Business

Ocado profits rise after 'robust trading'

Ocado van Image copyright Ocado

Online grocer Ocado has announced a rise in annual profits, but a long-awaited overseas deal has not yet materialised.

The company reported a 21.8% increase in pre-tax profits to £14.5m for the year to 27 November.

Ocado chief executive Tim Steiner said it had achieved "robust trading" in a challenging environment.

However, the average order size fell 2.7% to £108.10 against the backdrop of continuing supermarket price wars.

The rise of German competitors Aldi and Lidl has shaken up the sector, putting pressure on the big four supermarkets, Tesco, Sainsbury's, Asda and Morrisons.

But investors welcomed Ocado's latest results, sending its share price up by more than 7% to 262p in morning trading.

Annual revenues rose 14.8% to £1.27bn, and the retailer's customer base grew by almost 14% over the year to 580,000.

However, Ocado said it was still in continued talks with several international retailers in regards to a partnership using the Ocado Smart Platform.

When it released its full-year results in February last year, Ocado said it was in "advanced discussions with multiple potential international partners" for the platform, adding it expected to sign "multiple deals" in the medium term.

Analysts believe agreements with retailers in the US and western Europe are important in driving Ocado's share price.

George Salmon, equity analyst at Hargreaves Lansdown said: "The group has long said it's making progress on deals with third parties, but there hasn't been much in the way of tangible progress recently.

"The appointment of Luke Jensen [from Sainsbury's] as head of Ocado's Smart Platform will raise hopes that the group can finally get someone to sign on the dotted line."

Increasing competition

However, Mr Salmon warned that "following Amazon's entry into the market, competitive pressures are rising in its core business".

"In this context, it's arguably more important than ever for the group to get something over the line."

Last year, Morrisons agreed to supply groceries to Amazon customers in the UK under a new deal with the US online giant.

Amazon's entry into the market was seen as escalating competition in the sector.

In August 2016, Morrisons also built on its existing relationship with Ocado expanding its home delivery service nationwide in a new deal with the online grocer.

Ocado said it had "provided the capability and execution for strong growth" in regard to its partnership with Morrisons.

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