Losses widen at AO despite revenue growth of 13.6%

Profits continued to elude AO World (AO) in its 2017/2018 financial year, despite revenues being up 13.6% to £796.8 million (from £701.2m).

The AO group as a whole (UK and Europe) posted losses (EBITDA) of £3.4m compared with the £2.1m loss of 2017. Group operating losses came in at £16.2m against £12m last time.

Adjusted losses in the UK totalled £22.6m (£24.4m in FY 2017), which was attributed to high marketing costs, including advertising on Britain’s Got Talent at the start of the year. The loss for the European arm of the company was said to be because of the continued investment in its current European expansion.

Website sales in the UK rose by 8.7% to £606.6m against £557.9m in the previous financial year (2017). UK growth continued to be resilient against a backdrop of a weaker UK electricals market and the company said it was particularly pleased with its performance in the second half of the year despite lower group marketing spend.

Steve Caunce, AO chief executive (pictured), said: “FY18 has been another year of good progress for AO. Over the year, we have continued to evolve our purpose to ensure it is suitable for the AO of today: to have the happiest customers by relentlessly striving for a better way.

“Our consistently high NPS scores and our amazing Trustpilot achievement in the UK proves we are firmly on track. We have continued to successfully launch new categories across our territories, and our UK recycling facility became fully operational, building upon our vertically integrated infrastructure.”

AO has expanded its categories over the past year to include mobile phones, games consoles, smart home and cameras within the UK, small kitchen appliances in Germany, and audiovisual in the Netherlands. It has also launched a new mobile app across all its territories.

Patrick O’Brien, UK retail research director at GlobalData, said: “Profits are still eluding AO World, with its adjusted EBITDA losses widening to £3.4m for the financial year (from a loss of £2.1m in the previous year). But with its deficit reducing in its European operations, as revenue continues to increase rapidly, the company has cause for optimism despite the continued challenges of the UK trading environment.

“Its UK sales growth is still impressive and reflects growing market share, but having added new categories during the year to support this – including mobile phones, gaming consoles, smart home and cameras – it will struggle to maintain this.

“The company reduced its marketing spend in the second half, following its expensive Britain’s Got Talent sponsorship, which fell short of expectations. But it plans a new campaign in the first half of its current financial year, which will, it claims, demonstrate how trusted and loved it is by consumers, and how it differs from its competitors. It has also invested to ensure that more of its major domestic appliance deliveries in the UK are made by its in-house delivery team in vans promoting the AO brand.

“While it said its current year (April and May) had started well, with UK revenue growth returning to double-digit levels, it remained cautious on its outlook in the UK due to economic and competitive pressures. The latter will be driven by the continued growth of Amazon and the possibility of a resurgent Dixons, given new CEO Alex Baldock’s plans for a strategic overhaul.

“Its European businesses in Germany and the Netherlands are showing progress, with combined sales reaching £116m, but AO is not expecting them to become profitable until FY2021. And it is notable that AO is getting into bed with its enemies by launching its proposition through Amazon’s marketplace in Germany and Blokker and BOL in the Netherlands.”

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