AO World: Sales rise but profits turn to losses as European expansion costs bite
Electricals specialist AO World has reported a group operating loss for the first half of the year, despite climbing sales, as the cost of European expansion takes its toll.
The figures
AO World's total revenue jumped 21.7 per cent to £264.3m for the six months to 30 September, while its UK website sales rose 23.7 per cent to £214.8m. European revenue was €21.7m (£15.23m) for its first reported half-year period.
However, the company's bottom line flipped from a group operating profit of £900,000 to a loss of £8.9m "reflecting the ongoing investment in German operations and start-up costs in further Europe territories".
UK adjusted EBITDA fell to £5.1m from £7.3m, while AO World recorded an EBITDA loss of £9.6m for Europe, bringing group adjusted EBITDA to a total loss of £4.5m. Last year the company made a profit of £7.3m. It reported a loss per share of 1.58p, compared with earnings of 0.12p last year.
The group's net cash has dropped from £50.1m to £35.6m.
Why it's interesting
AO World has had a challenging year, issuing a profit warning and dealing with the fallout from analyst Panmure Gordon saying it was "grossly overvalued" and placing a sell rating on the stock. Its share price is now down around 54 per cent since it listed.
While the company has sought to win over investors, some commentators remain unconvinced and have warned that it could struggle to compete during Black Friday this week (27 November to be precise) because of its relatively poor brand awareness and low positioning on Google.
Despite this, and the costs of its European expansion, AO World is powering ahead. It plans to launch in the Netherlands next spring and reports high levels of customer satisfaction, repeat business orders and awards, which stand it in good stead with the consumer.
What they said
Chief executive John Roberts, Chief Executive Officer, said:
"AO World has made good progress in the first half, continuing to deliver on our long-term strategy. We have continued our mission to redefine retailing in our chosen categories, and we are winning market share in all those categories…
"In Germany, our first international market, we are continuing to build scale and remain confident that our business model and customer proposition are working as well on mainland Europe as they have in the UK. Our confidence means that we are now ready to move into the Netherlands, helping to leverage our German asset, and we continue to review other adjacent markets.
"It is clear that the momentum we built in the second quarter has set us up well for the full year. We remain as confident as ever that the market dynamics are moving in our favour as a pure-play digital operator in a market where customers continue to move rapidly online and our excellent service will only accelerate this. Against that backdrop we are well placed to deliver sustainable long-term growth."
In short
The company is on track for the full year, and for its longer-term strategic goals, but short-term has taken a hit from its European expansion plans.