Bolton-based online electrical retailer AO World plc returned to profit in the year to March 31, 2023, with statutory profit before tax of £7.6 million compared to a loss of £10.5 million in the prior year.
Revenue fell 16.8% to £1.138 billion.
AO World said it delivered a “strategic pivot” as it exited some business lines and delivered operational efficiencies and overhead reductions ahead of original plans.
AO said it remains a UK market leader in major domestic appliances (MDA) with a 16% total market share and a 30% online share.
The firm said it simplified its UK operations, focusing on more profitable lines of business that fit its core model.
AO ceased trading in Germany “with minimal cash impact to the group.”
AO World CEO John Roberts said: “We are delighted with the demonstrable progress that we’ve made with the strategic realignment of AO towards profitability and cash generation.”
REACTION:
Richard Hunter, head of markets at Interactive Investor: “Changing horses in midstream is no mean feat at the best of times, but AO World is showing signs that its decisive recent actions are beginning to take hold.
“The group’s decision to exit the German business, remove its non-core channels and loss-making sales were difficult but necessary decisions. To add to the challenge, these came at a time of weakening consumer sentiment as well as a slight shift back to offline white good purchases by potential customers. As such, revenues saw a decline of 17% for the year, but that is only part of the story.
“AO World also changed some of its warehousing operations, implemented staff cuts and bore down on a cost savings programme. At the same time, it implemented delivery charges on all orders without a material effect on sales, thereby increasing its service revenues by 11.7%. The supply chain issues which had blighted the first part of the year were materially resolved in the second half.
“The group moved further to underpin its core UK sales of Major Domestic Appliances (MDA) by squeezing its advantages wherever possible. AO World now offers ancillary services such as the installation of new products and the recycling of old ones, in an overall addressable market in the UK which the company believes to be in excess of £23 billion. In terms of UK MDA overall, the company estimates a market share of 16% and 30% of online, which reflects the fact that the group remains a well-known and well-established brand, partly helped by its relatively high-profile advertising campaigns.
“As a result of the combined actions taken, adjusted earnings more than doubled and the adjusted margin came in at 4%, in sight of the group’s nearer term target of 5%. A pre-tax profit of £7.6 million compared with a loss of £10.5 million the year previous, while a share placing of £40 million left the group with a net cash position of £4 million at year end, as opposed to net debt of £33 million a year before.
“AO World has now done much of the heavy lifting which was required to revitalise the business, and the next phase is one where the company will be concentrating on growth, cash generation and profit. Despite a parlous economic backdrop, there are already some promising signs, such as 800000 new customers having been added during the year, and with repeat customers also making a significant contribution. At the same time, an increase in the gross margin from 19.3% to 20.9% shows that the group is carefully pulling the correct levers as it negotiates its changing business model …
“Even so, the speed, decisiveness and relative early success of its actions have had a positive impact on the AO World share price, which has risen by 45% over the last year, as compared to a hike of 6% for the wider FTSE All-Share index.
“However, the gulf between the current price and the heady highs of January 2021 when the company was trading at levels of over 430p is marked and may not be recovered for many years, if ever. That being said, AO World is in a revised form and the market consensus of the shares of a buy is perhaps recognition that the company is now a rather different and developing prospect.”