Ocado could take Marks & Spencer to court amid performance row

Row: Tim Steiner, the boss of Ocado, hopes to secure a settlement amid a spat with M&S

Ocado could take legal action against grocery partner Marks & Spencer amid an ongoing spat over performance-linked payments related to the pair’s joint venture.

Tim Steiner, the boss of Ocado, said on Thursday he was confident M&S owed the firm ‘a substantial amount of money’ and he hopes to secure a settlement over the dispute.

M&S is due to pay Ocado a final instalment of £190.7million as part of the payment for the £750million partnership between the businesses, Ocado Retail, which was launched in 2019.

In its latest annual results on Thursday, Ocado confirmed that the retail joint venture ‘failed to meet the performance measures’ for the year needed to secure an automatic payment of the instalment.

Ocado said accounting rules have estimated that a payment of £28million has been determined as fair value as a result. However, Steiner said this would be ‘ludicrously low’.

Ocado said it believes it will secure a greater sum ‘either via a formal litigation process or settlement’.

Steiner told reporters that it ‘would be best to come to a settlement arrangement’.

An M&S spokesman told This is Money: ‘M&S remains committed to the turnaround strategy for Ocado Retail and our focus is on working with them and Ocado Group to deliver it.

‘On the specific issue of the contractual contingency payment, our advice is that the financial performance of Ocado Retail means the criteria for the performance payment was not met.’

Job cuts: Ocado said it cut around 400 jobs last year amid a ‘partial restructuring’

The update came as Ocado posted a £394million loss for 2023, an improvement on the previous year. The group was bolstered by £187million secured from a settlement with Norwegian rival AutoStore.

Revenue increased by 9.9 per cent to £2.8billion, largely driven by the firm’s technology solutions arm, which grew by 44 per cent to £420.5million for the year.

Ocado Retail revenue grew by 7 per cent, as it hailed ‘continued strong customer retention’.

Steiner said: ‘I am pleased to report good progress across the group in 2023.

‘Our technology is transforming the way people shop for food as we help some of the world’s best and most innovative retailers set the bar for excellence in grocery ecommerce worldwide.

‘Ocado Retail, our joint venture with M&S in the UK, has had significant success growing customer numbers, taking online grocery market share and rebuilding profitability, proving once again the attractions of our online model.’

During the year, Ocado ‘partially reorganised’ its head office and support functions, resulting in redundancies of around 400 and related costs of £15.5million.

Ocado shares were up 0.75 per cent or 3.7p to 494.40p on Thursday, having fallen over 6 per cent in the last year.

Chris Beauchamp, chief market analyst at IG Group, said: ‘Ocado’s deepening spat with M&S hasn’t deterred the shares from rallying this morning on the better-than-expected figures. For now, market sentiment is improving, as seen by the halt in the post-pandemic share price slump, but the big catalyst for renewed upside in the price is still lacking.’

Analysts at Peel Hunt, said: ‘We will update our model in due course, but having spoken to the company and done some back-of-the-envelope maths, we believe consensus EBITDA for FY24 could reduce substantially.’