Ocado’s full-year revenue rose 14.1% to £3.2bn, reflecting growth across all divisions. Within that, Ocado Retail, the 50/50 joint venture with Marks & Spencer, saw revenue grow 13.9% £2.7bn (before inter-segment eliminations). Retail growth was mainly driven by an uptick in active customer numbers.
Underlying cash profit almost tripled to £153.3mn, driven by strong growth in its Technology Solutions and Retail businesses.
Free cash flow improved from an outflow of £0.4bn to an outflow of £0.1bn, helped by the favourable timing of payments from business customers and lower capital expenditure. Net debt rose from £1.1bn to £1.2bn at year-end.
In 2025, revenue for the Technology Solutions segment is expected to grow by around 10% (2024: 18.1% growth). The Retail segment is expected to grow revenue “above 10%” (2024: 13.9% growth).
The shares fell 16.6% in mid-morning trading.
Our view
Ocado’s full-year results saw revenue grow at double-digit rates, driven by broad-based growth across its divisions. While losses narrowed, markets were spooked by lower growth expectations for the year ahead.
Ocado Retail, the grocery delivery business half owned by M&S, is doing very well. Customer numbers have shot past the million mark, and volumes are improving as a result. In part, that’s thanks to M&S’ improved quality and value perception, which helps to lure more customers onto the website.
Ocado’s striving to expand its product range, increase delivery slot availability and is investing in keeping prices low to prevent customers switching to competitors. While we’re positive about progress, we must point out that this division’s is still loss-making and there’s no timeline for reaching the land of profitability.
There’s also potential legal action with M&S over a withheld £190mn performance payment, after pre-defined targets weren’t met. The saga remains ongoing and it’s something we’re following closely. Regardless of the outcome, it’s hard to imagine it will benefit relations.
Elsewhere, further growth relies on its so-called Technology Solutions business. Last we heard, this segment has seen some of its retail partners press pause on plans to open more Customer Fulfilment Centres (CFCs). That saw analysts trim their expectations for future growth, leaving the Group’s path to profitability a little unclear and denting investor sentiment.
CFCs are the cornerstone of Technology Solutions. The group charges third-party retailers to use its robotic systems. Hundreds of thousands of orders are processed each week, with the help of automated 'bots' scurrying around the trademarked grid systems.
Running operations through Customer Fulfilment Centres (CFCs) brings a host of cost savings and efficiency benefits that could offer a competitive advantage for those who can afford it. But the current economic outlook poses challenges, putting pressure on existing and potential partners to cut unnecessary spending.
The group is also under pressure to establish a long runway of CFC openings because Ocado is stumping up hundreds of millions to fund these centres. This has led to significant fundraising from shareholders. Medium-term plans for free cash flow generation from existing CFCs seem ambitious to us, and we can't rule out Ocado burning through its available liquidity faster than planned.
We should be clear - Ocado has an amazing product. It's the only global provider of an end-to-end online grocery platform. However, the group is still loss-making. As it builds scale and partnerships mature, profits and free cash should flow. We just aren't convinced this will happen in the projected timeframe. This could result in further knocks to the valuation, which has already fallen significantly over the last year on a price-to-sales basis.
Environmental, social and governance (ESG) risk
The retail industry is low/medium in terms of ESG risk but varies by subsector. Online retailers are the most exposed, as are companies based in the Asia-Pacific region. The growing demand for transparency and accountability means human rights and environmental risks within supply chains have become a key risk driver. The quality and safety of products as well as their impact on society and the environment are also important considerations.
According to Sustainalytics, Ocado’s management of ESG risk is strong.
The group has an adequate environmental policy and its whistleblower programme is strong. However, ESG reporting falls short of best practice and the group lacks regular risk assessments on data privacy.
Ocado key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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