TIDMAO.
RNS Number : 1929T
AO World plc
23 November 2021
AO WORLD PLC
INTERIM RESULTS FOR THE 6 MONTHSED 30 SEPTEMBER 2021
A RESILIENT PERFORMANCE DESPITE SHORT-TERM CHALLENGES
AO World plc ("the Group" or "AO"), a leading European online
electrical retailer, today announces its unaudited financial
results for the six months ended 30 September 2021 ("HY22").
Given the exceptional operating environment over the past 18
months, our performance over the comparable period in HY20 provides
a more meaningful overview of our business performance than a
comparison with HY21. Both the one-year and the two-year percentage
movements are presented below.
GBP(m) HY22 HY21 (1) HY20 1 Yr % Mvmt 2 Yr % Mvmt
(6)
======== ========= ======= ============
Total Group revenue 760 717 455 6% 67%
======== ========= ======= ============ ============
UK revenue 661 616 401 7% 65%
======== ========= ======= ============ ============
Germany revenue GBPm 99 101 54 (2)% 82%
======== ========= ======= ============ ============
Germany revenue EURm 115 112 61 3% 88%
======== ========= ======= ============ ============
Group Adjusted EBITDA
(2) 5 28 4 (84)% 24%
======== ========= ======= ============ ============
Group Operating (loss) (11) 16 (11) (165)% (2)%
======== ========= ======= ============ ============
(Loss)/ profit before
tax (10) 18 (5.8) (159)% (81)%
======== ========= ======= ============ ============
Basic (loss)/ earnings
per share (1.72)p 3.32p (1.01) (152)% (71)%
======== ========= ======= ============ ============
Net debt(3) (102) (21) (82.8) (394)% (23)%
======== ========= ======= ============ ============
Financial highlights
-- Continued strong Group revenue growth of 67% over two-year
period, including 88% revenue growth in Germany on a local currency
basis
-- Group EBITDA growth of 24% over two-year period; i mpacted in
HY22 by the investments in systems and people (in particular
drivers) and increased marketing costs
-- Group operating loss of GBP11m (HY21 : profit of GBP16m (1) )
-- Overall liquidity (7) of GBP66m (HY21: GBP161m). Net debt at
30 September 2021 of GBP102.2m (31 March 2021: GBP28.1m; 30
September 2020: GBP20.7m)
Operational highlights
-- Over 780,000 new customers(4) experienced The AO Way, with
notable step changes in post Covid repeat purchase rates
-- c.500 new drivers recruited to meet peak period demand,
bringing our fleet up to full strength and easing the previously
reported shortage of drivers
-- Five new outbases opened across UK and Germany; over 300,000 sq ft new warehousing added
-- Third Party Logistics revenues grew 38.5% with three new contracts in Germany
-- 300,000 Trustpilot ratings, averaging an excellent 4.6 out of
5 stars and Net Promoter Scores(5) averaging over 80
-- Over 2 million fridges have now been recycled at our AO
Recycling facility and we are now working with manufacturers to use
our recycled plastic in new products
Outlook
At the start of our financial year in April, we planned for
continued revenue growth and built up our cost base accordingly.
However, since then, growth in the UK has been impacted by the
nationwide shortage of delivery drivers and the ongoing disruption
in the global supply chain, and the German online market has seen
significantly increased competition.
As we now look to the second half, we continue to see meaningful
supply chain challenges with poor availability in certain
categories, particularly in our newer products where we have less
scale, experience and leverage. In addition, shipping costs,
material input prices and consumer price inflation remain
challenging uncertainties.
As a result of these factors, the all-important current peak
trading period is significantly softer than we anticipated only
eight weeks ago. As a result, we now expect full year Group revenue
to be flat to minus 5% year on year, with Group Adjusted EBITDA in
the range of GBP10m to GBP20m.
While a substantial amount of short-term uncertainty remains, we
are taking decisive action to address and mitigate the issues and
are confident in our ability to trade our way resiliently through
this period. In the medium-term, our international expansion
ambitions remain entirely unchanged. We remain confident about AO's
future prospects, based on the strength of our business model, the
quality of our customer proposition, and the ongoing structural
shift online.
AO's Founder and Chief Executive, John Roberts, said :
"Our results over this period have inevitably been affected by
the constraints and uncertainty seen across our industry. We've
materially cemented the progress of last year, with a step change
in scale and consumer behaviour - and the fundamentals of the
business are in place for sustained growth.
"We're seeing more customers making repeat purchases more
frequently across categories. Once they experience the AO Way, they
keep coming back. Our outstanding operational capabilities are also
being recognised by more and more companies who are now outsourcing
their delivery services to us.
"We're working hard to solve some of the current challenges that
our industry is facing. We've recruited c.500 new drivers and are
working closely with our manufacturer partners so that customers
can get what they need.
"Our AOers continue to deliver brilliantly, and our consistently
world-class Net Promoter Scores and Trustpilot ratings are evidence
of that. I'd like to take this opportunity to thank them for their
amazing work, and I'd also like to thank our manufacturers for
their ongoing support despite facing their own challenges during
the period. While the short-term challenges are clear, I remain
hugely optimistic about AO's long-term growth prospects."
Enquiries
Tel: +44(0)7525 147
AO World plc 877
John Roberts, Founder & CEO ir@ao.com
Mark Higgins, CFO
Cynthia Alers, Director of Investor
Relations
Powerscourt Tel: +44(0) 20 7250
Rob Greening 1443
Nick Hayns ao@powerscourt-group.com
Sam Austrums
Webcast details
A results presentation will be held for analysts and investors
at 08.30 GMT, today, 23 November 2021 at the Institute of Chartered
Accountants, Moorgate Place, London EC2R 6EA. Please register to
join at
https://webcasting.brrmedia.co.uk/broadcast/617ac3e2df7b150b81e97432
. A live Q&A session for analysts and investors will
immediately follow the presentation with questions also accepted
from the live stream. Both the presentation and a playback of the
Q&A session will be available on AO World's investor website at
www.ao-world.com later today.
About AO
AO World plc, headquartered in Bolton and a constituent of the
FTSE 250, is a leading online electrical retailer, with a mission
to be the global destination for electricals. Our strategy is to
create value by offering our customers brilliant customer service
and making AO the destination for everything they need, in the
simplest and easiest way, when buying electricals.
In the UK, we sell major and small domestic appliances and a
growing range of mobile phones, AV, consumer electricals and
laptops, delivering them via our in-house logistics business and
carefully selected third parties. We also provide ancillary
services such as the installation of new products and recycling of
old products as well as offering product protection plans and
customer finance. AO Business serves the B2B market in the UK,
providing electricals and installation services at scale. AO
launched in Germany in October 2014 selling major and small
domestic appliances, AV and electrical floorcare products. AO also
has a majority equity stake in AO Recycling, a WEEE processing
facility, allowing AO to ensure its customers' electronic waste is
dealt with responsibly in the UK.
______________________________
(1) Prior period numbers have been restated as set out in note
13.
(2) Group Adjusted EBITDA is defined as profit/(loss) before
tax, depreciation, amortisation, net finance costs, profit/loss
on
disposal of fixed assets, and other adjusting items.
(3) Net debt is defined as cash less borrowings less Lease
Liabilities as per the consolidated statement of financial
position.
(4) A customer is defined as an individual customer who has
purchased via ao.com or ao.de
(5) Net Promoter Score or "NPS" is an industry measure of
customer loyalty and satisfaction. UK NPS comprises
ao.com and mobilephonesdirect.com and is calculated on a revenue weighted average basis.
(6) The HY20 comparative excludes revenue and losses generated
by AO.nl, our Netherlands website, which was closed during the
third quarter of the year ended 31 March 2020.
(7) Liquidity is the total of cash and cash equivalents and the
remaining availability on the revolving credit facility.
Cautionary statement
This announcement may contain certain forward-looking statements
(including beliefs or opinions) with respect to the operations,
performance and financial condition of the Group. These statements
are made in good faith and are based on current expectations or
beliefs, as well as assumptions about future events. By their
nature, future events and circumstances can cause results and
developments to differ materially from those anticipated. Except as
is required by the Listing Rules, Disclosure Guidance and
Transparency Rules and applicable laws, no undertaking is given to
update the forward-looking statements contained in this document,
whether as a result of new information, future events or otherwise.
Nothing in this document should be construed as a profit forecast
or an invitation to deal in the securities of the Company. This
announcement has been prepared for the Group as a whole and
therefore gives greater emphasis to those matters which are
significant to AO World plc and its subsidiary undertakings when
viewed as a whole .
CHIEF EXECUTIVE'S REVIEW
Trading overview
The first half of the year has been a period marked by a number
of well-publicised industry-wide challenges; it is against that
backdrop that I am pleased with the resilient performance we have
delivered. And despite the impact those challenges have had, both
in terms of constraining our growth and impacting our short-term
profitability, our belief in the continued structural consumer
shift to the online market for electrical retailing is undimmed,
and we remain confident in our strategy for delivering and growing
against those trends.
On a one-year like-for-like basis, Group revenues for the first
half increased 6% against strong prior year comparatives driven by
the initial Covid lockdown. UK revenues over the period grew 7%,
with Germany growing 3% in local currency. Given the distorting
effect the initial Covid lockdown had on the prior year period, a
two-year comparison provides a better picture of the performance
and progress of the business over that time. Over that two-year
period, Group revenues grew 67%, with our UK business growing 65%
and like-for-like revenues in Germany growing 82% over the same
period. This equates to a compound annual growth rate in the UK of
28% and 37% in Germany. We are winning new customers and existing
customers are repeat purchasing with increasing frequency.
Strategic overview
As we have lapped last year's period of exceptional channel
shift in both the UK and Germany, we have materially cemented our
progress with a step change in scale and consumer behaviour.
The market is migrating online and has been for the last 20
years. This shift was accelerated by the pandemic, but the
long-term shift to a digital first mindset for both customers and
suppliers is well established and continues to drive our flywheel.
Our goal is to make AO the global destination for electricals,
founded on the choice, service, personalisation and price that we
can offer our customers. We are a business giving customers a
better way to buy electricals in an enormous total addressable
market.
Choice - Expansion into categories beyond major domestic
appliances (MDA) is a fundamental part of our strategy. Being the
destination for electricals means having an expansive, curated
range of products across all electrical categories to serve the
widest possible customer base. It increases the frequency of
purchase, allows cross selling into new categories and builds
long-term relationships with our customers.
Service - Our consistently high Trustpilot score of 4.6/5 and
Net Promoter Scores averaging over 80 in our core retail businesses
underline our obsession with delivering exceptional customer
service and ensuring that that obsession is baked into our culture
as a key differentiator.
