The agreement will enable Morrisons to enter the online grocery market quickly with a profitable business model.
The Morrisons.com grocery website will have a clear Morrisons look and feel. Fulfilment will be from Ocado’s recently opened Dordon customer fulfilment centre in the Midlands, with customer deliveries through a Morrisons liveried fleet.
The agreement will comprise a technology and services arrangement and a sale and leaseback of property and equipment at Dordon.
Morrisons will make an initial capital payment of up to £170m to Ocado to acquire Dordon and associated mechanical handling equipment, as well as a licence and integration fee. A further £46m will be invested to expand Dordon in order to accommodate Morrisons’ range, integrate with Morrisons’ systems and establish a network of delivery spokes.
On an annual basis, Morrisons will pay service costs and a contribution to R&D expenditure. The agreement also makes provision for the joint development of new customer fulfilment centres as the parties may determine in future.
Ocado will receive a share of the positive EBIT of Morrisons.com.
Morrisons anticipates that its new food.com business will incur a further £25m development costs in the year, as a result of which, its total full-year new business development investment will be £65m.
It is expected that the food.com business will generate positive Ebitda in 2016/17 and a positive EBIT in 2017/18. Capital expenditure guidance is increased by £100m to £1.2bn to reflect additional investment in its Morrisons.com business. Full-year debt guidance is accordingly increased to £2.7bn.
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