Proactive Investors - Run By Investors For Investors

AO World's shares slide as it warns on first quarter trading and reports wider full year loss

AO World's sales slowed in the second half as the Brexit vote pushed inflation higher, putting a squeeze on disposable incomes
AO world
Consumer spending power has been hit by rising inflation since the Brexit vote

AO World plc (LON:AO.) shares fell as the online seller of white goods warned that it expects growth in the UK to slow “significantly” in the first quarter and reported a wider full year loss.

Shares fell 7.03% to 134.80p in morning trading. 

The company said the challenging trading environment that it experienced in the second half of last year has continued into the new year as disposable incomes fell.

Consumer spending power has been hit by rising inflation since the Brexit vote sent the pound tumbling against other major currencies last June.

An increase in stamp duty for buy-to-let properties and second homes last April also led to weaker demand in the housing market, which affected sales of the company’s electrical appliances.

“During the second half we began to feel the impacts of dampening consumer confidence and a reduction in consumer spending power as a result of growing inflationary pressures,” said chief financial officer, Mark Higgins.

“Sterling deflation in our market saw cost prices increase by 10-15% through 2016."

AO World's revenues rise, losses widen...

Nevertheless, UK revenue rose 12.7% to £629.7mln in the year ended 31 March 2017, driven by website sales and a stronger first half.

In Europe, revenue jumped 52.3% to £71.5mln, reflecting the first full year of trading in the Netherlands and growth in its German website sales.

Total revenue increased 17.0% to £701.2mln.

The operating loss rose 13.2% to £12.0mln due to further trading losses in Germany and the Netherlands as AO World spent more than it expected in expanding its European business. Loss before tax widened by 4.4% to £7.0mln.

The group consolidated its cost base and opened a new regional distribution centre in Bergheim, which serves the German and Dutch markets.  

In March AO World announced it had raised £50mln through the placement of new shares in the company from new and existing investors. The group said following the placing it has strengthened its balance sheet to support growth in the face of tough market conditions. 

AO World burning cash on European expansion, says ETX Capital analyst...

Neil Wilson, senior market analyst at ETX Capital, said: "It’s tough shifting fridges and big-screen TVs. Without slashing prices, and destroying margins in the process, customers can go just about anywhere.

"AO World is also burning cash on a European expansion and investors may be losing patience a touch with the strategy. The shares have fallen by more than half since February 2015 and are two-thirds below its 2014 float. A £50m cash call this year will need to be put to good use, and fast."

Wilson said rival Dixons Carphone is larger and more profitable. AO World is also twice as expensive on a price to sales ratio, he added.  "No wonder it’s doubling down on its European expansion to deliver the scale required to make its slender margins work.”

AO World set to fall off FTSE 250, says Hargreaves Lansdown...

George Salmon, equity Analyst at Hargreaves Lansdown, said there is little sign of current headwinds facing the group easing anytime soon. 

"With uncertainty looming large over the UK economy, many expect customers to hold off on some bigger ticket purchases," he said.

"Couple this with rising costs from the weaker pound, and suddenly there is much more pressure on the group than at the time of its float in 2014. The news that investment in the European expansion has been higher than anticipated isn’t helping the cause either."

He warned that company is in danger or falling off the FTSE 250 as its shares have fallen over the past couple of years.


View full AO. profile View Profile

Ao World Timeline

Related Articles

May 23 2019
Company is looking for more acquisitions after integration of Metro Rod
medical imaging graphic
Here we take a closer look at the imaging and diagnostics firm IQ-AI
May 21 2019
"The group's performance over the past three years demonstrates the continuing success of our strategy to access more customers and markets," said chief executive John Nichols.

© Proactive Investors 2019

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use