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AO World warns on profits as shortages, shipping and inflation bite

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Retailer AO World is at the sharp end of the supply shortages. Only eight weeks ago the online white goods and electricals retailer was forecasting adjusted earnings of between £35m and £50m. But profits were due to be heavily skewed towards the festive peak.

This morning the group said that the “all-important current peak trading period is significantly softer” than it had anticipated and that full-year earnings would only be between £10m and £20m, with revenues flat at best. Sales could fall as much as 5 per cent year-on-year, AO warned.

AO has been hit by the delivery driver shortage, but also difficulties sourcing products, with poor availability in some of its newer categories. Shipping costs, “material input prices” and consumer price inflation add to the list of woes AO namechecks in its statement.

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Meanwhile fellow retailer Pets at Home is having a far better time of it: Pets said this morning that underlying pre-tax profits are expected to be at the top end of analysts’ expectations. It added that the surge in the “pet population” since the start of the first lockdown was “materially increasing the size of our addressable market” and it now saw “a pathway to £2.3bn” of revenues over the medium term, compared to £1.4bn last year.

Catering group Compass had a difficult pandemic, but struck an optimistic tone in its full-year results this morning, reinstating its dividend. Underlying revenues returned to 88 per cent of 2019 levels in the three months to September, the final quarter of Compass’s financial year. It estimated that operating margins should be back to pre-Covid levels by the end of the new financial year.

Newspaper group Reach, which owns the Mirror and Star alongside its portfolio of regional titles, said revenue for the year so far was running ahead of expectations. It pointed to a “strong digital revenue performance” and “resilience” in its print titles. Revenues are up 2 per cent year-on-year — but that is still a 14 per cent decline on two years ago.

Petershill Partners, the Goldman Sachs alternative assets unit that listed earlier this year, gave a third-quarter trading update. The assets under management at the firms Petershill holds stakes in rose 8 per cent during the quarter. Petershill said performance was in line with expectations and the medium term guidance provided at the time of its IPO was unchanged.

Also out today is a trading update from ad agency M&C Saatchi, which said pre-tax profits will be ahead of analysts’ expectations, and utility Severn Trent.

Beyond the Square Mile

Binance is in talks with sovereign wealth funds about them taking a stake in the world’s largest cryptocurrency exchange, Mercedes Ruehl reports from Singapore. Binance’s founder Changpeng Zhao told the FT he believes the investments would help improve “perception and relationships” with various governments, but that it had to be careful about becoming tied to specific countries.

Tesla’s short sellers have thrown in the towel, unwinding most of their bets against the car company as retail investors continue to fund its rise. Short positions in Tesla have fallen to 3.3 per cent from 19.6 per cent at the start of last year, our markets team report. Short seller Carson Block, founder of Muddy Waters said that “in principle” the reasons people shorted Tesla were “not wrong”. However he went on: “But the other side is Elon Musk, who is better at playing the public company game than anybody I’ve ever seen.”

Fidelity, UBS and State Street Global Advisors are the latest fund managers to say they are looking into launching products that offer exposure to crypto. But asset managers still face hurdles to entering the cryptocurrency space, as Ed Moisson reports.

Helen Thomas tackles the slow bleed that is Brexit and the City in her column today, while regulation correspondent Laura Noonan points out the difficulties that banks are having in modelling their loan losses after their models for estimating borrowers’ financial health were broken by the pandemic.

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