Ocado Eases Survival Doubts With Share Sale, Debt Extension
Ocado Group Plc (OCDO), the unprofitable U.K. online grocer, ended doubts over its immediate survival by extending a key credit line and selling new shares, while reporting an acceleration of sales growth.
Lenders will prolong a 100 million-pound ($159 million) debt facility, the biggest of the company’s debts, by 18 months until July 2015, Ocado said today. The online grocer, which said in March that a “material” reduction in forecast earnings may lead to a breach of covenants, will also raise 35.8 million pounds through a sale of shares to existing investors at 64 pence a share, more than the last closing price of 60.55 pence.
Ocado rose as much as 32 percent in London trading. Brokerages including UBS AG and Panmure Gordon & Co. have cast doubt over the company’s financial position as it spends money on a new warehouse while sales growth stumbles. The Sunday Times reported yesterday that Ocado was in talks with lenders, leading the company to say it wasn’t about to breach covenants.
“Ocado now has the funds to survive for some time,” Philip Dorgan, an analyst at Panmure Gordon, said in a note to clients. “That does not mean the model is suddenly a good one. Sales continue to underperform both City expectations and its multichannel competitors.”
The Hatfield, England-based retailer said today that gross sales increased 14 percent in the six weeks ended Nov. 11, a faster pace than the 9.9 percent reported in the third quarter. Fourteen-week sales increased 11 percent.
The share sale and funding extension ensures Ocado “has the continuing resources to focus on delivering growth through increasing the range and enhancing our customers’ shopping experience,” Chief Financial Officer Duncan Tatton-Brown said in a statement. It also allows the company to promote the opening of the new distribution center in Dordon, central England, and “significantly expand our non-food offering.”
The grocer said in September it would consider selling and leasing back the soon-to-open warehouse if necessary to avoid breaching debt covenants. It reported today that it has completed construction of the facility, and will start processing orders from the site in February. The final 46 million pounds of capital spending related to commencement of activities at the warehouse will be incurred in 2013, it said.
The shares were up 20 percent at 72.5 pence as of 8:28 a.m. They have risen 36 percent this year, though remain below the 180 pence at which they were sold to the public in July 2010.
The share placing represents about 10 percent of Ocado’s existing capital, or 55.8 million shares. Goldman Sachs Group Inc. and Numis Corp. Plc will undertake the share sale through an “accelerated bookbuild process” today, the company said.
Ocado, which was founded by three former Goldman Sachs Group Inc. bankers in 2000 and has never reported a profit, said it had net debt of 93.4 million pounds and cash of 56 million pounds as of Oct. 28.
The covenants of the extended capital-spending facility are 3.5 times its earnings before interest, taxation, depreciation and amortization for its 2012 and 2013 fiscal years, reducing to 2.25 times during the 18-month extension.
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