November 19, 2019 / 7:47 AM / 3 months ago

UPDATE 2-UK online electricals retailer AO pulls plug on Dutch business

* To focus European expansion on Germany

* First half group losses widen

* Forecasts full-year results within analysts’ forecast range

* Shares rise as much as 15% (Adds detail, CEO comment, shares)

By James Davey

LONDON, Nov 19 (Reuters) - British online electrical appliances retailer AO World plans to close its Dutch operation, saying it made a mistake entering the market before its German business was profitable.

The company’s shares jumped as much as 15% on Tuesday as investors welcomed the decision to drop a loss-making business.

AO, which sells washing machines, fridges, cookers and televisions as well as mobile phones, also forecast full-year results would be within the range of analysts’ expectations, despite wider first-half losses.

Having grown rapidly in Britain, AO entered Germany in 2014 and went into the Netherlands two years later. The Dutch business, which made a loss of 2.8 million pounds ($3.6 million) in the six months to Sept. 30, will close in the second half at a cost of about 3 million pounds. It employs about 70 people.

AO said the move would enable it to focus on Germany where it can see a clearer path to profitability.

“Some of the mistakes that we made in our German business, we then repeated those mistakes in the Netherlands,” AO founder and CEO John Roberts told reporters.

“We believe in time that we could get the Netherlands to work but the truth is that we just do not have the management bandwidth for all the opportunities that we have in the UK and to fix the business in Germany, so it’s a tough decision but it’s the right decision,” he said.

Roberts said the board believed AO would succeed in Germany, but if it was wrong, it would be clear by summer 2020 and in a worst case scenario the cost of closure would be about 20 million pounds.

“The barn isn’t bet on it,” said Roberts, who co-founded AO two decades ago and still owns 23% of its equity.

Last week, British discount retailer B&M put its loss-making German unit under review and said it could exit the market.

AO’s first-half losses using its key measure - pre-IFRS 16 adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) - increased to 6.2 million pounds from 5.4 million in the same period last year, with profit growth in the United Kingdom more than offset by European losses.

Total revenue increased 16.3% to 470.1 million pounds, with the UK up 20.3% but Europe down 3.4%.

Prior to Tuesday’s update, analysts were on average forecasting a 2019-20 EBITDA of 7.2 million pounds, according to Refinitiv data, versus a loss of 0.4 million in 2018-19.

Roberts said he was “very encouraged” with trading ahead of this month’s Black Friday discount day.

$1 = 0.7712 pounds Reporting by James Davey; Editing by Kate Holton and Mark Potter

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