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Ocado losses widen to £12.5m on expansion costs Ocado losses widen to £12.5m on expansion costs
(about 3 hours later)
Ocado has failed to deliver its first annual profits for investors today as expansion costs and a partnership with Morrisons pushed it to a £12.5 million loss. Chief executive Tim Steiner predicted a profit for this year as he revealed co-founder Jason Gissing would be leaving, making Steiner the only founding member running the business.
The business, which was set up in 2002 and now handles an average of 143,000 orders every week, said it enjoyed a year of "significant progress" in terms of growing customer numbers and average spend. He added that the frosty relationship with Waitrose has thawed after the supermarket threatened legal action against Ocado over the Morrisons tie-up.
However, it made an underlying loss of £5.1 million in year to December 1, with the recent launch of an online grocery service for Morrisons, based at a new distribution centre at Dordon, Warwickshire, adding to the bottom-line loss. It has been one of the busiest years for Ocado, as the share price has soared 400 per cent in a year, although it was  down 5 per cent today at 501p. However, the balance sheet remains stubbornly in the red.
The deficit came as it emerged that co-founder Jason Gissing, a former Goldman Sachs banker, will leave the delivery business at its AGM in May. He started Ocado from scratch with Tim Steiner, who remains the company's chief executive. Sales were up 17.2 per cent to £843 million last year, but pre-tax losses increased from £600,000 to £12.5 million. The loss was put down mainly to distribution costs rising 16.7 per cent and administrative costs up 42 per cent.
Chairman Sir Stuart Rose said: "Today the business is valued at £3 billion, employing thousands of people, helping consumers around the UK in their busy lives. They have laid the foundations of a world-class business." However, Steiner played down the lack of a profit and said next year would prove profitable.
Ocado has a 25-year deal for the UK's fourth-biggest supermarket to use its technology and operations, including delivering groceries from Dordon through a Morrisons-liveried fleet. It has also developed a new online pet store, Fetch. He said: “If we wanted to turn a profit instantly, we could change our focus and do that but we are investing in growth.
The company said its number of active customers increased to 385,000 in the year from 355,000 in 2012, while the average basket size rose to £113.53. Shareholders are asking us to invest for the opportunity to be part of a global shift of scale far beyond the size of Ocado. Analysts are predicting a profit in 2014 and, while it’s not for me to speculate, they haven’t been wrong in the past.”
Mr Steiner said: "Last year the food retail market in the UK was driven by consumers' increasing preference for shopping online. The new distribution centre in Dordon, West Midlands, opened successfully last month and started dispatching Morrisons orders. Between 60,000 and 70,000 orders a week leave the site, and it is expected to hit 180,000 by the end of the year. Steiner said he expects to unveil plans for a new site this year.
"Today the momentum seems unstoppable and, as the market evolves, we are leading the way in delivering market-leading service, innovation, and technology to the benefit of our customer." The Morrisons deal caused tensions between Steiner and Waitrose managing director Mark Price, with the two no longer talking to each other.
The company also confirmed it was considering plans to open a third customer fulfilment centre, in addition to its existing sites at Hatfield and Dordon, which opened last February. Price said lawyers had been hired to look into any possible breach of contract with Ocado, which has a deal with Waitrose to deliver the supermarket’s groceries until at least 2018.
Additional reporting agencies Steiner said: “Me and Mark are friends again. The relationship with Waitrose is very good at the moment. Everything is back on an even keel. I think it was a storm in a teacup but once we showed them what we were doing with Morrisons, they were happy.”
Ocado increased active customers by 30,000 to 385,000, with 40% of them new shoppers. Around one in three orders are on a tablet or smartphone.