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Ocado more than quadrupled its losses last year as it counted the cost of a warehouse fire and stepped up investment, but its stunning share price performance triggered an £87m payday for senior directors.
The group, which many investors treat as a technology stock rather than a grocer, on Tuesday posted a pre-tax loss of £214m for the year to December 1, significantly more than the £134m forecast by analysts and almost five times as much as its £44m loss last year.
It also warned that underlying losses could worsen in 2020 as it pours money into fitting out new distribution centres for itself and its technology clients.
Ocado said it would spend more than £600m this year, well over double last year’s capital outlay, as it begins to open robotic distribution warehouses for its overseas partners. The first such facilities, for Sobeys in Toronto and Casino in Paris, are set to start during the first half of this year.
However, chief financial officer Duncan Tatton-Brown told reporters that the forecast capital spending included the £80m to £90m cost of rebuilding its warehouse in Andover after a serious fire, and that this sum would be covered by an insurance settlement.
Its UK solutions business, which provides services both to Wm Morrison and the Ocado/Marks and Spencer joint venture that was formally established in August, reported earnings before interest, tax, depreciation and amortisation of £84.8m, up from a pro forma £67m last year.
Its ebitda margin of 14 per cent — seven times what the grocery retail business makes — was “illustrative” of the profits that the international business could achieve, but Mr Tatton-Brown said the two were not directly comparable and declined to give more specific guidance.
The international division reported losses of £62.1m. Ocado receives some upfront fees from clients as it constructs facilities, but accounting rules mean it cannot recognise this as revenue until the facilities commence operations. As a result, sales in the division were just £500,000.
“By this time next year we’ll have around a quarter of a billion of fee income awaiting recognition,” said Mr Tatton Brown, up from £140m at present.
Ocado has not made public the exact terms of its agreements, but in the past it has suggested that it will receive fees averaging about 5 per cent of sales.
Earnings at the UK retail business grew 11.7 per cent, though without the positive impact of new lease accounting rules they would have fallen.
Analysts said 2019 revenue was in line with forecasts and that news of the fulfilment centre rollout was reassuring. However, David Beadle at Moody’s said the Ba3 rating on Ocado’s £600m of convertible bonds was stretched and would “deteriorate further during 2020”.
Ocado’s annual report, published the same day, showed that co-founder and chief executive Tim Steiner was paid £58.7m, following a £49m share award made under a 2014 incentive plan in May last year.
Andy Harrison, the former easyJet and Whitbread boss who chairs Ocado’s remuneration committee, said the success of the business had fundamentally changed its reach, scale and complexity and that remuneration “should be taken in light of this transformation”.
The committee said that following consultation with shareholders — a quarter of whom voted against the remuneration report at the last annual meeting — it had decided not to make changes to a key incentive scheme but would endeavour to improve transparency around the criteria.
Mr Harrison said the committee “recognises that the company has historically struggled with balancing the conflicting needs for commercial confidentiality and transparency in relation to targets”.
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