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Ocado (OCDO) grew its annual revenues by 12.3% in 2018, but its pre-tax losses jumped from £9.8m to £44.4m as the cost of its investment in growth hit profits.

Total revenues were up 12.3% to £1.6bn as its core retail business continued to grow.

Retail sales of £1.48bn were driven by a 12.0% year-on-year increase in orders per week to 296,000, while active customers increased by 11.8% from 645,000 to 721,000.

The average price per item increased by 1.3%, though this was offset by a (0.4)% decrease in the average basket price at to £106.85 . General merchandise business growth was 13.0% driven by strong growth in and

Gross retail profits were up 12% to £424.5m, driven by higher order volumes and improved cost prices.

However, group EBITDA of £59.5m was 20.7% lower than the prior year, driven by increased resources to further develop its OSP platform to roll out for international partners, the opening of its new CFC in Erith and increased technology headcount. Additionally, higher share based senior management incentive charges were caused by share price increases

Revenue from its solutions business was £123m up from £106.2m, which primarily comprises of fees from its arrangement with Morrisons as its overseas partnerships are still to be rolled out.

Over the year we signed international partnerships with Sobeys, ICA and Kroger to develop the Ocado Smart Platform in Canada, Sweden and the United States respectively.

Ocado said it is “making good progress with all our partners”. It said Bon Preu launched its online offer in Catalonia in November; Groupe Casino continues its building work on its first Customer Fulfilment Centre in the south of Paris; Sobeys has begun building its first CFC site in the Greater Toronto; ICA has identified the location of its first site in Stockholm: and Kroger has committed for its first three CFCs out of a total of 20 within the first three years.

Ocado said capital expenditure for the group is expected to rise to £350m next year, with the increase reflecting the additional capital required to fulfil obligations to its solutions customers.

It is continuing to target further solutions deals, which would generate additional cash fees but would impact short term profits.

Ocado said that, assuming economic conditions remain broadly stable, it expects revenue growth in its retail business of between 10‐15% in the 2019 financial with further growth in retail EBITDA.

However, it expects a further decline in overall EBITDA given the £15-20m additional in operating costs necessary to roll out its platform internationally and prepare the CFCs for its partners.

Ocado CEO Tim Steiner commented: “Our performance last year was the result of many years of focus, dedication and perseverance: what we have called our “18-year overnight success”. Our growth story, however, is only just beginning. We now have in place a platform for significant and sustainable long-term value creation as the leading pure-play digital grocer in the UK, a world-leading provider of end-to-end ecommerce grocery solutions, and as an innovative and creative technology company applying our proprietary knowledge to a range of challenges.

“Our transformation journey is well under way with increased cash fees earned and greater investment as we execute on behalf of our partners. Creating future value now will involve us continuing to scale the business, enhancing our platform, enabling our UK retail business to take advantage of all its opportunities for growth, and innovating for the future. We look forward to fulfilling these opportunities with excitement and determination.”

Ocado shares have fallen 0.6% in early trading to 986.4p.

Morning update

The latest grocery market share figures from Kantar Worldpanel for the 12 weeks to 27 January 2019 show the sector grew 1.7%, boosted by the strong performance of fresh produce as shoppers went healthy in the New Year,

However, despite an overall sales increase year-on-year, total till roll sales fell £1.5 billion compared with the month of December as shoppers cut back after last month’s record-breaking Christmas grocery spend.

Health-conscious shoppers and Veganuary participants helped sales of fruit, vegetables and salad surge by £46m compared with January last year.

Tesco’s (TSCO) centenary commitment to ‘celebrate 100 years of great value’ has helped the grocer increase sales by 1.0% – its fastest rate of growth since September 2018.

Despite sales at Morrisons (MRW) rising by 0.4%, market share fell to 10.6% – down 0.2 percentage points. Asda’s double-digit online performance contributed to growth of 0.7%, while Sainsbury’s (SBRY) saw sales fall by 0.3% while its market share dropped by 0.4 percentage points to 15.9%.

With sales up 9.1%, Aldi was the fastest-growing supermarket, increasing its market share by 0.5 percentage points to 7.5%. Lidl’s market share rosey 0.3 percentage points as sales growth was 7.3%.

With the exception of the discounters, Co-op was the only retailer to gain market share over this 12-week period – now at 5.9% and up 0.1 percentage points on this time last year.

Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, commented: “Looking back on 2018 as a whole, one of the most notable consumer trends is the shift to a more plant-based diet. This move has contributed to consumers eating a total of 4.4 billion meat-free dinners in 2018, an increase of 150 million meals on the year before.”

Meanwhile, grocery sales bounced back to 3.3% growth in January following a highly price-driven festive period, according to Nielsen.

Health-focussed shoppers spent over £900m on fresh fruit and vegetables, over £27m more than this time last year.

Over the last 12-week period, three of the top four supermarkets saw sales grow. Tesco led the way with 0.9% growth, while sales were up 0.8% in Asda and 0.7% in Morrisons. Sainsbury’s was the only individual grocer to see a sales decline as they dropped by 0.4%.