Personalisation - Being the destination for product purchase
information is crucially important, as offering a clear and
detailed knowledge source for customers researching their potential
purchase. The commonality of product and brands across territories
is a significant advantage to our model - it means everything
repeats across territories. We are able to invest more centrally in
the quality of how we tell product stories brilliantly. We are
seeing the first outputs on our investments to improve the website
customer journey through a customised approach by category, and
away from a one size fits all. It's been a huge undertaking over
the last couple of years involving a complete redesign, a total
overhaul of all creative and a category-by-category refresh of all
content and features. Later this year we will be opening our London
creative hub to drive further innovation in this space.
Pri ce - Our strong partnerships with major brands were further
strengthened by the acceleration to online brought about by Covid.
Equally important is that our eCommerce expertise is now
strategically aligned to brands as they adopt a 'digital first'
approach and reduce their interest and investment in stores.
Ultimately, our structural advantage is our ability to leverage
our fixed-cost base investment over a greater addressable market in
the medium term. Our model is cash generative and capital
efficient, and scale leads to operational gearing as a result of
sales growth. We have made a dramatic improvement over the last two
and half years in our directional selling capability through our
investments in technology, our trading team and our trusted
brand.
Germany
Over the last two and half years, we have fixed the fundamentals
of our business in Germany and built an operational model that,
with growth, will deliver profitability. We are improving our
proposition; we opened three new outbases over the summer and we
have invested in our warehouse and delivery fleets. We have also
secured three new third-party logistics clients, bringing our total
Third Party contracts to five, which helps us further leverage our
logistics infrastructure.
Through our One AO approach, Germany benefits from the category
developments described above growing choice in both MDA and non-MDA
which will strengthen our customer proposition. The opportunity in
Germany is huge, and our suppliers are fully supporting our growth
strategy in this market. Product margins are now materially
commensurate with the UK. Delivery costs are appropriate for our
current volume levels and will reduce with scale while our overhead
is now right sized.
We have an enormous opportunity in Germany and our suppliers are
willing us to succeed. Our progression over the past two years has
been hard earned, but we believe we have created a better way to
shop, and we are determined to build on that with investment in
proposition and brand awareness.
Traditional retailers are now waking up to the online
opportunity and this has had the effect of increasing levels of
competition and driving up the cost of digital marketing. Given how
much younger we are in the territory, we have a fundamental need to
invest in raising the profile of our brand. We have therefore
increased marketing investment to build brand awareness through
SEO, PR and our first TV ad for years during peak trading.
From a market perspective, 19% of MDA was transacted online pre
pandemic and, with stores closed, the percentage grew
significantly. With stores now fully back open, online penetration
has dropped back to just below 25% for MDA; in that context, our
two-year revenue growth of 88% highlights the significant market
share gains we have made.
Doing the right thing
Caring for people and the planet is common sense - and it is
good business sense as well. We want to make our grandchildren just
as proud of us as our mums are.
Our vertically integrated recycling facility gives us a unique
ability to manage the impact of future climate regulation and help
customers live more sustainably and we are proud to have now helped
our customers recycle over two million fridges.
We are also in advance discussions with manufacturers about
using our recycled plastics output in their new products. This has
huge potential in offering a lower carbon and cost-effective
alternative to the use of raw materials - as well as diverting
plastics that have traditionally been difficult to recycle into
longer life products. This has been a complex operation, requiring
innovation and process engineering skills rather than merely
recycling operations, and we hope to be selling these products
sometime next year.
FINANCIAL REVIEW
Revenue
6 months ended 30 September 2021 30 September 2020 % change
GBPm (Restated)
------------------------------ --------------------- --------------------- ------------------------
UK Germany Total UK Germany Total UK Germany Total
------------------------------ ----- ------- ----- ----- ------- ----- ------ -------- ------
Product revenue 538.3 95.3 633.6 505.3 98.3 603.6 6.5% (3.1)% 5.0%
------------------------------ ----- ------- ----- ----- ------- ----- ------ -------- ------
Services revenue 25.1 1.9 27.0 25.8 1.9 27.7 (2.6)% 1.7% (2.3)%
------------------------------ ----- ------- ----- ----- ------- ----- ------ -------- ------
Commission revenue 75.6 0.3 75.9 70.2 0.1 70.3 7.7% 186.3% 8.0%
------------------------------ ----- ------- ----- ----- ------- ----- ------ -------- ------
Third-party logistics revenue 9.7 1.5 11.2 7.8 0.3 8.1 23.8% 486.7% 38.5%
------------------------------ ----- ------- ----- ----- ------- ----- ------ -------- ------
Recycling revenue 11.8 - 11.8 6.9 - 6.9 71.3% - 71.3%
------------------------------ ----- ------- ----- ----- ------- ----- ------ -------- ------
Total revenue 660.6 99.0 759.6 616.0 100.6 716.6 7.2% (1.5)% 6.0%
------------------------------ ----- ------- ----- ----- ------- ----- ------ -------- ------
For the six months ended 30 September 2021, total Group revenue
increased 6.0% to GBP759.6m (2020 restated(1) : GBP716.6m). In the
UK, total revenue increased 7.2%, primarily due to higher average
product pricing and good growth in selected business lines. Total
revenue in Germany fell slightly on reduced product revenue in
highly competitive markets.
Product revenue
Total Product revenue, comprising sales generated from ao.com,
ao.de, marketplaces and third-party websites, increased 5%. Ongoing
supply chain disruption and a global shortage of components at
manufacturers' facilities resulted in reduced product ranges across
our industry affecting revenues as well as some product price
inflation. We continue to work closely with our suppliers to ensure
that our customers are able to shop the widest range possible on
our websites although reduced ranges remain an industry-wide
problem.
UK MDA revenue grew 4.4%, constrained by the wide-spread
challenge of driver shortages which resulted in longer delivery
periods. Non-MDA revenues, excluding AV, comprising small
appliances, computing and gaming, grew 8.4%. AV revenue, which
includes televisions and audio visual, saw a decline of 22% over
the comparable period last year which was inflated by Covid
lockdown purchases and the televised European football
championships in the summer. B2B recorded strong growth across all
its routes to market as we continue to gain market share and build
further capabilities to service this segment of the electricals
market.
Product revenue in Germany grew by 1% in euros but declined by
3.1% due to the translation effect of exchange rates. Growth was
impacted by highly competitive market conditions and unsustainably
high customer acquisition costs, as companies seek to expand their
online capability in respond to manufacturers increasingly focusing
on this channel. We took the short-term decision to reduce our
marketing efforts in Germany and focus on the longer-term building
of our brand during this period.
Services
Services revenues, which includes delivery and customer
installation services, fell 2.3% overall, linked to the reduced
number of UK product deliveries and driver shortages.
Commission
Commission revenue includes commissions generated by network
connections in our Mobile business and from AO Care warranties.
Commissions from the sale of warranties increased with a change in
mix of product more than offsetting a lower volume of plans sold.
In our Mobile business, the prior year was impacted by a c.GBP9m
reduction of previously recognised revenue due to a significant
change in customer behaviour. Following adjustments to our customer
proposition and the removal of the redemption cash back offer, the
average life of new contracts has improved, Network partnerships
continue to strengthen and current year trading has been resilient
in challenging markets.
Third Party Logistics
Our expertise in complex two-person delivery is highly valued in
our industry, and we undertake a number of deliveries on behalf of
Third-Party clients i n the UK. The shortage of delivery drivers
resulted in some limits being put on our ability to accept
incremental business as we always put our customers first, but
overall, we were able to satisfy partner demand. Germany also
secured three new Third-Party contracts for a total of five
contracts. Together, this led to a pleasing 38.5% increase in Group
Third Party Logistics revenues. We continue to develop this revenue
opportunity as it leverages our operational gearing.
Recycling
Recycling revenue grew 71%, recovering relative to the
comparable period last year when councils closed household waste
and recycling centres. Processed volumes have increased overall
year on year and the business benefitted from a strong recovery in
output prices.
Gross margin
6 months 30 September 2021 30 September 2020 Better / (worse)
ended (Restated)
GBPm
------------- --------------------- --------------------- ---------------------------
UK Germany Total UK Germany Total UK Germany Total
------------- ----- ------- ----- ----- ------- ----- --------- ------- -------
Gross profit 130.2 7.6 137.8 121.9 7.4 129.2 6.9% 2.2% 6.6%
------------- ----- ------- ----- ----- ------- ----- --------- ------- -------
Gross margin 19.7% 7.6% 18.1% 19.8% 7.3% 18.0% (0.1ppts) 0.3ppts 0.1ppts
------------- ----- ------- ----- ----- ------- ----- --------- ------- -------
Gross profit for the Group, including product margins, services
and delivery costs, grew 6.6% to GBP137.8m (2020 restated:
GBP129.2m), with growth in both the UK and Germany. In the UK,
towards the end of the period, increased costs for driver
recruitment began to impact margins, and we expect this will
continue to weigh on gross margins in the second half of the year.
This was offset by an improvement in our Mobile business
profitability which in the prior year had been impacted by a change
in customer behaviour resulting in a c.GBP9m hit to margin.
In Germany, increased volume from three new Third Party
Logistics contracts helped gross margins remain stable, offsetting
the slight decrease in product margin resulting from increased
competition. Germany's gross margin is structurally lower than that
in the UK as we do not offer warranties and commissions in
Germany.
Selling, General & Administrative Expenses ("SG&A")
6 months ended 30 September 2021 30 September 2020 Better/ (worse) %
GBPm (Restated)
UK Germany Total UK Germany Total UK Germany Total
--------------- ------ ------- ----- ------- ------- ----- -------- ------- -------
Advertising and
marketing 22.5 4.5 27.0 16.5 3.6 20.0 (36.5)% (26.1)% (34.6)%
--------------- ------ ------- ----- ------- ------- ----- -------- ------- ---------
% of revenue 3.4% 4.5% 3.6% 2.7% 3.6% 2.8%
--------------- ------ ------- ----- ------- ------- ----- -------- ------- ---------
Warehousing 32.7 3.6 36.3 24.0 3.3 27.3 (36.1)% (9.2)% (32.8)%
--------------- ------ ------- ----- ------- ------- ----- -------- ------- ---------
% of revenue 4.9% 3.7% 4.8% 3.9% 3.2% 3.8%
--------------- ------ ------- ----- ------- ------- ----- -------- ------- ---------
Research and
development 10.2 - 10.2 5.8 - 5.8 (74.8)% - (74.8)%
--------------- ------ ------- ----- ------- ------- ----- -------- ------- ---------
% of revenue 1.5% - 1.3% 0.9% - 0.8%
--------------- ------ ------- ----- ------- ------- ----- -------- ------- ---------
Other admin 69.6 7.1 76.7 53.2 6.8 60.0 (30.8)% (3.5)% (27.7)%
--------------- ------ ------- ----- ------- ------- ----- -------- ------- ---------
% of revenue 10.5% 7.2% 10.1% 8.6% 6.8% 8.4%
--------------- ------ ------- ----- ------- ------- ----- -------- ------- ---------
Administrative
expenses 134.9 15.2 150.1 99.5 13.8 113.2 (35.6)% (10.0)% (32.6)%
--------------- ------ ------- ----- ------- ------- ----- -------- ------- ---------
% of revenue 20.4% 15.4% 19.8% 16.1% 13.6% 15.8%
--------------- ------ ------- ----- ------- ------- ----- -------- ------- ---------
Group SG&A costs as a percentage of revenue increased during
the period from 15.8% to 19.8%.
