£95m debt: Ocado's unwanted delivery

Turnover at online supplier of Waitrose food grows, but losses widen
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The Independent Online

Net debt at online grocer Ocado has soared to nearly £100m as the group, which supplies homes with Waitrose food, continues to fight larger rivals such as Tesco and J Sainsbury for market share.

The group's latest annual figures, for the year to November 2005, have just been posted with Companies House. They reveal that while gross turnover increased to £152m, up from £90m in 2004, losses widened to £45m, against £41m.

Debt, meanwhile, rose from £82m to £95m and a senior company insider confirmed that the picture will be much the same now. "Since the last results, I don't think it will have changed a great deal."

Ocado was launched in 2002 by a group of former Goldman Sachs bankers, including chief executive Tim Steiner and chief financial officer Jason Gissing. It exclusively provides goods from Waitrose - the upmarket supermarket chain owned by the John Lewis Partnership - which are ordered online and then delivered to your door.

John Lewis retains a stake of around 30 per cent in Ocado.

The business endured heavy start-up costs, however, as its order-fulfilment warehouse was built. Since then, it has also had to continue bolstering its marketing, as well as taking on other costs, as it competes with the likes of Tesco and Sainsbury's. Both supermarkets have concentrated recently on massively improving their online offering and delivery service.

However, the company insider said he was very confident about the company's performance, pointing out that it had raised £60m earlier this year in additional funding.

The move valued Ocado, which is expected to float once profitable, at around £500m.

"It is the sort of business that is quite capital intensive to start up," he added. "You have to build a large, automated warehouse and you have to build an infra-structure that can compete with Sainsbury's and Tesco."

The insider said Ocado was "not worried" about the level of debt. Although now profitable on an operational basis, the company is not due to make a bottom-line profit for a while.

"If you talk to a supplier, say, and you just send them the results, they would of course think 'what on earth are they doing?' But when you explain what the company's doing, then it really starts to make sense to them."

Ocado is one of a clutch of privately owned companies that have been tipped for stock market flotation. The owners confirmed soon after setting up the business that they wanted to list eventually. They have since been coy about detailing exactly when.

It is understood, though, that before listing, the direc- tors want Ocado to be profitable and bringing in more sales.

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