Lidl grew faster than Aldi, rising 13.8% and 13% respectively.

Mike Watkins, Nielsen’s UK head of retailer insight, commented: “The increase in grocery spend in the fresh and frozen food categories are a testament to evolving shopping trends. In the new year, consumers are focusing on positive diet changes which are not just healthy, but convenient, cheap and are less wasteful overall.

However, we can see caution creeping in as consumer confidence dipped at the end of 2018 by four points to 98, back to the level last seen in 2017. This will take some time to impact on grocery spend and we still anticipate industry growth of around 2.5% over the first four months of the year.”

Separately, overall UK retail sales rose 2.2% in January driven by rising food sales, according to the monthly BRC-KPMG Retail Sales Monitor.

For the four weeks to 26 January 2019 sales increased by 2.2% against an increase of 1.4% in January 2018, representing the highest growth since June.

During the month UK retail sales increased by 1.8% on a like-for-like basis from January 2018, when they had increased 0.6% from the preceding year.

Over the three months to January, in-store sales of non-food items still declined by 2.6% on a total basis and 3.2% on a like-for-like basis. Total non-food retail sales, including online, decreased 0.8% on a like-for-like basis and 0.4% on a total basis.

However, food sales increased 1.3% on a like-for-like basis over the same three month period and 2.4% on a total basis, the highest since September.

Online sales of non-food products grew 5.4% in January, against a growth of 5.3% in January 2018 as online penetration rate increased to 29.4% last month.

BRC chief executive Helen Dickinson commented: “There was a welcome return to growth this month after December’s disappointing sales figures. But while retail discounts helped tempt cautious consumers, there is no guarantee this momentum will continue after the sales have finished. And it will not just be brick-and-mortar stores looking nervously to the future, as online sales continued to grow below the long term trend.

“Furthermore, the risk of a disruptive no deal Brexit could see these fortunes reversed. Unless the Government want to see well-known brands disappearing from our high streets in 2019, they should work with their colleagues in Parliament to find a solution that avoids the shock of a no deal Brexit on 29 March and removes the risks to UK consumers.”

Paul Martin, UK head of retail at KPMG, added: “Following the worst December trading performance in a decade, January brought a welcome improvement with total retail sales up 2.2 per cent. Having said that, this increase points more to British shoppers’ obsession of bagging a bargain and price inflation, rather than any real improvement, and these peaks and troughs continue to leave retailers feeling increasingly anxious.

“Eyes are naturally fixed on who the next casualty will be, but we can’t afford to overlook those excelling despite adverse conditions. Winning retailers remain attractive to investors and consumers; they are adaptive and agile, and ultimately they continue to outperform in this rapidly evolving market.”

Susan Barratt, CEO of IGD, said of the food sector’s performance: “Bolstered by the inclusion of New Year’s Eve in the latest figures and relatively mild weather before the recent snowfall, food and grocery sales held up reasonably well in January.

“Looking to shopper sentiment, we’re seeing polarisation in views on quality vs. cost. Whereas 14% say they will put a greater focus on quality in their food shopping this year, up from 12% in December, another 20% expect to focus more on price. This compares with 17% from the previous month.”

On the markets this morning, the FTSE 100 has jumped a further 0.7% to 7,086.4pts mirror overnight gains in the US.

Risers so far include Greencore (GNC), up 3.2% to 197.2p, Bakkavor (BAKK), up 2.6% to 147.8p, Marks & Spencer (MKS), up 1.9% to 89.6p and British American Tobacco (BATS), up 1.3% to 2,714p.

Fallers include McBride (MCB), down 4% to 130p, Premier Foods (PFD), down 3.6% to 36.6p, FeverTree (FEVR), down 2.2% to 2,561.7p and Majestic Wine (WINE), down 1.3% to 272p.

Of the supermarkets, Tesco is up 0.2% to 222.2p, Morrisons is up 1.1% to 241.9p and Sainsbury’s is flat at 288.7p.

Yesterday in the City

The FTSE 100 ended the day up a further 0.2% at 7,034.1pts.

On a quiet day for listed company news, there was limited share price movements across the sector.

The largest movers included Greencore (GNC), up 3.2% to 191p, Stock Spirits Group (STCK), up 2.4% to 238.5p after making an Italian wine acquisition last week, Greggs (GRG), up 2.3% to 1,581p and PZ Cussons (PZC), up 2.1% to 189.5p.

Morrisons (MRW) rose 1.9% to 239.4p ahead of this morning’s market share data and Sainsbury’s was up 0.6% to 288.6p, while Tesco (TSCO) fell back 0.2% to 221.5p.

Fallers included Premier Foods (PFD), down 5.5% to 37.9p as it emerged activist investor Paulson upped its stake in the group.

Other fallers included Nichols (NICL), down 4.1% to 1,600p, Imperial Brands (IMB), down 2.1% to 2,505.5p, McColl’s (MCLS), down 1.9% to 56.7p, Bakkavor (BAKK), down 1.4% to 144p and British American Tobacco (BATS), down 1.1% to 2,680p.