5th Jun 2014 15:57
LONDON (Alliance News) - AO World PLC, the online domestic appliance retailer that listed in London at the end of February, Thursday said it is planning a big expansion into Europe, starting in Germany and then into neighbouring countries like the Netherlands and Belgium.
Its growth ambitions don't stop there - Austria, Switzerland and France have also been earmarked as possible targets.
"We will launch into Germany first with white goods, then roll-out into TV only when we feel the time is right," Chief Executive John Roberts said after the company had reported its maiden annual results as a listed company.
Roberts said AO World will replicate its business model in the UK in Germany. It will be putting its national distribution centre in the west, then have three regional distribution centres around the country - one in Berlin, Munich and Hamburg.
"As the business scales, we will open more," Roberts told journalists in a press conference.
"The UK is a competitive market, but Germany we think is the most profitable, as the average order margin is higher in Germany. We believe economics will be better in Germany," he added.
Roberts said that the group needs around a 2% market share to make the German business profitable, and believes it can achieve break-even in Germany with sales of around GBP120 million.
To put it into perspective, AO World, which only operates in the UK at present, reported revenues of GBP384.9 million in its last financial year ended March 31, a 40% increase on the GBP274.9 million recorded a year earlier. It said growth was driven by increased order volumes at slightly higher average order values to the previous year.
The company swung to a pretax loss of GBP7.6 million, from a pretax profit of GBP8.1 million a year earlier, after booking GBP15.4 million in exceptional costs relating to its IPO, and increased marketing spend.
AO World's only competitor in Germany will be electronics retailer Media Markt, owned by German retail giant Metro AG.
"They are our biggest competitors in Germany, but they have a smaller web offering," said Roberts.
In the UK, AO World's biggest rival is Dixons Retail PLC owned electrical chain Currys.
Last month, Dixons Retail and Carphone Warehouse Group PLC agreed to merge in a GBP3.6 billion deal that will create the UK's biggest retailer of mobile phones and electrical goods. The new enlarged entity is to be called Dixons Carphone PLC.
Instead of a threat, AO World Chief John Roberts said he believes the Dixons Carphone merger is a positive thing for the company.
"I don't personally see the logic of putting those two businesses together, and the integration will be huge... they are distracted, they will be bigger, it will be more complicated and meanwhile we are focused on what we are doing, and we have momentum," said Roberts.
The group's main source of revenue comes from its UK website ao.com, which accounts for around 75% of group revenue, mainly from sales of so-called "white goods" including washing machines, dishwashers and refrigerators. However, the company said that third-party website sales and its third-party logistics services businesses are also growing strongly, with revenue up 29% and 17%, respectively, in its last financial year.
The company listed at the end of February in a stock market debut that gave it a market value of around GBP1.2 billion, as its shares priced at 285 pence. The IPO was 11 times oversubscribed, but some analysts at the time were questioning the lofty valuations put on some IPOs. Since it listed, AO World shares have dropped more than 30%, closing at 249.75 pence Thursday.
"Our shareholders are happy with our progress, despite the 8-week drop in our stock. It's all about delivering on our promises," said Roberts.
The group, which will join the FTSE 250 index on June 23, said the current financial year has started well, and trading has been in line with its expectations, while its plan to broaden its product range in the UK are being implemented ahead of schedule.
During the year, its capital expenditure was GBP7.5 million, compared with only GBP3.3 million the prior year. It spent some of that on its new 48,550 square foot headquarters in Bolton, as well as spending more on stock. It said it was bulk buying more goods to try and bring down the costs.
The group also invested a lot of money on marketing and advertising, following the re-brand of its name from Appliances Online, to AO.com in August last year. It invested in content for its online video reviews, which explain the product in detail and as well as key features and how to use them.
"Our TV campaigns and IPO have really helped build the brand... it was like we were a 14-year old overnight success story," said Roberts.
To keep on top of its competitors, AO World launched free standard and next day delivery, introduced same day delivery, and also extended the cut-off time for next day delivery to midnight from 10pm.
AO World recently moved into the television and audio-visual market. It announced last month that it had launched the new products on its website ahead of the upcoming football World Cup, in the hope of customers upgrading their TVs for larger screens in high-definition quality to watch the football.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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