Ocado reported strong sales growth from a "transformational" year but also could not help asking investors for big chunk of extra cash as profits in 2018 will be hit by investment in new facilities.
The online grocery technology group, which increased revenue 12.7% to £1.46bn in the 53 weeks to 3 December, said it wanted to raise more than £100m by issuing an extra 5% of its share capital as it ploughs funds into its largest ever 'customer fulfilment centre' and ramps up the two international partnership contracts won for its Ocado Solutions service in November and January.

Other the than top line and the new contracts, Ocado's numbers did not make for the best reading, with group earnings before interest, tax, depreciation and amortisation little better than flat at £86m, which was worse than even the lowest analysts forecast.

Furthermore, the £1m profit generated over the 53 weeks was down 92% from the £12m the year before, due to a higher UK minimum wage and the costs of investing in its technology and its CFCs, and for the 52-week period Ocado slumped to a £0.5m loss. Net debt also swelled to £228m at the end of the financial year, up from £164.9m over the year.

For the new financial year, chief executive Tim Steiner and finance director Duncan Tatton-Brown are confident of growing retail revenues 10-15% but warned group EBITDA will be lower due to the fixed costs of opening Ocado's fourth and largest ever CFC in Erith in south-east London later this year and the ramp-up of its new technology solution in its third CFC in Andover, which opened at the end of 2016, together with an acceleration in the development of the technology platform.

Then, in 2019, the pair expect a "significant" improvement in EBITDA trends. Ocado expects the earnings from its two partnerships with France's Groupe Casino and Canada's Sobeys to be neutral in the 2018, with expected £30m peak cash outflow due to product sorting robots, before becoming profitable and growing from 2019.

Anticipating total capital expenditure in 2018 of around £210m, the company said it planned to issue 31.46m new shares to institutional investors, with the proceeds to be used to "facilitate the signing of new Ocado solutions partnerships globally, to commit funding to associated investment capital expenditure and to increase Ocado's technology engineering and software capabilities" and bring forward investment in the Erith and Andover CFCs in order to accelerate their fulfilment capacity.

"The company believes that the time is right to accelerate these growth opportunities and drive scale."

Chief executive Steiner said: "The last twelve months have been transformational for Ocado. We have primed our Ocado Solutions business for growth and received an important validation of the business model through our latest partnerships with Groupe Casino and Sobeys. Looking ahead, we are confident that we will be able to do further deals with the momentum of new signings building over time."

He added: "Now is the time to take advantage of our growth opportunities. We will invest to ramp up our new solution in both Erith and Andover and to have the right resources in place to meet growing demand for the Ocado Solutions offer. We believe that taking advantage of these international opportunities now will make our virtuous cycle turn faster in the years ahead and we expect that to translate into higher returns on capital. We look forward to our future opportunities and challenges".

Shares in Ocado fell more than 8% to 450.8p in early trade on Tuesday.

With Ocado lossmaking, burning cash and net debt mounting again, analyst Clive Black at Shore Capital did not hold back his scepticism about the 5% placing "after two and half rescues already" and said "to all intents and purposes the prospect for FY2018 look like a profit warning to us".

"We believe that Ocado is being cute today, but cuteness gets one places. Why didn't it indicate to the market the need to raise cash with say the Casino or Sobey's announcements? Take a look at some of the market downgrades for FY2018 which emerge today and ask what has changed since the Casino and Sobey's announcements? Hence, to what extent is Ocado using the noise of its preliminary results to mask a FY2018 profit warning and engage in a placing that we imagine is probably covered?"

After Steiner's name appeared on the guest list of the Presidents Club, the men-only fundraising ball that sparked a furore in the City over allegations of inappropriate behaviour, Black said "the rest of the leaders of the grocery retail trade must wonder why their shares remain in the doldrums despite delivering pre-tax profits, in some cases margin and dividend growth, and yet the business that delivered flat EBITDA progression and a pre-tax loss again from a small profit year-on-year, sustains a stratospheric stock rating and the boss seemingly has to the time to have a night out in Dorchester rather than chips in Swanage".

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