Ocado hit with ratings downgrade as it raises £575m for international push

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The loss-making grocer Ocado is raising £575m in fresh funding to expand its technology business, despite signs of inflation slowing the online retail revolution.

News of the cash call came as ratings agency Fitch hit the company with a downgrade and warned of mounting risks at its international business.

Ocado announced plans to sell shares to institutional and individual investors after markets closed on Monday and said it had secured a £300m loan from a consortium of banks.

The company gathered enough orders to cover the share sale within about half an hour, according to terms seen by Bloomberg. Ocado said members of its leadership team, including chief executive Tim Steiner, will buy new shares as part of the placing.

The cash injection will be used to support the growth of its Ocado Solutions business, which provides automated warehouse technology to retail partners.

While Ocado is best known in Britain as an online grocer, its main focus today is selling robotic warehouse technology to retailers worldwide, such as Kroger in the US and Coles in Australia. The group said it needs fresh cash to fund investment as demand for its tech grows.

But the fundraising came as credit rating agency Fitch warned investors of an “increased execution risk” within Ocado’s international segment, as operations ramp up more slowly than expected.

The agency downgraded Ocado’s rating from ‘stable’ to ‘negative’ and said profits are now forecast to come by November 2024, one year later than initially planned.

It added: “International expansion will add scale and diversification and in support of the rating, which is premised on replicating the operational and economic success of its UK retail operations internationally.”

Ocado believes the surge in online food shopping seen during the pandemic is set to continue betting on long-term growth despite a short-term slowdown caused by a cost-of-living squeeze.

Investment should help cut the amount of time it takes to get Ocado Solutions’ highly automated warehouses up and running.

During the pandemic, Ocado Retail, its joint venture with Marks & Spencer, struggled with capacity and was forced to temporarily close its website in March 2020 after being overwhelmed by orders.

Ocado Solutions currently has 11 partnerships and it expects its clients to generate over £20bn in sales over the next few years.

Ocado estimates that its own revenue and profits will reach £6.3bn and £750m respectively.

The company was founded by three former Goldman Sachs bankers in 2000 and has hardly made a profit since. Management argues the company is investing for growth and Ocado has raised significant amounts of cash over the past two decades to fuel development of its technology.

The latest fundraising follows a drop in the share price, which has nearly halved since the start of the year as customers returned to pre-pandemic shopping habits.

Shares were flat at 831.68p on Monday.

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