Source: Priva

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Ocado (OCDO) is committing £17m into two acquisitions to make it a global leader in the newly emerging vertical farming industry.

Vertical farming involves the production of food in indoor facilities where crops are grown on a series of levels in a precisely-controlled environment. Ocado said there a “clear sustainability advantages” of vertical farming, including low wastage, very low water use, minimal land use and no pesticides.

The extreme density of vertical farms allows them to be placed much closer to customers, potentially co-located next to our partners’ fulfilment centres, supermarkets and other locations near population centres.

Firstly, Ocado has formed a three-way joint venture with Priva and 80 Acres.

Netherlands-based Priva and US-based 80 Acres have been working together for four years on vertical farming solutions and have forecast revenues of over $10m in 2019.

The new JV will be called Infinite Acres. Ocado will make a cash payment to its other JV partners, in which each will have a one third share. The transaction is expected to complete by 30 June.

Meanwhile, Ocado has completed the acquisition of a 58% stake in Jones Food Company, Europe’s largest operating vertical farm, based in Scunthorpe.

JFC’s facility is currently producing leafy greens and herbs for UK customers with its capacity expected to grow to 420 tonnes per annum. With more than 5,000 square metres of production area and 12 kilometres of LED lights, JFC has the ability to produce consistent crop yields throughout the year, and plans to expand crop types and production across the UK.

Together, Ocado’s planned equity investments in JFC and Infinite Acres will total £17m.

Tim Steiner, Ocado’s CEO, said: “We believe that our investments today in vertical farming will allow us to address fundamental consumer concerns on freshness and sustainability and build on new technologies that will revolutionise the way customers access fresh produce. Our hope ultimately is to co-locate vertical farms within or next to our CFCs and Ocado Zoom’s micro-fulfilment centres so that we can offer the very freshest and most sustainable produce that could be delivered to a customer’s kitchen within an hour of it being picked”.

Mike Zelkind, CEO of 80 Acres said: “With Priva’s and 80 Acres Farms’ extensive horticulture, engineering, operational, and food industry expertise, along with Ocado’s predictive analytics, automation and comprehensive system development, the partnership will provide its customers with everything from state-of-the-art facilities with uniquely developed crop recipes and the right unit economics, to an option for facility management with yield guarantees, product packaging, branding, marketing, and distribution.”

Meiny Prins, CEO of Priva, added: “Infinite Acres’ mission is in perfect alignment with global sustainability needs as our planet grows to 10 billion people by mid-century, with most living in urban areas. We can develop optimal environments in which plants and food crops experience the best way to grow indoors, using leading-edge technology and solutions which result in substantially lower energy and water use, as well as reducing food waste.”

James Lloyd-Jones, CEO of Jones Foods, said: “We are certain that the combination of Ocado’s world-leading logistics and automation systems coupled with our advanced growing technology will transform the way customers experience fresh produce - delivered fresh to their door a matter of hours from ordering. JFC has always been committed to minimising the environmental impact of agricultural production and we see this partnership accelerating our ambitious growth strategy to make a wider variety of vertically farmed produce available to even more customers.”

Ocado shares are up 2.4% on the news to 1,140p.

Morning update

Retail footfall plummeted by 3.5% in May year-on-year, which represents the worst month for shopper numbers for six years.

The sharp drop in May footfall was markedly worse than May 2018 when numbers had declined by 0.4, according to the latest BRC-Springboard Footfall and Vacancies Monitor

On a three-month basis, footfall decreased by 0.7%, while the six and twelve month averages are at -1.3% and -1.4% respectively.

High Street footfall declined collapsed by 4.8%, reversing a 0.5% increase in May. The three-month high street average decline is now 0.8%.

Retail Park footfall decreased by 0.8%, following from May 2018 when footfall increased by 0.6%.

Shopping Centre footfall dropped by 3.6%, following May 2018’s decline of 2.9%.

BRC chief executive Helen Dickinson commented: “The UK experienced the worst footfall figures in six years, with declines in every region, and across High Streets, Retail Parks and Shopping Centres.

