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AO Revenues Up Despite Tough Trading Environment

AO delivery man hi-vis vest 725 x 500

AO has reported on interim trading, covering the six months ended 30th September.  

The appliances etailer said that it experienced continued revenue growth against a challenging backdrop and is on track with its strategic plan.

Highlights include:

  • AO reported continued revenue growth with total revenue for the period increasing by 9.9% to £404.2m (2017: £368.0m) against a continuingly tough macro trading environment in the UK and Europe and a declining UK major domestic applicances (MDA) market.

  • Total UK revenue up 5.7% to £334.8m (2017: £316.8m).
  • AO's UK website sales rose by 4.2% to £294.3m (2017: £282.5m) with growth coming from newer categories including smart home, gaming and mobile phones.
  • Group Adjusted EBITDA losses reduced to £5.4m (2017: £6.3m).
  • Group operating losses reduced to £11.7m (2017: £12.0m loss) including exceptional costs of £1.4m incurred in relation to the proposed acquisition of Mobile Phones Direct Ltd (“MPD”)

AO said its proposed acquisition of Mobile Phones Direct Limited will further diversify its product offer and improve customer proposition through the offer of network contract sales.

Furthermore, AO has a dedicated B2B team formalised to leverage its capabilities with housebuilders, housing associations and the insurance market and is developing its finance capabilities to be appropriate to all categories and territories.

Steve Caunce, AO Chief Executive Officer, said: “This has been a half of continued delivery against our long-term strategy, thanks to a strong offer for customers. While our core UK and Germany MDA markets have been challenging, with the UK MDA market becoming tougher than expected, we take encouragement that we are at least maintaining market share in this core category in the

UK and growing significantly in Germany. Elsewhere, our continued focus on growing our range of online electricals and adding new complementary ranges proved successful in the first six months of the year, with newer categories such as Audio Visual and Computing
performing particularly well.

"Similarly, we are excited about further strengthening our customer offer through the acquisition of the UK’s leading online-only mobile phone retailer, Mobile Phones Direct.
Customers continue to love AO, as demonstrated through the satisfaction metrics which remain very strong, and awareness of the AO brand has further improved through the recent launch of our ‘Delivering Tomorrow’ campaign. While we faced some operational challenges with our driver model in Germany which had an effect on our second
quarter we expect to return to our targeted growth levels in Germany over the next few months.

"Our peak trading period began on 9 November with the launch of our biggest ever Black Friday and I remain confident of achieving long-term sustainable growth across the Group. We expect full year results to fall within the range of Board expectations, albeit more second half weighted than previously anticipated.”

Fiona Cincotta, Senior Market Analyst at https://www.cityindex.co.uk said: AO World's outlook statement essentially amounts to yet another downgrade that will wear on already-thin investor patience.“It now looks like management is resting its hopes more heavily on a bumper Christmas trading period to meet its expectations for the full year.

“Losses in the European division, while narrowing a little, are still mounting, all while earnings continue to slide at home in the UK.

“AO World still has lots of work to do convincing the market that its investment spending in Europe will add up to much. Operational hiccups like the driver shortages experienced in Germany won't help its case.

“Perhaps if Brexit is sorted out smoothly and wages rise more consistently, demand for big-ticket items like fridges and washing machines will improve. But competition will intensify in kind, making it hard to see AO World shares getting close to their 285p float price any time soon.”

Source : Insight DIY Team and AO

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20 November 2018

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