In the UK, SG&A as a percentage of revenues increased from
16.1% to 20.4%. Advertising and marketing costs increased as
manufacturers increasingly supported digital first marketing,
leading to increased competition for clicks per customer as
companies all sought to build market share online. In addition, we
increased spending on brand awareness in the period.
Warehousing costs increased marginally as a percentage of sales
in preparation for peak period trading in view of global supply
chain disruption. Research and development costs increased by
GBP4.4m compared to the prior period reflecting continued
investment in the core business to deliver growth together with
initial costs in relation to the Group's new ERP systems and
processes.
Other admin costs increased by GBP16.7m to GBP76.7m primarily
reflecting the investment in people made in our Retail business in
the second half of FY21 to support the significantly increased
growth in the business. We also invested in additional IT
capability particularly in data and projects to support future
growth.
In Germany, as shoppers have moved back to their traditional
ways of buying, competition in the online space has intensified
which also drove up the costs of clicks, in some cases up more than
100%. Warehousing and other admin were broadly flat as a percentage
of sales compared to the prior period.
Operating loss and Adjusted EBITDA
Our operating loss for the period was GBP10.6m (2020 restated:
GBP16.4m profit).
Alternative Performance Measures
The Group tracks a number of alternative performance measures in
managing its business. These are not defined or specified under the
requirements of IFRS because they exclude amounts that are included
in, or include amounts that are excluded from, the most directly
comparable measure calculated and presented in accordance with IFRS
or are calculated using financial measures that are not calculated
in accordance with IFRS. The Group believes that these alternative
performance measures, which are not considered to be a substitute
for or superior to IFRS measures, provide stakeholders with
additional helpful information on the performance of the business.
These alternative performance measures are consistent with how the
business performance is planned and reported within the internal
management reporting to the Board. Some of these alternative
performance measures are also used for the purpose of setting
remuneration targets. These alternative performance measures should
be viewed as supplemental to, but not as a substitute for, measures
presented in the consolidated financial statements relating to the
Group, which are prepared in accordance with IFRS. The Group
believes that these alternative performance measures are useful
indicators of its performance.
EBITDA
EBITDA is defined by the Group as earnings before interest, tax,
depreciation, amortisation and profit/loss on the disposal of fixed
assets.
Adjusted EBITDA
Adjusted EBITDA is calculated by adding back or deducting
Adjusting Items to EBITDA. Adjusting Items are those items which
the Group excludes in order to present a further measure of the
Group's performance. Each of these items, costs or incomes, is
considered to be significant in nature and/or quantum or are
consistent with items treated as adjusting in prior periods.
Excluding these items from profit metrics provides readers with
helpful additional information on the performance of the business
across periods because it is consistent with how the business
performance is planned by, and reported to, the Board and the Chief
Operating Decision Maker.
There were no adjusting items in the six-month period ended 30
September 2021.
During the comparable period, the full cost of an onerous
marketing contract in Germany (which ended in December 2020 and
totalling GBP1.0m) was added back in arriving at Adjusted EBITDA.
This was consistent with the treatment adopted in prior
periods.
The reconciliation of statutory operating (loss)/profit to
Adjusted EBITDA is as follows:
6 months ended 30 September 2021 30 September 2020 (Restated) change %
GBPm
UK Germany Total UK Germany Total UK Germany Total
------------------------ ------ -------- ------ -------- ------------ -------- -------- ------- --------
Operating (loss)/profit (3.0) (7.6) (10.6) 22.7 (6.4) 16.4 (113.4)% (20.1)% (165.1)%
Depreciation 11.7 1.5 13.2 8.1 1.6 9.7 (44.3)% 1.6% (36.8)%
Amortisation 1.7 - 1.7 1.3 - 1.3 (32.6)% - (32.5)%
Loss on disposal 0.3 - 0.3 - - - (100.0)% - (100.0)%
EBITDA 10.6 (6.1) 4.5 32.1 (4.8) 27.4 (67.0)% (27.3)% (83.4)%
------------------------ ------ -------- ------ -------- ------------ -------- -------- ------- --------
Adjusting items - - - - 1.0 1.0 - (100)% (100)%
Adjusted EBITDA 10.6 (6.1) 4.5 32.1 (3.8) 28.3 (67.0)% (60.0)% (84.0)%
------------------------ ------ -------- ------ -------- ------------ -------- -------- ------- --------
Adjusted EBITDA
as % of Revenue 1.6% (6.1)% 0.6% 5.2% (3.8)% 3.9%
------------------------ ------ -------- ------ -------- ------------ -------- -------- ------- --------
Taxation
The tax credit is recognised based on management's best estimate
of the weighted average, by region, of the annual corporation tax
rate expected for the full financial year multiplied by the pre-tax
results of the interim reporting period. The Group's tax credit for
the period is GBP2.2m (2020: GBP2.3m charge) as a result of the
expected effective tax rate for the year of 20.50% in entities
taxable in the UK, before prior period adjustments and discrete tax
adjustments relating to the period ended 30 September 2021 only.
This results in a combined effective tax rate for the period ended
30 September 2021 of 22.26.% (2020: 12.6%).
The effective tax rate of 22.26% is higher than the UK
corporation tax rate for the period of 19% due to discrete items
impacting the six-month period to 30 September 2021 only including
non-taxable foreign exchange gains arising on intercompany balances
and the net disallowable in relation to share options.
Retained loss and loss per share
Retained loss for the period was GBP8.2m (2020 restated:
GBP15.8m profit).
Basic loss per share was 1.72p (2020 restated: 3.32p earnings)
and diluted loss per share was 1.72p (2020 restated: 3.25p
earnings). Basic loss per share is reconciled to adjusted basic
loss per share (after excluding the impact of foreign exchange
differences) of 2.09p (2020 restated: 2.72p earnings) as
follows:
6 months ended 30 September 30 September
GBPm 2021 2020 (Restated)
----------------------------------------------- ------------- -----------------
(Loss)/ earnings
(Loss)/ profit attributable to owners
of the parent company (8.2) 15.8
Foreign exchange gains on intra-group
loans (1.8) (2.8)
----------------------------------------------- ------------- -----------------
Adjusted (loss)/ earnings attributable
to owners of the parent company (10.0) 12.9
----------------------------------------------- ------------- -----------------
Number of shares
Basic and adjusted weighted average
number of ordinary shares 478,307,791 474,507,349
Potentially dilutive share options
(see note 6) 6,659,994 9,620,924
----------------------------------------------- ------------- -----------------
Diluted weighted average number
of shares 484, 967,785 484,128,253
----------------------------------------------- ------------- -----------------
(Loss)/ earnings per share (in pence)
Basic (loss)/earnings per share (1.72) 3.32
Diluted (loss)/ earnings per share (1.72) 3.25
Adjusted basic (loss)/earnings per
share (2.09) 2.72
----------------------------------------------- ------------- -----------------
Foreign exchange differences are deducted to arrive at adjusted
(loss)/ earnings. The gain of GBP1.8m (2020: GBP2.8m) relates to
the impact of the Euro/Sterling exchange rate on the value of
intra-group loans held in GBP in the European entities.
The diluted loss per share has been restricted to the basic loss
per share for the 6 months ended 30 September 2021 to prevent
having an anti-dilutive effect.
Cash resources and cash flow
At 30 September 2021, the Group's net debt was GBP102.2m (31
March 2021: GBP28.2m; 30 September 2020: GBP20.7m). Net debt
comprises cash balances less borrowings and lease liabilities.
Cash balances at 30 September 2021 were GBP11.1m (31 March 2021:
GBP67.1m; 30 September 2020: GBP85.4m). The decrease in cash since
31 March 2021 is largely driven by the outflow from working capital
(see below).
Borrowings of GBP20.0m (31 March 2021: GBPnil; 30 September
2020: GBP20.8m) relate to short term funding drawn from the Group's
revolving credit facility. This will be repaid in the financial
quarter ending 31 December 2021.
Lease liabilities remain broadly in line with prior year at
GBP93.3m (31 March 2021: GBP95.3m, 30 September 2020: GBP85.3m)
reflecting new right of use lease liabilities linked to the growth
in the Group's logistics capacity net of lease payments in the
period.
At 30 September 2021 the Group had GBP55.1m available on its
Revolving Credit Facility. The amount utilised represents GBP20.0m
of cash borrowings (see above) and GBP4.9m of letters of
credit/guarantees.
Working Capital
At 30 September 2021, the Group had net current liabilities of
GBP67.0m (31 March 2021: GBP59.0m).
At 30 September 2021, UK inventories were GBP93.7m (31 March
2021: GBP115.0m) and UK stock days were 30 days (31 March 2021: 39
days). We increased our stock levels at the end of last year in
response to the continued global component shortages and supply
chain disruption to ensure that we could respond to customers with
our excellent AO customer service. Stock levels have started to
return to move normal levels as we approach the peak trading
period.
UK trade and other receivables (both non-current and current)
were GBP240.6m as at 30 September 2021 (31 March 2021: GBP230.4m)
reflecting an increase in our B2B customers as well as the timing
of supplier support.
UK trade and other payables were GBP314.9m at 30 September 2021
(GBP391.7m at 31 March 2021). Investment in inventory at the end of
FY21 drove up payables at the prior period end with the working
capital benefit unwinding as purchasing patterns returned to more
normal levels. Trade payables days at 30 September 2021 were 51
days (31 March 2021: 52 days).
Net working capital decreased marginally from GBP17.8m to
GBP17.1m in Germany reflecting the flat growth in the period.
As at 30 September 2021 31 March 2021 30 September 2020
GBPm (Restated)
UK Germany Total UK Germany Total UK Germany Total
----------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Inventories 93.7 22.6 116.3 115.0 25.5 140.5 78.1 15.1 93.2
----------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Trade and other
receivables 240.6 17.0 257.6 230.4 21.0 251.4 230.0 17.3 247.3
----------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Trade and other
payables (314.9) (22.5) (337.4) (391.7) (27.6) (419.3) (354.9) (22.0) (376.9)
----------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net working
capital 19.4 17.1 36.5 (46.3) 17.8 (28.4) (46.8) 10.4 (36.3)
----------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Change in net
working capital 65.7 (0.7) 65.0 0.4 7.4 7.9 (78.1) 0.7 (77.4)
----------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Capital Expenditure
Total cash capital expenditure for the six-month period was
GBP4.5m (2020: GBP4.2m), largely related to ongoing investment in
our recycling facility, out-base fit out costs and IT investment.