“This reflects our recent sales data, which showed the largest drop in retail sale on record. The colder weather, as well as ongoing political and economic uncertainty, made many consumers think twice before heading out to the shops this May.

“While consumers stayed away from the shops this May, retailers still had to pay the full cost of Business Rates, which are levied regardless of whether a store makes a penny at the till. These rising costs are making many retailers rethink investment decisions, as well as contributing to store closures up and down the country. The Government must act to reform this anachronistic tax system or it will be the consumers who suffer the shuttered windows at their local shopping locations.”

Diane Wehrle, Springboard marketing and insights director, added: “The -3.5% drop in footfall in UK bricks and mortar destinations in May is a poor result and is consistent with the drop in sales for the month. However, we should note the year on year comparisons are off the back of a particularly strong result in May last year of -0.4% which was boosted by warm weather and special events and followed on from a challenging April marred by bad weather and loss of seasonal sales due to the early March Easter.

“All destination types found it much tougher this May to attract customers, but the fact that the greatest impact was felt by high streets with a drop in footfall of -4.8% is not a surprise given the much poorer weather than in May last year.

“Nonetheless, it is really important to note the longer term trend, with footfall declining by just -1.1% over the five month period since January. This a much improved position on the drop of -2.4% over the same five month period last year, showing us that the reduction in customers visiting retail destinations this year has slowed, a more positive result than might have been expected.”

Elsewhere, AIM-listed spirits group Distil has reported a double-digit rise in sales while improving profitability in the year to 31 March 2019.

The owner of drinks brands including Blackwoods Gin and Vodka, RedLeg Spiced Rum, Blavod Black Vodka, Diva Vodka and Jago’s Vanilla Cream Liqueur, saw sales increase by 19% to £2.4m up from £2m the previous year.

Growth was been driven by strong performance from RedLeg Spiced Rum, but was partly offset by weaker year-on-year sales of its gin and vodka brands against the backdrop of increasingly competitive markets, and in the case of Blackwoods Gin, the prior year pipeline fill of its new vintage and packaging.

Sales were also supported by a planned 48% increase in marketing investment in its key brands.

Gross profits increased by 22% to £1.43m and gross profit margin improved 2% to 60%.

Operating profit of £160k compared to prior year profit of £157k

Don Goulding, executive chairman of Distil, commented: “I am pleased to report another strong set of results with growth in revenue, profits and gross margins supported by increased marketing investment in our brands. We remain debt free and our cash position improved once again.

“We will continue to invest in our brands through marketing and promotion which will be particularly important as we anticipate UK consumer confidence will naturally remain fragile through this calendar year. The initial response from the on-trade to our new caramelised pineapple spiced rum is very positive and we look forward to its full launch later this year.”

Distil shares have fallen 9.5% on the news to 1.72p.

On the markets this morning, the FTSE 100 has started the week up 0.6% to 7,374.3pts.

Early risers along with Ocado include Just Eat (JE), up 2% to 601.6p, PayPoint (PAY), up 2% to 1,071p and Premier Foods (PFD), up 1.6% to 34.5p.

Fallers so far today include Hotel Chocolat (HOTC), down 1.1% to 338.9p, B&M European Value Retail (BME), down 0.5% to 343.1p and Greggs (GRG), down 0.3% to 2,216p.

This week in the City

The highlight of a busy week is Tesco’s (TSCO) first quarter sales trading statement ahead of its AGM on Thursday.

Morrisons (MRW) is also holding its AGM on the same day.

Wednesday brings interim results from British American Tobacco (BATS).

A busy Thursday sees DS Smith (SMDS) issue its full year results, while Majestic Wine (WINE) will also post its full year results on the same day and PZ Cussons will update the market on its full year sales figures.

There are no notable international results in the diary, though there may be a number of market updates from the raft of large consumer companies presenting at Deutsche Bank dbAccess Global Consumer Conference this week.

Back in the UK, the Office of National Statistics will release the monthly balance of trade and UK GDP figures for April later this morning.