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AO reports falling first-half sales and widening losses but expects to post a full-year profit following a ‘laser focus’ on profitability

Image courtesy of AO parent company AO World has reported falling first-half sales and widening losses, but says it expects to post full-year profits as it takes a “laser focus” to profits and cash. 

But it says its plan to generate cash and return to profits is on track. The electricals retailer, ranked Top500 in RXUK Top500 research, reiterated its strategy, previously set out in August, to have a “laser focus on profit and cash which will see us driving only profitable sales and channels.”

The update comes as the retailer reports revenues of £546m for the six months to September 30 2022. That’s 17% down on the same time last year. Pre-tax losses widened by 168% to £12m, from £4m last time. As of September 30, net debt stood at £19m, down from £33m in March, and liquidity at £68m.

However, in its full year it expects to post adjusted EBITDA of between £20m to £30m – and says the figure is currently expected to be at the top of that range. 

Cost-saving measures have included closing its German business. AO has previously said shoppers in that market have not continued to buy online to the extent that they did during the pandemic, while costs such as digital marketing have risen. It has also ended a trial with Tesco and closed its housebuilding sector business. It now charges for delivery on all orders “to offset the growing costs of delivering for our logistics business” – and says customers have continue to see value in the quality of its delivery service. 

At the same time, it has removed loss-making sales, reduced stock levels, closed 158,000 sq ft of warehousing – after fast expansion during the Covid-19 pandemic – and reduced headcount, particularly among middle and senior managers. Administrative expenses have reduced by 12.6% to £118m, with the biggest reductions in research and development (-58.9% to £4.2m) and advertising and marketing (-21.3% to £17.7m).

So far, it says costs will be at least £30m lower in its 2024 full-year compared to its 2022 full-year – and it will continue to ‘right size’ its costs to market conditions and outlook. 

In the medium-term AO aims to grow sales by at least 10% a year, with an EBITDA (earnings before interest, tax and depreciation of assets) of at least 5%. Longer-term it says its ambition continues to be to target an addressable £23.4bn market that includes sales of televisions, laptops, audiovisual and small domestic appliances. “The online segment of the market in those categories remains a key opportunity for us as the long-term structural migration to online retailing continues.

AO founder and chief executive, John Roberts says: “During the first six months of the year, we’ve made good progress with our strategic realignment as we focus on profitability and cash generation, all of which is yielding the results we expected. 

“We’ve now closed the loss making and cash consumptive parts of our operations meaning the remaining UK business is cash generative, and are successfully closing our German business with a minimal cash impact to the wider group. I’m pleased with this progress, particularly against the backdrop of an extraordinarily difficult macro‐economic climate. 

“As ever, I’m hugely grateful for the hard work of all our AOers over the last six months. It hasn’t been easy and I’m extremely proud of their commitment to delivering our plan particularly during this peak trading period. Our collective obsession with amazing our customers through outstanding service never falters, however tough the external trading conditions become. Over the last 22 years, the team has built and nurtured trusted relationships with some of the world’s leading electrical manufacturers and I’m also grateful to them for their continued support. 

“While the short‐term outlook remains challenging, I’m confident that our strategy is the right one, and as we position ourselves to be the UK’s most trusted electrical retailer we look to the future with cautious optimism.”

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