Online retailer increases sales by £150m despite ‘tough’ backdrop

Bolton-based online electrical retailer AO World has seen group revenues increase by more than 13% to £902.5m against what it described as a backdrop of ongoing weak consumer confidence in a continuingly competitive market, particularly in the UK.

Total UK revenue was up 10.1% to £749.3m (2018: £680.8m), up 5.7% on a like for like basis excluding revenues from its newly acquired mobile phones business MPD.

Revenue in Europe for the year to the end of March 2019 increased by 32.2% on a constant currency basis to €173.3m (2018: €131.2m) (in GBP 2019: £153.2m, 2018: £116m).

John Roberts, AO founder and CEO, said: “We’ve delivered double digit revenue growth in the UK and achieved over 30% in Europe and Adjusted EBITDA in the UK has improved by over 20%. The UK result was achieved against an ongoing tough trading environment and includes three months contribution from Mobile Phones Direct which we acquired in December 2018 and its integration continues to go to plan.

“Adjusted EBITDA losses in Europe have increased slightly against the prior year with progress hampered somewhat by driver challenges in Germany and a lack of real improvement in product margin and customer acquisition costs. We are working to address these issues.  We’ve also made changes to the management of our international operations and are ensuring we utilise all the influence, intelligence and capability within AO.

AO World reported group adjusted EBITDA losses of £400,000, narrowing from £3.4m losses the year before. UK adjusted EBITDA improved by 20.9% to £27.4m (2018: £22.6m) (up 14.3% on a like for like basis excluding EBITDA from MPD).

Europe adjusted EBITDA losses increase to €31.3m (2018: €29.6m) (in GBP 2019: £27.8m loss; 2018: £26.0m loss) reflecting less progress than expected on product margins and cost pressures from re-configuring driver scheduling arrangements in Germany.

The group’s operating loss reduced to £15.2m (2018: £16.2m loss) reflecting an increase in UK operating profit of 28.4% to £14.9m (2018: £11.6m) offset by trading losses incurred in Europe of £30.1m (2018: £27.8m).

Roberts added: “The AO model is an eco-system of complementary competencies across retail, mobile, recycling and logistics through to financial services and B2B trade. We have huge structural advantages when these capabilities operate in harmony. So, we have enhanced structure with informality and a renewed mindset and are now releasing the immense unrealised value we’ve created. We’ve started to see this in the last few months and it will be an important driver for the year ahead.

“Overall, the AO team deserve praise for their efforts in FY19 but we can do better and I’m pleased with the progress that we are now making in the first few months of this financial year. I’m proud to be back at the helm of the business I founded almost two decades ago and I’m more excited than ever about the future for AO.”

Russ Mould, investment director at AJ Bell, said: “Like something out of a Greek myth, online white goods retailer AO World keeps pushing the ball up the hill in terms of growing customer numbers, yet the losses continue to mount up.

“Surely by now the patience of its management will be wearing thin, let alone long suffering shareholders, with the stock at a big discount to the 285p ticket price from a February 2014 IPO.

“The company, which sells items like TVs, dishwashers and fridges, may be pointing to a smaller underlying loss this morning but its statutory loss was materially higher year-on-year – reflecting finance charges and the costs of management changes.

“And an improvement in underlying profit in its UK division was partly a reflection of reduced marketing spend, action which needs to be balanced against the requirement to maintain brand awareness.

“The need for action to bring its European business up to speed is evident in these results with margins under pressure.

“Founder John Roberts, who returned as CEO in January, has an ambition to make trading in Europe profitable by 2021 but, unlike its products, this doesn’t come with a warranty and will likely be treated with a healthy dose of scepticism until it can be delivered.

“Roberts’ plan appears to be focused on getting the entire ‘eco-system’ of the group – retail, mobile, recycling, logistics, financial services and business-to-business trade – into greater harmony.

“Rock band AC/DC are not necessarily known for their tunefulness, but investors would definitely settle for Roberts changing the record to Back in Black.”