'Lifeline' for Ocado as banks extend debt deadline


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The Independent Online

Ocado has been handed a “lifeline” after banks gave it more time to pay off its debts and the online grocer unveiled a £36 million fund-raising.

Shares in the loss-making delivery firm soared by nearly a quarter after this reassured the City over the stability of its finances — following weeks of persistent speculation that it could breach its loan terms — and Ocado issued a robust trading statement.

However, analysts remain doubtful about its business model — namely whether it can make a healthy profit by delivering groceries from its dedicated warehouse in Hatfield, Hertfordshire, and the huge amount of cash it has burned through since it was co-founded by Tim Steiner, pictured, in 2000.

Philip Dorgan, analyst at Panmure Gordon and long-time Ocado sceptic, described the planned share placing and the extension to its debt maturity as a “lifeline” and added: “Ocado now has the funds to survive for some time. However, that does not mean that the model is suddenly a good one. Sales continue to underperform both City expectations and its multichannel competitors [such as Sainsbury’s].”

Ocado — which delivers Waitrose and own-label groceries — said its lenders, Barclays, HSBC and Lloyds, have agreed to extend the deadline of its £100 million capital expenditure facility by a further 18 months to July 2015.

The online grocer also plans to raise £35.8 million through a placing of 56 million shares — equal to 10% of its equity — with certain existing shareholders, including board members, and will invest it in expanding its ranges, particularly non-food items, improving customer service and marketing.

Duncan Tatton-Brown, Ocado’s finance director, hit back at the recent speculation. He said: “I would not describe it as a lifeline. I can categorically state we would not have breached covenants.” These covenant tests were due in early December and included one based on the ratio between Ocado’s net debt, which currently stands at £93.4 million, and underlying earnings.

Shares in Ocado leapt 14p, or 23%, to 74p but they are still less than half their float price of 180p in July 2010.

The online grocer grew sales by 11% over the 14 weeks to November 11, including an acceleration to growth of 13.7% over the final six weeks. But this still puts it behind the 20% uplift in online grocery sales that Sainsbury’s — which uses a pick-in-store model — delivered over its half-year.

Ocado said it was on track to open its second distribution centre in Dordon, Warwickshire, in February, and that the opening remains on budget. The City is presently forecasting that Ocado could “break even” for the financial year just ended but this would be its 10th consecutive year without a pre-tax profit.