BRADFORD (dpa-AFX) - Morrison(Wm.)Supermarkets PLC (MRW.L) confirmed it has finalised an agreement with Ocado that will enable Morrisons.com to grow profitably across Britain, utilising Ocado's technology.
Morrisons noted that it has re-negotiated some components of the original contract with Ocado. The principal changes are: the restriction on store pick has been lifted, the profit share agreement will be cancelled and the Research & Development (R&D) fee will be reduced.
As previously announced, Morrisons has agreed to take capacity in Ocado's new Customer Fulfilment Centre ('CFC') in Erith. This will allow millions more customers to shop with Morrisons.com.
Ocado will develop a store pick solution for Morrisons.com. Prior restrictions will be lifted, enabling Morrisons to fulfil online orders via store pick anywhere in Britain, including all areas not currently covered by Morrisons.com. Once the store pick model becomes operational, Morrisons contractual obligation to share a proportion of its future online profits with Ocado will end. At this point the exclusivity restrictions on Ocado will also be reduced, although it will still be prohibited from serving certain grocery retailers .
Once Morrisons.com is operational from Erith, Morrisons will pay Ocado a reduced annual R&D fee.
Morrisons.com will sell thousands of non-food items, currently available via Ocado, giving customers more access to many well-known brands.
Morrisons noted that the extension of online offer nationwide, through investments in Erith and store pick, means that the break-even point for Morrisons.com will be slightly later than originally planned when the business operated solely from the Dordon CFC. In future, it expect the annual Morrisons.com EBIT loss to continue to reduce each year and to be a key component of the £50 million-£100 million incremental profit opportunity it announced at its preliminary results in March 2016.
Capital expenditure guidance of £450 million for 2016/17 and a sustainable range of £400 million-£450 million per annum in future years is unchanged.
Separately, Ocado announced that it has concluded its agreement with Morrisons to share some of the capacity of Ocado's customer fulfilment centre currently under construction in Erith, south east London.
The Erith CFC is due to commence operations in Ocado's 2018 financial year and is expected to have eventual capacity in excess of 200,000 orders per week.
Although Ocado expects these agreements to be earnings accretive, there is limited impact on its profit before exceptionals in the current or 2017 financial years, with the majority of fees received in these periods being absorbed by the incremental costs to be incurred. The recurring annual fees payable by Morrisons in respect of the Erith CFC are not expected to become payable until the 2018 financial year, and the recurring fees in respect of the store pick solution are not expected to become payable until the end of the 2017 financial year.
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