LIVE - Updated at 08:29
Rolling coverage of the latest economic and financial news.
Richard Hunter, Head of Markets at interactive investor, warns that AO World is in "a parlous position" after downgrading its revenue and earnings projections today.
The well-publicised supply chain disruptions have had a severe impact, with a shortage of delivery drivers a particular issue. At the same time, the group's foray into the German market is not only in the early stages of establishing the brand, but is also being faced by significantly increased competition. This in turn has necessitated an investment in systems and people (especially drivers) and increased marketing costs in Germany which have driven a bus through previous projections. Adjusted earnings have declined by 84% over the last year, with the figure of £5 million comparing to an estimate from the company itself of between £35 million to £50 million just weeks ago. Net debt has also seen the effects of the investment, now standing at £102 million compared to £21 million a year previous. The resultant loss before tax of £10 million compares to a profit of £18 million in the corresponding period last year. Nor does the current situation appear to be easing. The company is anticipating poor availability in some categories for the second half as well, alongside ongoing supply issues, an increase in raw material prices and general inflationary pressures. As such, the company is expecting a much softer peak trading period than previously expected, with full-year revenue likely to be flat to minus 5%.
The well-publicised supply chain disruptions have had a severe impact, with a shortage of delivery drivers a particular issue. At the same time, the group's foray into the German market is not only in the early stages of establishing the brand, but is also being faced by significantly increased competition.
This in turn has necessitated an investment in systems and people (especially drivers) and increased marketing costs in Germany which have driven a bus through previous projections. Adjusted earnings have declined by 84% over the last year, with the figure of £5 million comparing to an estimate from the company itself of between £35 million to £50 million just weeks ago. Net debt has also seen the effects of the investment, now standing at £102 million compared to £21 million a year previous. The resultant loss before tax of £10 million compares to a profit of £18 million in the corresponding period last year.
Nor does the current situation appear to be easing. The company is anticipating poor availability in some categories for the second half as well, alongside ongoing supply issues, an increase in raw material prices and general inflationary pressures. As such, the company is expecting a much softer peak trading period than previously expected, with full-year revenue likely to be flat to minus 5%.
Shares in AO World have tumbled around 27% at the start of trading, after it cut its profit forecasts.
They've fallen to their lowest since May 2020, at around 90p, having traded over £4 at the start of this year.
Products such as gaming consoles and mobile phones - which are newer territory for AO than its traditional staples such as washing machines and fridge-freezers - were more likely to be affected by shortages, explains Sky News.
Online electricals retailer AO warns on 'poor availability' of some products https://t.co/4m29cB5pBT
Some early City reaction....
likely to be a painful start for AO World (AO/ LN), with a profit warning highlighting constraints re delivery and softness in trading: pic.twitter.com/8bjzziyKFs
AO World's chief executive, John Roberts, says the company has tackled some of its supply chain problems, including hiring 500 new drivers to transport goods.
"Our results over this period have inevitably been affected by the constraints and uncertainty seen across our industry. We've materially cemented the progress of last year, with a step change in scale and consumer behaviour - and the fundamentals of the business are in place for sustained growth. "We're seeing more customers making repeat purchases more frequently across categories. Once they experience the AO Way, they keep coming back. Our outstanding operational capabilities are also being recognised by more and more companies who are now outsourcing their delivery services to us. "We're working hard to solve some of the current challenges that our industry is facing. We've recruited c.500 new drivers and are working closely with our manufacturer partners so that customers can get what they need.
"Our results over this period have inevitably been affected by the constraints and uncertainty seen across our industry. We've materially cemented the progress of last year, with a step change in scale and consumer behaviour - and the fundamentals of the business are in place for sustained growth.
"We're seeing more customers making repeat purchases more frequently across categories. Once they experience the AO Way, they keep coming back. Our outstanding operational capabilities are also being recognised by more and more companies who are now outsourcing their delivery services to us.
"We're working hard to solve some of the current challenges that our industry is facing. We've recruited c.500 new drivers and are working closely with our manufacturer partners so that customers can get what they need.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Britain's supply chain crisis continues to hit UK retailers as the crucial Christmas shopping period approaches.
