Ocado (OCDO) has launched £500m in convertible bonds to help fund its shift from grocery delivery to third-party ecommerce services, just days after announcing the first of its ‘mini’ fulfilment centres and its first solutions partner in Asia.
The group marked a major step in its transition from grocer to solutions business earlier this year by selling a 50 per cent stake in its retail business to Marks and Spencer (MKS), turning Ocado Retail into the eighth global partner to use its Ocado Smart Platform. However, it seems the £563m it received upfront from M&S is not enough alone to facilitate the transition.
Shares in Ocado fell by as much as 8 per cent following the announcement, far more than the implied earnings per share dilution of 4 per cent, estimated by Bruno Monteyne at broker AB Bernstein, who said the shareholder returns should improve in the long term due to a “better capital structure”.
However, broker Shore Capital said it was surprised by the need for further financing in light of the money received from the M&S deal and “bearing in mind that it is not so long since the group undertook a major equity fund raise”.
Still, demand for the solutions business seems to be strong. Japanese retailer Aeon is the first Asian partner signed up to Ocado’s platform, and together the two groups plan to develop a national fulfilment network in Japan with sales capacity for ¥600bn (£4.25bn) by 2030.
The day before the Aeon partnership was announced, Ocado unveiled its first ‘mini’ customer fulfilment centre, to be located outside Bristol. The facility will be able to handle more than 30,000 orders a week, compared to around 85,000 expected from the group’s centre currently under construction in Purfleet.
The Bristol facility will be operational in late 2020 or early 2021. Management said its mini fulfilment centres would serve areas where larger centres are unsuitable, and “enable all Ocado Solutions partners to reach ever more households”.