It is anticipated that the capital expenditure in the second half
of the year will increase as we ramp up investment in our ERP
project as well as commence spend on our marketing related
activities including the new creative studio in London.
John Roberts Mark Higgins
Founder and Chief Chief Financial Officer
Executive Officer
CONDENSED CONSOLIDATED INCOME STATEMENT
For the 6 months ended 30 September 2021
6 months 6 months ended Year
ended 30 September ended
30 September 2020 31 March
2021 Restated 2021
(See note
GBPm Note 13)
------------------------------- ---- ------------- -------------- ---------
Revenue 2 759.6 716.6 1,660.9
Cost of sales 3 (621.8) (587.3) (1,368.4)
------------------------------- ---- ------------- -------------- ---------
Gross profit 137.8 129.3 292.5
Administrative expenses 3 (150.1) (113.2) (263.6)
Other operating income 3 1.7 0.4 0.8
------------------------------- ---- ------------- -------------- ---------
Total operating (loss)/profit (10.6) 16.4 29.7
Finance income 4 3.1 4.6 4.3
Finance costs 5 (2.9) (3.3) (13.8)
------------------------------- ---- ------------- -------------- ---------
(Loss)/ profit before
tax (10.4) 17.7 20.2
Taxation credit/(charge) 2.2 (2.3) (3.1)
------------------------------- ---- ------------- -------------- ---------
(Loss)/ profit after
tax for the period (8.2) 15.4 17.1
------------------------------- ---- ------------- -------------- ---------
(Loss)/ profit for the period attributable
to:
Owners of the parent
company (8.2) 15.8 17.7
Non-controlling interest - (0.4) (0.6)
------------------------------- ---- ------------- -------------- ---------
(8.2) 15.4 17.1
------------------------------- ---- ------------- -------------- ---------
(Loss)/ earnings per share (pence)
Basic (loss)/earnings
per share 6 (1.72) 3.32 3.73
Diluted (loss)/earnings
per share 6 (1.72) 3.25 3.68
------------------------------- ---- ------------- -------------- ---------
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 6 months ended 30 September 2021
6 months ended 6 months ended
30 September 30 September
2021 2020
Restated Year ended
(See note 31 March
GBPm 13) 2021
-------------------------------------- ---------------- ---------------- ----------
(Loss)/ profit for the period (8.2) 15.4 17.1
Items that may be subsequently recycled to Income
Statement
Exchange differences on translation
of foreign operations (1.6) (2.6) 5.8
--------------------------------------- ---------------- ---------------- ------------
Total comprehensive (loss)/ profit
for the period (9.8) 12.8 22.9
--------------------------------------- ---------------- ---------------- ------------
Total comprehensive (loss)/profit for the period
attributable to:
Owners of the Company (9.8) 13.2 23.5
Non-controlling interests - (0.4) (0.6)
--------------------------------------- ---------------- ---------------- ------------
(9.8) 12.8 22.9
-------------------------------------- ---------------- ---------------- ------------
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 September 2021
30 September 30 September 31 March
2021 2020 2021
Restated
GBPm Note (See note 13)
------------------------------- ---- ------------ -------------- --------
Non-current assets
Goodwill 7 28.2 28.2 28.2
Other intangible assets 14.6 15.6 15.6
Property, plant and equipment 33.4 29.4 32.8
Right of use assets 75.3 67.7 74.3
Trade and other receivables 8 84.6 84.2 85.3
Derivative financial asset - 0.6 -
Deferred tax asset 5.7 5.6 5.6
--------------------------------- ---- ------------ -------------- --------
241.8 231.3 241.8
------------------------------- ---- ------------ -------------- --------
Current assets
Inventories 116.3 93.2 139.6
Trade and other receivables 8 173.1 163.1 166.2
Corporation tax receivable 3.7 - 1.0
Cash and cash equivalents 10 11.1 85.4 67.1
304.2 341.7 373.9
------------------------------- ---- ------------ -------------- --------
Total assets 546.0 573.0 615.7
--------------------------------- ---- ------------ -------------- --------
Current liabilities
Trade and other payables 9 (331.1) (367.1) (411.4)
Borrowings 10 (20.0) (20.8) -
Lease liabilities 10 (19.9) (15.7) (21.4)
Corporation tax payable - (0.5) -
Derivative financial liability - (0.4) -
Provisions (0.2) (0.9) (0.1)
(371.2) (405.4) (432.9)
------------------------------- ---- ------------ -------------- --------
Net current liabilities (67.0) (63.7) (59.0)
--------------------------------- ---- ------------ -------------- --------
Non-current liabilities
Lease liabilities 10 (73.4) (69.6) (73.9)
Trade and other payables 9 (6.3) (9.8) (7.9)
Derivative financial liability - (0.5) -
Deferred tax liability (2.7) (2.5) (2.3)
Provisions (2.3) (2.0) (2.3)
--------------------------------- ---- ------------ -------------- --------
(84.7) (84.4) (86.4)
------------------------------- ---- ------------ -------------- --------
Total liabilities (455.9) (489.8) (519.3)
--------------------------------- ---- ------------ -------------- --------
Net assets 90.1 83.1 96.4
--------------------------------- ---- ------------ -------------- --------
Equity attributable to owners
of the parent
Share capital 1.2 1.2 1.2
Share premium account 104.4 103.7 104.3
Other reserves 24.5 20.7 25.3
Retained losses (38.7) (41.4) (33.1)
--------------------------------- ---- ------------ -------------- --------
Total 91.4 84.2 97.7
--------------------------------- ---- ------------ -------------- --------
Non-controlling interest (1.3) (1.1) (1.3)
--------------------------------- ---- ------------ -------------- --------
Total equity 90.1 83.1 96.4
--------------------------------- ---- ------------ -------------- --------
CONDENSED CONSOLIDATED STATEMENT OF CHANGE IN EQUITY
At 30 September 2021
Other reserves
-----------------------------------------------------------
Share Share Merger Capital Share-based Translation Other Retained Total Non-controlling Total
capital premium reserve redemption payment reserve reserve losses interest
Investment account reserve reserve
in
own
shares
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- ----------- -------- -------- ----------- ------------ ------------ -------- --------- ------ ---------------- ------
Balance at 1 April
2021 1.2 - 104.3 22.2 0.5 9.6 (4.0) (3.0) (33.1) 97.7 (1.3) 96.4
Loss for the
period - - - - - - - - (8.2) (8.2) - (8.2)
Issue of share
capital
(net of expenses) - - 0.1 - - - - - - 0.1 - 0.1
Foreign currency
loss arising on
consolidation - - - - - - (1.6) - - (1.6) - (1.6)
Share-based
payments
charge (net of
tax) - - - - - 3.4 - - - 3.4 - 3.4
Movement between
reserves - - - - - (2.6) - - 2.6 - - -
--------- ------
Balance at 30
September
2021 1.2 - 104.4 22.2 0.5 10.4 (5.6) (3.0) (38.7) 91.4 (1.3) 90.1
------------------ -------- ----------- -------- -------- ----------- ------------ ------------ -------- --------- ------ ---------------- ------
At 30 September 2020
Other reserves
-----------------------------------------------------------
Share Share Merger Capital Share-based Translation Other Retained Total Non-controlling Total
capital premium reserve redemption payment reserve reserve losses interest
Investment account reserve reserve
in
own
shares
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- ----------- -------- -------- ----------- ------------ ------------ -------- --------- ------ ---------------- ------
Reported balance
at
1 April 2020 1.2 - 103.7 22.2 0.5 11.7 (9.7) (2.7) (46.1) 80.7 (1.0) 79.7
Cumulative
adjustment
to opening
balance
(see note 13) - - - - - - - - (11.1) (11.1) - (11.1)
Restated balance
at
1 April 2020 1.2 - 103.7 22.2 0.5 11.7 (9.7) (2.7) (57.2) 69.6 (1.0) 68.6
Restated profit
for
the period
(see note 13) - - - - - - - - 15.8 15.8 (0.4) 15.4
Acquisition of
minority
interest - - - - - - - (0.2) - (0.2) 0.4 0.2
Issue of share - - - - - - - - - - - -
capital
(net of expenses)
Foreign currency
loss
arising on
consolidation - - - - - - (2.6) - - (2.6) - (2.6)
Share-based
payments
charge
(net of tax) - - - - - 1.6 - - - 1.6 - 1.6
--------- ------
Restated balance
at
30 September 2020 1.2 - 103.7 22.2 0.5 13.3 (12.3) (2.9) (41.4) 84.2 (1.1) 83.1
------------------ -------- ----------- -------- -------- ----------- ------------ ------------ -------- --------- ------ ---------------- ------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the 6 months ended 30 September 2021
6 months ended 6 months ended Year ended
30 30 September 31 March
September 2020 2021
2021 Restated
GBPm (See note
13)
--------------------------------------------------- -------------- -------------- ----------
Cash flows from operating activities
(Loss)/Profit for the period (8.2) 15.4 17.1
Adjustments for:
Depreciation and amortisation 14.9 11.0 24.6
Finance income (3.1) (4.6) (4.3)
Finance costs 2.9 3.3 13.8
Taxation (credit)/ charge (2.2) 2.3 3.1
Loss on disposals 0.3 - -
Share-based payment charge 2.8 1.0 3.3
Increase in provisions 0.2 0.3 0.9
---------------------------------------------------- -------------- -------------- ----------
Operating cash flows before movement
in working capital 7.6 28.7 58.5
---------------------------------------------------- -------------- -------------- ----------
Decrease/(increase) in inventories 23.4 (20.3) (67.6)
Increase in trade and other receivables (3.4) (30.7) (35.9)
(Decrease)/increase in trade and
other
payables (83.9) 119.5 162.0
Net movement in working capital (63.9) 68.5 58.5
Taxation received/(paid) 0.7 (1.0) (2.4)
---------------------------------------------------- -------------- -------------- ----------
Cash (used in)/ generated from
operating activities (55.6) 96.2 114.6
---------------------------------------------------- -------------- -------------- ----------
Cash flows from investing activities
Acquisition of property, plant
and
equipment (3.6) (3.2) (6.3)
Acquisition of intangible assets (0.9) (1.0) (2.8)
---------------------------------------------------- -------------- -------------- ----------
Cash used in investing activities (4.5) (4.2) (9.1)
---------------------------------------------------- -------------- -------------- ----------
Cash flows from financing activities
Proceeds from issue of ordinary share
capital 0.1 - 0.6
Acquisition of non-controlling
interest - (0.1) (0.1)
Interest paid on borrowings (0.7) (1.9) (2.3)
Interest paid on lease liabilities (2.2) (1.8) (4.0)
Increase in/ (repayment of) borrowings 20.0 (1.1) (21.9)
Repayment of lease liabilities (13.1) (8.5) (17.6)
Net cash generated from/ (used in)
financing activities 4.1 (13.5) (45.3)
---------------------------------------------------- -------------- -------------- ----------
Net (decrease)/ increase in cash (56.0) 78.4 60.2
Cash and cash equivalents at beginning
of period 67.1 6.9 6.9
Exchange gains on cash & cash equivalents - - -
--------------------------------------------------- -------------- -------------- ----------
Cash and cash equivalents at end
of period 11.1 85.4 67.1
---------------------------------------------------- -------------- -------------- ----------
NOTES TO THE FINANCIAL INFORMATION
1. Basis of preparation
The interim financial information was approved by the Board on
22 November 2021. The financial information for the 6 months ended
30 September 2021 has been reviewed by the Group's external
auditor. Their report is included within this announcement. The
financial information for the year ended 31 March 2021 is based on
information in the audited financial statements for that period
which are available online at
https://www.ao-world.com/investor-centre/ . .
