AO revenue plummets as it focuses on improving profitability

AO chief executive John Roberts

Online electricals giant AO has reported a decline in revenue and an increased operating loss as it has axed the loss-making and cost-heavy parts of its business.

AO said it had made solid progress in the plan to focus on profits and cash generation. As well as cutting loose its loss-making German operation, which ceased trading in July this year, it has also removed warehousing space, rationalised its vehicles fleet, reduced its office footprint, completely restructured its senior and middle management, removed its £30m run rate overhead costs and introduced delivery charges for all orders to offset the growing costs. It has also ended its business with the house-building sector.

Commenting in its interim results statement for the six months ending September 30 (HY23), AO founder and chief executive John Roberts said: “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.”

He concluded: “I’m pleased with this progress, particularly against the backdrop of an extraordinarily difficult macro-economic climate. 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.”

The figures show that revenue for AO in HY23 fell 17% to £546 million from £661m in HY22. Losses before tax increased by 168% from £4m to £12m. Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) rose 11% in HY23 to £9m.

It blamed the 17% fall in sales on a reduction in the overall electricals market as well as the actions they have taken to remove non-core channels and loss-making sales.

Revenue from products alone (ignoring revenue from services, commission, third-party logistics and recycling) fell 19.7% from £538.3m to £432.5m in HY23, with the company reporting that the MDA market had declined 11% year on year, while online sales took an 18% hit.

In its update statement, AO said: “The change in strategy with a pivot to prioritise profit over revenue accompanied by supply chain issues and a decline in the online MDA market value of 18% (11% in the total market) have contributed to the decline in revenue.”

AO added that despite its cost-cutting moves, it still delivered three-year growth of around 36% against the comparable period before Covid.

AO said it gained 410,000 new customers in the period and claimed an 18% share of the online MDA market, according to GfK data.

Commenting on AO’s interim results, Richard Lim, chief executive of Retail Economics, said: “Electricals is a part of the market that’s particularly income-sensitive and it’s high up on the list when consumers are deciding where to cut back. The retailer is taking proactive steps to strengthen its financial position as the economy enters recession and consumer finances are squeezed even harder.” 

He added: “Their laser-like focus on cash and profitability has hit sales hard which fell significantly on last year. It’s clear that the company is bunkering down for recession by simplifying the business, cutting costs and focusing on the core fundamentals at an accelerated pace. As the overall sector contracts, they can ill afford to serve parts of the market at a loss and are prioritising profitability at the expense of market share.” 

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