QXL Ricardo bids for growth

The European online trading group reports strong growth in revenue and trading profits but it has taken acquisitions to offset a quarterly pretax loss in the original business.

Morningstar.co.uk Editors 25 October, 2006 | 11:41AM
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These are the messiest set of results you could wish to see and QXL Ricardo is at pains to avoid mentioning pre-tax profits.

QXL has been involved in a wrangle over ownership of QXL Poland but is now indisputably in charge after taking over from a court-appointed administrator. Results from this business and from acquisitions in Eastern Europe are included from 10 August.

Without these additions, the group made a pretax loss of £98,000 in the three months to 30 September, thanks to a heavy increase in spending on technology and development.

However, if Eastern Europe, now easily the larger half of the business, is added in then a profit of £1.4bn is achieved against £23,000 in the same quarter last year.

For the first half, profits are down from £1.7m to £345,000 in the original business and up to £1.8m for the continuing businesses.

QXL blames the consolidation of the three sites in Switzerland, Denmark and Norway into a single platform for temporarily affecting revenue and profits.

QXL prefers to stress the leap in revenue from £2.5m to £6.9m in its second quarter and an even bigger leap in operating profits from £11,000 to £1.34m.

Well, we did say it was all very messy and that’s without going into the difference between pro forma and statutory results.

Chairman Bruce McInroy, says QXL is going for growth and intends to increase marketing expenditure during the rest of this financial year with major campaigns in each of the main markets. This will be paid for out of stronger cash flow, as revenue is expected to increase 40-50% in the current quarter.

He adds: ‘With Poland as a strong and profitable base, we will continue to develop and explore opportunities for expansion in Eastern Europe.'

McInroy says he is pleased with the pick-up in trading as QXL moves into its seasonally stronger quarters. The integration of the Eastern European businesses is making progress. Opportunities will be sought in emerging markets but the Italian site has not come up to scratch and will be closed.

Investors do not seem to share McInroy’s enthusiasm, perhaps remembering the lossmaking days of 2004 and early 2005. He is, by the way, only a stand-in chairman and with chief executive Mark Zaleski quitting a month ago the team is looking a little thin on top. A search for replacements is continuing and meanwhile Zaleski is graciously on call if any help is needed with integrating Poland.

Former chairman James Rose vanished as long ago as the beginning of February and no replacement is in sight.

The share price performance has been quite extraordinary. Fuelled initially by a possible takeover battle, the shares shot up from 880p at the start of last year to a peak of 15,800p last January but they have been sliding backwards erratically since and they dropped 235p to 9615p this morning.

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