The comparative figures for the year ended 31 March 2021 are an
abridged version of the Group's full financial statements and,
together with other financial information contained in these
interim results, do not constitute statutory financial statements
of the Group as defined in section 434 of the Companies Act 2006. A
copy of the statutory accounts for the year ended 31 March 2021 has
been delivered to the Registrar of Companies. The auditors have
reported on those accounts: their report was unqualified, did not
draw attention to any matters by way of emphasis and did not
contain a statement under s498(2) or (3) of the Companies Act
2006.
Going concern
Notwithstanding net current liabilities of GBP67.0m as at 30
September 2021, a loss of GBP8.2m and operating cash outflows of
GBP55.6m for the 6 month period ended 30 September 2021, the
interim financial information has been prepared on a going concern
basis which the directors consider to be appropriate for the
following reasons.
The Group meets its day to day working capital requirements from
its cash balances and the availability of its revolving credit
facility which at the approval date of the interim financial
information amount to GBP27.9m and GBP65.1m respectively.
The directors note that the business is 20 months into a 3 year
revolving credit facility which is due to expire in April 2023.
Although this does not impact the going concern period for the
basis of preparation of the interim financial information, the
directors are cognisant that a re-financing will be required in the
next financial year and expect this to be completed in 2022.
The directors have prepared cash flow forecasts for a period of
at least 12 months from the date of approval of the interim
financial information which indicate that, taking account of
reasonably possible downsides, the company will have sufficient
funds, through its existing cash balances and availability of funds
from its Revolving Credit Facility to meet its liabilities as they
fall due for that period.
The severe but plausible downside scenario which sensitises the
base case includes a reduction in sales growth (no growth from
FY22) and the consequential impact on profitability as a result of
the continued uncertainties in the wider economies, together with a
reduction in trade payables due to any potential tightening of
supplier terms and further cash outflows due to increased working
capital requirements. Even under this severe but plausible downside
scenario, the Group continues to demonstrate headroom on its
banking facilities and remains complaint with covenants.
Consequently, the Directors are confident that the Group and
Company will have sufficient funds to continue to meet their
liabilities as they fall due for at least 12 months from the date
of approval of the interim financial information and therefore have
prepared the interim financial information on a going concern
basis.
Basis of preparation and accounting policies
This condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted for
use in the UK. The annual financial statements of the group for the
year ended 31 March 2022 will be prepared in accordance with
UK-adopted international accounting standards. As required by the
Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority, the condensed set of financial statements has been
prepared applying the accounting policies and presentation that
were applied in the preparation of the company's published
consolidated financial statements for the year ended 31 March 2021
which were prepared in accordance with International Financial
Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union and in accordance
with international accounting standards in conformity with the
requirements of the Companies Act 2006.
Restatement of comparatives
The comparatives for the primary statements for the six months
ended 30 September 2020 have been restated following changes made
in the in the full year financial statements to 31 March 2021. Full
details of the impact of the change and the reasons are included in
note 13.
Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, the
Directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other
factors that are considered to be relevant and are reviewed on an
ongoing basis. Actual results could differ from these estimates and
any subsequent changes are accounted for with an effect on income
at the time such updated information becomes available. Accounting
standards require the Directors to disclosure those areas of
critical accounting judgement and key sources of estimation
uncertainty which carry a significant risk of causing material
adjustment to the carrying value of assets and liabilities within
the next 12 months. These are discussed below:
Impairment of intangible assets and goodwill
As part of the acquisition of Mobile Phones Direct Limited in
2018, the Group recognised amounts totalling GBP16.3m in relation
to the valuation of the intangible assets and GBP14.7m in relation
to residual goodwill. Intangible assets are reviewed for impairment
if events or changes in circumstances indicate that the carrying
amount may not be recoverable. Goodwill is reviewed for impairment
on an annual basis. When a review for impairment is conducted, the
recoverable amount is determined based on the higher of value in
use and fair value less costs to sell. The value in use method
requires the Group to determine appropriate assumptions (which are
sources of estimation uncertainty) in relation to the cash flow
projections over the three-year strategic plan period, the
long-term growth rate to be applied beyond this three-year period
and the risk-adjusted pre-tax discount rate used to discount the
assumed cash flows to present value.
At 30 September 2021, the Directors have concluded that there
are no events which have occurred since 31 March 2021 which would
trigger a full impairment review and the reasonable range of
outcomes have not changed and therefore the carrying value of the
intangibles and goodwill remains appropriate. However, changes in
any of these assumptions used at 31 March 2021 (mainly sales growth
and margin), which could be driven by the end customer behaviour
with the Mobile Network Operators (particularly given the changes
seen during the year ended 31 March 2021), could give rise to an
impairment in the carrying value. Further details are included in
note 7.
Revenue recognition for variable consideration
As a consequence of the unprecedented changes seen during FY21
with regard to customer behaviour particularly in relation to
Mobile contracts, as well as the ongoing uncertainty in the wider
economy as a result of Covid19, the Directors believe that the
recognition of commissions from both product protection plans, and
mobile network operator contracts should be considered as an area
of estimation uncertainty in relation to the revenue constraints
applied.
Revenue recognition and recoverability of income from product
protection plans
Revenue recognised in respect of commissions receivable over the
lifetime of the plan for the sale of product protection plans is
recognised in line with the principles of IFRS 15, when the Group
obtains the right to consideration as a result of performance of
its contractual obligations (acting as an agent for a third
party).
Revenue in any one year therefore represents an estimate of the
commission due on the plans sold, which management estimate
reliably based upon a number of assumptions, including:
-- the length of the policies;
-- the commission rates receivable;
-- the historical rate of customer attrition; and
-- the overall performance of the scheme.
Commission receivable also depends for certain transactions on
customer behaviour after the point of sale. Assumptions are
therefore required, particularly in relation to levels of customer
default within the contract period, expected levels of customer
spend, and customer behaviour beyond the initial contract period.
Such assumptions are based on extensive historical evidence, and
adjustment to the amount of revenue recognised is made for the risk
of potential changes in customer behaviour, but they are
nonetheless inherently uncertain, e.g., any ongoing change in
behaviour driven from the impact of Covid-19 on the wider
economy.
Reliance on historical data assumes that current and future
experience will follow past trends. The Directors believe that the
quantity and quality of historical data available provides an
appropriate proxy for current and future trends. Any information
about future market trends or economic conditions that we believe
suggests historical experience would need to be adjusted, is taken
into account when finalising our assumptions each year. Our
experience over the last decade, which has been a turbulent period
for the UK economy as a whole, is that variations in economic
conditions have not had a material impact on consumer behaviour
and, therefore, no adjustment to commissions is made for future
market trends and economic conditions.
In assessing how consistent our observations have been, we
compare cash received in a period versus the forecast expectation
for that period as we believe this is the most appropriate check on
revenue recognised. Small variations in this measure support the
assumptions made.
For plans sold prior to 1 December 2016, the commission rates
receivable are based on pre-determined rates. For plans sold post
that date, base assumed commissions will continue to be earned on
pre-determined rates, but overall commissions now include a
variable element based on the future overall performance of the
scheme.
Changes in estimates recognised as an increase or decrease to
revenue may be made, where for example more reliable information is
available, and any such changes are required to be recognised in
the income statement.
The commission receivable balance at 30 September 2021 was
GBP89.4m (31 March 2021: GBP80.7m). The discount rate used to
unwind the commission receivable is 3.44% (31 March 2021:
3.55%).
Revenue recognition and recoverability of income in relation to
network commissions
Revenue in respect of commissions receivable from the Mobile
Network Operators ("MNOs") for the brokerage of network contracts
is recognised in line with the principles of IFRS 15, when the
Group obtains the right to consideration as a result of performance
of its contractual obligations (acting as an agent for a third
party).
Revenue in any one year therefore represents an estimate of the
commission due on the contracts sold, which management estimate
reliably based upon a number of assumptions, including:
-- revenue share percentage, i.e., the percentage of the
consumer's spend (to the MNO) to which the Group is entitled;
-- the discount rate using external market data (principally
forecasts of inflation - 0.49 % (31 March 2021: 0.1%);
-- the length of contract entered into by the consumer (12 to 24 months); and
-- consumer average tenure which takes account of both the
default rate during the contract period and the expectations that
some customers will continue beyond the initial contract period and
generate out of contract ("OOC") revenue (2% - 4%)
The commission receivable on mobile phone connections can
therefore depend on customer behaviour after the point of sale and
as was seen in FY21 this can lead to material changes in the
amounts expected to be collected if customers default or cancel
contracts. The revenue recognised and associated receivable in the
month of connection is estimated based on all future cash flows
that will be received from the MNO and these are discounted based
on the timing of receipt.
This also takes into account the potential clawback of
commission by the MNOs for which a reduction is made in the amount
of revenue recognised based on historical experience. The Directors
consider that the quality and quantity of the data available from
the MNOs is appropriate for making these estimates and, as the
contracts are primarily for 24 months, the period over which the
amounts are estimated is relatively short. As with commissions
recognised on the sale of production protection plans, the
Directors compare the cash received to the initial amount
recognised in assessing the appropriateness of the assumptions
used.
The commission receivable balance as at 30 September 2021 was
GBP84.2m (31 March 2021: GBP91.5m). The discount rate used to
unwind the commission receivable is 0.49% (31 March 2021:
0.1%).
2. Revenue
The table below shows the Group's revenue by main geographical
area and major business area. All revenue is accounted for at a
point in time as the Group has satisfied its performance
obligations on the sale of its products/services.
