AO World mulls axing loss-making mobile contract business

AO World has warned that it could shut its loss-making contract mobile phone business within the next couple of months if fails to secure a more profitable deal with network providers.

Chief executive John Roberts said the retailer was considering closing down its network contract business, but assured that it was “not walking away from mobile as a category”.

“If in the next month or two we cannot work on an economically successful solution with the networks, then we’ll close it,” he told The Times.

“I’ve been really clear with the networks that if I cannot see a line of sight where I can make 5% pre-tax profit out of that business, I don’t want to be in it,” Roberts said.

The contract business would most likely be closed outright as “nobody would want to buy it”, he added.

AO currently offers customers mobile contracts with networks such as O2, Vodafone and Three under its mobilephonesdirect website.

However, the retailer reported this week that “performance in the Mobile business [had] been materially behind our expectations and a drag on profits as the post-pay connection market has declined further, and customer preference has shifted towards disaggregation of mobile contracts”.

It said that the increase in competition led to reduced margins, “has ultimately led to an impairment in the goodwill and intangibles of the Mobile business of £19.6m”.

The write-down comes as across the wider business, adjusted pre-tax profits climbed 27% to £44m for the year to 31 March driven by a 9% increase in group sales to £1.13bn and a string of cost-saving initiatives.

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