Online retailer narrows losses and axes Netherlands operations

AO World
X The Business Desk

Register for free to receive latest news stories direct to your inbox

Register

Bolton-based online electrical retailer AO World has announced the closure of its Netherlands operation.

Publishing its interim results for the six months to September 30, it said the closure will enable it to concentrate on its German operations.

It also said it sees the “green shoots” of profitable growth across its UK business.

AO World, which sells items like TVs, dishwashers and fridges, reported better revenues of £470.1m, compared with £404.2m the previous year, and a reduced loss before tax, which fell from a loss of £10.9m in 2018 to £5.9m this year.

It said its total UK revenue was up 20.3% to £402.7m (2018: £334.8m), showing a 4.5% increase on a like-for-like basis, excluding revenues from its acquired mobile phones business.

Europe revenue for the period decreased by 3.4% to €75.7m (2018: €78.4m) (2019: £67.4m; 2018: £69.4m) as the group re-aligned its European operating model with its UK policy.

As at September 30 the group held £23.4m in cash, compared with £28.9m at March 31, and £36.6m at September 30, 2018.

Net debt6 was £12m, against £9m at March 31, and net funds of £23.9m at September 30, 2018.

The group said it continues to have significant liquidity headroom of £80.1m at the balance sheet date, including available funds and undrawn revolving credit facility.

AO World said it has increased confidence in establishing a growing profitable German business through more efficient customer traffic acquisition and the centralisation into the UK of core disciplines including eCommerce and marketing.

This has led to a commitment to focus resources and energy on the German business resulting in the decision to close operations in the Netherlands during the second half of the financial year.

Closure is expected to cost the group around £3m and become effective by the end of the current financial year.

The Netherlands operation made an adjusted EBITDA loss of £2.8m in the six months to September 30.

Founder and chief executive, John Roberts, said today: “These results were achieved during a period of significant change for the business where we were focused on laying the foundation for disciplined, long-term growth.

“There are encouraging green shoots of profitable growth across our UK business, including within our core MDA offer and we will continue to invest to drive this further.

“Our relentless focus to accelerate profitability in Europe continues and as part of this, we have today announced the closure of our Netherlands operation.

“This will enable us to concentrate on the transformation of our German business, where we have increased confidence in, and visibility of, the three core drivers of the business model that will put us on the path to profitability.

“We have also kept a clear focus on cash generation, and we expect to be cash generative at a group level as we enter the new financial year.”

He added: “Our ecosystem of complementary products and services continues to strengthen, providing us with the belief that these can be leveraged to underpin future growth and profitability in the UK.

“Overall, I am pleased with the operational progress that we have made in this period and would like to thank AOers across the business for their continued commitment.”

Russ Mould, investment director with Manchester investment platform AJ Bell, said: “There is a trend developing among UK-based consumer-facing companies where overseas growth plans are being scaled back, either because they were trying to do too much at once or the execution has been so poor that it wasn’t worth the effort.

“AO is the latest to join this bandwagon, abandoning its operations in the Netherlands as it doesn’t have the capacity to grow both that business and its interests in Germany.

“B&M recently started a strategic review of its German business after a lengthy spell of disappointing performance.

“Last month Domino’s Pizza confirmed it would pull out of its international interests, which includes stores in Norway and Switzerland, following weak sales.

“While these moves may hurt management’s pride in the short term as they are an admission of failure, ultimately making such decisions should be a positive as it gets rid of distractions and focuses the business on stronger elements.”

He added: “AO’s UK interests continue to grow sales but the group as a whole remains loss-making as the European arm is struggling. However, gross margins are improving in Germany which offers some hope on future performance.

“If AO was only a UK-only business everyone would be applauding its growth and saying how it was doing well in a difficult environment, by finding new sources of customers via Amazon and Ebay as well as directly through its own website.

“Sentiment has been poor towards AO because of its desire to obtain greater scale through having a continental Europe presence which means group profit continues to be an aspiration rather than a reality.

“However, today’s share price rally suggest there are the beginnings of a potential change in sentiment. AO now needs to deliver the goods to truly win the market’s favour.”

Close