UK DIY News

AO Reports Losses; Maintains Guidance

Focus on cash and profit resulting in solid progress in a tough environment
Sales on track, profit for FY23 now expected to be around the top end of guidance, and issuing FY24 profit guidance above current consensus

AO World PLC ("the Group" or "AO"), a leading online electrical retailer in the UK, today announces its unaudited financial results for the six months ended 30 September 2022 ("HY23").

The six months to September 2022 represented solid progress in the plan to pivot the business to focus on profit and cash generation. As a result, FY23 sales are forecast to be within the range guided, FY23 profit is now expected to be around the top end of previous guidance, and guidance for FY24 has been set above current consensus.

Operational highlights

·	Over 410,000 new customers⁵ experienced the AO Way, with an increase in the repeat customer purchase rates
·	Closing the Germany operation quickly and efficiently with minimal cash impact to the Group total cash costs for the closure now expected to be around zero against original estimate of up to £15m
·	Simplified the UK business focusing on more profitable lines of business that fit our core model
·	Customer satisfaction scores remain outstanding, with Net Promoter Scores⁶ averaging c. 86, and over 370,000 Trustpilot reviews averaging 4.6 out of 5 stars - continuing to position AO as the UK's most trusted electrical retailer
·	AO remains a UK market leader in major domestic appliances ("MDA") with an 18%⁸ market share and 34%⁸ overall online market share

Financial highlights

We are rationalising, simplifying and refocusing our operations, exiting some lines of business that do not fit our model, and driving operational efficiencies and overhead reduction.

·	A reduction in the overall electricals market, as well as actions we have taken to remove non-core channels and loss-making sales, has resulted in a revenue decline YoY of 17%
·	SG&A costs reduced significantly by £17m. Detailed overhead review and property rationalisation expected to lead to annual cost savings of at least £30m FY24 vs FY22
·	Adjusted EBITDA margin was maintained at 1.6%
·	Statutory loss before tax of £12m (HY22: £4m)
·	Overall liquidity⁴ of £68m (31 March 2022: £50m; 30 September 2021: £66m). Net debt at 30 September 2022 reduced to £19m (31 March 2022: £33m)

£m¹	HY23	HY22	Mvmt
Revenue	546	661	(17%)
Adjusted EBITDA²	9	10	(11%)
Operating loss	(9)	(3)	(215%)
Loss before tax	(12)	(4)	(168%)
Basic loss per share	(2.14)	(0.45)	(377%)
Net debt ³	(19)	(18)	(5%)

Outlook

The plan focused on cash generation and profitability that we set out at the full year results remains on track and our execution of the strategic pivot is accelerating. However, we are of course not immune to the challenging and uncertain consumer environment, and we expect to continue to be impacted by both the cost of living crisis affecting consumer spending, as well as by ongoing supply chain issues.

The whole of the electricals market, is down year on year and in light of this we continue to have a laser focus on profit and cash which will see us driving only profitable sales and channels. We have initiated a number of cost reduction initiatives during the first half of the year which will see the cost base of the business reduce, giving an annualised run rate saving of at least £30m in FY24 vs FY22. We will continue to 'right size' our cost base to market conditions and outlook.

At the full year results we guided to Adjusted EBITDA in the range of £20-30m. Whilst mindful of the current economic challenges we expect to be around the top end of the range.

Our medium-term ambitions, as set out in our full year results (i.e. to deliver average revenue growth of 10+% per annum, with an EBITDA margin of 5+% and improved cash generation), remain unchanged; we expect to achieve the first ambition (5% EBITDA) in the next financial year.

In the longer-term, our addressable market in the UK stands at c£23.4bn⁷ as we look to deepen our presence in categories such as televisions, laptops, audio visual and small domestic appliances ("SDA"). 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's 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.

"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."

Source : AO

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22 November 2022