AO World swings to loss amid higher costs
By Michele Maatouk
Date: Thursday 18 Aug 2022
(Sharecast News) - Online electricals retailer AO World said on Thursday that it swung to a full-year loss amid higher costs and falling sales.
The company swung to a pre-tax loss of £37.2m from a profit of £20.2m a year earlier, with total group revenue down 6% to £1.6bn against strong comparators a year earlier when it benefited from the pandemic. Within that, UK revenues declined 5% to £1.04bn and German revenues slumped 16% to £189m.
Adjusted earnings before interest, tax, depreciation and amortisation tumbled 87% to £8.5bn. This was due in part to increased staff costs added during Covid in H2 FY21 as well as higher marketing and logistics costs.
AO confirmed the closure of its German business and said cash costs related to this will be no more than £5m, at the lower end of its original estimate of nil to £15m.
The company said: "This has been a tumultuous year for business, and for the retail sector in general. The Covid restrictions during 2020 and most of 2021 curtailed consumer spending in traditional shops and accelerated the longer-term trend to online shopping. We invested significantly and boldly to meet consumer demand and capture new customers, which brought new pressures for our business in logistics, warehousing, staffing levels, inventory and delivery but enabled us to expand our category reach and to introduce over four million new customers to the brilliant AO service since the pandemic started in 2019.
"We entered the year with optimism but as the year progressed, our business faced increasing macroeconomic headwinds including global supply chain disruption, labour shortages and a well-documented growing cost of living crisis for consumers."
AO said trading through the first quarter of FY23 has remained broadly in line with its expectations for the year, with revenues in the range of about £1bn to £1.25bn and group adjusted EBITDA for the year in the range of £20m to £30m.
In the medium term, it aims to deliver average revenue growth of 10+% per year, with an EBITDA margin of 5+% and improved cash generation.
At 0945 BST, the shares were up 12.8% at 45.30p.
Jefferies upgraded AO World to 'buy' from 'hold' after the results. "AO's FY22 results are consistent with guidance and our expectations, but the embracing of the new profit-centric pivot looks set to drive earnings ahead of our previous estimates," it said.
"We have long seen value in AO's model and proposition. We are now also encouraged by the strategic direction that is prioritising value creation over growth-at-all-costs.
"Leaving our methodology unchanged (10x EBITDA), our materially upgraded FY24 estimates drive a +44% uplift in our price target, from 45p to 65p.
"We upgrade to buy, seeing a good opportunity to own a business with a strong customer proposition, substantial market share, bolstered balance sheet, and a freshly pivoted strategy."
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