Picture: 123RF / MARIAN VEJCIK
Picture: 123RF / MARIAN VEJCIK

London — 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 earlier this week.

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 (November 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 CEO 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 EU 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 October 31.

AO invested £15m 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.

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

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

Its shares were down 9.3% in early trade, extending year-on-year losses to 35% and valuing the business at £470m.

AO, which trades in Britain, Germany and the Netherlands, made an adjusted loss before interest, tax, depreciation and amortisation (ebitda) of £400,000 for the year to March 31 — in line with guidance issued in April and smaller than a loss of £3.4m in 2017/2018. Its revenue rose 13.3% to £902.5m 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 2019/2020 from £13.1m to £7.3m.

Reuters