Ocado Group says it remains on track to turn cash flow positive in the second half of the year, as accelerating international volumes and a new UK partnership with Asda underpinned first-half results in line with expectations.
But apart from promises of future cash flow positivity, there was little reason for cheer in today’s update, as the closures of Kroger and Sobeys sites masked underlying cash outflows and anaemic growth.
Adam Vettese, market analyst for etoro, says: “Ocado shares fell sharply this morning as investors took a cautious view of the half-year results. While the UK retail joint venture with M&S continued to post double-digit revenue growth and Technology Solutions margins expanded further on better utilisation, the update offered little to excite the market.”
“The group remains loss making with cash burn still evident, albeit improving, and international technology adoption has continued to lag following earlier partner setbacks. The move toward smaller store-based automation solutions makes strategic sense, but today’s numbers provided scant evidence of faster module growth or fresh momentum to support a re-rating.”
Ocado shares were down 15% at the time of writing and trading at their lowest levels for the best part of a decade.
Headline revenue rose 54% to £1,037m in the 26 weeks to 31 May, though this was flattered by fees relating to the Kroger and Sobeys site closures.
Stripping those out, revenue grew just 1% to £684m, with Ocado Logistics up 8% and Technology Solutions recurring fees down 3%, or up 5% excluding the closed sites.
Group adjusted EBITDA on the same underlying basis was £81m, down from £92m, while the closure impacts took the reported figure to £432m.
Statutory earnings before tax swung to a positive £17m from a £173m loss a year earlier, and the group recorded a total net cash inflow of £25m. But this was down to the fees relating to the closure of Kroger and Sobeys sites.
Strip these out, and the group saw cash outflows of £147m and an EBT loss of £205m. This is clearly a big concern for investors.
Liquidity stands at £1.1bn, including £765m of cash, which Ocado says is sufficient to address its £350m of maturities to FY27.
There was some positivity from an operations standpoint. The partnership with Asda to develop its UK online business is going live in FY27, and international CFC volumes grew 27%. Six new sites are due to go live over the next two to three years across Korea, Japan, Spain and the US.
Ocado Retail, now reported as an associate, grew revenue 15% to £1,756m and more than doubled EBITDA to £73m, turning profitable at the adjusted pre-tax level with £12m against a £17m loss last year.
Unfortunately, these small pockets of positivity are not enough to allay fears around cash flows.