Online retailer Ocado raises €671m as UK economy slows

Ocado has raised £575 million (€671 million) from investors as the group seeks to lock in funding for the costly roll-out of its grocery ecommerce technology.

The company, which was one of the biggest beneficiaries of the boom in online shopping during the Covid-19 pandemic, said late on Monday that it had sold 72 million shares to existing and new institutional investors at 795p each.

It raised an additional £3m through selling shares to management and in a separate offering designed for retail investors.

Its share price fell by about 5 per cent on Tuesday morning.

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The fundraising comes as a combination of the sell-off in technology stocks, a consumer slowdown in the UK and a reversion to pre-pandemic shopping habits combine to slow growth at the group.

As well as an online delivery business in the UK, Ocado sells its warehouse technology and robotics to supermarkets. Ocado said that the new funds would allow it to help customers, which include Kroger in the US and Australia’s Coles, to develop online grocery businesses.

The group is in the process of fitting out a pipeline of more than 50 “customer fulfilment centres” for supermarket clients around the world. Kroger, its single biggest client, is expected to require about 20 of the units, which cost tens of millions of pounds each.

Ocado receives revenue from its technology clients only when pre-agreed order processing capacity is reached, so it needs substantial funds to pay for the development. The group also operates an online grocery store in the UK through a joint venture with Marks & Spencer, but this does not generate sufficient cash flow to fund the technology business.

Last month, the venture warned that sales growth this year would be in the “mid-single digits”, down from a previous forecast of 10 per cent, as shoppers return to physical stores after the pandemic.

Ocado said in a statement that the proceeds of the share sale would give it “enough liquidity to fund the requirements of its existing and expected customer commitments into the midterm”.

The shares were sold at a roughly 9 per cent discount to Ocado’s closing shares price on Monday. A favourite of investors during the early stages of the pandemic, Ocado’s stock is now down almost 50 per cent this year.

William Woods, an analyst at Bernstein, said that although existing investors would see their interests diluted by the new equity, the fundraising removed an overhang from the share price.

Ocado has said the share issue plus a new revolving credit facility should provide sufficient funds until it starts routinely generating cash.

However, Clive Black at Shore Capital said the group was continually burning cash with no clear timetable for when consistent profits and cash generation would be reached.

Fitch, the credit ratings agency, downgraded its outlook on Ocado to negative on Monday, warning that it expected the UK-listed group’s international operations would take longer to turn a profit. — Copyright The Financial Times Limited 2022