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Ocado delivers a profits landmark for shareholders in final quarter.


UPMARKET online retailer Ocado has posted a profit for the first time in its history after it scraped into the black at the end of 2010.

The group, which was founded in April 2000 and has a delivery deal with supermarket Waitrose, made a pre-tax profit of pounds 300,000 for its final quarter to November 28, although it remained in the red for the full year.

In its first set of results since floating on the stock market last July, Ocado revealed pre-tax losses more than halved to pounds 12.2m, including pounds 3.5m of flotation costs, from pounds 25.5m a year earlier. Annual sales rose 29% to pounds 551.1m and the group said it had maintained growth since the year-end, with sales so far up 25%.

Shares rose 2%, close to their recent all-time high, as the firm's co-founder and chief executive Tim Steiner hailed a "landmark year" for the group.

The stock has rallied in recent weeks thanks to takeover rumours and a robust Christmas, when Ocado beat the snow to post a 26.7% hike in festive sales.

It had a rocky start to life as a public company after it was forced to slash its float price to 180p on concerns over valuation, before the stock slipped to as low as 120.9p in October.

Numis Securities analysts said Ocado had moved into profit earlier than forecast.

"The Ocado management has achieved what it set out to at the initial public offering by this stage, with the ultimate metric - profitability - coming ahead of expectations," they said.

They added that Ocado's sales growth was only being held back by short-term capacity constraints as demand continues to outstrip supply. Ocado is expanding into the south-west through a new site in Bristol and building a second distribution centre in the Midlands.

However it admitted changes to systems and processes to support growth had initially had a slight impact on productivity and efficiency.

The group plans to grow the business in 2011 by expanding its own-label offering, which currently features more than 250 products.

It aims to capitalise on the boom in internet grocery shopping, but faces stiff competition as established rivals up their online offerings and as Morrisons prepares for a trial online service.

While Ocado has renewed a contract with Waitrose - owned by the John Lewis Partnership - to continue selling its goods until 2020, the supermarket has just started its own competing delivery operation within the M25.

John Lewis owns a stake in Ocado - at around 11% - but is free to reduce its share-holding following the annual results. This could free up Ocado's shareholder base, which currently sees 10 investors hold around 80% of the equity.
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Title Annotation:Business
Publication:Western Mail (Cardiff, Wales)
Date:Feb 2, 2011
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