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(Alliance News) - AO World PLC on Thursday said it will close its German business, potentially booking cash costs of up to GBP15 million in the process, and losing roughly 10% of group revenue.
AO World shares were 3.3% lower at 70.80 pence each in London on Thursday morning. Over the past 12 months, the stock has slumped around 70%.
The online electricals retailer had kicked off a strategic review of the German operation back in January, as fortunes there weakened with pre-pandemic shopping trends re-emerging and the competitive landscape "intensifying". The German business also suffered from a "constrained supply chain".
"Having evaluated a range of strategic options during the review process, the board has decided that closure of the German business is the best course of action. This decision was based on the continuing deterioration in the outlook for the German business, as well as the board's responsibilities to shareholders and other stakeholders," AO World said.
"The business will continue to trade for a brief period to facilitate a structured and orderly closure for its customers, suppliers and employees."
The group contributes about 10% of AO World's revenue. The company expects to incur cash costs between "nil and GBP15 million" due to the closure.
Exiting Germany means AO World can now "increase its focus on its leading online position in the UK electricals market".
"Given the strength and scale of the AO business model, its market-leading, consistently high levels of customer satisfaction, and the structural market trends towards online retailing, the group continues to have confidence in both its strategy and its long-term prospects. Further details of strategic initiatives will be discussed at full-year results," the company said.
"Whilst remaining mindful of the uncertain macroeconomic context in the UK and the continuing global supply chain challenges, the group's UK business continues to trade in line with the board's expectations for FY23."
AO World's financial year ends on March 31.
The closure of the German unit follows a recent period of difficulty for the stock. In late-April, its stock suffered following a warning on supply chain issues and a squeeze on consumer incomes.
AO World said at the time it expects revenue for the recently ended financial year to be GBP1.56 billion, down 6% on the year before as the Covid lockdown-driven online shopping boom unravels.
Also in April, it said Founder & Chief Executive John Roberts decided to dispose of a small part of his stake in the business "on an annual basis". The firm noted that since the group's IPO in 2014, he has maintained his shareholding and increased it with "selected" share purchases.
It is expected Roberts will sell off around GBP5 million worth of shares during the current financial year, representing around 5% of his total stake of 107 million shares, which is a 22% stake in the company.
Back in December, AO World was booted out of London's FTSE 250 index after a quarterly index review.
By Eric Cunha; ericcunha@alliancenews.com
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