Major product/services lines
6 months ended 6 months ended Year ended
GBPm 30 September 2021 30 September 2020 31 March 2021
Restated (See note 13)
------------------------------ --------------------- --------------------------- ---------------- -------
UK Germany Total UK Germany Total UK Germany Total
------------------------------ ----- ------- ----- ------- ---------- ------ ------- ------- -------
Product revenue 538.3 95.3 633.6 505.3 98.3 603.6 1,200.3 220.9 1,421.2
Service revenue 25.1 1.9 27.0 25.8 1.9 27.7 54.0 4.0 58.0
Commission revenue 75.7 0.3 76.0 70.2 0.1 70.3 146.0 0.3 146.3
Third party logistics revenue 9.7 1.5 11.2 7.8 0.3 8.1 16.5 1.2 17.7
Recycling revenue 11.8 - 11.8 6.9 - 6.9 17.7 - 17.7
------------------------------ ----- ------- ----- ------- ---------- ------ ------- ------- -------
Total revenue 660.6 99.0 759.6 616.0 100.6 716.6 1,434.5 226.4 1,660.9
------------------------------ ----- ------- ----- ------- ---------- ------ ------- ------- -------
3. Segmental analysis
The Group has two reportable segments, online retailing of
domestic appliances and ancillary services to customers in the UK
and online retailing of domestic appliances and ancillary services
to customers in Germany.
Operating segments are determined by the internal reporting
regularly provided to the Group's Chief Operating Decision Maker.
The Chief Operating Decision Maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Executive Directors and has
determined that the primary segmental reporting format of the Group
is geographical by customer location, based on the Group's
management and internal reporting structure. Transactions between
segments are undertaken on an arm's length basis using appropriate
transfer pricing policies.
a. Income statement
The following is an analysis of the Group's revenue and results
by reportable segments.
GBPm 6 months ended 6 months ended Year ended
30 September 2021 30 September 2020 31 March 2021
Restated
(See note 13)
---------
UK Germany Total UK Germany Total UK Germany Total
------------------ --------- --------- ------- ------- ------- ------- -------------- ------- ---------
Total revenue 660.6 99.0 759.6 616.0 100.6 716.6 1,434.5 226.4 1,660.9
Cost of sales (530.3) (91.5) (621.8) (494.2) (93.1) (587.3) (1,161.6)6666) (206.8) (1,368.4)
------------------ --------- --------- ------- ------- ------- ------- -------------- ------- ---------
Gross profit 130.3 7.5 137.8 121.9 7.4 129.3 273.0 19.5 292.5
Administrative
expenses (135.0) (15.1) (150.1) (99.5) (13.8) (113.2) (235.6) (27.9) (263.6)
Other o perating
income 1.7 - 1.7 0.3 - 0.4 0.8 - 0.8
------------------ --------- --------- ------- ------- ------- ------- -------------- ------- ---------
Operating
(loss)/profit (3.0) (7.6) (10.6) 22.7 (6.4) 16.4 38.1 (8.4) 29.7
Finance income 1.3 1.8 3.1 1.9 2.7 4.6 4.3 - 4.3
Finance costs (2.6) (0.3) (2.9) (3.0) (0.3) (3.3) (6.9) (6.9) (13.8)
------------------ --------- --------- ------- ------- ------- ------- -------------- ------- ---------
(Loss)/Profit
before tax (4.3) (6.1) (10.4) 21.6 (3.9) 17.7 35.4 (15.3) 20.2
Tax
credit/(charge) 2.2 - 2.2 (2.3) - (2.3) (3.1) - (3.1)
------------------ --------- --------- ------- ------- ------- ------- -------------- ------- ---------
(Loss)/Profit
after tax (2.1) (6.1) (8.2) 19.3 (3.9) 15.4 32.3 (15.3) 17.1
------------------ --------- --------- ------- ------- ------- ------- -------------- ------- ---------
Included in other operating income above, are amounts received
of GBP1.4m on the settlement of a claim in relation to the
overcharging of fees in past years.
4. Finance income
6 months 6 months Year ended
ended 30 ended 30 31 March
September September 2021
2021 2020
Restated
(See note
GBPm 13)
--------------------------------------- ----------- ----------- -----------
Foreign exchange gains on intra-group
loans 1.8 2.8 -
Movement in valuation of put and
call option - - 0.8
Unwind of discounting on non-current
contract assets 1.3 1.7 3.4
Total 3.1 4.6 4.3
--------------------------------------- ----------- ----------- -----------
5. Finance costs
6 months ended 6 months Year ended
30 September ended 30 31 March
2021 September 2021
GBPm 2020
---------------------------------- --------------- ----------- -----------
Interest on lease liabilities 2.2 1.8 4.0
Interest on borrowings 0.5 0.4 0.4
Other finance costs 0.2 0.9 1.9
Non-cash foreign exchange losses
on intra-Group loans - - 6.8
Unwind of discounting on long
term payables - - 0.1
Movement in valuation of put
and call option - 0.1 0.6
Total 2.9 3.3 13.8
---------------------------------- --------------- ----------- -----------
6. (Loss)/Earnings per share
The calculation of the basic and diluted (loss)/earnings per
share is based on the following data:
6 months 6 months
ended ended
30 September 30 September
2021 2020 Year
Restated ended
(See note 31 March
GBPm 13) 2021
---------------------------------------------- ---------------- --------------- ---------------
(Loss)/Earnings
(Loss)/Profit attributable
to owners of the parent
company (8.2) 15.8 17.7
Adjustment for foreign
exchange movements on intra-Group
loans (1.8) (2.8) 6.8
---------------------------------------------- ---------------- --------------- ---------------
Adjusted (loss)/profit
attributable to owners
of the parent company (10.0) 13.0 24.5
---------------------------------------------- ---------------- --------------- ---------------
Number of shares
Basic and adjusted weighted
average number of ordinary
shares 478,307,791 474,507,349 475,626,353
Potentially dilutive shares
options 6,659,994 9,620,924 6,337,186
---------------------------------------------- ---------------- --------------- ---------------
Diluted weighted average
number of ordinary shares 484,967,785 484,128,253 481,963,539
---------------------------------------------- ---------------- --------------- ---------------
(Loss)/Earnings per share (in pence)
Basic (loss)/ earnings
per share (1.72) 3.32 3.73
Diluted (loss)/ earnings
per share (1.72) 3.25 3.68
Adjusted (loss)/ earnings
per share (2.09) 2.72 5.15
---------------------------------------------- ---------------- --------------- ---------------
The diluted loss per share has been restricted to the basic loss
per share for the 6 months ended 30 September 2021 to prevent
having an anti-dilutive effect.
7. Goodwill
GBPm
------------------------------------------ ------
Carrying value at 30 September 2021 and
30 September 2020 28.2
------------------------------------------ ------
Goodwill relates to the purchase of Expert Logistics Limited,
the purchase by DRL Holdings Limited (now AO World PLC) of DRL
Limited (now AO Retail Limited), the acquisition of AO Recycling
Limited (formerly The Recycling Group Limited) and the acquisition
of Mobile Phones Direct Limited (now AO Mobile Limited).
Impairment of goodwill
UK CGU - GBP13.5m
At 30 September 2021, goodwill acquired through UK business
combinations (excluding AO Mobile Limited) was allocated to the UK
cash-generating unit ("CGU") which is also the UK operating
segment.
This represents the lowest level within the Group at which
goodwill is monitored for internal management purposes.
The Group performed its annual impairment test as at 31 March
2021. The recoverable amount of the CGU was determined based on
value in use calculations. The Group prepared cash flow forecasts
derived from its most recent financial budget and financial plan
for three years, and extrapolated cash flows for the following
years, up until year five, based on an estimated growth rate of 1%.
This rate does not exceed the average long term growth rate for the
market. The final year cash flow is used to calculate a terminal
value. The key assumptions, which take account of historic trends,
upon which management based their cash flow projections were sales
growth rates, selling prices and product margin.
During the six months ended 30 September 2021 , there have been
no significant changes in the assumptions or performance of the
related businesses which would indicate an impairment test is
required at 30 September 2021.
Management do not believe that any reasonable possible
sensitivity would result in any impairment to this goodwill. There
have been no significant changes in the assumptions or performance
of the related businesses which would indicate an impairment test
is required at 30 September 2021.
AO Mobile Limited - GBP14.7m
At 30 September 2021, the goodwill allocated to the Mobile cash
generating unit was GBP14.7m.
The Group performed its annual impairment test as at 31 March
2021 which showed there was headroom against the carrying value of
GBP1.2m in managements base case. The main assumptions underlying
the value in use calculation were the volume of mobile connections
(and hence revenue) where growth was forecast between 3%-23% per
year and margin that was assumed to stay flat at 12%. The Directors
performed sensitivity analysis on the base case which showed that
if revenue growth was 10% lower than forecast it would have an
impact of GBP(0.5)m on the amount of headroom. If margin reduced by
0.1% this would have an impact of GBP(1.3)m on the amount of
headroom (without management taking any mitigating action). A
change in the discount rate of 0.5% would have an impact of +/-
GBP0.9m on the amount of headroom.
During the six months ended 30 September 2021, there have been
no significant changes in the assumptions or performance of the
Mobile business which would indicate an impairment test is required
at 30 September 2021.
Whilst at 30 September 2021, the Directors have concluded that
the carrying value of the goodwill is appropriate, it is cognisant
that, based on the headroom shown in the test at March 2021,
changes in any of these assumptions going forward, which could be
driven by the end customer behaviour with the Mobile Network
Operators, could give rise to an impairment in the carrying
value.
8. Trade and other receivables
6 months
ended 30
September
2020
6 months ended Restated Year ended
30 September (See note 31 March
GBPm 2021 13) 2021
-------------------------------- --------------- ----------- -----------
Trade receivables 23.8 23.4 19.8
Contract assets 173.6 165.6 172.2
Prepayments and accrued income 49.5 57.2 46.8
Other receivables 10.8 1.1 12.7
-------------------------------- --------------- ----------- -----------
Total 257.7 247.3 251.5
-------------------------------- --------------- ----------- -----------
The trade and other receivables are classified as:
6 months ended
30 September
2020
6 months Restated Year ended
ended 30 September (See note 31 March
GBPm 2021 13) 2021
-------------------- -------------------- --------------- -----------
Non-current assets 84.6 84.2 85.3
Current assets 173.1 163.1 166.2
-------------------- -------------------- --------------- -----------
Total 257.7 247.3 251.5
-------------------- -------------------- --------------- -----------
All of the amounts classified as non-current assets relate to
contract assets.
Contract assets
Contract assets represent the expected future commission
receivable in respect of product protection plans and mobile phone
connections. The Group recognises revenue in relation to these
plans and connections when it obtains the right to consideration as
a result of performance of its contractual obligations (acting as
an agent for a third party). Revenue in any one year therefore
represents the estimate of the commission due on the plans sold or
connections made.
