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Ocado reports first full-year profit after Morrisons partnership

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Ocado reports first full-year profit after Morrisons partnership
Ocado reports first full-year profit after Morrisons partnership
Ocado has unveiled the first full-year profit in its history, reported just over a year after the company helped launch Morrisons' online grocery service.

The online grocer today reported pre-tax profits of £7.2m in the year to the end of November 2014, up from a loss of £12.5m in the previous year. Gross sales of £972.4m were 15.3% ahead of the £843.0m recorded the previous year, while revenue was up by 19.8% at £948.9m.

The milestone move into profit came after a year that saw Ocado set up a joint venture to supply the technology and fulfilment centres that underpin Morrisons' online grocery service. Some £45.1m of revenue came from the 25-year Morrisons agreement, while £2.4m of profit was attributable to its joint venture with Morrisons.

During the year, Ocado also launched its own new venture, dedicated kitchen and dining shop Sizzle, launched after the success of its pet store Fetch. It also said today that it would help to launch a new Marie Claire online beauty store this year with the magazine of the same name.

All the while, Ocado grew its customer numbers. Active customers rose to 453,000 from 385,000 last year. Each spent a little less during the year, as small orders on Fetch and Sizzle brought down average basket sizes to £112.25 from £113.53 the previous year.

Tim Steiner, chief executive of Ocado, pointed to an ongoing shift towards online in the way the British buy their groceries.

"While the broader grocery market was characterised by intense competition with minimal growth in the segment, declining supermarket store sales, competitive price activity and cautious consumer spending, we continued to grow ahead of the online grocery market and significantly ahead of the market overall," he said.

"At the same time, we invested for further growth in UK grocery, non-food and platform opportunities given the attraction of our model in a growing online grocery market.

"Our specialist online pet store, Fetch, is growing at a significant pace, and was joined during the period by Sizzle, our kitchen and dining store. Mobile-enabled shopping continued to grow reflecting the use of smart phones and tablets in daily life, and we expect this to continue supported by our recent launch of a new mobile website."

Steiner also said Ocado had been encouraged by the successful launch of Morrisons.com, which, he said, "paves the way for future agreements to commercialise the value of our intellectual property." He added: "The development of Ocado Smart Platform, enabled by our IT replatforming and fulfilment solutions projects, positions us well to take advantage of future opportunities as the demand for online grocery shopping increases internationally." Talks, said the company, are already underway with several companies who may use it to launch or grow their online businesses, and it hopes to sign up the first user in 2015. The company said it would spend up to £5m in 2015 in order to negotiate platform service agreements and develop the capabilities of the platform still further.

The company says it believes customers are now more likely to buy their groceries online if they think it's more attractive than going to the supermarket. It has worked to improve the customer interface through measures included a shortened registration process and the introducing of PayPal payment, all aimed at encouraging new customers to sign up. A new mobile website, launched in January, is also expected to appeal to new customers: already 48% of all orders delivered were checked out over a mobile device. Mobile apps accounted for 37% of all checkouts. Delivery has also been a focus, with on time or early deliveries at 95.3% in 2014, while order accuracy reached 99.3%. Non-food sales grew by more than 50%.

"Overall, we are well equipped to continue to lead the online grocery revolution, in the UK and overseas, as increasing numbers of customers shift away from traditional forms of retailing," said Steiner. "We are confident that we have significant opportunities for growth in sales and shareholder value."

The results come days after Ocado announced it would open a fourth distribution centre in Erith, south east London. The site, which will cost upwards of £185m to fit out, will be, says Ocado, the most capital efficient CFC yet, with investment phased in as capacity requires it.

Behind the scenes, Ocado continues to replatform its IT systems, with a significant investment in cloud-based infrastructure. It plans to expand its technology team of more than 550 developers and other IT professionals, to more than 700 during the year. In 2014, the company grew its total staff to 8,500, adding more than 1,800 new jobs.

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