* To spend 80 mln stg on 3rd depot in Andover, south England
* Says modular, scalable depot could attract more partners
* H1 underlying pretax profit 7.5 mln stg
* Shares down 4.9 percent
(Adds latest IGD forecast, paragraph 3)
By James Davey
LONDON, July 1 British online grocer Ocado
will start building a third major distribution centre
this year, it said on Tuesday, hoping the smaller design will
provide a model for partnership deals with overseas retailers.
Ocado, which signed its first third-party deal with
Britain's No. 4 grocer Morrisons last year, also
reported a first-half profit, putting it on track to make its
first annual pretax profit this year.
Britain's online grocery market is growing at around 15
percent a year, far outpacing the broader market, and while it
still accounts for only about 5 percent of total grocery sales,
industry group IGD sees it more than doubling in value over the
next five years to 17 billion pounds ($28.93 billion).
Despite the rapid growth, however, Ocado has struggled to
make a profit due to the costs and complexity of delivering
perishable goods to customers' doors, and some industry analysts
think partnership deals with foreign retailers could be an
important way for the firm to prosper in future.
Ocado said it had secured a site for a so-called customer
fulfillment centre (CFC) in Andover, southern England, that will
have a capacity of 65,000 orders per week - about one third of
the capacity of its second CFC at Dordon, central England.
Building works are expected to start in the fourth quarter
of 2014, with the site opening for Ocado's sole use at the end
of 2015. Investment in the project will total 80 million pounds.
Chief Executive Tim Steiner said the investment would show
Ocado could build CFCs that were "modular and scalable," putting
it in a strong position to attract partners elsewhere in the
world, where online grocery shopping is less well established.
Some sector analysts remain to be convinced, however.
"It is unclear to us that this provides the capex-light
solution which is needed in order to strengthen the appeal to
international partners," said analysts at Jefferies.
At 0900 GMT, Ocado shares were down 4.9 percent at 353.4
pence, valuing the business at about 2.1 billion pounds.
MAKING A PROFIT
Ocado, whose range includes products supplied by upmarket
grocer Waitrose, said it made a profit before tax and
one off items of 7.5 million pounds in the 24 weeks to May 18,
its fiscal first half, compared with a loss of 1.0 million
pounds in the same period last year.
Gross sales rose 15.6 percent to 442.4 million pounds,
having been up 18 percent in the first quarter, a slowdown
Steiner attributed to "subdued and cautious consumer spending".
Ocado said its retail business would continue growing
broadly in line with, or slightly ahead of, the online grocery
market. It has not made an annual pretax profit since it was
founded in 2000 but analysts are forecasting one of about 16
million pounds for its 2013-14 financial year.
Britain's traditional supermarkets are seeing little, if
any, growth in sales at their big stores, leading to a pick up
in competition in online sales. Market leader Tesco
recently cut the delivery price for its online grocery orders.
Though Ocado's share price is down 16 percent over the last
six months, it is still up 24 percent over the last year, mainly
on the back of a 200 million pound deal with Morrisons to
provide its online grocery operation and on hopes it could do
similar deals overseas.
The Jefferies analysts, who have a "hold" rating on Ocado
stock, said the shares looked fully valued. They reckon
investors are pricing in an option value for international
expansion of about 500 million pounds with the remaining 1.9
billion pounds of economic value reflecting broadly static
market share in a strongly growing UK online food market.
In the first half, Ocado's active customers increased to
396,000 from 360,000, though average basket size dipped slightly
to 114.43 pounds from 114.90 pounds.
Ocado said the Morrisons.com service successfully launched
in January and was ramping up in line with expectations.
($1 = 0.5877 British Pounds)
($1 = 0.5877 British Pounds)
(Editing by Paul Sandle and Mark Potter)