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UPDATE 2-Ocado urges patience as posts another pretax loss
February 7, 2013 / 3:11 PM / 5 years ago

UPDATE 2-Ocado urges patience as posts another pretax loss

* CEO says firm will make “hundreds of millions of pounds”

* FY statutory pretax loss narrows to 600,000 pounds

* EBITDA 33.5 mln stg, up 20.4 pct, in line with forecasts

* Second major distribution centre to open this month

* Shares up 14 pct (Adds detail, CEO, analyst comment, shares)

By James Davey

LONDON, Feb 7 (Reuters) - Loss-making British online grocer Ocado said the patience of its investors would be richly rewarded as it kept them waiting another year for its first pretax profit.

“Our shareholders understand the business, (and) are very supportive,” chief executive Tim Steiner told Reuters.

“They’re in it to become a multi-billion dollar player, that will make hundreds of millions of pounds of profit at one point in time and that requires investment,” he said.

Shares in Ocado rose 14 percent on Thursday amid hopes its new distribution centre - which will open on schedule and on budget by the end of this month - will finally propel the business into the black.

Ocado, which has not made a profit since it was founded in 2000 by three former Goldman Sachs bankers, has polarised opinion.

Fans point to rapid growth in online grocery sales, its state-of-the-art distribution centre and high service ratings.

Sceptics, however, doubt its model of filling orders from central depots can be as profitable as online operations at grocers like market leader Tesco and No. 3 J Sainsbury , which largely pick orders in stores.

Ocado, whose range includes products supplied by upmarket grocer Waitrose, reckons its new 200-million-pound ($313 million) depot will eliminate capacity constraints and increase efficiency.

“Turning on the new facility is the first time in our history we’ve had operational capacity headroom to grow at a significant pace,” said Steiner.

Numis analyst Andrew Wade agreed the new warehouse would allow Ocado to accelerate sales growth and “deliver on its potential” as Britons increasingly embrace online shopping.


Many of Britain’s grocers are finding the going tough, despite their focus on essential goods, as consumers have been hit by below-inflation wage growth and austerity measures.

The online food market, in contrast, is growing at a rate of 15-20 percent a year.

Yet Ocado has a long way to go meet its ambitions.

Earnings before interest, tax, depreciation and amortisation (EBITDA) rose 20.4 percent to 33.5 million pounds in the 52 weeks ended Nov. 25 - in line with analysts’ expectations.

Its statutory pretax loss narrowed to 600,000 pounds from 2.4 million pounds the year before.

And while its shares were up 14 pence at 118.4 pence by 1450 GMT, valuing the business at about 684 million pounds, they are still way below the 180 pence at which they floated in 2010.

Ocado, which last month recruited former Marks & Spencer boss Stuart Rose to be its next chairman, is regularly touted as a possible bid target for M&S as well as Wm Morrison , as neither has a significant online grocery business.

Steiner, however, dismissed this speculation.

“The reality is that every time our stock rises because there actually are buyers who believe in the concept, those who don’t like the concept can only believe that it must be bid speculation,” he said, adding: “I don’t think we’ve ever had any real bid speculation.”

But some analysts do see the firm as a possible target.

“We think that the debate now moves on to whether its assets are attractive to either M&S or Morrisons and, if so, at what price,” said Panmure Gordon analyst Philip Dorgan, a long time critic of Ocado.

$1 = 0.6389 British pounds Editing by Rosalba O'Brien and Mark Potter

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