Online grocer Ocado's shares are down nearly 10 per cent after profits were hit by production problems and labour cost rises.

The company said that in the fourth quarter it had continued to operate ‘under capacity constraints’ at its Hatfield distribution centre.

Ocado, which sells Waitrose products, acknowledged that profit margins were impacted by production issues and the employment of additional staff while work to install further capacity at its Hatfield site continued.

However, the group confirmed that it expects the additional labour to be ‘phased out’ as installation works are completed.

In its latest trading update, the company reported that gross sales were approximately £643 million for the full financial year to 27 November.

Underlying earnings for the full year are expected to be in the range of £27.5 million to £28.5 million.

Chief executive Tim Steiner said, ‘We are encouraged by the operational capacity improvements that we have made, but are disappointed that we did not achieve as large or as early an increase as we had originally planned.’

In its previous trading update in September the delivery group said its aim was to reach peak capacity of around 140,000 orders per week by the end of the fourth quarter.

According to Ocado, 98.3 per cent of items were delivered exactly as ordered and 92.3 per cent of orders were on time or early for their one-hour delivery slots for the full year.

Shares in the company were trading down 9.55 per cent at 64,40p at 12.35am.