Meal delivery company Deliveroo has revealed that it has set aside more than £112m to cover potential legal costs relating to the employment status of its delivery riders.
Deliveroo warned potential investors of the risk of litigation around the world in documents setting out its plans for a stock market debut, which could value the company at more than $7bn (£5bn).
The London-based firm works with more than 100,000 riders worldwide, which it argues are independent self-employed contractors not entitled to benefits such as holiday pay and national minimum wage, except in parts of the Middle East. Cases over delivery rider status are on-going in the UK, France, Spain, the Netherlands and in Italy where it could face a significant payout if an appeal fails.
Deliveroo flagged the litigation over workers’ employment status as one of a number of risks it faces saying: “While we defend ourselves robustly in such cases, we recognise the inherent uncertainty connected to regulatory inspections and investigations.”
Listing documents also reveal that founder and chief executive, Will Shu, owns a 6.2% stake in the company, worth about £308m, and earned a salary of $450,000 last year. However, the actual valuation of Shu’s stake on flotation will not be clear until the company names the price at which it intends to sell shares and the number of shares in the offer.
He has also been awarded thousands more shares, which could boost the number he owns in the company by nearly 30% over the next four years. His awards are part of a £23m share-based payments for key management in 2020, almost double the year before, and £5m in salaries, up 61%.
The big payday for managers is revealed as Deliveroo has reported it made a loss of £223.7m last year despite surging sales during the Covid-19 pandemic.
Sales rose 64% to £4.1bn in 2020 including a 65% rise in the UK to £599m. The company said growth was driven by adding new customers as well as selling more to its existing clientele.
Deliveroo now serves six million customers across 12 markets around the world from 115,000 restaurants, grocery stores and other “food merchants”.
Despite the strong growth, post-tax losses narrowed by only 29% from £317.3m in 2019 as Deliveroo said it had invested in setting up takeaway-only “dark kitchens” and grocery delivery services.
The company said it had “demonstrated that it could operate profitability at scale” because it had been profitable for six months before certain costs such as interest payments, legal fees and one-off costs such as exiting Germany and Taiwan.
The results cover the year to the end of December 2020, which forced restaurants to close to indoor dining and turn to delivery and takeout services during lockdowns. Shu previously said the pandemic had accelerated consumer adoption of food delivery by nearly three years, and that order volumes across the UK and Ireland were double those seen in 2019.
The company said it was tapping a grocery and dining market worth nearly £1.2tn, “which is highly under-penetrated in terms of online share relative to other industries, presenting a high growth opportunity.”
“With our global scale, proven track record of entering and growing in new markets, we believe we can realise further growth opportunities both in existing and new markets,” Deliveroo said.
Deliveroo’s London flotation plan was confirmed days after the UK government committed to changing rules that would allow founders such as Shu to maintain control of their companies despite selling shares to investors on the stock market.
Deliveroo confirmed on Monday it would take advantage of the dual-class share structure, which will last for three years and temporarily strip investors of typical ownership rights.
Shu is set to offer the group’s most prolific riders up to £10,000 in cash each following the IPO, and customers are also being offered the chance to buy £50m in shares.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said that profitable growth was not assured for Deliveroo given that competition in the sector was fierce with Uber Eats, Just Eat and a host of others all touting for business.
“There is of course a risk that demand for home deliveries will wane once the pandemic has eased. It’s likely that the public will be desperate to eat out as soon as they can, ditching a knock on the door and a bag of food for a real restaurant experience,” Streeter said.