Ocado m&s

Ocado and M&S could be on course for a legal showdown over the final payment in their £750m joint venture, with the latter adamant it is not owed.

Ocado Retail had failed to meet “binary” earnings targets on which the full final £191m instalment was contingent, M&S CEO Stuart Machin said today.

It comes after Ocado said in March it was prepared to sue M&S over the payment, claiming their contract allowed for the target to be adjusted in light of actions taken during the pandemic.

“On the contingent payment, the performance target is binary and it was dependent on Ocado Retail Limited,” said Machin as M&S announced its full-year results.

“Meetings specified level of earnings in the financial year, and actually, those earnings and that performance was not met. So, for us it’s pretty clear. We continue to rate the accounting value as zero.”

He said the “slight disagreement on the contingent payment” was not disrupting the “day-to-day running of the business”.

Another strong set of results from M&S included “market-leading” volume growth in food, with sales up 13% to £8.2bn in the 52 weeks to 30 March. Like for like sales increased 11.3% while adjusted operating profit soared 59% to £395.3m.

M&S Food’s in-store market share rose from 3.6% to 3.7%, boosted by larger baskets. Including M&S on Ocado, share increased from 4% to 4.2%.

Over 1,000 food products were upgraded and 1,300 new lines launched, while £60m was invested in prices. Sales of the ‘Remarksable’ value range grew 34% 

Overall group revenues rose 9.3% to £13bn, while adjusted pre-tax profits jumped 58% to £716.4m.

However, bottom line profits were dragged down by M&S’s £67m share of a £133.7m pre-tax loss by Ocado Retail.

M&S’s trading update said Ocado Retail was seeing “encouraging active customer and sales growth, although profitability is well below the original business plan and expectations”.

It said there was “enormous opportunity to improve trust in value, website experience, logistics, and supply chain, which will be the focus for the next two to three years”.

There were 4,800 M&S Food products on Ocado.com by year end, a 20% increase, while availability had “improved considerably, although there is further opportunity on the most important lines and at key event periods”.

Sales of M&S products on the site grew 15% in quarter four to represent 30% of basket items.

Machin said M&S was “committed to the turnaround strategy for Ocado Retail and we’re very focused on our delivery of that”.

He said: “I think we’re working very well with Ocado Retail. We’re we have very constructive board meetings. I talked to Hannah [Gibson] almost every week. Alex [Freudmann], in our food business and Hannah work very closely when it comes to M&S and Ocado.

“Ocado is in the early stages of sales growth and we’re quite encouraged by that.”

He added: “We might have a slight disagreement on the contingent payment, and the discussions are ongoing, but that does not stop us with the day-to-day running of the business.”

Commenting as Ocado Group announced its full-year results in March, CEO Tim Steiner said: “We believe that we have a very solid case to get full payment. We know that M&S may not entirely share that view and we’re happily having a conversation with our partners.

“We would much rather solve this in a nice and constructive way, which is what we’re working towards doing.

“We are very confident that we are owed a substantial sum of money. And ultimately I hope we’ll never get there but we will not walk away from that sum of money.”