23rd Nov 2021 10:24
(Alliance News) - AO World PLC on Tuesday said logistics problems and a more competitive German market put pressure on its interim performance and led to it sinking to a loss.
AO World shares dropped 19% to 100.18 pence each on Tuesday morning in London. It was the worst performing mid-cap stock.
The online electricals retailer posted a pretax loss of GBP10.4 million in the six months to end-September, swinging from a profit of GBP17.7 million a year ago.
The poor performance came on the back of a hefty rise in costs and expenses. Cost of sales rose 5.9% to GBP621.8 million from GBP587.3 million, while administrative expenses jumped 33% to GBP150.1 million from GBP113.2 million. This capped a 6.0% rise in revenue to GBP759.6 million from GBP716.6 million.
In 2019, AO posted a pretax loss of GBP5.9 million while revenue came in at GBP454.9 million. Revenue jumped 67% on a two-year basis.
"At the start of our financial year in April, we planned for continued revenue growth and built up our cost base accordingly. However, since then, growth in the UK has been impacted by the nationwide shortage of delivery drivers and the ongoing disruption in the global supply chain, and the German online market has seen significantly increased competition," the company said.
AO has been losing market share in Germany as Seattle-based e-commerce heavyweight Amazon.com Inc and Hamburg-based retail e-commerce company Otto GmbH have been pushing hard on customer acquisition and pricing.
Investors were left disappointed in October when the company downgraded its financial 2022 guidance. This was mainly due to the poor performance in Germany, which was supposed to be the "engine of growth going forward", according to Eleonora Dani, a research analyst at Shore Capital.
"The recent under performance in the country leaves us with a fundamental question mark around the international playbook roll out and where we see the valuation in the future," Dani said in a note on Tuesday.
AO World does not pay dividends.
Looking ahead, AO said: "As we now look to the second half, we continue to see meaningful supply chain challenges with poor availability in certain categories, particularly in our newer products where we have less scale, experience and leverage. In addition, shipping costs, material input prices and consumer price inflation remain challenging uncertainties."
However, AO said it is taking action to address and mitigate the issues.
"We're working hard to solve some of the current challenges that our industry is facing. We've recruited [around] 500 new drivers and are working closely with our manufacturer partners so that customers can get what they need," Chief Executive John Roberts said.
By Greg Roxburgh; [email protected]
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