9 hours ago
AO World scores record profits despite loss-making mobile arm
AO World enjoyed record earnings last year despite a disappointing performance from the electrical retailer's mobile business, which were a 'drag on profits'.
The online electrical retailer, which was founded as Appliances Online, saw like-for-like adjusted pre-tax profits soared by 32 per cent to £45million in the year ending March.
Profits rose faster than turnover, which increased by 7 per cent to £1.1billion thanks to higher membership of its Five Star discount scheme.
AO further benefited from its product range expanding by more than 1,500 to cover categories beyond domestic appliances, including drones, cameras, and health and beauty products.
Consumer retail revenues grew by 11.9 per cent to £831.9million, offsetting mobile-related sales declining by 11.2 per cent to £94.4million.
AO told shareholders the new contract mobile phone market shrank by around 13 per cent during the year, which it blamed on lower customer demand, a dearth of handset innovation, and a shift towards disaggregated contracts.
As expected, balance sheet goodwill and intangible values of £19.6million relating to the mobile business have been written off.
AO said: 'We continue to review our strategy in this area and will not continue to fund material losses going forward.'
Analysts at Peel Hunt said AO's 'language on mobile is strikingly blunt', and 'the direction of travel' for the business will likely be known by autumn.
They added: 'AO's future mobile strategy is based on its virtual network offer, which is about to launch, and handsets through the site.
'It is a strategically important category for but management is intent on either getting the non-core mobile sites back to profitability this year or shutting them down.'
T he acquisition of MusicMagpie in December contributed £30million to overall sales.
Chief executive John Roberts, who founded AO in 2000 following a bet in a pub, said: 'We've delivered a record profit before tax performance, significantly grown our sales, and continued to delight our ever-growing customer base with trusted, outstanding service.'
But AO warned its operational costs will continue going up in the coming year due to recent minimum wage and national insurance hikes.
In early April, the National Living Wage increased by 6.7 per cent to £12.21 per hour, while employers' NI contributions rose from 13.8 per cent on annual salaries above £9,100 per year to 15 per cent on wages exceeding £5,000.
Nonetheless, AO World said it was 'confident in our ability to continue to grow revenue' and make adjusted pre-tax profits of between £40million and £50million.
The Manchester-based group struggled with plunging sales and supply chain issues after lockdown restrictions ended in 2021, as cost-of-living pressures gripped consumers.
AO World shares have plummeted by around three-quarters from their 2021 peak. They were 0.2 per cent down at 100.6p on Wednesday morning.
Adam Vettese, market analyst for eToro, said: 'Many investors will want to see shares climb higher, and AO will have to fend off stiff competition from online peers.
'If profit growth is going to convince investors, they'll want some consistency in return. If the next few updates can validate an upward trajectory, then the previous highs of last year might not seem so far away.'
