June 4, 2019 / 6:44 AM / 6 months ago

AO World warns October Brexit deadline poses risk for UK retailers' Christmas trade

LONDON (Reuters) - Britain’s deadline to leave the EU at the end of October is the worst possible timing for the country’s retail sector as it coincides with the start of the peak trading period, online electricals group AO World warned on Tuesday.

AO, which sells washing machines, fridges, cookers and televisions as well as mobile phones, reported a smaller annual loss, helped by a jump in UK earnings, but saw its shares drop more than 9% after it said its losses in Europe deepened.

Retailers in Britain are braced for disruptions when the country leaves the EU, which analysts say could cause supply problems and knock already fragile consumer confidence.

“In terms of the impact around Christmas and Black Friday (Nov. 29) then from a retail point of view to have such a major consumer impacting decision at that time is about as far from ideal as anybody could possibly write,” AO World founder and Chief Executive John Roberts told reporters on Tuesday.

“But then the whole Brexit process has been, so frankly we’ll just get on and deal with it.”

Britain had been due to leave the European Union on March 29, but Prime Minister Theresa May was unable to get her divorce deal ratified by parliament, which rejected the so-called Withdrawal Agreement three times, and the date is now set for Oct. 31.

AO invested 15 million pounds ($19 million) in extra stock ahead of the original Brexit date.

“As we roll forward we will inevitably repeat that process, we will have learned a lot of lessons through doing it the first time round,” said Roberts, who returned to the firm as CEO in January.


The retailer said its core earnings in the UK improved 21% in the year ended March 31 to 27.4 million pounds. But its annual losses in Europe increased to 31.3 million euros, reflecting less progress than expected on product margins and cost pressures from having to re-configure driver scheduling arrangements in Germany.

The group said it was working to address these issues and also flagged a risk to supplier credit insurance that it is trying to offset.

Its shares were down 9.3% at 0935 GMT, extending year-on-year losses to 35% and valuing the business at 470 million pounds.

AO, which trades in Britain, Germany and the Netherlands, made an adjusted loss before interest, tax, depreciation and amortisation of 400,000 pounds for the year to March 31 - in line with guidance issued in April and smaller than a loss of 3.4 million pounds in 2017-18.

Its revenue rose 13.3% to 902.5 million pounds despite weak consumer confidence.

Roberts said AO’s new financial year had started well.

Still, an industry survey on Tuesday showed British shoppers cut back on their spending last month by the most in more than 20 years, raising questions about how long consumers can keep on cushioning the economy from the impact of Brexit.

Analysts at Jefferies cut their adjusted EBITDA forecast for AO for 2019-20 from 13.1 million pounds to 7.3 million pounds.

($1 = 0.7893 pounds)

Reporting by James Davey, Editing by Paul Sandle and Susan Fenton

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