The reconciliation of opening and closing balances for contract
assets is shown below:
Year
6 months ended 6 months ended ended 31
30 September 30 September March
GBPm 2021 2020 2021
Balance brought forward as reported 172.2 172.1 160.9
Restatement - See note 13 - (11.2) -
Balance brought forward as restated 172.2 160.9 160.9
Revenue recognised* 70.6 85.2 174.0
Cash received (73.7) (77.6) (153.0)
Revisions to estimates - adjusting
items - - (8.1)
Revisions to estimates - other 3.2 (4.6) (5.0)
Unwind of discounting 1.3 1.7 3.4
Balance carried forward 173.6 165.6 172.2
------------------------------------ -------------- -------------- ---------
* Revenue recognised is gross, that is excluding the deduction
of cashback payments, which are deducted from revenue in the Income
statement but are shown as contract liabilities in the Statement of
Financial Position.
Commission recoverable on product protection plans and mobile
phone connections is estimated using a number of assumptions
including cancellation rates and customer defaults.
The directors had historically considered these to not be areas
of significant estimate due to relatively small fluctuations
between revenue recognised vs subsequent cash received.
However, during FY21, significant changes in customer behaviour
(largely driven by Covid 19) resulted in the levels of
cancellations and customer default increasing. As such both areas
are considered to be significant areas of estimation judgement as
set out in note 1.
Revisions to estimates in relation to revenue recognised in
previous years, on product protection plans and mobile phone
connections amounted to GBP0.6m and GBP2.6m respectively (2020:
GBP(0.6m) product protection plans and GBP(4.0)m mobile phone
connections).
Product protection plans
Under our arrangement with Domestic & General ("D&G"),
the Group receives commission in relation to its role as agent for
introducing its customers to D&G and recognises revenue at the
point of sale as it has no future obligations following this
introduction. A discounted cash flow methodology is used to measure
the estimated value of the revenue and contract assets in the month
of sale of the relevant plan, by estimating all future cash flows
that will be received from D&G and discounting these based on
the expected timing of receipt. Subsequently, the contract asset is
measured at the present value of the estimated future cash
flows.
The key inputs into the model which forms the base case for
management's considerations are:
-- the contractually agreed margins, which differ for each
individual product covered by the plan as is included in the
agreement with D&G;
-- the number of live plans based on information provided by D&G;
-- the discount rate for plans sold in the year using external
market data - 3.44% (31 March 2021: 3.55%);
-- the estimate of profit share relating to the scheme as a
whole based on information provided by D&G;
-- historic rate of customer attrition that uses actual
cancellation data for each month since the start of the plans in
2008 to form an estimate of the cancellation rates to use by month
going forward (range of 0% to 9.6% weighted average cancellation by
month); and
-- the estimated length of the plan based on historical data
plus external assessments of the potential life of products (4 to
16 years).
The last two inputs are estimated based on extensive historical
evidence obtained from our own records and from D&G. The Group
has accumulated historical empirical data over the last 14 years
from c.2.6m plans that have been sold. Of these, c.1.0m are live.
Applying all the information above, management calculate their
initial estimate of commission receivable. Consideration is then
given to other factors outside of the historical data noted above
that could impact the valuation. This primarily considers the
reliance on historical data as this assumes that current and future
experience will follow past trends. There is, therefore, a risk
that changes in consumer behaviour could reduce or increase the
total cash flows ultimately realised over the forecast period.
Management make a regular assessment of the data and assumptions
with a detailed review at half year and full year to ensure this
continues to reflect the best estimate of expected future trends.
As set out in Note 1, the Directors do not believe there is a
significant risk of a material adjustment to the revenue recognised
in relation to these plans over the next 12 months.
The sensitivity analysis below is disclosed as we believe it
provides useful insight to the users of the interim financial
information into the factors taken into account when calculating
the revenue to be recognised. The table shows the sensitivity of
the carrying value of the commission receivables and revenue to a
reasonably possible change in inputs to the discounted cash flow
model over the next 12 months.
Impact on
contract
asset and
revenue
Sensitivity GBPm
----------------------------------------------------- ----------
25% reduction in terminal drop off rate after actual
data available 0.3
25% increase in terminal drop off rate after actual
data available (0.3)
Cancellations increase by 1% (0.9)
Cancellation rate reduces by 1% 0.9
----------------------------------------------------- ----------
Terminal drop off rate - cancellations
The total expected life length of the average plan is dependent
on an estimated end of life cancellation. Due to having less
empirical data, management accelerated the drop-off rate of
cancellations beyond the period for which there is actual data as
inherently there is a greater degree of judgement required. The
drop-off rate assumptions used by management have been updated
during the year to reduce volatility by excluding expected revenue
beyond a backstop date. Over the past year, actual cancellations
have been broadly in line with the expected terminal drop-off
rates. As the amount of data beyond the period is limited, no
adjustment has been made to the assumption in the model. We would
reasonably expect a maximum variance to the current drop-off rate
of 25%. The backstop date reduces the impact of any variance .
Cancellations
The number of cancellations and therefore the cancellation rate
can fluctuate based on a number of factors. These include
macroeconomic changes e.g., unemployment, but will also reflect the
change in nature of the plan itself (insurance plan vs service
plan). Assumptions were updated during the prior year to remove
assumed improvements that should reduce the impact of changes in
the cancellation rates. The impact of reasonable potential changes
is shown in the sensitivities above.
Other areas
Sensitivities related to changes in margins have not been
included due to the extensive amount of historical data our
valuation assumptions are based on, and the fact that the data is
based on actual prices changed by D&G. Any change in price of a
plan would need to be agreed between D&G and AO, and we
consider therefore the likelihood of any significant impact related
to changes in price and hence margin is remote; therefore, no
sensitivity has been included.
Network commissions
The Group operates under contracts with a number of Mobile
Network Operators ("MNOs"). Over the life of these contracts, the
service provided by the Group to each MNO is the procurement of
connections to the MNO's networks. The individual consumer enters
into a contract with the MNO for the MNO to supply the ongoing
airtime over that contract period. The Group earns a commission for
the service provided to each MNO ("network commission").
Revenue is recognised at the point the individual consumer signs
a contract with the MNO. Consideration from the MNO becomes
receivable over the course of the contract between the MNO and the
consumer. The Group has determined that the number and value of
consumers provided to each MNO in any given month represents the
measure of satisfaction of each performance obligation under the
contract.
A discounted cash flow methodology is used to measure the
estimated value of the revenue and contract assets in the month of
connection, by estimating all future cash flows that will be
received from the MNOs and discounting these based on the expected
timing of receipt. Subsequently, the contract asset is measured at
the present value of the estimated future cash flows.
The key inputs to management's base case model are:
-- revenue share percentage, i.e., the percentage of the
consumer's spend (to the MNO) to which the Group is entitled;
-- the discount rate using external market data (principally
forecasts of inflation - 0.49% (31 March 2021: 0.1%);
-- the length of contract entered into by the consumer (12 - 24 months); and
-- consumer average tenure that takes account of both the
default rate during the contract period and the expectations that
some customers will continue beyond the initial contract period and
generate out of contract ("OOC") revenue (2% - 4%)
The last two inputs are estimated based on extensive historical
evidence obtained from the networks, and adjustment is made for the
risk of potential changes in consumer behaviour. Applying all the
information above, management calculate their initial estimate of
commission receivable. Consideration is then given to other factors
outside of the historical data noted above which could impact the
valuation. This primarily considers the reliance on historical data
as this assumes that current and future experience will follow past
trends. The risk remains that changes in consumer behaviour, as
seen throughout FY21 primarily linked to Covid 19) may continue and
could reduce or increase the total cash flows ultimately realised
over the forecast period.
Management makes a regular assessment of the data and
assumptions with a detailed review at half year and full year to
ensure this continues to reflect the best estimate of expected
future trends and appropriate revisions are made to the estimates.
The sensitivity analysis below is disclosed as we believe it
provides useful insight to the users of the interim financial
information by giving insight into the factors taken into account
when calculating the revenue to be recognised. The table shows the
sensitivity of the carrying value of the commission receivables and
revenue to a reasonably possible change in inputs to the discounted
cash flow model over the next 12 months, having taken account of
the changes in behaviour experienced in the period .
Impact on
contract
asset and
revenue
Sensitivity GBPm
----------------------------------------- -----------
1% increase in contractual entitlements 2.5
2% increase in the default rate (3.8)
----------------------------------------- -----------
Prepayments and accrued income
At 30 September 2021, included in prepayments and accrued income
is GBP15.7m (30 September 2020: GBP20.4m) in relation to volume
rebates receivable.
At 31 October 2021, the balance outstanding was GBP4.4m (31
October 2020: GBP11.0m).
9. Trade and other payables
6 months
ended 30 6 months ended Year ended
September 30 September 31 March
GBPm 2021 2020 2021
Trade payables 208.3 230.2 273.8
Accruals 36.4 38.4 36.8
Contract liabilities 47.9 63.7 63.0
Deferred income 24.4 29.9 27.4
Other payables 20.4 14.7 18.3
---------------------- ----------- --------------- -----------
Total 337.4 376.9 419.3
---------------------- ----------- --------------- -----------
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases is 47 days (31 March 2021:
48 days; 30 September 2020: 51 days).
Contract liabilities includes payments on account from Mobile
Network Operators where there is no right of set off with the
contract asset and cashback liabilities due to the end customer
within the mobile business.
At 30 September 2021 a liability of GBP1.6m (31 March 2021:
GBP8.2m) has been recognised out of a maximum potential exposure of
GBP4.2m (31 March 2021: GBP16.2m).
