Moody's Investors Service has downgraded online grocery operator Ocado Group from a B2 to a B3 rating, reflecting what it said was the 'prolonged operating underperformance' of the business.
Last week, Ocado reported a 4% decline in revenue in the first half of its financial year, with its solutions business offsetting losses in its core retail arm. EBITDA in its retail business was down 72.8% in the period.
Commenting, Moody's said that it believes that EBITDA generation at Ocado will be lower over the coming 12 to 18 months, driven by 'increasing competitive pressures' in its retail business, and a slower ramp-up of international solutions compared to previous expectations.
'Significant Cash Balances'
On the positive side, Moody's noted the 'significant cash balances' of the company, which were strengthened by a £575 million (€682 million) equity rights issue completed in June, adding that it believes that Ocado has 'sufficient liquidity' to fund its planned capital expenditure investments through to fiscal year 2025.
Through its deals with major retailers around the world, the company has plans to roll out some 58 customer fulfilment centres (CFCs), of which 40 have been formally ordered to date and are set to be developed by 2027.
However, while its UK solutions business is expected to account for the majority of EBITDA in this part of the business over the next two years, its international solutions arm will 'remain loss making during this period and turn EBITDA positive only in fiscal 2024', Moody's said.
In addition, while the planned CFCs could become a 'significant' contributor to EBITDA over the coming years, they will also require 'major investments' to get them up and running – as much as £800 million per annum.
Commenting on its half-year results last week, Ocado Group chief executive Tim Steiner said, "Following our recent successful financing, we now have a strong financial position and ample liquidity to fund the requirements of our existing and expected customer commitments into the mid-term. No additional group financing will be needed as the business becomes cash flow positive.
"With these building blocks in place, notwithstanding the near-term challenges for the consumer in the UK, we look forward to the future with confidence."