After the flurry of international partnership agreements signed in 2018 with Kroger in the USA, Sobeys in Canada, France’s Casino and ICA in Sweden that sent Ocado’s share price soaring, the grocer-come-tech company has penned its first major international deal of 2019. And this time’s it’s a move down under with Coles of Australia spending $107 million to license Ocado warehouse technology and the same store pick-up service as Wm Morrison avails of in the UK.
Ocado will also build and service two full warehouses as part of the deal with one in Sydney and the other Melbourne. Ocado’s high-tech warehouse technology will also be rolled out by Coles across Australia with completion targeted for 2023.
For Coles the move is designed to make it more competitive in home deliveries and its online offering. Deliveries capacity is expected to double as a result and margins from online shopping significantly improved.
New rules mean Ocado cannot include upfront payments that come in as part of the agreement towards its cash flow. Income can be ‘banked’ in its accounts only when it completes the contracted warehouse fit-outs. So the deal will actually reduce the company’s paper revenues and profits this year. However, markets reacted positively to the latest vindication of Ocado’s technology offering, sending its share price up 5% during London trading on Tuesday. Coles also received a market capitalisation boost to the tune of 2.2%.
2019 has started as well as 2018 proved to be for Ocado. On its domestic UK market a joint venture has been established with M&S, replacing the long running tie-up with Waitrose. M&S agreed to stump up £750 million for a 50% share of Ocado’s online retail business in the UK. That has proven to have a direct knock-on effect to the company’s ability to invest the upfront £60 million it will cost to set up the two Australia facilities.
However, it hasn’t been all plain sailing for Ocado, which saw its Andover fulfilment centre in the UK destroyed in a fire. Thankfully, there was no evidence that the company’s robotics were behind the blaze and £30 million has now been paid out from its insurers.
Analysts have commented that the most recent deal adds further confirmation that Ocado’s warehouse automation technology represents a strong proposition. Those investing online in Ocado’s shares will hope more contracts are signed as the year rolls on.Risk Warning:
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