AO World, which sells electrical goods online, has cut its profit forecast for the second time this autumn, blaming the disruption in the global supply chain, rising costs, and problems obtaining some products.
With Black Friday just days away, AO World's problems highlight the ongoing impact of product shortages, rising prices and problems shipping goods around the world and into the UK's congested ports.
The company had been a lockdown winner as people shopped from home in the pandemic, boosting AO's sales of items such as laptops, mobile phones, washing machines and printers.
But today, it tells shareholders that it still faces 'meaningful' supply chain challenges.
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. 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. As a result of these factors, the all-important current peak trading period is significantly softer than we anticipated only eight weeks ago.
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.
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.
As a result of these factors, the all-important current peak trading period is significantly softer than we anticipated only eight weeks ago.
AO World now expects to make adjusted profits of between £10m to £20m this year, down from the £35m-£50m forecast eight weeks ago. Group revenues could fall by up to 5% this year, it says.
UK stocks today #6 -
AO World - hello higher debt & negative earnings & "shipping costs, material input prices & consumer price inflation remain challenging uncertainties...all-important current peak trading period is significantly softer than we anticipated only 8 weeks ago" pic.twitter.com/au9qshQ4h2
AO World warns FY will be hit by supply chain issues, labour shortages https://t.co/IHOH2yqMbn
This is the second warning from AO World in less than two months. At the start of October, the firm slashed its forecasts as supply chain problems hit the company.
AO World also reports that revenues in the first half of the financial year, to 30th September, were 6% higher than the previous year -- and 67% above pre-pandemic levels.
But the firm has made a pre-tax loss of £10m in H1, down from an £18m profit a year before, with adjusted profits shrinking to £5m from £28m a year ago.
We find out how much damage the supply chain crisis is causing to other companies later today, when the latest 'flash PMI' surveys of purchasing managers are released.
They are likely to show that eurozone companies slowed as Covid-19 infections have risen this autumn.
Michael Hewson of CMC Markets explains:
The risk of a slide back into economic contraction is rising with each passing day, and that in itself is feeding into a weaker euro, and while today's flash PMIs from Germany and France are likely to point to still fairly decent levels of economic activity, they have been heading in the wrong direction for several months now. In manufacturing both France and German economic activity is expected to slow to 53.1, and 56.9 respectively, while in services we can also expect to see a similar softening to 55.5 for France and 51.5 in Germany.
The risk of a slide back into economic contraction is rising with each passing day, and that in itself is feeding into a weaker euro, and while today's flash PMIs from Germany and France are likely to point to still fairly decent levels of economic activity, they have been heading in the wrong direction for several months now.
In manufacturing both France and German economic activity is expected to slow to 53.1, and 56.9 respectively, while in services we can also expect to see a similar softening to 55.5 for France and 51.5 in Germany.
The UK PMIs are likely to be stronger though, Hewson adds:
The UK, on the other hand by opening up earlier, and seeing infections stay constant at a higher level through the summer, may well have played a blinder in building up a more resilient wall of immunity, along with the booster program, as the weather gets colder. That's not to say that the strategy might not still go pear-shaped, but in terms of economic activity we haven't seen the type of drop off being seeing in Europe. Today's November flash PMI numbers are expected to see manufacturing slow modestly to 57.3, from 57.8, while services, which saw a decent jump in October to 59.1, from 55.4, is set to fall back to 58.5.
The UK, on the other hand by opening up earlier, and seeing infections stay constant at a higher level through the summer, may well have played a blinder in building up a more resilient wall of immunity, along with the booster program, as the weather gets colder. That's not to say that the strategy might not still go pear-shaped, but in terms of economic activity we haven't seen the type of drop off being seeing in Europe.
Today's November flash PMI numbers are expected to see manufacturing slow modestly to 57.3, from 57.8, while services, which saw a decent jump in October to 59.1, from 55.4, is set to fall back to 58.5.
Elsewhere, UK energy supplier Bulb Energy is being placed into an untested bailout process that will rely on public money to manage the biggest collapse yet in the energy crisis.
The company will be handed to a "special administrator" that will have access to government funds to keep it running to supply gas and electricity to its 1.7 million household customers.
Related: Bailout process for collapsed Bulb Energy will rely on public funds