given its appetite for big losses. • 'Jam tomorrow' Ocado struggles to spread the word 'I'm sure at times some of it is warranted and at times some of it may not be,' Steiner admitted. 'I don't spend too much time, to be honest, focused on it because I'd have probably gone mad.' He added that he tries not to dwell on market sentiment: 'I've just got to keep going. It will become a great business. And hopefully one day, you know, all will realise [that].' He believes part of the problem is perception. Despite years spent investing in automation, robotics and software, Steiner said the market still sees Ocado primarily as a grocer rather than a tech company. 'I think why people still question us is because we launched a very large new business in the last seven-odd years. It means we have spent a lot of capital on creating the IP and the technology.' It's a strategy that mirrors some of Silicon Valley's biggest names. Amazon didn't turn a profit for almost a decade. The FTSE 250 company said on Thursday that turning cashflow positive by 2027 was now its 'core priority'. Steiner said full-year profitability could come 'shortly thereafter or around the same time', depending on the scale and timing of future investments. That's a slight shift from previous guidance, which had last year forecast a move into the black within five to six years, by 2023. • Ocado changed the food business. But will it ever make money? Not everyone is impressed. Clive Black of Shore Capital, a long-time critic of the business, questioned the market reaction. 'We are not sure we should be putting up the bunting for the firm to be full-year cash positive in 2027 for the first time after [25] years of trading,' he said. 'Such stuff is far from premium equity matter.' Shares in Ocado closed up 43½p, or 18.5 per cent, at 279p as the company hailed 'strong' trading over the past half-year, with sales boosted by growth in its technology arm and stronger performance at its Marks & Spencer venture. Still, the stock remains down about 25 per cent over the past 12 months, with investors unnerved by a slowdown in Higher prices and an increase in customer orders helped Ocado Group to offset a drop in the number of items per shop at its retail joint venture with Marks & Spencer in the first half of the year. Ocado Retail reported a 16.3 per cent rise in revenue to £1.5 billion in the six months to June 24, thanks to a rise in order numbers, active customers and improved frequency of purchase. Although the average number of items per basket declined, the average basket value increased by 0.7 per cent to £124.19. There was a 1.4 per cent rise in the average selling price, which Ocado noted was still below grocery inflation of 3.1 per cent. The performance, driven by improved marketing efforts and a broader range of M&S products, helped to narrow Ocado Retail's operating loss from £25.7 million to £17.1 million. Ocado Group posted a pre-tax profit of £611.8 million for the half-year, rebounding from a £153.3 million loss a year earlier, in part because of a £750 million accounting boost from its M&S partnership. The joint venture between Ocado and Marks & Spencer launched in September 2020, replacing Waitrose as the grocery partner on Ocado's online platform. The partnership, formed in 2019, boomed during the pandemic but suffered a 'challenging year' in 2022 when the retail arm sank £4 million into the red. Customers put fewer items in their baskets and used more discount vouchers during the cost of living crisis. Ocado Group dived to a £500 million loss that year. Performance has improved thanks to a 'reset' of Ocado Retail focusing on improving the customer experience, marketing and product availability. Investors reacted positively as Ocado Group hailed 'strong' trading over the past half year as sales jumped on the back of progress in its technology arm and it reported rising demand from UK shoppers. The London-listed company revealed that group revenues increased by 13.2 per cent to £674 million for the six months to June 1, compared with the same period a year earlier. It noted 14.9 per cent growth in its technology business as it benefited from further expansion and investment. Revenue at the company's third-party logistics business rose by 12.1 per cent, largely driven by a rise in inflation. Steiner said sentiment had improved and supermarkets were not so reluctant to invest in technology and automation, despite geopolitical uncertainty in the UK and in the US. Steiner recently stepped in as interim chief of Ocado Solutions, which licenses the group's warehouse automation to global supermarkets, after a two-year struggle to secure a permanent replacement for the division's former boss. He said the reason was to rebuild relations with clients after many paused or reduced expansion plans: 'To get closer to our clients and potential clients and actually get the team's client relationship, the revenue generation side, and the product development all working closer together.' Ocado Solutions is seen by investors as a promising growth engine, thanks to its potential to offer warehouse automation and software to major grocery players around the world. However, the division has hit headwinds: it is grappling with a pause at Kroger in the US, a halt at Sobeys in Canada and a scale-back by Morrisons.
Daily Mail
6 days ago
- Business
- Daily Mail
Ocado pledges profitability next year as investors grow impatient after years of burning through cash
Long-suffering Ocado investors were cheered on Thursday after the online supermarket said it would achieve profitability next year after a 'strong' first-half. The group, which operates a joint venture with M&S and licenses its robotic warehouse technology to other retailers, has as yet failed to live up to expectations and become cash flow positive. Investors have bet on the success of its robotic delivery technology, which has helped to drive market value, but its retail arm has lagged. As a result, Ocado share have lost around 90 per cent over the last five years. While its retail business is one of the fastest-growing supermarkets, it is still one of the smallest in terms of market share, according to industry statistics. In its first-half update, Ocado said its core priority is to turn cash flow positive during its next financial year, which starts in December. Ocado reported a 76.5 per cent rise in underlying earnings in the six months to 1 June, the majority of which came from its technology arm. It said adjusted Ebitda, its preferred profit measure, was £91.8million in the first-half, up from £52million in the same period a year earlier. Revenue rose 13.2 per cent to £674million. Chief executive Tim Steiner said: 'Ocado Group has delivered a strong first half and we have reached important milestones both in our UK business, as well as across our international partnerships. 'Our Technology Solutions division has more than doubled EBITDA and our underlying cash flow has improved significantly, ending the period with liquidity in excess of £1 billion. 'Our focus remains on turning cash flow positive during FY26, supported by continued growth with our partners and cost discipline across the business.' Its full-year guidance remains unchanged. Ocado shares jumped nearly 11 per cent this morning to 261.4p, but are still down 26.4 per cent over the last year, as investors grow impatient with the slow pace of its retail rollout. Its biggest US partner, Kroger, eased the rollout of automated warehouses, while its Canadian partner Sobeys paused the opening of its fourth warehouse. Mark Crouch, market analyst for eToro, said: 'Ocado continues to test the limits of investor patience. Once viewed as a pioneer in grocery logistics, the company's downward spiral has become a case study in hype over substance. But is that now about to change? 'Management claims the business will be cash flow positive by next year, a target that, while encouraging, comes after several years of missed milestones. The market has learned to treat such guidance with caution. 'Much of Ocado's appeal has rested on its technology licensing model, but the pace of adoption has been slow, and the returns even slower. The tie-up with M&S continues to offer some operational ballast, yet it doesn't resolve the broader question of whether Ocado's core proposition can generate sustained, profitable growth. 'And until Ocado demonstrates that it can convert technical sophistication into reliable financial performance, investors may be right to remain sceptical.'
Bloomberg
6 days ago
- Business
- Bloomberg
Ocado Pretax Profit Jumps on Valuation of M&S Joint Venture
Ocado Group Plc posted a rare pretax profit helped by the valuation of its grocery delivery joint venture with Marks & Spencer Group Plc. The company reported a statutory profit of £612 million ($820 million) in the first half of the year, compared with a loss of £153 million in the same period a year ago. That includes an accounting boost of £783 million from the Ocado Retail venture with M&S, which took over reporting responsibility this year.