The trade and other payables are classified as:
6 months
6 months ended 30 Year ended
ended 30 September September 31 March
GBPm 2021 2020 2021
----------------------- -------------------- ----------- -----------
Current liabilities 331.1 367.1 411.4
Long-term liabilities 6.3 9.8 7.9
----------------------- -------------------- ----------- -----------
337.4 376.9 419.3
----------------------- -------------------- ----------- -----------
10. Net debt and movement in financial liabilities
6 months 6 months Year
ended 30 ended 30 ended
September September 31 March
GBPm 2021 2020 2021
------------------------------- ----------- ----------- ----------
Cash and cash equivalents 11.1 85.4 67.1
Borrowings - Repayable within
one year (20.0) (20.8) -
Lease liabilities - Repayable
within one year (19.9) (15.7) (21.4)
Lease liabilities - Repayable
after one year (73.4) (69.6) (73.9)
------------------------------- ----------- ----------- ----------
Net debt (102.2) (20.7) (28.2)
------------------------------- ----------- ----------- ----------
The movement in financial liabilities in the period ending 30
September 2021 was as follows:
Lease
GBPm Borrowings Liabilities Total
----------------------------------- ---------- ------------ -------
Balance at 1 April 2021 - 95.3 95.3
Changes from financing cash flows
Net drawdown from revolving credit
facility 20.0 - 20.0
Repayment of lease liabilities - (13.1) (13.1)
Payment of interest (0.5) (2.2) (2.7)
----------------------------------- ---------- ------------ -------
Total changes from financing cash
flows 19.5 (15.3) 4.2
----------------------------------- ---------- ------------ -------
Other changes
New leases - 10.9 10.9
Interest expense 0.5 2.2 2.7
Foreign exchange differences - 0.2 0.2
----------------------------------- ---------- ------------ -------
Total other changes 0.5 13.3 13.8
----------------------------------- ---------- ------------ -------
Balance at 30 September 2021 20.0 93.3 113.3
----------------------------------- ---------- ------------ -------
Loans and Lease
GBPm borrowings Liabilities Total
------------------------------------------ ----------- ------------ -------
Balance at 1 April 2020 21.9 84.1 106.0
Changes from financing cash flows
Repayment of borrowings (21.1) - (21.1)
Repayment of lease liabilities - (8.5) (8.5)
Payment of interest (0.4) (1.8) (2.2)
Total changes from financing cash
flows (21.5) (10.4) (31.9)
------------------------------------------ ----------- ------------ -------
Other changes
New leases - 12.5 12.5
Net drawdown from rolling credit facility 20.0 - 20.0
Reassessment of lease terms - (3.1) (3.1)
Interest expense 0.4 1.8 2.2
Foreign exchange differences - 0.3 0.3
------------------------------------------ ----------- ------------ -------
Total other changes 20.4 11.5 31.9
------------------------------------------ ----------- ------------ -------
Balance at 30 September 2020 20.8 85.3 106.0
------------------------------------------ ----------- ------------ -------
At 30 September 2021, AO Limited had undrawn amounts on its
Revolving Credit Facility of GBP55.1m (31 March: GBP76.1m). The
amount utilised at 30 September 2021 represents GBP20m of cash
drawings and GBP4.9m of letters of credit/guarantees. GBP10m of the
cash drawings was repaid on 25 October 2021 and the remaining
GBP10m will be repaid in the quarter ending 31 December 2021.
The facility expires in April 2023 and is secured by a debenture
over the assets of the relevant companies, a charge over the shares
in the relevant companies and a charge over the AO.com domain
name.
New leases in the period mainly relates to outbases in Crawley,
Telford and Leeds totalling GBP6m and delivery vehicles GBP4m.
On 15 November 2021, the Group entered into a new lease for a
warehouse in Crewe which gives rise to a right of use lease
liability of cGBP12m.
11. Share-based payments
On 1 July 2021, the Company made awards to Participants under
the AO 2018 Incentive Plan (2021 grant) in which the Directors and
key members of staff participate. The Plan combines an annual bonus
element and a conditional deferred share award based on various
financial and non-financial performance criteria as well as the
continuing employment of the individuals. The bonus and number of
conditional deferred share awards will be calculated based on the
performance criteria for the year ending 31 March 2022.
On 1 July 2021, the Company granted a further 5,229 awards under
the Value Creation Plan to employees. The awards are conditional
and will vest at certain measurement dates from 31 March 2025 to 31
March 2027 dependent on continued employment as well as meeting a
share price performance condition.
On 8 July 2021, following the measurement of the various
performance criteria at 31 March 2021 relating to the AO 2018
Incentive Plan (2020 grant), 2,399,913 conditional deferred share
awards were issued which will vest subject to the relevant
employees being in service at 31 March 2024 and the remuneration
committee of the Company being satisfied with the underlying
performance of the Group (the performance underpin).
The total charge in the Income Statement in relation to all
share plans, including the Value Creation Plan, was GBP2.3m (2020:
GBP0.7m) and SAYE Schemes was GBP0.6m (2020: GBP0.3m).
12. Financial instruments
As detailed in the Group's most recent annual financial
statements, our principal financial instruments consist of a call
and put option, trade and other receivables, accrued income, cash
and cash equivalents, trade and other payables and borrowings. As
indicated in Note 1, there have been no changes to the accounting
policies for financial instruments, from those disclosed in the
Company's Annual Report at 31 March 2021.
There have been no changes to the categorisation or fair value
hierarchy (level three) of our financial instruments. The fair
values of cash and cash equivalents, trade and other receivables,
accrued income, and trade and other payables and borrowings are all
deemed to approximate their carrying values and these can be
identified on the face of the Statement of Financial Position and
accompanying notes.
13. Restatement of comparatives
As set out in the full year financial statements to 31 March
2021, in conducting a reconciliation of the contract base with the
Group's insurance plan partner, the Group discovered that a number
of plans that were treated as live on the Group's database had
actually been cancelled, in addition to a number of live plans that
had not been reported to the Group. These arose due primarily to a
misinterpretation of data received from the third party. These
plans related to the period 2008 to 2020.
As a consequence, revenue, finance income and the associated
contract asset have been overstated in these past periods. The
overstatements have been corrected by restating each of the
affected financial statement line items for prior periods.
The Group financial statements for the year ended 31 March 2021
and its comparative period have already been restated in the
published accounts for that year. The impact to profit and loss for
the year ended 31 March 2020 was GBP(0.8m), the impact to current
and non-current trade and other receivables was GBP(11.2)m, the
impact to deferred tax asset was GBP0.1m and the cumulative
adjustment to opening retained losses was GBP(11.1)m.
The following tables therefore summarises only the impacts on
the Group's interim financial information as at 30 September
2020.
Summarised consolidated income statement and other comprehensive
income
Six months Six months
ended ended
30 September 30 September
2020 2020
GBPm as reported Adjustment as restated
----------------------------------- -------------- ------------ -------------
Revenue 717.0 (0.4) 716.6
----------------------------------- -------------- ------------ -------------
Operating profit 16.8 (0.4) 16.4
Finance income 4.8 (0.2) 4.6
Finance costs (3.3) - (3.3)
----------------------------------- -------------- ------------ -------------
Profit before tax 18.3 (0.6) 17.7
----------------------------------- -------------- ------------ -------------
Tax charge (2.3) - (2.3)
----------------------------------- -------------- ------------ -------------
Profit after tax for the year 16.0 (0.6) 15.4
----------------------------------- -------------- ------------ -------------
Total comprehensive profit for the
year 13.4 (0.6) 12.8
----------------------------------- -------------- ------------ -------------
The restatement of the Income Statement has also resulted in
Earnings per Share being restated. The profit attributable to
shareholders in the prior period has decreased from GBP16.4m to
GBP15.8m which results in Basic profit per share of 3.32p (2020
reported: 3.45p) and diluted loss per share of 3.25p (2020
reported: 3.37p).
Summarised statement of financial position
At 30 At 30
September September
2020 2020
GBPm as reported Adjustment as restated
---------------------------- ------------ ---------- ------------
Noncurrent assets
Trade and other receivables 93.4 (9.2) 84.2
Deferred tax asset 5.5 0.1 5.6
Other noncurrent assets 141.5 - 141.5
---------------------------- ------------ ---------- ------------
240.4 (9.1) 231.3
---------------------------- ------------ ---------- ------------
Current assets
Trade and other receivables 165.7 (2.6) 163.1
Other current assets 178.6 - 178.6
---------------------------- ------------ ---------- ------------
344.3 (2.6) 341.7
---------------------------- ------------ ---------- ------------
Total assets 584.7 (11.8) 573.0
---------------------------- ------------ ---------- ------------
Total liabilities (489.8) - (489.8)
---------------------------- ------------ ---------- ------------
Net assets 94.9 (11.8) 83.1
---------------------------- ------------ ---------- ------------
Retained losses (29.6) (11.8) (41.4)
Other reserves 125.6 - 125.6
---------------------------- ------------ ---------- ------------
Total 96.0 (11.8) 84.2
---------------------------- ------------ ---------- ------------
Non-controlling interest (1.1) - (1.1)
---------------------------- ------------ ---------- ------------
Total equity 94.9 (11.8) 83.1
---------------------------- ------------ ---------- ------------
There is no impact on the overall cash balance as at 30
September 2020 as a result of the restatement.
14. Principal risks and uncertainties
There are a number of potential risks and uncertainties which
could have a material impact on the Group's performance over the
remaining six months of the financial year and could cause actual
results to differ materially from expected or historical results.
The Directors do not consider that the principal risks and
uncertainties have changed materially since the publication of the
Annual Report for the year ended 31 March 2021, save as set out
below.
The principal risks as set out in the Annual Report are
summarised below and further information on these together with
information as to how the Group seeks to mitigate these risks is
set out on pages 57-64 inclusive of the Annual Report and Accounts
2021 which can be found at www.ao-world.com :
-- Risks relating to the continued impact of Covid-19 and Brexit
-- Risks relating to our culture and people.
-- Risk relating to IT systems resilience, cyber security and agility.
-- Risks relating to compliance with laws and regulations, in
particular Data protection and privacy legislation.
-- Risks of business interruption.
-- Risks relating to the UK electricals market
-- Risks relating to our key commercial relationships
-- Risk relating to our funding and liquidity
-- Risks in relation to significant accounting matters including
revenue recognition in relation to product protection plans,
network commission receivable and the carrying value of goodwill
and intangible assets arising on the acquisition of AO Mobile
Ltd.
The Board continues to monitor the risks and uncertainties
associated with Covid-19 and the potential impact these may have on
the Group's results and financial position - in particular in
relation to driver and warehouse labour shortages and also the
effects of the pandemic on global supply chains.
Further, since publication of the Annual Report, the Board has
observed an increase in competitive e-commerce trading environment
in Germany. This principally relates to consumers reverting to
offline channels and an increased focus from bricks and ecommerce
retailers in the sector. The Board deems that this has increased
the risks to the German business and its journey to profitability
and the consequential further international expansion.
Responsibility statement
Responsibility statement of the directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
-- The condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted
for use in the UK;
-- The interim management report includes a fair review of the information required by:
(a)DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b)DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
On behalf of the Board
John Roberts Mark Higgins
CEO CFO
22 November 2021 22 November 2021
INDEPENT REVIEW REPORT TO AO WORLD PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2021 which comprises Condensed
Consolidated Income Statement, Condensed Consolidated Statement of
Comprehensive Income, Condensed Consolidated Statement of Financial
Position, Condensed Consolidated Statement of Changes in Equity,
Condensed Consolidated Statement of Cash Flows and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2021 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted for
use in the UK and the Disclosure Guidance and Transparency Rules
("the DTR") of the UK's Financial Conduct Authority ("the UK
FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, they were prepared in accordance with
International Financial Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
and in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and the
next annual financial statements will be prepared in accordance
with UK-adopted international accounting standards. The directors
are responsible for preparing the condensed set of financial
statements included in the half-yearly financial report in
accordance with IAS 34 as adopted for use in the UK.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
David Neale
For and on behalf of KPMG LLP
Chartered Accountants
1 St. Peter's Square
Manchester
M2 3AE
22 November 2021
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END
IR PPGGUGUPGPUP
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November 23, 2021 02:00 ET (07:00 GMT)
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