Ocado Group PLC (LON:OCDO) shares leapt over 20% higher today as it unveiled a second international partnership agreement, with Groupe Casino to develop the Ocado Smart Platform (OSP) in France which the online grocer expects “to create significant long term value to the business.”
The FTSE 250 listed firm said the deal will have minimal impact to earnings in full year 2017, but expects the transaction to be earnings neutral with the costs of establishing the partnership,offsetting initial fees payable.
The group said in consideration of the investments made by Ocado, of maintenance and of provision of technology, Casino will pay the UK firm certain upfront fees upon signing, and during the development phase, then ongoing fees linked to its utilisation of capacity within the Customer Fulfillment Centre (CFC) and service criteria.
Ocado expects to incur additional capex of £15mln in full year 2018 to support this partnership and accelerate the development of the platform, with further capex in future years.
The group added that in full year 2019 and beyond, the profitability of Ocado Solutions is likely to grow as the fees from the transaction increase and as other deals are signed.
The agreement sets out plans for the immediate initiation of the development of a CFC using Ocado's proprietary mechanical handling equipment ("MHE") to serve the Greater Paris area, the Normandie and Hauts de France Regions. The build and launch is expected to take at least two years.
In addition to the initial CFC, Groupe Casino and Ocado will consider further development of other CFCs close to other large urban areas.
CEO expects this deal “to be one of many successful collaborations”
Tim Steiner, CEO of Ocado, said: “We believe that the scalable, modular end-to-end solutions provided by the Ocado Smart Platform, will allow retailers such as Groupe Casino to build their online grocery offer in a way that is profitable and sustainable, creating value for customers, suppliers and shareholders.
"We continue to make investments to commercialise our proprietary platform and expect this deal to be one of many successful collaborations with leading retailers to use it the world over."
In order to provide greater clarity on the split between Ocado Retail and Ocado Solutions, the group said that from the publication of full year 2017 results, it will be introducing segmental reporting of sales and EBITDA.
In early morning trading, Ocado shares were up 19.1%, or 48.8p at 305p.
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