Ocado taps shareholders for up to £40m in rights issue

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The Independent Online

Ocado has asked shareholders to raise up to a further £40m through a rights issue, in order to pay down some of its net debt of more than £100m.

The online grocer, which has not made a pre-tax profit in eight years, wrote a letter to shareholders about the "offer of shares" on 16 October.

Ocado, which delivers the groceries of the John Lewis Partnership (JLP)-owned supermarket Waitrose, said it was in the "best interests of the business" to raise funding of up to £40m. JLP owns a 28 per cent stake in Ocado, which was founded by three former Goldman Sachs bankers, Jason Gissing, Jonathan Faiman and Tim Steiner in 2000.

Mr Gissing, Ocado's finance director, said: "We are always raising money. Clearly [it's] not the best time to be doing so."

One of the online grocer's loans is with Lloyds TSB. It is understood that the grocer had net debt of £110m at the end of last year, compared with £86.5m in 2006. Mr Gissing said that sales at the online grocer were currently up by 19 per cent, year-on-year, although its sales growth has slowed from last year's 25 per cent increase to £228m.

In the letter, Ocado gave an undertaking not to complete the rights issue unless it could reach "at least" £15m. An Ocado source said: "They have the option of going up to £40m but they are raising £20m as originally planned."

Ocado has to date reportedly raised £277m of equity, which is more than any other start-up in Europe since it was founded. The online grocer has invested heavily in prices this year and has expanded the range of non-food products it offers. In March, Ocado launched a price war against the grocery giant Tesco and vowed to match its prices on 3,500 branded products, including Pampers nappies and Coca-Cola. Tesco responded fiercely with its own price cuts.

Ocado has had a one-year rolling contract with Waitrose since 2000, but is thought to still be in negotiation with the grocer about nailing down a five-year contract. The City has viewed the lack of a long-term branding and sourcing contract as a barrier to a stock market flotation, which is a long-term goal of Mr Steiner, Mr Gissing and Mr Faiman.

The online grocer operates a hub and spoke model from its automated distribution centre in Hatfield, Hertfordshire, and wants to open a large distribution centre in the north of England. Tesco, Asda and Sainsbury's largely operate a pick-in-store model.

Ocado employs more than 3,000 staff and processes on average 12,000 orders a day, offering almost 16,000 lines. It has about 150,000 active users of its service.